GMM Pfaudler Limited (505255) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to GMM Pfaudler Limited Q4 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Ms. Priyanka Daga from GMM Pfaudler Limited. Thank you, and over to you, ma'am.

Thank you, Janice. Good morning, afternoon and evening, ladies and gentlemen. Thank you for joining us today to this Quarter 4 and Financial Year 2021 earnings call of GMM Pfaudler Limited. On this call, we will be referencing to the earnings presentation that has been shared with you and is also available on our website. Hope all of you would have had a chance to go through the same. Before we begin, I would like that some of the statements made in today's discussion may be forward-looking in nature and may involve risks and uncertainties. Please note the disclaimer mentioning these risks and uncertain is on Slide #2 of the presentation shared earlier. From the management, we have with us, our Managing Director, Mr. Tarak Patel; our CEO, Mr. Ashok Pillai; our CFO, Mr. Manish Poddar; and our CFO of International Business, Mr. Alexander Pompner. Let me do the agenda given on Slide #3, we will start the presentation with a business update from Mr. Patel. Over to you, Tarak.

Thank you, Priyanka, and good evening, everybody. I hope you and your families and loved ones are safe. Let me start off by giving you a business update in terms of the financial year that we just finished. Obviously, our business has shown incredible resilience. We have completed the year in a very strong manner by showing both revenue and profitability growth. This is our best performance ever, and we are very proud and happy that not only could we improve upon last year's performance, but we were able to, in spite of the slow start of the year, make up for the lost ground. I must this point, also mentioned the result of our employees, our people who have put in a lot of hard work over the last few months to make sure that we finish the year in a very strong manner. It was also a very eventful year when it comes to M&A. We did 3 acquisitions this year. We started the year with acquiring a manufacturing facility in Hyderabad from one of our competitors. In August, we then announced the acquisition of the Pfaudler International Business. And then in March of this year, we announced the acquisition of HDOT in Ahmedabad, which will help us resolve some of our capacity issues over the next few years. We are now truly a global company with a 40% global market share. We have 13 manufacturing sites across 8 countries, and we employ nearly 1,500 people. As a milestone, by consolidating 2 months of Pfaudler International's financial year, February and March '21, we have also crossed INR 1,000 crores of revenue. Lastly, looking forward, we have a healthy backlog across the group. GMM Pfaudler India has a strong backlog with -- it's spread very evenly across all our product lines. Ahmedabad subsidiary has a record order book and order backlog close to $18 million at the starting of this year, and Pfaudler as well has a very strong order book and the visibility of the order intake continues to look very positive. Let me now turn to the Standalone results for the Quarter 4. As you can see in the presentation, our revenue grew by about 68%, INR 190 crores versus INR 113 crores last year. EBITDA increased by 160%, INR 52 crores this quarter versus INR 20 crores last quarter. And then the PAT also grew by around 214%, INR 31.5 crore versus the same quarter last year of INR 100 crores. Our order intake has increased this year by about 50%, close to about INR 190 crores versus INR 127 crores in the previous quarter. As the Standalone results go, we finished the year at INR 640 crores versus INR 516 crores previous year, a 24% growth. Our EBITDA margin grew by 55%, INR 153 crores versus INR 99 crores. In terms of percentage of revenue, it's 24% now versus 19% in the previous year. And profit after tax grew by 53%, INR 95 crores versus INR 62 crores previous year. As far as the opening backlog goes, on April 1, 2022 -- 2021, we had an opening backlog of about INR 415 crores versus the same time last year about INR 322 crores, which is about 30% higher and good -- and gives us great visibility for this financial year as well. Just to quickly take you through the Mavag results as well. As you can see, very similar to the GMM Pfaudler Standalone. So the Standalone plus Mavag results are similar in nature. And maybe I'll just kind of take you through the yearly results. So for the entire year, our revenue of the group has increased by 28% to be announced INR 757 crores versus INR 591 crores last year. EBITDA at INR 166 crores, 50% higher than last year of INR 111 crores. Our PAT at INR 105 crores, 48% higher than last year, INR 71 crores. The order backlog of GMM Standalone media and Mavag together is about 46% higher at close to INR 556 crores, like I mentioned, giving us good visibility for the financial year. I would now like to hand this call over to Alexander Pompner, the CEO of Pfaudler International, who will quickly take you through the international business performance, and then to Manish Poddar, who will take you through the consolidated numbers as well. Alex?

Yes. Thanks, Tarak. And welcome, everybody. I now would like to give you an introduction of the performance of the Pfaudler International Business. First of all, I would like to say that we are very satisfied with the performance in the last 12 months. We achieved a revenue growth of 7%, improved our profitability as well as we benefit from a continued strong order intake. We finalized our site modernization and relocation projects and set a strong foundation for future successful development. Now I would like to say something about the regional development, starting with Europe. Europe was performing very well in the last 12 months. We had our entity in Germany, Pfaudler GmbH, where we implemented performance improvement measures. They are paying off now. We are benefiting from an improved cost structure and are also supported by a strong market demand, not only in Germany, but also French companies, Switzerland or Russia. Other entities in Europe like Italy, U.K. or our entities, they are also performing well, and they's partly driven, for example, in Italy, by a strong pharma business. We have, however, also some challenges, and I would like to mention there, for example, our units in Benelux, where we see some changes due to COVID because this is a unit which is dependent on service business. With regards to the Americas, it was more or less in muted year last year. However, tech and -- technology and systems business are developing okay. They are driven by a strong pharma business and chemicals. Services is lagging partly behind. However, we expect a good outturn also in the coming months. Adlon was a little bit in the challenges because the Adlon business is depending on the weaker conductor business. But also here, we see signals for a good performance in this calendar year. The outperforming unit in Americas is Brazil. And this is driven by a really strong pharma business as well as a strong agrochemical business and strong growth in Argentina and Siva. With regards to Asia [Technical Difficulty]

Sorry, I think we've lost him. [indiscernible] Can you hear me? Janice, am I audible?

Yes sir, you are. You may please continue.

