GMM Pfaudler Limited (505255) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '24 Earnings Conference Call for GMM Pfaudler Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Priyanka Daga. Thank you, and over to you, ma'am.

Thank you, Sagar. Good evening, ladies and gentlemen. Welcome to all of you into the quarter 3 FY '24 Earnings Call of GMM Pfaudler Limited. The earnings presentation was uploaded on the stock exchanges today and is also available on our website. Hope all of you had a chance to go through it. From the management, we have with us our Managing Director, Mr. Tarak Patel; our CEO of International Business, Mr. Thomas Kehl; our CEO of India Business, Mr. Aseem Joshi; CFO of International Business; Mr. Alexander Poempner; CFO of India Business; Mr. Manish Poddar; and Compliance Officer, Ms. Mittal Mehta. We will give you a brief overview of the performance of the company, after which we will get into the Q&A. Before we begin with the overview, a brief disclaimer. The presentation which we uploaded on the stock exchange and our website, including our call discussions that will happen now, contains or may have certain forward-looking statements regarding our business prospects and profitability, which are subject to certain risks and uncertainties. The actual results could materially differ from those in such forward-looking statements. I will now hand over the call to Mr. Patel to provide an overview of the performance. Over to you, sir.

Thanks, Priyanka. Good evening, everybody. We are happy to report a strong performance this quarter with stable revenue across the International and India business. The business environment continues to remain challenging, driven primarily by a weakness in the chemical sector. But we see an improvement in terms of order intake. In Q3, we had an order intake that grew by about 20% over the previous quarter. So that's definitely a positive sign. And looking into Q4, which I'll speak about a little bit later, we also see that the order intake looks like it's going to pick up as well. Like I mentioned, the order intake was up 21% at INR 756 crores. This is also partly driven by the fact that we have diversified and kind of increased our -- the technology portfolio. Besides glass-lined, we also have non-glass-lined that adds a large chunk in terms of our order intake. And I think what has worked very well for us as well that we have diversified away from chemical and pharma, and a lot of the new order intake that we have seen, some of shortfall in glass-lined that has been made up has come from these adjacent industries, mainly oil and gas, metals and minerals and the petrochemicals as well. Further, we currently have an opportunity pipeline -- a strong opportunity pipeline and we expect large deals to close in the next few months. And we believe that the order intake for Q4 will also continue in a similar trend. In terms of financial performance, our consolidated revenue for the quarter grew by about 8% at INR 856 crores. We had an EBITDA of INR 114 crores and a margin of 13.3%. Our 9 months revenue was up 17% to INR 2,706 crores, while our EBITDA increased 16% to INR 388 crores during the same period. Our profitability in the International business remains stable. However, India margins have seen a bit of decline due to intense competition in the glass-lined business, which was mainly driven by a slowdown in the chemicals industry, mainly agrochemical industry. We continue to focus on cost and improving our efficiencies. In terms of corporate update as well, we completed the acquisition of MixPro Canada. However, the MixPro numbers have not been consolidated this quarter and they will be consolidated from next quarter onwards. I have also spoken about our mixing platform and the MixPro is in final and probably -- sorry, not final, but the third step in terms of our acquisitions. This gives us access to, of course, the American market. With our last acquisition, Mixel, we had access to Europe and to China. And obviously, as you know, we have a very strong presence in the mixing business here in India. So as part of our mixing platform growth, our acquisition has been completed, and now the focus is to make a business plan and focus on the go-to-market strategies for this business plan. On this specific platform as well, we have now a new Head of Platform that we have hired. That person has now joined us. He comes with a lot of experience in the mixing industry. And I believe, he will be a welcome addition to the management team as well. Lastly, just wanted to also add that the Patel family has completed the acquisition of the 1% stake from DBAG. DBAG has filed for de-promoterization. And once those approvals have been received, they will no longer continue to be promoters of GMM Pfaudler Limited. With that, I now open the call to questions. Thank you very much. And happy to answer any questions that you may have.

[Operator Instructions] The first question is from the line of Venkatesh Balasubramaniam from Axis Capital.

I had a few questions, around three or four of them. Firstly, if I actually look at your International revenues, they have been consistently growing at 15% to 20% for quite a few quarters now. Now what we understand is the international markets which you're operating in, namely Europe and U.S., are mature markets. So how are you able to achieve this kind of growth? Are you gaining market share in glass-lined equipment outside -- in Europe and U.S.? That would be the first question.

