GMM Pfaudler Limited ($505255)

Ladies and gentlemen, good day, and welcome to Q4 FY '26 Conference Call of GMM Pfaudler Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Raveen Kanabar. Thank you, and over to you, sir.

Thank you, Yousuf. Good evening, ladies and gentlemen. A very warm welcome to all of you into the Q4 and year ended FY '26 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 today, we have with us our Managing Director, Mr. Tarak Patel; our CEO Mr. Gregory Gelhaus, our Group CFO, Mr. Alexander Poempner, our Deputy CFO, Mr. Ankit Nayyar, our Company Secretary, 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 was uploaded on the stock exchanges and also on our website, including our call discussion that will happen now contains or may have certain forward-looking statements regarding our business prospects and profitability, which are subject to several risks and uncertainties. The actual results could materially differ from those in such forward-looking statements. I now hand over the call to Mr. Tarak Patel to provide an overview of the performance. Over to you Tarak.

Thank you, Raveen. Good evening, everybody, and thank you for joining us today. Let me start with a brief overview of last year's performance. We delivered another steady year with a notable increase in revenue by about 10% and EBITDA at about 11%. Our margins remain stable in the year and the India business particularly did quite well. The India business grew revenue by about 12% and the EBITDA grew by about 24% and the PAT margins in India also grew by about 40%. The good news is that order intake continued to remain strong this quarter as well. But on a year-on-year basis, order intake is up 20%. We have an order intake this year of INR 3,714 crores versus INR 3,100 crores in the previous year. Our backlog -- our opening backlog on April 1 is also up by about 34%, which gives us a strong revenue visibility as well. The general economic business environment is not so strong and has been difficult over the last 6 to 9 months. Most recently, of course, you all have been part of the turmoil in the Middle East, which has, of course, kind of created uncertainties and investments going forward. There are definitely geographies within the global sphere that we operate that are doing quite well. We do see also some positive development in certain industry segments as well. But in our traditional segments of chemical and pharma, pharma has done quite well this year, but chemical still remains slow, especially in our India and international markets. Having said that, our diversification strategy is playing out quite well. Nearly 50% of our order intake this year has come from nontraditional industries. So when I say nontraditional, these are nonchemical and non-pharma. So our diversification strategy into these new industries has given us a lot of additional order intake as well. Some of the new industries are, like I said before, semiconductor, defense, oil and gas, petrochemical, metals and minerals. We've also had some organizational changes this quarter. So we have, as of this Board meeting announced Gregory Gelhaus' appointment to Group CEO and Ankit Nayyar will join us as Deputy CFO of the company. With that, I now hand over the call to Alex. Alex will take you through the brief financial performance of the company. Over to you, Alex.

Thanks, Tarak. I would like to say also a few words about the financials, especially focused on first on the extraordinary exceptional items, which we already flagged in the last quarter. There is a minor change. It's an increase of INR 9 crores for our restructuring initiative in Germany. This comes from the fact that we now signed the agreement with all the individuals and it was slightly more costly. However, it also then results in a higher cost saving going forward. And regarding the balance sheet, I would like to focus here on working capital. We were able to achieve an improvement versus the half year, which I think we also already estimated in the last call, so we were able to achieve this. And therefore, we generated a strong free cash flow of INR 367 crores, which is even slightly up versus prior year by INR 49 crores and our free cash flow to EBITDA ratio remained slightly above 90%. We have repaid our long-term debt of INR 60 crores in this year. And therefore, with also the strong cash generation that we achieved in this year. We reduced our net debt to adjusted EBITDA ratio to 0.4x versus 0.5x in the previous year significantly below our target range and the net debt to equity also remains low with 0.5x. If we come to the outlook, we have a really strong backlog, as Tarak already said. So this also gives us some comfort for the year just started. However, as already mentioned in prior calls, there are also still some territories which are impacted by the ongoing crisis due to the tariffs, due to the new Middle East conflict and the general geopolitical tensions uncertainties. So we are confident, but we also do not want to be too bullish. We are also benefited from initiative of restructuring measures with at least [indiscernible] our profitability. This is all from my side as of now. Therefore, I hand over to Raveen again, and we start with questions.

Thank you, Alex. Yousuf, you may now open the line for the questions.