So coming back to China, our site location in China is also complete, and this increases our manufacturing capacity as well. So we can now focus on long-term sustainable growth. Like I've mentioned in the past, China is one market. We believe that we have a strong position to increase our market share. And the first sign of the China turnaround are already in place. The month of April has been a very strong start for the Chinese performance as well. Just to take you back, the next page, just to give you an overview, this is for the last 12 months, ending March, for Pfaudler International Business. So we have an apple-to-apple comparison. The revenue grew about 7%. The adjusted EBITDA grew about 32%. So we are around a 9% mark now. And the order backlog also has increased by about 18%. So all in all, the Pfaudler International business looks good. And like I mentioned to you, obviously, that the journey begins now. We are now a much bigger group now, and our focus is now to kind of extract the post-merger synergies and make sure that some of the initiatives that we have been planning are start bearing fruit as soon as possible. I will now like to hand it over to Manish Poddar, the CFO of GMM Pfaudler, to take us through the consolidated results.

Thanks, Tarak. Good evening, all. So if you look at the consolidated results, we have broken the financial year '21 results into various columns just for a better understanding. So if you see the first section of Standalone plus Mavag for like-to-like comparison, FY '20 versus '21, the INR 591 crore revenue has gone up to INR 757 crore, which is a 28% increment. Similarly, the EBITDA for this year for Standalone and Mavag has improved from INR 111 crores to INR 166 crores, at 49% improvement. Similarly, the PAT as well has increased from INR 771 crores to INR 105 crores. Now in Column B, we go to the Pfaudler International 2-month business. So as you know, we acquired the business and got consolidation started from February 1, 2021, so we have 2 months of revenue and the profitability there on. So on a pure business performance, Column B refers INR 255 crores of profit of revenue and INR 17.7 crores of EBITDA, which is a 7% EBITDA on the 2-month period. Thereafter, if you see, Column C&D are basically the acquisition-related and the onetime PPA impact. So this INR 457 million that you see in Column D is basically once, as per IFRS3 under business combination, when you acquire a business, all the assets and liabilities have to be fair valued to the date of the acquisition, which is February 1. Under that regulation, we have to revalue the opening inventory of $61 million, up by $12.6 million. Therefore, that $12.6 million has now to be amortized into next 4 months. So 2 months in February, March and next 2 months in April and May, which is $6.3 million each. So that's why you see a INR 457 million, or INR 46 crores, of a charge to the period ended. Again, this is just an inventory revaluation, and there is no cash impact. This is just from an accounting adjustment standpoint. Similarly, there's amortization of intangibles identified of INR 124 crores in this quarter, which obviously goes on to very insignificant numbers in future. Next in line is the exceptional items, if you refer Column C, you have INR 13.3 crores of expenses on account of acquisitions related charges on account of legal consulting fees and strategy filing fees. Similarly, we had incurred some INR 20 crores of that expenses in India. So therefore, you see a INR 335 million of exceptional cost being incurred purely towards the bottler acquisition. So net-net, the audited results. How does it stack up? They stack up to revenues of INR 1001 crores of revenue and INR 138 crores of EBITDA, with a INR 63 crores of PAT. So as we move along to the next sheet, which is the balance sheet, so you see a very healthy balance sheet with a strong liquidity at INR 243 crores of cash-in-hand at various geographies, of course. And even after -- at a global level, even after having so much of date in the Pfaudler International, our net gearing ratio remains pretty healthy at 0.5. After this acquisition, CRISIL also re-rated us, and they retained the same rating for us at AA-minus. So that's still validation for the healthy balance sheet of the organization. Similarly, on the cash front, if you see, as we discussed, those PPA items are just noncash items. So you see INR 68 crores of profit before taxes. However, your net cash from operating activities are INR 157 crore. So that itself tells you that value profit has been lower. But because of this noncash item, the profit has impacted. Otherwise, the cash generation happens is steady. And net, of course, you have the investment and the financing activities contributing to a bit more of cash. So net, we have got INR 195 crores of increase in cash for the year. And now we can move on to the integration update. Tarak, over to you.

Yes. Thank you, Manish. So I'll quickly just run through this because I know many of you will have specific questions. So integration update, we've already begun our integration process. We have an outset consultant on board for the last couple of months. We have a project management team. We have growth streams identified. We have regular reviews. We have a steering committee and we are on track to kind of extract as many ports merger synergies as possible. Obviously, the 3 pillars that I would like to just kind of re mention of what are the 3 pillars and the rationale behind the acquisition with obviously, the operational excellence, taking some of the learnings from India into the other geographies to make them more efficient, to look at sourcing components and vessels from India. And then lastly, cross-selling. So just a few updates here. One is in terms of the value sourcing. We've made some significant through. We've actually been able to sell in made equipment into certain European markets, which were kind of quite sensitive in nature. So that's been a good win for us. We are also standardizing on components that can be sourced from India. So you will see some improvement both of exports going up from India as well as cost reduction measures internationally. In China, also, we've seen some improvement. And like I mentioned, we have a team of people now working in China to help them ramp up production so we can really go after market share improvement in China. Lastly, on the cross-selling front, again, I think one of the big updates for us here in India is that we finally received our first asset recovery order that's in the region of about $2 million. So that's really a good win for us. We have technology coming in from the partly international business, but this is really kind of really opens up a lot of doors for us. We also had a certain amount of breakthroughs where we've been able to package many of our equipment together and sell-in to customers around the world, be it glass client, be it Normet, be it filtration and drying, we've been able to do that quite successfully. So that's definitely a positive. Now looking at the outlook before I close. So the India outlook remains very strong. We expect the India business to grow at a very similar rate to what we have shown in the last couple of years. We have 2 facilities that we've added. Hyderabad is now fully operational and will account for significant capacity in glass client for this financial year. The valsartan facility, which we had planned to open a couple of months down the line, we've actually inaugurated it last week on May 24, and we plan to start manufacturing immediately. The good news on the heavy engineering front is we've seen significant order intake. We've had got -- we recently received about INR 50 crores of business from one of the big EPC players here. So that puts us in a very strong position for heavy engineering, and that gives us -- we will be manufacturing this entire large order at the Vatva facility. So that's definitely a positive for us. Like I mentioned earlier, we have robust order backlog across all our business lines. We are focusing on growing our aftermarket business by increasing our service centers and being closer to our customers. Export is something that's a priority for us also and using the Pfaudler International network. And then we also plan to build some additional capacity. And now that we have Vatva available, we will free up capacity in Gujarat, and we have some additional capacity that we would like to add in Hyderabad as well. This capacity will come online maybe in Q4 or Q1 of next year, and we will give you more information on that in the coming months. The outlook for the International business is obviously business stabilization. There will be revenue growth. However, our focus is now to really improve the margins. We have a lot of initiatives to be worked on, and we have a lot of kind of initiatives that have already been completed, like Alex mentioned, the 3 sites have been relocated and the momentum is picking up. The order backlog remains strong. And now that the relocation is complete, and these are new facilities, there's not too much expenditure when it comes to maintenance and CapEx. We also will look to access and penetrate new markets. Southeast Asia is one market that we believe has a lot of potential. That's an area we are planning to also kind of focus on and look at improving our market share in that business. So all in all, obviously, quite a positive update across most of our business lines. Obviously, like I mentioned, the focus now shifts to really stabilizing the International business, and at the same time, making sure that the GMM Pfaudler India business is on autopilot, which we believe we are quite capable of doing. And then looking at synergies and extracting as much value from joining hands together with the other international business. So with that, I thank you all for your time, and I now would like to open it up to a Q&A session, and we'll be happy to answer any questions that you may have.