Yes. So let me speak a little bit, Venkatesh. Thank you for the question, obviously, and let me just kind of give you some more color. So I think one of the things that we have seen in the International business, especially over the last couple of years, is that we've seen a significant improvement in revenue. So I think a couple of things have happened. Firstly, our new facilities, mainly our German, Italian facilities have obviously shown a lot of traction, while it comes -- when it came to improving the revenues and output from these factories. I think so that has been an important kind of pillar in terms of improving revenues. With these new factories coming online, we were able to kind of deliver equipment in a very timely manner for our customers, right? So the ability for customers to now trust and have comfort in the Pfaudler brand and the ability of Pfaudler to complete the deliveries in that respective time period has improved, which means we now are seen as somebody who will be able to deliver the equipment in the right time period, right? So more customers are now coming to us for at least the glass-lined business. The other growth have come from the non-glass-lined business, and these have been mainly the acquisitions that we have made, right? I will talk a little bit more about that in a minute. But before that, our services and systems revenue as well in the International business continue to grow. Services account for nearly 30% to 35% of international revenues. We have added about 24 service personnel over the last maybe, 6 to 12 months. We have also opened up 4 service centers recently. So service is a big push for us. Service is something that is very profitable for us and service is an area that we definitely want to grow. So really, all the engines have been firing. From an order intake standpoint, the last couple of quarters have been slow, not only for the International business but also for the India business. I think what's important to highlight now, as I mentioned, Q3 saw an improvement in order intake by about 20%. So far Q1 also looks very good. Just to kind of bring to the notice of the entire group, we received a very large order. Finally, a systems order that has come through from the U.S. market for $11.4 million. This was booked in the system yesterday. So that's a very large new order that has come in. Something that we have been trying for quite some time, and we will have the international team speak a little bit more about that. Also looking into India, we see some resurgence now in the glass-lined business. We see some of the projects that have been held back for many, many months are now getting finalized. We did receive a couple of very large orders for the glass-lined business. And having said that, our other businesses here in India continue to do well. So our heavy engineering business because, obviously, it's not driven by the chemical sector, it's more focused towards, let's say, metal and minerals, oil and gas, petrochemical, has already seen a lot of traction. We have a very large backlog here. And then even our propriety business and systems business have seen a good amount of traction. So all in all, it seems that the general market outlook looks a little bit better. Again, we have to keep our heads down, focus internally on where we can save costs, and be a little bit more aggressive in the market, which we are doing. But as I speak this evening, I think we are definitely -- we have reached the bottom and things are starting to look a little bit better. And we need to focus on making sure that the order intake improves over the next few months as well. Just maybe for a second, Thomas, if you want to jump in and just talk a little bit about the growth of the International business and where do you see growth coming from for the next few quarters.

Yes. I think Tarak made a lot of points that are correct in supporting the business growth that we have encountered. And one comment, the International business is not reflecting only Europe as a region, it's reflecting North America, South America and a lot of parts of Asia as well and where the situation is a little different from Europe in many cases. We also had a lot of inorganic growth through our acquisition, as Tarak mentioned, that are kicking in now and helping us diversifying from the glass-lined and sustain and supporting the growth that we encountered. And we also believe that there's good delivery times through also our EPIQ programs that we were able to acquire some market share.

Okay. So sir...

Maybe I can just add here. I know you spoke in the International business, but I believe and maybe, Aseem, you can just maybe jump in. In terms of market share in glass-lined here in India, I think we've probably seen some improvement there as well, right?

Yes. So thanks, Tarak. As Tarak had mentioned, the chemical sector, especially the agrochemical sector had been not as active as last year, but we've seen a sign of resurgence. Through this, we have ensured that we've maintained and actually grown our market share. So we are confident that in a tight market, it's the time to ensure that we have and continue to capture more than our fair share of business, which we have done this year. So we expect to come out of this next year with even stronger position in the market.

Okay. Now on the -- while answering my first question, you did give a flavor about the orders. Now I have a couple of different questions on the orders. See first of all, obviously, this quarter was better than last quarter. There has been a slight rebound in orders on a quarter-on-quarter basis. Now -- but when do you think we can get to a run rate of closer to a INR 1,000 crores kind of orders in a quarter? Does that happen in the fourth quarter? Or this is something which might take a longer time, going into the next year? That is the first part of the order -- first part of the question. The second part of the question is, while we understand that there has been a slowdown in the India chemicals and pharma CapEx, why are orders not coming in the international side? See, because even if I take a metric like your outstanding backlog divided by your sales in that particular quarter, what we are observing is, even on the international side, the coverage level seems to be coming down. So why is there a slow -- is there a slowdown outside India also when it comes to chemicals CapEx? Or is it just an India phenomenon? And why does each of those rebound? What will make it rebound?

Yes. So good question again. I think the chemicals slowdown is a global slowdown. I think it's across the world. Maybe it's a little bit more, I would say, significant here in India, but there's definitely a slowdown across the world. We see a big slowdown in China. So we've seen order intake in China, obviously slowed down very, very significantly. Luckily for us, our China facility is obviously not that large. So we can still find enough orders to kind of work on. But having said that, I think 2 or 3 things are happening, which you need to be aware of. I think, one, the India chemical sector has been under some pressure for the last few quarters, but we do see some resurgence. Like I mentioned to you, there are large projects that have recently been finalized. PI Industries is one such example. I think there's a large Aarti project that's being kind of spoken about right now and multiple other projects as well, right? So we do see some decision-making. These projects have been spoken about in the last maybe 6 to 8 months. And things are now finally moving. So I think as the market settles down, as the commodity prices also settle down, I think people will start looking at their investment cycles again. We've been seeing and following a lot of chemical companies this quarter as well. Many of them have announced long-term CapEx plans as well, right? So people have allocated money to new facilities, and I think it's only a matter of time before they come again. Now coming back to the International business, I think what we have seen now and what we kind of know internally is both Germany, Western Europe and the U.S. markets are doing better. We are definitely seeing some significant order intake. They were a little slow maybe 6 months ago, but we've seen some improvement here in terms of order intake. But there's still a lot of work to be done. India as well, this quarter has been pretty okay in terms of glass-lined, but again not to the level that we would be very, very happy with. So still a lot of work to be done. And the focus now is to make sure that we build enough backlog for next year, right? So we all know that March 31st, we need to make sure that at least sufficient backlog is there for us for the first 2 quarters, and that would give us a good amount of visibility and that's what the focus is. Lastly, just to mention that there was one product line of ours, one platform, which is called Systems, and we had kind of spoken this over the last 2 quarters as well. Systems was behind budget significantly, and that's why you saw that little bit of order intake slowdown in the International business. It was mainly driven by one product line not performing up to the mark. This is the same product line that received a large $11.4 million order 2 days ago. So now that, that product line has now come back to a level where that decent order intake has come in, right? So all in all, it's been a general slowdown across most of the kind of products that we have. Obviously, some are not focused on chemicals and have seen significant improvement. But glass-lined business has been driven by the slowdown, and now we're seeing some kind of positivity coming back to that business line.