[Operator Instructions] First question is from the line of Sagar Shah from PWM.

Sir, my first question was related to our margins actually in this particular quarter, obviously, our revenue growth was quite good, but almost 7% sequentially, 17% Y-o-Y, but there was some serious derailment in margins actually. And more than your other expenses looks like your gross margins have made even on a stand-alone and even on a consolidated level. Our consolidated level stood margins at 55.4% and as compared to Y-o-Y as well as sequentially has dropped down. So first of all, I wanted to know what was the reason behind the same? And what are the sustainable margins going forward that we can assume actually so that's what my first question, sir.

Yes. So let me start off by saying, I mean, just looking at one quarter in isolation will not be fair for the company. We are a manufacturing company so we will have a little bit of fluctuation in margin especially when we have a very wide range of products, right? So sometimes we have shipments and dispatches that come from maybe a lower kind of margin business and some quarters we might have -- the mix of the products we definitely play a part in that. I don't think it's -- we don't believe that this is something that will continue. It's probably a margin very specific to this quarter. We would like to at least maintain or grow margins in the next year. And even for the full year basis, if you see, we are still an improved -- we have still improved over previous year, right? So our EBITDA value has increased from about INR 361 reported last year to INR 403 and even the margin percentage has gone up by 1 percentage point on a full 12-month basis, right? So again, I think the foundation is in place. It's been a tough year for us. There's been a lot of multiple different issues that have impacted our performance. I'll just again highlight some of them. There's already a general slowdown in chemicals, especially agrochemicals, so that has impacted us. Europe for us has been slow. You know the story in Europe in terms of the new investment. However, I would like to add that the large orders that we have received and the order intake has actually also come from Europe. So even though Europe, the execution, the performance was slow, the order intake from Europe is much stronger this year, which obviously sets us up nicely for next year. From a margin profile perspective, I'll maybe let Alex speak a little bit in terms of what the expectations are next year and what specifically happened this quarter.

Yes. Look, thanks, Par. And as Tarak already mentioned, if we just look at one quarter, it could be a little bit misleading. I think we stated once in the prior call that it's better to look on an LTM basis to always a 12-month period because then at the end, you do not see the big fluctuations, which are coming from the share of the different businesses in the quarter. And in general, we improved versus last year. We were also able to increase our margin. We significantly increased our order intake. So we are confident to see further improvement in the next year. We have a really solid basis based on the backlog that we have, based on the operational improvement that were initiated. So on a constant basis, we expect an improvement, which we already started in this current, I would say, difficult economic environment.

Yes. So just to add to that, there has been significant work that we've done in Europe in terms of taking out costs. So the German factory, which we have downsized, rightsized, we have reduced people there, which will definitely benefit us a little bit next year and obviously for future years as well. We've also rightsized some other operations within the European continent to make it more efficient as well. Our Poland facility is now up and running. So that should also help as a low cost for Europe. We shut down the UK and the Hyderabad facility here in India. So we are working through a much more efficient cost structure. There are still [indiscernible] that we are working on and will not finish all the work. But if the volumes were to return and with the backlog that we have now, we do believe that next year, we should definitely improve from this year.

I agree, sir that you have a very solid order backlog and you have done the measures to actually curb the cost. But I wanted to understand particularly in this quarter so is the increase in the glass lining business has led to the derailment in gross margins? How can we read. And secondly, the guidance for FY '27 and FY '28, what are the stable state EBITDA margins that we can target, sir.

Okay. So a couple of things on this. I think there was a large AG order that was shipped out this year, which could have impacted the margins. That was one. Number two is that we probably had a little bit of increases in some of our costs, which was a result of the gas prices going up and metal prices and stuff like that. But that has now stabilized. So we should be okay. And looking forward, I think what I can say now is that we had with our Board yesterday a strategic plan meeting. We've outlined some basic 3-year plans, and we are in a good position to come to the market in the next few quarters. Again, we would like to come when we have a little bit more confidence around just the general business environment, but we have something in place now that will at least give us some visibility and vision for the next few years, right? So we are preparing. I've spoken about this before. So we are there now in terms of at least the ideas, the initiatives, the broad level numbers. And now we will find the right opportunity to come to the market and explain to you what we are talking about and what we are trying to do.