[Operator Instructions] The next question is from the line of Amandeep Singh from AMBIT Capital.

Sir, firstly, on the domestic business, so recently, you have announced the acquisition of assets of SD technology. So can you help us understand revenue potential here? And how much of GLE capacity you will be able to expand at consequently?

Yes. So good question, Amandeep. So I think the potential, obviously, at Vatva is significant. I think, in an ideal scenario, with minimum CapEx, I think around a INR 400 crore mark with the right mix is very legally possible. They have 7 sheds there, about 12 acres of land. And they have a state of the art heavy engineering equipment and machinery. So they have 2 sheet drilling machines, 2 of them, they have rolling machines. They have 200 tonnes of crane capacity, really a factory-built purely for heavy engineering. This year, we plan to use both Karamsad and Vatva for heavy aging since the order backlog is already so strong. And we have also received very large orders from the EPC players that I mentioned earlier. So for the short to medium term, we will look at using both facilities. We don't want to have the capacity that is titled. And by Q4, we will start moving the Karamsad AG business into the Vatva facility. We plan to install a new facility -- a new folinate in Karamsad in our glass client business with some ancillary equipment that should come online in 2023, FY '23. And that should give us about INR 100 crores to INR 115 crores of additional revenue in the first phase. And then, obviously, since we have a lot of capacity is, we can still add more furnaces in Gujarat. At the same time, we also plan to make some CapEx in Hyderabad as well. And obviously, some of it might flow into Q4 of this year, but we again expect the growth to come into Q1 of next year.

Sure, sir. Sir, just as a follow-up, how much would be the total GLE capacity in equivalent units after this? Any sense?

Yes. So not considering the 2 new capital that I just spoke about. So Karamsad is about 2,400 odd right now and the Hyderabad is about 400, 450.

Sure, sir, that's helpful. And sir, secondly, you mentioned about receiving your first asset recovery order in India. And you also mentioned about order size to be around USD 2 million. So can you also indicate execution time lines and margin profile for the thing is possible?

So for the asset recovery, since it's obviously built around glass client equipment and it's obviously technology. The margin profile is obviously decent. And I think the delivery time is about 9 to 11 months. So most likely, some of the components will go into this financial year, but there could be a little bit of spillover into the next financial year.

Sure, sir. And sir, lastly, with respect to your order intake, we note that Pfaudler Inc.'s International order intake grew by 3% Y-o-Y over the last 12 months ending March '21. So in that context, can you help us understand -- help us with the outlook here and your growth guidance?

Yes. So Pfaudler International business, and Alex can add to it, we expect that business to grow at a single-digit growth. The market in Europe and U.S. are growing at about 6% to 7%, the chemical and pharmaceutical markets. We expect the Pfaudler business to also track at that rate. However, that's a conservative estimate, and there are ideas and thoughts around how we can kind of increase that growth rate. But that's what we have guided towards in our investor presentation. At the same time, our idea here is to really starting to focus on improving the margin profile. I think that's what the integration effort really is to trying to ramp up the margin profile as soon as possible. Alex, do you want to add something here, if you are around?

So I could definitely echo what you just said. I just would like to point out that currently, if you look at the order intake, it's already 8% higher than our current revenues. So the guidance that we provided, I think it's definitely justified. But on the EBITDA or profit level, something will definitely come out of our profitability improvements.

[Operator Instructions] The next question is from the line of JV Pari from Sunidhi Securities.

Congratulations on excellent separate results. Just one question. In terms of the margin profile for your domestic business, we see that the margins have increased substantially. Is this in the future that we see going ahead in FY '22, FY '23?

Yes [indiscernible]. So you're right. See, the margin profile, especially for Q4 was, I think, close to 27%. Obviously, some thinking that was much, much higher than what we had guided to us. However, having said that, and with the backlog that we currently have, we believe that's something that can be sustained to 24%. Yearly EBITDA margin is something that we plan to sustain. And we believe that the incremental revenue that we will be -- that will be growing through our new factories as well will help kind of -- that there will be some operating deleverage as well. So we are quite confident that we will be around that same number, if not slightly better. There has been some amount of carbon steel, steel price increases, which we have passed on to our -- the customers. But all in all, we are quite confident that we should be able to track to around the same level of margin for the coming year here in the India business.

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

Congratulations for a good beginning on a global level. To begin, I have one kind suggestion or request to Mr. Poddar, that now we are a global company and much bigger than what we were previously. So we'll appreciate if you could give us some time between our result outcome and conference call, so that we can prepare ourselves for the queries.

A point very well taken, sir. The only challenge we had was a small technical issue which we're facing. So we just wanted to make it a more readable format and all that. So that was the issue. But a point very well taken, we'll definitely take care of that.

Sanjay, we were actually ready to post around 4 O'clock, but there was a reconversion and conversion, and I knew that this would be something that people would not appreciate. But yes, I think that the point well taken. We will kind of give you more time. So you have a couple of hours to read the document before the conference call.

Correct. Because now we have to even read your International business and everything?

Yes.

Yes, I agree.

So coming back to my 2 questions. One was, sir, you mentioned about penetrating new markets through value source and cross-selling. Can you elaborate on that? What opportunity you see on that side?