Okay. Now a very pointed question to Manish. See, every quarter, you've shared international numbers and stand-alone numbers. Now when I take your international EBITDA, I take your stand-alone EBITDA, for the first 2 quarters of this year, when I added it up, it was lesser than the consolidated EBITDA. So the consolidated EBITDA was slightly higher. So for example, in the first quarter, the difference was INR 6 crores, second quarter was around INR 2.4 crores. Now in the third quarter, it is a negative INR 2.7 crores. Now is my understanding right that this is the EBITDA you are perhaps capture -- which is basically products which are made in India and then exported to Europe or U.S., where they are finished and sold. And this is the value-add for that. Now if the understanding is correct, then secondly, how do I interpret a positive number and how do I interpret a negative number in a quarter?

Sure. So yes, it's a typical timing difference on a cut-off date. So for example, India ships to the German entity in Q1. So in the stand-alone, you'll have the profit, but in consol, you'll not have a profit because it's still lying within the group from a India warehouse to a German warehouse. However -- so therefore, they will -- India's profits will be higher, consol will be lower. However, when in Q2, for example, that German entity ships out to the third party. Entire profit of India and Germany will be there in consol, will not be there in stand-alone in Q2. So in one quarter you'll have a positive. In next quarter, you'll have a negative. Overall, it will knock off because it's just your inventory in, inventory out. Sometimes you have an opening higher inventory, sometimes you have a closing higher inventory.

The next question is from the line of Rajesh Kothari from AlfAccurate Advisors.

My basic question is when we had a conference call, I think maybe 20th November, you gave some guidance, performance versus FY '25 guidance, correct? And there, of course, there were some numbers on FY '24. But in this presentation, I think that slide is probably missing. So I just wanted to know how are we positioned for '24 and what is your view on '25?

Yes. So I think from that perspective, we had given guidance of INR 3,700-odd crores for revenue of 2025 and INR 630 crores for, obviously, the same time period, right? This year, we will probably close the year around INR 3,600-odd crore mark. So from a revenue perspective, we are definitely tracking well towards the guidance that we have given. From the EBITDA perspective, obviously, there seems to be a slight shortfall. I mean, if you kind of extrapolate INR 430 crore, INR 530 crore, INR 630 crore, we should have been around the INR 530 crore mark this year. There is obviously -- we will be around the INR 500-odd crore mark. There is some work to be done in terms of margin improvement. And that's something that we hope to kind of bring in with obviously better kind and quality of orders. But at the same time, we are looking at EBITDA improvement projects, both here in India and internationally. We also look at reducing costs. We have taken already some action where we have kind of downside, and hopefully, some of these kind of cost improvements will show up next quarter -- what we are also kind of seeing now is that -- sorry, will show up from Q1 of next year. What we are also trying to work on is obviously our procurement strategies and to make sure that at least if there are some savings that we can kind of bring in due to better procurement policies and systems and we kind of procure a lot of material, lot of steel and metal, right? So that's something that we are working on. There's a project ongoing. And generally, I think we have to kind of just keep our heads down. I mean, it's not the greatest time for the chemical industry, but I'm sure that India will remain a strong player in the chemicals manufacturing space. And it's only a matter of time where things will kind of come back to normal, right? So right now, the focus is to make sure that we remain strong and we remain cost in control. And then when things turn to improve, then we can really guide and extract all that benefit, right? And like I said, there seems to be some silver lining at the end of the -- but it's going to be a matter of time before we see the same kind of order intake that we've noticed in the last 2 or 3 years. That kind of level of activity will probably take another 6 to 9 months in my personal opinion.

So just a follow-up question on my side. It is -- you are saying, you will stick to revenue despite third quarter has not been that great. So basically, it means that -- correct me if I'm wrong, 9-month revenue is INR 2,300 crores. It means you have visibility of INR 1,200 crores in the fourth quarter.

No, no, sorry. So let me just say it again. What I was trying to tell you that if you look at the 9 months number...

Just to clarify, 9 months, we have clocked INR 2,706 crores. INR 3,600 would mean we need to do just under INR 900 crores for Q4.