We improved versus last year. We look on a 12-month basis, the continuous improvement. We really were able to improve order intake significantly. So when we are stating, we are confident that also next year will look better. We feel really comfortable to say this. But really on a quarterly basis, it's tough to say how each quarter will develop. So really let's focus on 12 months and be confident seeing the order intake, the backlog that we have, the restructuring measures initiated. So for the next year, we are really confident to see further improvement.

Okay. Sir, my second question, sir, as you are seeing a very good outlook for the next 2 years, so what would be the drivers? I understand the diversification beyond chemicals, pharma disclosures that you have given on investor presentation, that is one of them. But I wanted to understand that what would be the drivers within the non-glass lining technologies, whether it be industrial mix thing or whether it will be some add-on services business or where we will see some super natural growth, which will actually help GMM Pfaudler to or at least from double-digit growth in the next 2 years. I mean in terms of revenue.

Yes. So I think there are a couple of things that we would like to speak about here. One is that when we speak about the 3-year strategy, the vision of the company, we've broken it down into 3 big buckets. One is growth, right? Growth is going to come from multiple different avenues. Growth can come from share in market share. It can go from region expansion, it can go by selling into new industries or some new phenomena that comes in, which drives a further more requirement of a specific product, right? So growth is something as a company that we'll be focusing on and not every product of ours will grow. Of course, like a glass line business of ours where we are a market leader, we have a very high market share. The growth rate there will be slower than, let's say, a heavy engineering business where we have a small market share, and we have multiple different industries that we cater to are currently growing. Mixing could be another growth area for us. But again, because mixing, we have a global organization and it caters to multiple different industries, we had growth there, right? So growth is definitely something that we are planning. But again, I can't say one product or one industry will drive growth. It's going to be multiple different levers across multiple different products. So that work has gone in. The second part is cost, right? So as a company, we are the technology leader, can we also become the cost leader. So a lot of work that we've had, we've inherited a lot of cost in Europe and those geographies obviously are not growing as fast as we would like. So the only option really for us is to create a much more efficient cost structure in these geographies. So that's what we are working on as well. So you've seen that also happen last year. So that gives us confidence that next year, we are operating with a much lower cost structure, right? We could say that things are fine and we expect Europe to come back in a big way and have 20% growth year-on-year. Realistically, I don't think that's going to happen. If it does happen, fantastic, we have more orders at a lower cost structure. So we'll be happy with that, but we are not building our plan around some of the geographies, right? And the last is organization. If we want to win, if we want to operate in the multiple different geographies in the different industries, we have to kind of reorganize and change behavior as well. So going from an international Indian organization can be really aligned by product, by vertical, by industry to really drive some of the growth, right? So a lot of work has gone in, a lot of work is going in and growth is a very important part of our business. We do keep in mind certain geographies will grow fast, some will grow slow, but we do believe that we have plans in place to help us grow at least double digit over the next whatever 3 years or so.

Okay. Just last one, sir. You had guided for a closure of the China plant, you were working on that while the last quarter also you mentioned to curb down the cost further because due to lack of business there. So any color on that, sir, part?

No, that's an incorrect statement. We have never said anything about closing our China facility, it remains a very important part of our business. We have just looked at maybe taking some cost out with the slowness in the business. But as of this quarter, some of the business has come back in China. We hope that will continue. So I don't see China closures or any cost reduction there to be a big part of this year. If anything, we expect China to do okay.

Next question is from the line of Kunal Mehta from InCred Equities.

I know it's a tough time right now. And just 2 questions. One is on the tax. How are we on that? How are we working on [indiscernible] tax -- even this quarter, the tax has been pretty high. Are we -- again, is it the Luxembourg entity which is still not solved? Or are there more further complications in other places as well? And the second question is we were to change the way we report our segments. So are we going to be doing it from next quarter onwards? Or I mean what is the plan for that? Because we had -- last time we met you in the conference, you said that the [indiscernible] tech engine process performance and systems. So we'll be reporting it in that way. So will we be doing it from the next quarter onwards?