Yes. So we've actually had some positive developments here. There's a market that, in Europe, which is a value market. I don't want to name the market, but fader did not have a big presence in that market. However, the local sales teams have been quite proactive and aggressive to go and win business here. And maybe Ashok can jump in and kind of speak a little bit about that, but we want to a large order there. And the equipment will be made in India. Similarly, there was an order which we received from Singapore, a large order, which was a package that we have given them for glass clients. So not only do we manage to take the whole order, but we have different components of glass and equipment coming from different parts. So we have stuff that is being made in the U.K. We have stuff that is made in Europe. We are stuff that is being made in India. But we put it all together, so that at least from a cost standpoint, the customer was kind of comfortable. And at the end of the day, he got the Pfaudler product. I have updated you all lastly that we have also now GMM Pfaudler representative, a person who is based in Singapore, who is going to be in charge of the South East Asian market. He comes with many other experience in this business itself. And I believe that this is going to be the starting point for us to kind of grow the Southeast Asia business as well. Ashok, do you want to jump in?

So yes, the part on the Southeast Asian market, there are markets in parts of Europe, which are also, like Paras mentioned, value buying value buyers. And in the recent past, we've had some good success that, in fact, today, we had a nice or from one of those countries. So things are looking really good with all the safety but now fully in charge and intrusive of this hole, a value chain that's available to them, not only from the order companies or the color factories in Europe, but also from India. So those markets are looking good for us now.

Right. So my second question was regarding -- you mentioned about focus on growing aftermarket business. Sir, can you highlight what is the opportunity, what we see and which are the product verticals we see we can go through that aftermarket?

So Pfaudler has close to 40% of their revenues coming from the market. In India, we are nowhere close to that. We are about 12%, 13%, but we believe that as companies become more stringent with their quality standards, with the kind of plant maintenance is companies will have regular audits. There are FDA issues always. So people do want to go back to the manufacturer for spare part replacement and services. So that's an area we want to focus on. We also believe that many of the plants that we supply 15, 20 years ago are now coming to that kind of age where they will need to systematically replace a lot of components and parts. So that's something we want to do. We also have opened up service centers, one in Vizag, one in Ankleshwar, one in Mahad, we opened one in Doha as well, just to stop being far and be closer to our customers. And then I also wanted to just kind of bring to your notice that we have also launched -- or we will be rather launching inter steel in India. We have locally manufactured this steel for the Indian market. The technology has come from Pfaudler International. And we believe that this will also be a good business to generate after sales because these are items that are used very often. They have a lot of moving parts, a lot of replacement business comes from that as well. So all in all, we just want to be close to our customers, make sure that any kind of support or service that they need will be -- and they will be coming this summer.

So they are consumables? We can call it, consumable product?

They are actually were part that we will start that the bone out. So you need to have replacement parts for that all the time. In some way, the consumables, but they're more completely called as warfare. The rare way over a period of time.

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

A very good job for the company. And sir, you've shown order backlog. It is nice, you are doing fine. Will you tell what will be margin on these orders? What is in India and where in other countries also? So margin will be same throughout the world or there will be some differences?

So Ravi, I think the margin profile in India is very different from what we have internationally. But having said that, there are initiatives in place where we are looking to increase the margin profile and improve the margin profile in the international business. We've had a good amount of success with our subsidiary in Mavag, which we bought in 2008. Today, that company is clocking around CHF 17-odd million of sales and is making at least 16%, 17% EBITDA -- the EBITDA margin. So if we can use India low-cost sourcing as we of increasing revenue of increasing output from these facilities and reducing the cost. There is definitely margin improvement possible. Alex, do you want to jump in and maybe talk about some of the measures that we are taking to improve margins as well?

Yes, definitely. So besides, let me say, cost improvements that we have already launched and we are benefiting from. And therefore, we already see the increase in margin. I mentioned before that we have, for example, in Benelux, but also in the U.S., the service business is currently lagging behind. And the service business is our high-margin business. So currently, with the uptick that we are expecting or that we are seeing even and the uptick, especially in the service business, we should benefit from additional push in margin.

Okay. But will you quantify what will be margin for India and what will be outside? Some broad range you may give if.

Yes. So we -- maybe we'll have a better picture for you, Ravi, during the next conference call. It's a little bit early for us right now. We've only consolidated data to mild.

I understand. I understand. Yes, sir, yes, sir. And sir, one second question. So international orders will be done more from India or other locations outside India? Any arbitrage labor artifices you want to play with India?

Yes, sir. So the arbitrage definitely will be done here in India. We already started work on sourcing components from India. There are also other areas that we can work together. But yes, sourcing from India because currently, India has capacity. We have the quality standards to supply into the European market. And we recently supplied a very large vessel to OTA Germany, Ashok, maybe you can add, and the quality was very much appreciated by them. Ashok?

So it's a 32,000 liter reactor that we supplied. It was -- there is, of course, it's a very large little event into the German factory. All our colleagues from Germany, we're very keen to see the quality and the call back immediately saying that all the glassing experts and the other people in the shop, we're very impressed with our quality. So that was a full testament to the way we do work over here and also gives a lot of confidence to the people in Germany that the program that we have now in place of having supply chain starting from India has a very good chance of succeeding and will do very well. Right. But at the same time, we don't want to destroy the market. There is a market there for Pfaudler, European made Pfaudler equipment. We have to be very careful where we have kind of want to penetrate and look into and also kind of differentiate our products, so we don't cannibalize our own market. So that's something that we are quite careful about. But yes, all in all, we will definitely look at India to kind of reduce cost the other geographies in Europe and America.

Clearly, Tarak, you have more responsibility now to run the company because more big company you have made and we pride on your leadership. But last, if any CapEx plan, if you can give for one year?

So for the International business, there is no CapEx plan we have ready. For India, we will probably have CapEx in the range of about INR 30 crores to INR 35 crores for this year. The CapEx will be used to implement glass client capacity in Karamsad and in Hyderabad, because as part of this Vatva, we will re have capacity, and we believe that we should add capacity in glass line. So that's probably the next area that we will focus on.

The next question is from the line of Srinivas from Rockford Consultancy.

My question -- 2 questions. First is the other expenses, what you have shown, INR 54 crore in the Q4, can you do some bifurcation, what is the items of other expenses?

Are you saying these numbers?