Yes.

Sorry, my bad. I think that was last year 9 months. Okay. So basically, INR 3,600 crore minus INR 2,712 crores, so you're seeing roughly about INR 900 crores deficit. So you are saying revenue is going to be in line. Margins, basically need to work upon. And then how do you see FY '25 based on the order intake and kind of margins, what you would have assumed while taking these orders because markets are going to be big and more competitive? So how close you think you will be on both revenue and EBITDA for FY '25?

I think -- let me put it this way. I think the order quality has not been the best, but we do see some amount of improvement there. With the product mix that we have in place, I think that we are okay because our focus -- and as a company, we were close to maybe 80% glass-lined, which over the last maybe 4, 5 years, we've come down to now 60% glass-lined, right? So we have other industries. We have other products that we are now catering to. So not everything is driven by chemical and pharma, which gives us a lot of comfort that, hey, if glass-lined were to slow down, something else will come in and make up for the shortfall. For example, let me tell you a little bit about the large orders that we have won in the heavy engineering space, right? So heavy engineering today is a business that obviously is not as lucrative as glass-lined, but we are now seeing that with the kind of strategies we have in place, the choice we are making in terms of either metals, the material of construction, the size, the thickness, and the weight, we are able to differentiate and really improve our profitability, right? So we have a very large order, close to about INR 80-odd crores, where we believe we can very easily make about 15-odd percent EBITDA margin, right? So we are trying to compensate some of the erosion in the glass-lined kind of the margins by our other product lines. And like I mentioned to you, there are businesses such as engineered systems like the order that we just got in the U.S. for $11.4 million, currently, they are very profitable. Our mixing business, our services business, again, very profitable, right? So if there is a bit of a slowdown, we expect some of these other businesses to compensate. And then lastly, let me not also forget about exports. I think export for the Indian business is something that we are focusing on. We have some large inquiries that we are working on and should materialize also in the next few months. And obviously, our program of sourcing from India into the Europe and Western Markets will also definitely add to profitability improvement. All in all, not the greatest environment, but all these internal things that we are working on should help us minimize the gap between what we have planned and what we finally achieve.

[Operator Instructions] The next question is from the line of Rahul Mishra from [ RTL Investments ].

Just on the glass-lined business, we get to hear that the #3 player from Hyderabad has become really aggressive with pricing. Could you share some color on that?

Yes, sure. So I wouldn't point to single vendor. I think pricing is something that most of our competitors have kind of been focusing on. There is definitely more competitive intensity today than there was maybe 1 year ago. Having said that, for us being the market leader, being the quality leader, being the technology leader, we are able to at least kind of command some kind of premium, or in the worst cases, if we match prices, customers will want to keep with us, right? So all the large orders, all the large projects over the last maybe 12 months, we have been very aggressive. We've been very much active in terms of meeting customers, having people on the ground. And I don't believe we have lost significant orders in the glass-lined business, right? So we have been aggressive. We have been more active. Pricing is obviously under pressure, but we haven't lost business, right? So that's unfortunately the kind of market scenario that we have today. And as and when we see some improvement in order intake and demand, automatically, we will see some improvement in pricing as well. But that is unfortunately the realistic situation today. And we are doing our best to kind of bring back pricing, either through differentiation or selling something that gives comfort to the customer, either in terms of increasing the life of the equipment or making the process that he operates much easier and more efficient for him, right? Maybe Aseem wants to jump in and just add something on India-level pricing or...

Yes. Well, I think Tarak really covered most of the points. We are focused on, first of all, ensuring we gain market share in this kind of environment, especially with the large customers. At the same time, they're very conscious of the need to maintain or continue to improve prices. In order to do this, we have a number of projects underway where we are looking at smarter ways to price based on application, based on customer needs, et cetera. So all of those are starting to come in, and we expect those will start having benefits from next quarter. We've also -- from margin perspective, we're also taking a look at our costs, and we have worked our way on reducing both our variable and fixed costs in our 2 glass-lined factories. So the benefit of that will also start to accrue to us again in starting really from this quarter onwards, but really picking up in the next year.

I'm sorry to harp on this, but it also seems -- just I'm trying to understand in terms of the structure of the industry because it also seems that much smaller player can actually come in and take orders, for example, without advances, et cetera, and then grow, I mean, from what some numbers reveal, to be almost as big as probably the #2 player now. So I'm just trying to think in terms of the structure of -- or the entry barriers to the industry, so to speak.