Yes. So I think a few points before I let the technical answer come from Alex. One is that like you started off by saying it's a tough time. It's not -- I mean, it's definitely not as tough as what it was 12 months ago, right? So I think as management today, we are confident that some of the work that have gone will definitely bear fruit in the near foreseeable future. I think that the market itself also is showing some positivity. I just hope that some of this craziness that is happening around the world, if that were to stabilize, I think things can look very, very different. So we are positive, again, like I'm saying, it's part and parcel of life. We're not going to have every quarter where we're going to grow by 20%. There will be good quarters and bad quarters. It's not going to be just smooth sailing going forward. And as a good company, I think mitigating risk, identifying risk and issued. And even for look back and we are a large company, INR 3,500 crores for a manufacturing company is not small. And to have that much order intake coming in this year, especially when our core industry, our traditional industry were not growing that fast, I think that is a significant achievement, right? And these sectors until 2 years ago, we were not even speaking about, right? To get an order of INR 130 crores from nuclear or getting a INR 30 million order for some asset recovery are not normal. We have worked hard, we have put in and we were there at the right pace to capture this. We could have very easily said, hey, everything is slowing down, so we will degrow. So even in a tough year, we have grown 10% revenue. And what's even better is our profitability at EBITDA level has grown at the same rate or slightly better, right? So we haven't lost a lot. Yes, there's a lot of work to be done in cost in Europe. There's a lot of work to be done in our restructuring, and I'll let Alex speak about that. Alex?

Regarding the tax. The tax [indiscernible], I think it's coming up regularly, and we already work on it. And if you take a comparison here on the quarter, you already see an improvement in the internal connections. Nevertheless, it's not there where it should be. And it's coming mainly from the Luxembourg entity, fully correct. And we are working on this. But this, unfortunately, does not go so fast. It requires some time. But as said, as you already -- as you look to the quarter comparison of the tax rates for the international business, it's already improved.

Yes, maybe you want to also talk about the FX and something like that we are on anything that we're doing for...

Yes. For example, this is one, I think it was also mentioned in prior quarter, there's one intercompany loan which we had between the German entity and the Luxembourg entity, which creates some FX exposure, which also could impact the result. And this also triggers or could trigger some additional tax expenses. And there, we -- especially in the beginning of the calendar year '25 and the beginning of our financial year, we saw a negative impact and this drove significantly this strange tax rate. However, as you -- if you look to the international business in the last quarter, you see a tax rate in the 30% area, which I think comes already closer to the expectations. And we are working on it to get this also settled in the coming financial year.

Okay. Great. Just one question. How are we placed on the order contracts? Do we have a pass-through how much of raw material input cost that [indiscernible] can pass through to the customer?

So it depends on the contract fast-moving contracts, small contracts, you can't -- in any case, we buy material to stock for our glass line business. So there will always be that discrepancy, but sometimes it helps us, sometimes it doesn't, but it's not a significant impact. Some of the longer-term projects have built in expectation clause, heavy engineering, some of the system contracts will have that. So if we kind of go above or below that 5% threshold, we can go and ask for more or we can ask for [indiscernible] situation. So that's something that we have. But -- and mostly internationally, most material is only ordered after the order comes in. So that material cost is already priced into the cost of the product.

Next question is from the line of Praveen Kumar from Equitas Capital Advisors.

I had a couple of questions. The first one was I was trying to understand the commentary on -- when Alex was referring to the fact that he sees that you -- that the management is confident but don't want to be too bullish. And Tarak, yourself were also referring that you would want to defer guidance until more clarity emerges, we want to come back later, right. So I just wanted to understand, on one hand, you have a very strong order book and order intake that seems to be going well. But on the other hand, of course, there are macroeconomic uncertainties related to the war and other issues, right? So I just wanted to understand your reluctance to provide guidance. Is it more driven by worries that some of these projects could get -- the orders could get canceled or delayed or whether the margin on those could be volatile? Or I just wanted to understand, double-click and understand further on that. That's my first question.