Yes. The consolidated numbers.

So these are basically all the SG&A expenses, all your -- everything -- the only the employee costs and the material cost primarily goes up other in the line. All other expenses per the city format get clubbed into the other expenses. So essentially, when you have the more elaborate pieces in the detailed annual report, we'll probably get the entire detail of the expenses.

Okay. Now second question is what is the funding pattern for Vatva acquisition?

So Vatva's, we have been -- we have just -- as you know, for our partner acquisition, we initially wanted to borrow -- we plan to borrow something like $11 million, but we ended up borrowing only $5 million -- $6 million. So therefore, we had borrowed less and we had consumed our internal cash. Now then this opportunity came in at Vatva. So that is being funded through a long term loan from us Indian Bank.

The next question is from the line of Mazuf from from Symposes.

Yes. I have one quick question. So keeping in view India and China's current political and business relationships, which is traditionally at the lowest point. How is it going to impact GMM and the Pfaudler business going forward, especially in procuring raw materials from China?

Yes. So we don't have any procurement of raw materials in China. Most of our raw materials are locally procured here in India. So we have good enough steel mills here, Alorica, Jinan, we get most of our raw materials from. And most of the glass required also is all sourced locally. So we are not dependent on China at all. Unfortunately, you're right. The relationship between the 2 countries is not as the greatest. But however, the China business is not dependent on the Indian market and the Indian business is not dependent on the Chinese market. So luckily for us, we are completely separate. So we don't see any changes in any of our local businesses in both these countries.

The next question is from the line of Ritesh Vora from [indiscernible].

Sir, congratulation on very good set of numbers. I just want to understand the cash flow statement. There is an entry call actual gain on virtuity of classified of OCI. Can you clarify what does this entry for?

Yes. So if you recall, we had some $70 million of pension liabilities being acquired as part of the quarter acquisition. Now that pension liability at the every balance sheet date has to be revalued by the actually. So this is the last on salary basis, the life expectancy basis the interest rate and all the other variables. Those numbers get revalued every year. This time, it has given us a positive impact of something like $8 million. And that as part of -- so that's the difference between the P&L and the cash flow. So that impacts our cash flow to that exchange.

Right. So basically, it's a noncash item.

It's a noncash item. Exactly. It's a noncash item.

Right. And my second question is, sir, we are sitting in mostly on the overseas, a lot of -- because of acquisition, we are gaining the plant in the Netherlands and Germany and other places. Basically, at the end of the day, it's a pressure versus manufacturing and you added the glass lining. How viable these plants which you purchased from I mean from the advanced geographies, how viable, economically viable to they are to run efficiently as we are running in India?

Right. So I think one of the important things to realize here is that before we purchased this, there was a private equity company that purchased for in 2014 and we were lucky. The time when we bought it, they have already finished all the restructuring. So all the old plants in Germany, in Italy and China was shut down and rationalize, and they will move to much, much smaller, more efficient facility. And with a much, much lower number of people. That has already been done. So we are going to benefit from this because we are now taking over much smaller, but much more efficient plant. Now from a business model standpoint, it's always very important to have glass lining furnaces close to our customers. A customer in Germany would not buy a reactor from India, if we could not guarantee in local service and support in case the reactive damage. So what could happen is the reactor damage we could quickly send it to the German facility for it to get relined. So at the end of the day, we will always need local facilities but obviously, like you rightly said, we don't need very large facilities. We need to have a very efficient and cost-effective facilities, but it's very important from the customer standpoint that they have local support, service support and turned support available.

Right, sir. And sir, last question, if I can squeeze in. What do you see the current momentum in the order book in India, a lot of chemical and pharma companies are going for expansion. What are your time line? What do you see? Is it for 2 years, 3 years, 5-year period? What do you see this current wave in ordering will last for?

So I mean, like many of you must be knowing now, I think chemical was the buzzword of the market for the last few quarters, and every chemical company was on everybody's the radar. Our growth personally has been driven by Agro and specialty chem over the last maybe 3 to 4 years, big, big projects by PI, SRS, Decker, UPL. And then recently, obviously, we saw some traction coming in with the pharmaceutical players. We've also seen many of the chemical guys now also diversify into APIs so that's also a positive sign. But from what we hear across the ground, I think many, many companies are planning large CapEx is. We're also seeing the second and the third level of pharma companies, not the big guys, the smaller guys who are kind of ramping up there capabilities and capacities because people want to be less dependent on China. And with the government push on local production, I think some of these companies will also benefit. Ashok, do you want to add something to this?

I think you've covered most of it. The first way like pasted was the bulk chemicals, specialty and Agro. So the pharma sector in the Hyderabad region is picking up now with many of the companies over there adding capacity and also some amount of renewal of the old plant that is 10, 15 years old, which are alluded to earlier, that's also happening. So all in all, for the next 3 to 5 years, we see a strong demand continuing from sectors that we normally catered to.

[Operator Instructions] The next question is from the line of Saurab Shah from AUM Advisors.

It's great to see the financial numbers, especially for GMM Pfaudler and the fact that Pfaudler is now part of the historical. I'm sure it took a lot of time, but that is behind you. The first question was really about the management team, Thomas in Germany, what is going on there? How are you looking to change that management team over there in terms of tracking the other international markets, are you looking at any increment in business development hires? And what's the focus for that, if you could share?

Yes, Saurabh. So yes. So I think from an international management team, we do have Thomas Kehl and Alexander Pompner, CEO and CFO. They will be in charge of the International business. We have a long relationship with them, and we're very aligned in terms of what the next steps are, both in terms of organic as well as inorganic growth. So that's something that we obviously have oversight over. But from a day-to-day operational perspective, both gentlemen are very hands on, and that gives us -- and please a lot of bandwidth from our side as well. In India, obviously, we have a good team here in place as well, and we have a good presence across all the regions here. And then lastly, as we look to grow the international business, we are looking at hiring some people across all the different work streams. So some of the important hires that we have done are basically Southeast Asia is something we've added a person there. We are in the process of bringing in somebody for the U.S. as well. And then even for operational excellence. So our group operational experience, the person has joined the judgment facility. So we have the kind of roles that we are now adding to. So they will be responsible for more of the global manufacturing needs, cost control for operational excellence. And we're making that a very important part of our business to go going forward.