Yes. So it's a very good question. And it's obviously, from an outside-in view you would wonder why somebody who is reputed or is into manufacturing pharma or chemicals, why would they risk taking equipment, which has not obviously had any kind of prior kind of the performance or have that technology, right? But I think India is changing. You will obviously -- do keep in mind that more and more customers when it comes to glass-lined, especially customers in the chemical sector, agrochemical sector, they do obviously now look at quality more and more critically. It's no longer only price. I think Indian mindset -- especially the Tier 1 customers have changed over time. For example, the PI Industry, all -- the entire order was received by us, right? So that company because of this quality and safety kind of requirements will not compromise on glass-lined quality. So we will be the preferred supplier, and they would like to buy most of the equipment from us. And this is probably the same for many of the other agrochemicals and chemical players. Do keep in mind as well, when the sizes of these reactors increase, there is more chance of something going wrong. So as your reactor sizes increase, more and more people would want to go with reputed manufacturers. There is definitely, let's say, a value market in India. I think this is where some of our newer competitors have made inroads. These are markets where these are smaller companies, not as quality-conscious, have 2 or 3 reactors. I think that's where they really make a lot of inroads. The third thing that has happened is many of these competitors have come in, maybe 3, 4 years ago. And now we are seeing that customers are realizing that some of these qualities are not lasting as long as what they were promised, right? So many of customers who have tried these players maybe 3, 4 years ago, during their new orders and new projects, they are now definitely coming back to us because they tried something else which was cheaper, but the quality was not in line with what they were requiring. And now they are coming back. And we have seen this with maybe 4 or 5 other customers who were buying from our competitors, but now have come back and started buying only from us, right? So there is no structural fundamental change in the industry. We are still the market leader with the highest market share. There has been growth. But if you really look at maybe the last maybe 6 months and the next 6 months from now, you will see that a large amount of order intake in glass-lined has been kind of catered to by GMM Pfaudler. And when there was a slowdown or if there is a slowdown, then the ability of us to take business is obviously something that we will definitely try and use as -- because the orders in the market itself are much lower, right? So there is no competition. But again, happy to say that we have been the preferred vendor and continue to remain the preferred vendor when it comes to glass-lined.

The next question is from the line of Koushik Mohan from Ashika Institutional Equity.

Majorly, I have one question on this quarter. Why is that margin has been depressed, any little bit more clarity on this?

Manish, and maybe Alex, you guys want to speak about your respective margin profile? So there's obviously seasonality with the business. And I think what you should really look at both the businesses from a 9-month period because looking at really from a quarter is not really the best way because there is some seasonality, like we mentioned, obviously, Q3 in Europe has the Christmas period and then Q4 had the seasonality of the new payment and the salary cycle, right? Like India has some amount of seasonality as well. But generally, the margins have seen depression because the environment driven by chemicals softness has obviously reduced the glass-lined order intake, which in turn has impacted margins. That's the overall situation, but Manish and Alex, please?

Sure. So I can start off on the stand-alone basis and then maybe Alex can jump in for the International business. So yes, for the quarter-on-quarter, we have reduced by 2% to 2.5% of EBITDA margins. Primarily as we just discussed earlier in the call, the planning pressure -- pricing pressure continues. And as a result, the heavy engineering mix also increases. And also, I think for this quarter specifically, we had a lower export shipments. So that also led to all these combinations to a relatively lower margin. But as Tarak mentioned, probably 3 months or 90 days is a relatively shorter period for all these calculations and understanding. So maybe as mentioned if you refer it to on a YTD basis, we are at something like 13.5%, 14% of EBITDA margin. On the cost saving, as Tarak mentioned, we have been focusing primarily on the factory to reduce every bit of cost on account of material consumption, wastage, scrap and logistics, procurement, all the functions including the SG&A and the fixed cost. That's where we are, and we continue to work on that. But we hope that the full year impact of that should start -- has started keeping in, in Q3 and it should increase in Q4 and going forward in Q1 onwards as well. Alex, you want to...

Yes, I won't add too much. I think Tarak already had something. Manish already said something in general. We have the fluctuation between the quarters. This is mainly driven by the mix of the businesses, so the share of services in relation when it comes to glass-lined, not to the systems. And especially what Manish mentioned, we look regarding margin development more or less on an LTM basis. So the last 12-month basis or the year-to-date basis, however, you would like to do it. And there we see a continuous improvement. And this is for us the key KPI. And therefore, we are not really worried if there's a quarter where maybe the margin is little bit slower -- lower than the previous quarter because on a 12-month basis, we see the upward trend.

Got it. Sir, and my second question is on like when are we going to see a bigger kind of growth coming from our non-glass-lined business and majorly from the mixing business that I'm talking about?

Yes. So just to start off this answer, the non-glass-lined business today accounts for, maybe Priyanka, as of this quarter, how much of total revenues -- what's -- 30-something? I think if there's a significant improvement if you were looking at the numbers today. So compared to 2021, if you look at the contribution of the -- our non-glass-lined business that was maybe early or late teens, maybe around the 20% mark -- sorry, the 30% mark. And today, we are at?

Sorry. Today, we are at around 30%.

Yes, today. And in 2021?

We were at about 25% -- 23% to 25%.

Yes. So about 10% improvement in terms of the share of non-glass-lined business. Now with the acquisitions that we have made, definitely, we will see the non-glass-lined picking up and growing faster because these products obviously are in markets that are growing much faster. They're not as mature products as glass-lined. And specifically within the non-glass-lined platform, we have mixing, which we believe will be a high growth, fast growth market. I now invite Thomas maybe to speak a little bit more about mixing, our strategy in mixing and how we are doing in that platform as well.

Yes, the mixing platform is one part of our strategy moving forward. Diversifying away a little bit from glass-lined and more technology is getting more independent. The mixing opportunity and platform gives us also the capability to tap other markets and applications. And that turns out to be true. The acquisitions are now being integrated into one platform and leading by a specialist that we just hired who came in, and Tarak talked about this one as well in the introduction. And the opportunity is still there. And this is clearly our target, that our overall growth should also provide us with a different mix of product lines. Less glass-lined, meaning not shrinking, but growing the others at a faster pace.