If you currently see the economic environment, I think we all agree that a lot of uncertainty is going on. I think in the last conference call, we were not aware of the crisis in the Middle East. If you now look to our order intake, it increased by 20%. If we would now just say, okay, the order intake give some guidance for the next financial year, I consider this to be too bullish. Why? Because some of the order intake is also coming from businesses like the system business, which does not have the direct conversion into revenue. Some of the bigger orders that we gained, that will be converted over 2 or even 3 years into revenue. So this is a little bit the intent to not have an expectation that we will improve by 20% next year and maybe EBITDA improvement is even higher. We are confident we will improve this year. I think we are fully on track what we said. We just don't want to be too bullish. We would like to be realistic. As I said, I repeat myself, we will improve. We have profitability improvement and cash flow will improve the restructuring measures initiated. We will have, I think, a solid year again, but will be impacted by all the economic situations. If there's something else is coming up, of course, we will see it.

Yes. So just to finish on that point, I think the apprehension is not about giving the idea is -- so we were hoping to come to the market the plan was August, September. With the current prices in the Middle East, we probably would still like to hit that date, but not that a couple of months more. But this year we do believe that we should be in a position if everything goes smoothly to articulate our strategy, our 3-year vision to the capital markets. We've seen other companies do certain things. And if we don't achieve those numbers, then that also, right? So we want to be realistic. At the same time, we want to be smart about it, right? The last thing we want is to come out and give a number and then not achieve it. So I think it's the right combination. But again, as management, the last couple of years have been tough, a lot of work on it. Even for us to build more confidence, we would like to see momentum build some good quarters. And the idea is to have improvement every year, right, from not only the internal performance, but things like taxation, FX, loans, everything, right, cash flow. So across the board, we are trying to improve. And I think when we're ready to give that number, we will do so. So we're not afraid to give that number, but we want to have more confidence before we do.

Understood. My second question was on a broader question on the disclosure and presentation itself, right, over time. See, over time, as the business has evolved and now as you yourself mentioned, a large -- reasonably good part of the orders are coming from orders as well as revenues that are coming from nontraditional industries. So -- but the presentation format seems to be still somewhat kind of indexed to the older kind of business model, right? So I just wanted to get your thoughts on that.

That will change, I know you're talking about sorry to interrupt, but we don't like to change something during the year. It will be to change it now in Q4. But next quarter onwards, you will see some different stuff. We are reorganizing. We have a new organization in place. We have new ideas. So we will come to you with that. You will get more information. It's a work in progress, and we are going to come at least next quarter for sure, with a new reporting system with much more clearer data where you can track different things. So it is something that we are working on.

Understood. And just one follow-up to what Alex was saying earlier on the order intake, if I look at the overall order intake, it seems to have been largely helped along by a large systems order intake uptick, right, whereas the rest of the orders were probably low to mid-single-digit kind of a growth. So just wanted to understand your thought process on the sustainability of this because quite a significant part of the order intake has come from -- the increase has come from systems, right?

Yes.

So that's absolutely right, 2 large orders in systems, one in the U.S. and one in Eastern Europe. We are still in the process of many more opportunities in this space in Europe. We currently have open opportunities, and we believe that, that should at least generate $20 million to $30 million of order intake per year over the next few years, right? It's not only a European play. We see that happening in more geographies. We are now in talks with Indian companies as well to look at the same technology for India. And I think that's going to be at least maybe one of the growth areas for us globally, not only in Europe. The other businesses, which were traditionally focused -- I mean, they were more traditional in nature, more dependent on chemical and pharma. Chemicals has definitely been slow. You guys know this Europe chemicals is definitely slow. BSL, you hear people shutting down facilities. So it's not something that is growing at 20% for sure. India has also seen some slowdown because of agrochemicals because of overcapacity in China. But the good news is the last few quarters, whenever we speak to owners, promoters, management, the volumes have come back. So you have seen a spurt of new opportunities that have been finalized, large orders, and you are seeing something more happening now as well. Pharma in India is still being driven by CDMO, so they're doing quite well. Internationally, pharma has picked up also because of GLP and the other drugs and also localization. And the American market is also something that we are quite bullish on. Hopefully, some of the deals that Mr. Trump has signed will translate into new investments, which benefit us. But having said that, again, the general uncertainty, the tariff situation, just the mindset today is not down grow investment people are more cautious, and we would like to be a little bit more cautious right now, not trying to -- it's a tough environment for sure. And it's something that we will have to work around, and that's probably the new world order how things will operate in the future. But I think for us, I think we do believe that growth will come from these nontraditional industries. But again, we have to focus more and build an organization to capture more and more of these, right? But yes, the work is definitely is happening, and we believe that this is a growth opportunity for us.