Great. The second question, Tarak, was about Asia. I think you mentioned that as an initiative now. Can you give us some sense of how large is the market in Asia relative to the other geographies? And what is the competitive environment over there? And how does the China fees currently fit in, in terms of size?

Yes. So let me just break Asia into China and Southeast Asia. So the Asia market, the Southeast Asia market is really a black hole. Pfaudler used to have a good amount of presence, but over the last maybe 10 -- 8, 10 years, we've really kind of not really invested or have we kind of had people there. We've lost most of our customers. So it's really like starting from scratch. But we do believe from what we are hearing, Singapore, Thailand, Indonesia, Malaysia, Taiwan, all these countries do have requirements of Japan equipment again, it's not a market that is very structured. But again, we have to make a very strong push there because I think that's one area where you see a lot of growth. Even countries like Vietnam are seeing a good amount of investment. China, on the other hand, is going to be a big market for us. We are not the market leader there, but Pfaudler does have the brand name the new facility that we've added a state of the art has significantly higher capacity than what our old facility added and we have a lot of high hopes for this China facility. Maybe, Alex, could you jump in and maybe speak a little bit about China?

Yes. In fact, what you said, it's fully correct. I think we have setted up this new facility is state of the art, is that's really a good foundation for further growth the business. The Chinese market is developing well, especially compared to Europe and Americas. So I think, yes, we are really looking forward to the expansion of the business in China.

Yes. And just to add to that, the April month for the China facility was a phenomenal month. So hopefully, if they can continue on that level, that would be one area that we need to definitely look at and make sure that border becomes or becoming the market leader in China.

Great. Just one last bookkeeping point. You have 2 months of financials for ordering. Is it possible to have the earlier 10 months and with that's without the extraordinary charges, just for us to get a pro forma of how Pfaudler Inc. was for the earlier financial year, going forward, it helps us to get a benchmark. It's just a suggestion.

Yes. Sorry. So Saurabh, you have that in the financial deck that has been that has been presented. So you can refer that. The last 12 months of FY '21 and last 12 months of FY '20, both of them are being sent to.

Yes. But if you have any specific questions, you can always reach out to Priyanka and Manish, they'll be happy to help you.

I believe that's Slide #13.

The next question is from the line of Lokesh Chen from Sunbridge Capital.

My question is, when I was going through this consolidated result, under that Standalone plus Mavag, I find the employee benefit expenses are 40% of the revenue, whereas for International business, they are around 38% of the revenue for 2 months. So does this employee benefit expenses for international business includes any onetime item or these are regular expenses? If these are regular expenses, then I find them very high, be 38% of the revenue. So what steps we are taking to reduce these employee expenses because this only can improve the EBITDA in International business according to me? That was question number one. Question #2 is on a consolidated basis, without considering the onetime items, what will be yearly PBT and PAT of the company?

So before I hand it over to Manish and Alex to answer your financial questions, you've completely hit the nail on the head. So the idea for us is to obviously look at reducing costs. And this is obviously a low-hanging fruit. But let me also give you an example of Mavag. When we acquired Mavag, they had 35 employees, and their 35 employees who are more expensive than 400 employees of GMS and Pfaudler. Having said that today, Mavag had tripled its revenue and is profitable. So as soon as we start improving and we start increasing our revenue, these costs will obviously start decreasing. We are obviously looking to reduce cost in every chance we get. But the idea here is to use the same base, but to really grow the business 2 or 3 times, that's something that we want to do. And then Manish and Alex can jump in, in terms of the report.

Yes. Thanks, Tarak. So Lokesh, as Tarak mentioned, like Mavag, these are high base countries so therefore, you have 2 choices, either to reduce cost are you from an employee perspective or you expand the business? I think the latter is a better choice to make. So that's exactly what we did in Mavag over the past decade. And that's what we intend to do in for the international business as well. Inherently, these are expensive countries. So employee costs will continue to be higher, but we will focus on improving on the efficiency perspective. And yes, there is a small element of one-time bonus as part of the performance rate. Alex, do you want to take it forward?

No.

Yes. What is that onetime expense? How much is the amount? You said bonus element?

That would be maybe -- Alex, do you want to take that?

Yes. It makes -- instead of 38%, it's been 37%. But nevertheless, your calculation that employee benefits in the international business are in relation to sales significantly higher. So you're fully on the point, yes.

Because I find your EBITDA, which is International business and 22% in Standalone business. The 15% difference majorly comes from employee benefit. So for the reduction in cost, you have to concentrate there only either increase the revenue or rationalize the employee account and the salaries and everything.

Right. So we are in the process of doing both. So as you can say, it's obviously a low-hanging fruit, something that's obvious. And we, as management, are working on that to make sure that our profitability improves significantly.

Second question was other than one time item. This is my second question. So second question is, what would have been consolidated profit before tax and profit after tax without considering onetime items?

Lokesh, you mentioned, kindly refer to Slide #13 in the presentation that gives you a reference of the normal adjusted EBITDA in all those numbers. So you'll have that reference in Slide #13, that should give you a direction.

I think, Lokesh, you are talking about the consolidated numbers without the impact, right?

Yes.

Yes. So if you refer to be Slide #15, if you add Column A and B, you take out the eliminations, you would get the number without the onetime cost.

And further, we stand by our direction of INR 2,800 crores and 16% EBITDA margin by FY '24.

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

Two questions. First one, knowing how critical the process is related to Inter Seas what sort of opportunities do you see for industrial dry 9,000 in India, if you can put a number to that? And second question is, what is your estimate of your market share for ANFD or the filter dryers, if you can just share that.

Rohit, so I'll let your good friend, Ashok, answer the questions because he's the one who's working on the indices. So Ashok, over to you.

Rohit, the ANFD business is something that we will first continue on getting the glass line share of the market, which is going to be in-house consumption in many ways because we look at from the outside. This year is the first year that we will launch it. We are expecting to sell about 120 steel in the market, and that will be around INR 2.5 crores, INR 3 crores worth of sales is what we sell in the first year.

And then he was talking about filtration in dry market share.

So filtration in drying market share is -- we are probably #3 in the marketplace, and there are 2 other suppliers who are supply much higher volume than us. Having said that, the high end pushier dryer customers who come to us for that because we have technology of Mavag. We have the knowledge of how to deal with cytotoxic and hazardous chemicals. And so we have a good strength in that and customers who want to put up plan for those chemicals reach out to us.