Sorry, just to correct the numbers, I have in front of me now. In FY '21, we had about 45% of our revenues coming in from glass-lined business alone. That today has come down to 32%. And non-glass-lined technologies have grown from 12% to 29%. So you see that about 20% improvement -- 25% improvement in terms of revenue. I mean, in terms of the pie, so the non-glass-lined is nearly as big as our glass-lined, right? So the whole idea of diversification of product portfolio is to shift the focus away from glass-lined. The glass-lined will remain an important part. But again, glass-lined doesn't grow as fast as these other product lines, and non-glass-lined, we definitely see a good chance to improve our growth rate as well as maintaining our profitability. The last thing also to maintain on this and speak about is also the adjacent industries. If you look at the share that we have in terms of chemical and pharma versus the adjacent industries, in FY '21, we had about 84% of our revenues coming from chemical and pharma. Today, it's closer to about 50%, right? So again, as part of our strategy over the last 3 to 4 years, we have completely changed the face of the company to be less glass-lined-focused and really a provider -- a solution provider for the chemical and pharmaceutical space. And now we cater to a wider range of industry segment as well. So as part of this journey, not only have we kind of grown our business in the glass-lined business, but we've also added other opportunity that gives us little bit more flexibility when it comes to 1 or 2 product lines not performing up to the mark.

Got it. Sir, and just this another thought process on the glass-lined. By which year or by any assumptions that we have it, where we can make our glass-lined and non-glass-lined revenues to be equal?

The sooner, the better, I think. I think but the way that is looking, it's not too far away, right? We expect this -- the 50-50 mark to happen in the next couple of years, I would say. If the mixing platform and everything has picked up like we plan, it could be even faster.

Yes. So maybe I would characterize it as -- roughly speaking, we want 50-50. But the idea is not to, let's say, aim for 50-50 each year. It's really to give us that strategic diversification so that if one industry is going down, the other one allows us to continue our growth trajectory, which was not the case 4 years back. And we were very tightly tied to CapEx cycles in chemical and pharma, right? So that strategic sort of diversification is what we have been aiming for, and we believe to a large extent we've achieved it.

And maybe one more thing that we've seen in India. We've seen because of the slowdown in this space, we've seen a couple of glass-lined competitors also shut down, right? So there has been some amount of consolidation in this period because of the lack of business and the lack of demand, you will see some competitors or smaller companies facing a lot more difficulty, right? So from that, there's also this aspect of a slowdown that you must consider. There is obviously pricing pressure. But on the bright side, I mean -- on the flip side, there is also maybe lesser competition that provides something like this as well, right? So that's one of the other outcomes that may be associated with the general market slowdown.

The next question is from the line of Jonas Bhutta from Birla Mutual Funds.

Just a quick question on our backlog. So our backlog is down almost 30% year-over-year. And so it's an indication of the next year sales potential. When -- by when do you think that -- even if to a flat sales in FY '25 compared to '24, latest by when do you need to see those orders flow through so as to we can at least manage flattish top line? Or is it fair to say that next year, top line is likely to remain lower than FY '24 and we could possibly miss our -- we may end up meeting our sales guidance for FY '25 nonetheless because we've done that in '24 as well? But in general, how should one think of next year sales?

Yes. So Jonas, I think, the way that I would look at it is, one, obviously, as management today, we know how important a strong opening backlog is. So the focus is definitely to build more backlog. We are being aggressive, like I mentioned, in the market. We have seen significant orders intake improvement in Q3. And we expect Q4 to be around the similar lines as well. Like I mentioned, a large $11.4 million order will add immediately INR 100 crores, INR 120 crores, whatever it is, into the backlog, right, which obviously goes into next year. Do also keep in mind that there will be spare parts and services that gets kind of billed and booked over the next couple of months, again so that's always incoming. But we do expect the next couple of months to be active in terms of order intake. I think the people across the organization know how important it is. So we do believe that we should be able to grow revenues next year, that's the idea. And we will try and be as kind of aggressive as we need to be to make sure at least that we kind of have enough of orders at the beginning of the year. So from a business perspective, right now, I think the only area where we need to probably bring in a little bit more orders is currently in glass-lined, especially in India. And that's where the focus is. And like I said, we are seeing some amount of improvement in order intake and finalization, right? But we've also taken calls internally to say if glass-lined is not there, let's also make sure that the other product lines have maybe a little bit more higher order intake, maybe a little bit more aggressive in heavy engineering or the proprietary or mixing space, right? Similarly we're looking here in India, for re-glassing and refurbishing and spare part. We're being -- so we're trying all avenues. The idea is to grow our backlog as soon as possible. And even though maybe, let's say, we are down definitely year-on-year, the backlog number where we were probably the highest backlog that we ever had was around INR 2,200 crore. I know it was probably the highest and maybe it was a little bit abnormal, I would say. That's maybe not the usual. It was the highest, but maybe the INR 2,000 crore level is probably a better number to kind of have in terms of what our backlog opening kind of backlog should be like, right? Or what the backlog should be. So I think that's where the focus is. We're not too far away from it. So I think it's achievable. It really depends on how the market kind of plays out. But we do expect and we do hope some very large projects are getting finalized. Thomas, Aseem, please.

Yes. I think you said it rightly, that the focus is on order intake. And we have seen in Q3 also the order intake to improve over the quarter that we had in quarter before. Just the order that from systems that came in of roughly, USD 12 billion is showing us that the decision-making process is now coming on stream again. And that we expect better, larger orders over the next few months. And we believe that the backlog will be at a healthy stage at the beginning of the new year. Aseem?

Yes. I mean, I sort of echo what Tarak and Thomas said. I think in India as well, you would have noticed that Q3 was better than Q2 and we expect Q4 to be better than Q3. So we're certainly focused on driving that backlog number. And where the benefit of diversification is very clear to see, where we are seeing heavy engineering, mixing, our other nonchemical and pharmaceutical-focused businesses really come in and help us get that additional set of orders. So I think we're riding through sort of a lull patch, but we should be out certainly in the next couple of quarters.

The next question is from the line of Omkar Kamtekar from Bonanza Portfolio.

Am I audible?

Yes.

So the first question is with respect to the orders. So I wanted to understand as to with respect to the pharma and the chemical industry, are the management, so like, for example, the PI Industry order that you mentioned that has been received by us. So how are the counter companies whom really we are dependent on, are they at the negotiation table or they're still away from the negotiation table, both in respect of the chemical and the pharma players, and domestic and industrial in the international level? How is that playing out?

So there are definitely more people on the table today discussing and closing than we had maybe last quarter, a quarter before that. Activity has improved here in India. There are currently maybe 10 to 12 large projects that we are now discussing with. So these have been something that have been planned over the last maybe 12 months, 15 months, 16 months and now it's coming back online. So again, people are coming back to the table, this is mainly in chemicals. Pharma has been decent in the last few quarters as well. So there's no -- I mean, I would say compared to chemicals, there's definitely more positive activity in pharma. We are seeing some pharma activity as well and what we hear from some of our main customers is that the new projects are being planned as well. So pharma will continue to do quite well for us. Internationally, are you seeing, Thomas, some amount of resurgence in terms of orders being finalized now?

Yes, as I've just said to the other question that I think the bigger project was a good signal that the decision-making is moving on. And then as Tarak said, we have much, much, much more activity now around decision-making and also new projects coming in. The pipelines, by the way, are remaining very strong in all our segments. And therefore, I think we have good momentum again.

Okay. So the sense that I'm getting is, there are large orders in the line. And they are predominantly pharma facing and chemicals is looking much better. Would that be correct?

I said chemical is looking definitely better. But again, there are a few large projects in the chemical sector that have been lined. But with the market as it is, it can change overnight, right? So before you know it, you might have 30 people waiting for glass-lined reactors. So -- we can't really time it perfectly, but I do see that from what I have been hearing that most chemical companies have now said that they've kind of reached the bottom. I think things are looking better now. Commodity prices have stabilized. They're trying to figure out what they wanted to do, how they want to compete with China. Their customers are now telling them which products they need to manufacture. So in spite of their factories running at 60-odd percent, they are still adding more capacity because the 60% is for existing products and new capacity being built for new products that the customers are giving them, right? So that's a whole different kind of investment that is going to come. And then at some point, hopefully, we also see some amount of replacement and refurbishment business that comes through, right? So now that we have been supplying reactors to the Indian market for the last 15, 20 years and that entire chemical cycle, these reactors are aging. They will come back for replacement and they will come back to refurbishment. So that could be an additional business stream for us. But I think generally, the outlook today seems a little bit more positive. But again, the focus today is to reduce internal costs and make sure that we are ready and we are aggressive in the marketplace.

Understood. Understood. And with respect to the position of the cash, so what is the cash on the books as on date? And those sort of question is with respect to pairing of debt, how -- what is the time line that you're looking at to spare whatever debt we have?

Yes. We have something like INR 275 crores, INR 280 crores of cash in hand as on...

Sorry, sir, don't get that. Sorry, sorry, what was that?

So we have something like INR 275 crores to INR 280 crores of cash in hand. And the net debt-to-EBIT equity, we have something like 0.5, and net debt-to-EBITDA is at 1. And from a debt repayment schedule, we have till FY '28 to be paid, but we are confident to repay much earlier.

Okay. So FY '28 is -- so we might...

That's as per the agreement with the bank, but we are quite hopeful of repaying it much better.

[Operator Instructions] The next question is from the line of Pramod Dangi from Unifi Investment Management.

So my question is on, if you can give the like-to-like sales revenue figure for the International business. I believe there are some acquisitions which are done during the year. So if I look at the year-on-year, what will be like-to-like sales?

Right. So maybe I can just give a broad sense. So broadly, if you see International business has been growing at something like 20%. I think that's what Venkatesh was alluding to in the first question that he made. You can say half of it is growing through the inorganic growth and half of it is coming from the organic growth.

And like I mentioned, please keep in mind that the latest acquisition of MixPro has not been consolidated yet. So this only includes certain acquisitions, mainly just Mixel, I think JDS, HARI...