Ashok, this, in terms of percentage, what would that be? And over the next 2, 3 years, what kind of percentage do you have a vision for ANFD?

So it's very difficult to come up with a percentage because the value of the equipment that we sell some kind of much higher compared to the type of equipment that the others would sell so it's very difficult to give a complete number for that. But having said that, Rohit, our petition in business is growing. We are a sub supplier to Mavag as well, which is obviously a good business, continued business for us. And then on top of that, like Ashok mentioned, we are focusing on high-end kind of solutions with verical dryers, and clean grow the ANFD unit, glucoses and things like that. So we not really calculate a market share number, but we probably #3 or #4, if I have to be honest. But again, we go after profitable business and the stuff that we really want to do.

The next question is from the line of [ Jain Bada ] from Minimal Bank.

Sir, just regarding, again, the Slide 13, I just wanted a profit figure for FY '21 and FY '20 for Pfaudler?

Kindly appreciate that these were numbers being taken from the previous management. So these are only for reference. So it will be difficult for us to provide any numbers, which are actually being owned and performed by the previous management.

The next question is from the line of Harshal Sepia from AUM Advisors.

Sir, can you give me the breakup of businesses between heavy engineering filtration in Blackline for India and Mavag on a full year basis?

Yes. So I can give you some ballpark numbers out of the INR 640 crores of revenue that we had in India, if I'm not mistaken, about INR 100 crores came from proprietary products, INR 100 crores came from heavy engineering and about -- so the balance, INR 430 crores, INR 440 crores came from the glass client business.

How do you see the outlook in the heavy engineering business going ahead in terms of you said that you want to fall in 2 different industries rather than like oil and gas and oil prices being stabilized now?

Yes. So that's something that I spoke to you about this earlier, we have heavy engineering. We are very bullish on that. In the month of April, we have received nearly INR 50 crores of business from an EPC company for heat exchangers. I mean, in the oil and gas space. So this is exactly what we want to do. 950 tonnes of carbon steel material, 200-odd tonnes of tainted steel heat exchanges, so really large equipment. I think the stainless steel was the biggest one that we'll be making. One of the carbon steel one is also one of -- I think it's going to be close to 200 tonnes weight. So really massive heavy engining business, the ones that we always wanted to. And that's definitely a good start. And while we've also added people on the HDOT, we will start to kind of cater to some of their customers as well as the new peer power corporation and some other players who they have very good relationships with. So yes, heavy engineering in an area that we believe we will see significant growth. And like I mentioned earlier, we're going to be running 2 facilities currently. So we have enough capacity between Karamsad and Vatva to make sure that we can cater to the market as much as possible.

Okay. Okay. And taking into account the Karamsad and Vatva facility that we have now. Can we say that we would be able to do a job line of INR 1,100 crores to INR 1,200 crores on the India plus Mavag business in FY '22?

So in terms of guidance, also, just to be on the safe side, I don't want to commit any numbers, but similar growth rate for India that we've had in the last maybe couple of years will be maintained here in India, if not better.

The next question is from the line of Udit Sharma from Investing Inc.

Congratulations, Tark, sir, for clocking a strong set of numbers. I mean, I'm really sorry, I think I'm just repeating my question. But I mean, I think you have already answered. But just on the ballpark number I wanted. So as you have already answered so many questions related to EBITDA margin. So when we consolidated for the international with the Indian business, I just want to know the ballpark number or you can say the aspirational targets on the EBITDA margin for FY '22 and '23, what EBITDA margins you are targeting?

So Udit, we had mentioned in our guidance earlier that we expect to start at 13% EBITDA margin on a consolidated basis for a full year basis, so next year, you can take that as a starting point. And we target that to improve it to 16% by FY '24. We maintain good number.

Okay. On roughly for FY '24, you are targeting a INR 3,000 crore revenue, I mean, on the higher side, right?

INR 2,800 crores. Yes. So when we gave this guidance, obviously, we were GM stand-alone was at about 19% -- 18% to 19% margin. We have also significantly improved since then. So 16% margin, INR 2,800 crores by 2024 is what we have given. And maybe if we believe there is some reason to up the guidance, we will come back to you in the next few quarters. But as of now, you can continue with that.

Plus also, there is another $5 million of synergies that is on top of this 16%. So you can count in that as well.

The next question is from the line of Aditya, Individual Investor.

Congratulations on this acquisition. One question I had was regarding the GLE business. What is your total count now that you have acquired the business in annual the total, sorry, what the total number of glass line equipment we manufacture to year?

Yes. So we have about 2,400 that will be manufactured in Karamsad in this financial year, and we have another 400 in Hyderabad. Eventually, that will increase by another 700-odd vessels in Gujarat and another 100- to 150-odd vessels in Hyderabad. But this will come into effect of FY '23 onwards. So currently, for this financial year, 2,400 in Gujarat and 400 in Hyderabad.

Understood. And sir, initially, on you had given the guidance of this -- what you just mentioned, INR 2,800 crores top line, FY '24 and 16% margin. You had not acquired this recent acquisition that you have done in so even including that, you would be sticking to the same level?

Yes. Good point. But we haven't thought it through yet yet, but definitely need to add that as an additional revenue item. We will probably kind of up our guidance, which includes this facility as well.

The next question is from the line of Tom Taker, individual investor.

Thing is, like, I am basically going through the slides, and I'm basically at Slide #15. You did mention here like other expenses is about INR 1,091 million. Could you please try to help me understand what exactly is that other expenses were, sir?

So these are all the expenses clapped together in the P&L that we have. So if you see above, we have only the raw material and the finished goods or material-related expenses and the employee-related expenses being taken out separately all the expenses relating to freight car traveling employees staff as they are sales, marketing, all these expenses are clubbed under one single length for convenience. And as we release our annual report, you'll obviously have a much more detailed understanding and a breakup of all these expenses.

Sir, a second question on HFS, because I have been with GMM Pfaudler since 4 years. And I am -- I could say, I would probably say I'm one of the loyal investors with our company, GMM Pfaudler. But the only thing is how we are going to give the content like investor -- individual investors like me going forward. Meaning after 3 months, where we will be in terms of consolidated results or company performance?