No, JDS is not targeted.

So only Mixel, really, for that matter. And HARI is small. So I would say, a little bit more, maybe 12% coming from broadly something like that.

Okay, okay. Great. And the 10% growth that you are having on the organic side, is it coming more from the mixing or is it coming from both glass lining and the mixing technology for the...

That's for the International business you're saying?

For the International business, yes.

No. Growth in international beside the M& A, where it's really coming from.

It's coming from non-glass-lined technologies, mainly. So the organic side of the businesses that we already had earlier. And glass-lined was in revenue also growing, working off the backlog.

Okay, okay. Great. And lastly, in the -- any of the orders which we are getting in the international market, also are we facing the pricing pressure in the international market also or is it more confined to the Indian market?

Sorry, I think Alex is trying to say something. Alex, maybe you finish and then I'll answer.

I would like to add also where we see a really good growth is the service business, which should be considered...

Yes. So service also...

Considered a higher margin business.

So service business has done exceedingly well, both America and Europe in terms of budget have been kind of outperforming the budget from a service perspective. Sorry, Pramodji, what was your last question? We missed that.

Yes. My last question was like, as you said that there's a pricing pressure building up in India, prices are very competitive in Indian market. Are we facing any kind of the price pressure in international market as well?

Yes. So it's definitely not like India. There, the competitors are a little bit more, I would say, understanding of the market. And I think the pricing, obviously is probably lower than what it was 1 year ago. But again, it's not down to a level like we see here. It's a couple of percentage points of discount, nothing significant. And like I mentioned to you, because in Europe and the U.S., they don't buy material until they receive order. So that orders have already the pricing kind of priced in, right? So versus in India where we kind of taken orders and new steel that has been pre-procured, here's the procurement happening after the orders received. So that's a slightly different nuance. But pricing internationally has remained stable. And you will see that from the EBITDA margin level as well, they have been pretty stable and growing. So that's a direct relation to their pricing strategy and the ability to keep pricing at a specific level.

The next question is from the line of Venkatesh Balasubramaniam.

I had a couple of follow-up questions. Now usually, what happens is in your international business, in the fourth quarter, you would do -- what I remember is you pay out the bonuses and things like that. And because of that in the fourth quarter, the international business margins are lower than normal. So are we expecting a similar thing to play out in this time, fourth quarter also? Because given that now the business doesn't -- is not in such a strong footing, will we have a similar level of impact in the International business in the fourth quarter?

It's definitely correct. We have in the fourth quarter, there are also some specific impact, as you mentioned. However, as I said before, please compare them to the prior year quarter. And considering this, we are confident that we also are on track with improvement or we see an improvement versus prior year quarter.

Okay, okay. And one last question from my side on services. Now then I remember that almost 40% of your international revenues were services at one point in time. I don't know what it is now. Do your clients go for annual maintenance contracts? Or is it like they give you the services orders on an ad-hoc basis?

Both -- I think, Venkatesh, both things happen. We do have AMC with certain large customers like BASF and Bayer where we have people staying at the customer site and we provide these services with the AMC contract. But more often than not, they are direct kind of request for service and spare parts that we deal with.

In terms of share and structure of our revenue and order intake, we have seen for the last quarter that the revenue is made up 36% up from services. And the order intake, even a bigger portion, is 46% of service. And the key on services response time and the response time in terms of people at the customer's place and having spare parts available that are needed badly.

Okay. If -- just -- one last one from my side. I think I missed it. The INR 11.5 crores ForEx loss in this quarter, why was there a ForEx loss?

ForEx loss factor.

Yes. Usually, I think we also faced this before. We have on this accounting loan which we have an entire company loan between the euro-denominated entity and the USD-denominated entity. And therefore, we have a swing just due to an intercompany loan, which is, it's accounting. It's not really a cash impact. It's just mark-to-market impact. We have sometimes some upside, sometimes some downside, but at the end, it does not really impact our cash position.

So during the quarter, euro-depreciated by 4% and hence there is an impact.

Okay. Now but this -- if this is a mark-to-market kind of a thing, it should come every quarter. So why was this not there in fourth quarter of FY '23, first quarter of FY '24 and second quarter of FY '24? It is only suddenly -- this year, it has come only in the third quarter.

Venkatesh that will obviously depend upon the ForEx fluctuation. If you don't have -- we include depreciation in a particular quarter, obviously you will not have that loss.

Ladies and gentlemen, we would take that as a last question for today. I would now like to hand the conference over to the management for closing comments.

Yes. So thank you, everybody. Just maybe a couple of things that we probably didn't speak about. Besides the cost improvement and the sales and order intake that we are working on. We also are looking at some kind of improvement internationally, maybe some kind of footprint consolidation as well. And here in India also as well we're looking at ways in terms of improving our profitability, when it comes to the glass-lined business. So that's something that we are working on. Like I mentioned, order intake this quarter has improved by about 21%, and we expect that to continue. The focus is on building a strong backlog for next year, and hopefully, we will be able to perform better than this when it comes to next year's performance as well. So that's where the focus is. And we are quite confident that we should be in a strong position to do so. Thank you very much, and look forward to speaking to you again.

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