Sorry, I didn't understand the question. Can you repeat Som, please?

Yes. So basically, how -- and thing is like, I just wanted to see the management confidence on giving the outline where exactly we are going to be after 3 months by taking the acquisition of GMM with Pfaudler?

Right. So I think the only thing that I would like to mention, Som, is that you have seen our performance over the last 5 years from 2015, when I took over to now this year. And this year, in spite of COVID, during the most difficult period that mankind has band maybe in the last 25, 30 years, we went out and did see significant transactions, transformative transfusion. So when business improves, when things open up, we will be really well placed to take advantage of this. So I think this acquisition is timely. We have not over-leveraged our business. The management intention is clear of growing the businesses. We have good people, both here in India and internationally. The brand of Pfaudler is a very well-known brand. The quality that we manufacture is world-class, and we have about a 40% global market share. So if you look at this as a business and you look at this as from a boat standpoint as well, there's not too much more that you can ask for. Your company is now no longer just an Indian company. We are a global company, tomorrow of India, where a slow down. You have multiple other jurisdictions where you can see growth coming from. So we have mitigated the risk of being a one-country company as well. So all in all, we are trying to build a long-term business that stands at test of time. We're not here for quarterly gains and quarterly improvement. This is really a long-term vision we have. And not only stopping at last landing, but we really want to build a company that is well-known in the chemical, the pharmaceutical, the first name that comes to mind when you think about putting up a chemical or pharmaceutical plant. So that's really the end vision things like this do take time. They need a lot of hard work. It doesn't come easy. And if you're a long-term investor and you believe in the story, I think you will be quite satisfied. So I don't know about the next 3 months. But if you ask me 3 to 5 years down the line, I can quite confidently say that we will perform very close to what we have planned to do.

The next question is from the line of Sush Joshi from Dara Capital.

I have just a couple of questions. One question is with respect to Hyderabad facility. So what was our utilization level in FY '21 for Hyderabad facility?

So we only started manufacturing sometime in November push, November, December, when we had those rains. So to be honest with you, we actually only had maybe 3 to 4 months. But what I can tell you is we've already broken the record of the previous management by doubling the monthly output, I think, in the month of February or March. We had maybe 2 or 3 times of what the old management had produced during their time there. So -- and with the things the way they are going, we expect the hydro facility to perform quite well in this financial year.

Okay. And just another question with respect to the newly acquired entity at Vatva. So the man -- so we're getting the full benefit of that facility in FY '22? Or will it take time to get the full benefit in the next next year. So maybe split toward '22, '23?

Yes, exactly. So this year, we have just started, we are going to ramp-up in a phased manner. We'll start off by the holding 2 sheds. And then slowly, by the beginning of next year, we'll really ramp it up so that all 7 sheds are utilized. But currently, like I mentioned, we will be using 2 sheds in Karamsad and 2 sheds in Vatva in the short term. But yes, by the end of the year, everything will move to Vatva.

And my last question is with respect to consolidation. So today, the GMM at parent level, along with Mavag, what is the percentage it's holding in the Pfaudler entity, that is 54%, right? If I'm not wrong.

50 44.

It's 54%.

54% -- sorry, 54%, yes.

So when you have done the consolidation for the 2 months, so the consolidation is that 50% for all the line items? Or it's -- how it is done. So can you just explain it.

Sure. So this is basically a line-by-line addition. So assuming the entire 100% is owned by the consolidating entity, and thereafter, 46% of the profits are taken out and given to the noncontrolling interest.

So when you mentioned the PBT in B column on the Slide 15, which is INR 21 crore. That is...

Right. This is the 100%.

Sorry?

This is 100%.

INR 21 crores is 100%?

All the entire B column or all the numbers in B, C, D E, column are all pertaining to 100% of the business. And that's how the consolidation once you have the ownership and the controlling interest. You do a line-by-line 100 out of 100 additions and then the net profits are charged out in the noncontrolling interest.

So INR 100 crores on suites in column in A+B+C+D+E, the PBT which is INR 101 crores is 100%?

Yes, PBT at INR 101 crores is 100% of the Pfaudler's less performance during the 2 months.

Yes, yes. 2 months period. Yes.

2 month period, yes.

We don't see adjust minority interest here to come to INR 63 crores of...

If you go to the steady, the outcomes slide on the -- the filing has been done. And that part, in that, if you go to...

Yes. We can take this offline. I'm fine with that.

Yes, we can take this offline. But if you go to the consolidated P&L, in the lower line items, you'll see a profit attributable to the equity shareholders and to the noncontrolling interest. And there, you'll see a real growth in the numbers on a full year basis as well. So that should satisfy your question. If you have any further questions we can always take it up. That's not a problem.

We take the last question from the line of Saurab Shah from AUM Advisors.

Question was -- There was a question about getting into heavy engineering. I just want to check how we are looking at the steel costs, which have increased quite significantly in the last few months. So how -- what's your policy for procuring steel and passing on the cost to the customers?

Yes. So luckily for heavy engineering, since this is a much more kind of bigger order and take longer delivery, we have escalation clauses, this gain. However, what we also do is take a little bit of a longer delivery period so that we have a flexibility of rating orders when we think the time is right. But yes, you're right. When it comes to heavy engineering, it's very important to buy material at the right price. And that's why we need to be very quick and proactive to decide. But yes, it is a big change. The customers usually allow us to kind of pass on that price increase to them.

So increasing this business. Do you anticipate the margin profile changing from what we have this year out, as you said, 24% odd?

Yes. So we had a conversation around this a few days ago. We do plan to grow this business significantly, but it does not have any significant impact on our global -- I mean, sorry, our -- the India number of EBITDA, we don't see that playing in any kind of major impact of reducing that number.

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

Yes. So thank you, everybody, who joined us. Nice talking to you. And hopefully, next quarter, you will be back, and we can then talk a little bit more about the initiatives and the improvement that we are seeing. And we would like you to be part of the story and the journey going forward. This is only the beginning. And over the next few quarters, hopefully, we can give you some good news in terms of all the different things that we are working on. So thank you for your time and take care and look forward to speaking to you during the next investor need. Thank you, once again, and good night.

Thank you. Goodnight.

Thank you. On behalf of GMM Pfaudler, that concludes this conference. Thank you for joining. You may now disconnect your lines.