Next question is from the line of Anil Shah from Insightful Investment Managers.

Yes. I just wanted to check with you on your cash flow statement on the consolidated cash flow that you released, there is a line item for unrealized foreign exchange fluctuation loss of about INR 72 crores. Where would that be sitting in the P&L, please?

It's in the OCI. You don't see...

Sorry.

You see it in the OCI.

And in the other comprehensive income or okay. In terms of the INR 137 crores that you talked about, is that where it is sitting?

You do not have one single line in the P&L. You see it everywhere because the FX is impacting several lines in the P&L. And it summarizes...

Understood. My second question to you is, I mean, in the sense, when we look at your P&L account, we continue to see pretty large finance cost for the year. But when I look at your gross debt and then I look at the cash on hand, the net debt is actually not that much. So clearly, the interest income that we earn from the cash seems to be meager to nothing, but we are really paying up for our loans, whether it's long-term or short-term. I mean what use is this cash INR 600 crores plus that is just sitting in terms of cash and bank balances? I mean it just doesn't make sense from EBITDA to PAT, the flow-through just is very, very legal.

Yes. There are several impacts. First, you already talked about the FX fluctuations. And if you remember, before to a question, I explained the one big intercompany loan that we have between the entity in Germany and the entity in Luxembourg. And we have an FX fluctuation, which you also see there in the interest due to the intercompany loan. Additionally, you are also right, we have a lot of cash on the balance sheet. It's too much cash and usually, you would repay the debt. But currently, we have our financing agreement in place till 2028. We will restructure this, and this is also a part of the general tax restructuring, which I answered before. We could not do it within a few months. It's intended to do it in the next year. But unfortunately, currently, we have to live with this.

I'm sorry, but there are many companies in India listed companies operating across the world. I haven't seen this kind of a flow-through from EBITDA to PAT to be as neither as this and particularly on the interest side. I mean, net debt is about -- if I leave out the fund -- the pension fund liabilities, which anyway is a year-to-year change, you're not paying interest on it on a yearly basis. It's just -- I mean, our net debt would be less than INR 200 crores today in March '26, but I still end up paying INR 120 crores, INR 130 crores of interest and...

I'll jump in. You're right, absolute right. It is a work in progress. We already got some approvals for restructuring. It's ongoing. But do keep in mind that this was inherited because when we acquired the business was structured in a certain way. The restructuring also comes at a cost. But we are working to reduce and improve the flow through from EBITDA to PAT for sure. You will see some improvement also next year in the coming quarters as well. The work is going in, but some will take a little bit longer, but we are on this. So we understand the concern here and we're definitely working on it. And now we obviously have Alex also supported by Ankit who has joined us as of May 11. So they will work together to create the right structure and the right efficient movement of EBITDA...

And as such, as Tarak said, unfortunately, we had it since a few years. You could not get it settled within a few months. The plan is there, the Board approval is there to change it. And it's coming from the intercompany loan we manage, we already mentioned and from the setup with the Luxembourg entity. We are not properly set up there, but it takes me a while to clean it.

[Operator Instructions] Next question is from the line of Rushabh Sharedalal from Pravin Ratilal Wealth.

Congratulations on a good order book in this tough environment. I again want to pick up from the last participant who had alluded to the fact that you currently have almost INR 680 crores of cash. And on the other hand, our debt is increasing. So I do understand that some of these would be through the acquisitions that have come to our balance sheet. But sir, if I just look at your cash flow statement, since the last 2 years, you have been generating a lot of cash flow. So almost INR 380 crores of cash flow in both years. So cumulatively, if I look at that, it's almost INR 720 crores, INR 730 crores plus of cash flow that you have generated in 2 years. And is it -- why is it taking almost 2 years and still our debt is going up. So can you just give a timeline as to when do you plan to reduce it? Because I think that INR 122 crores can literally flow to our PAT and improve our earnings. And sir, I believe that 2 years is a reasonably good time for our management to realize this. That's my first question.

And I agree that look, we are on this. We will reorganize the financing within the next year -- this is something which currently is in place. However, what you should also not overestimate, we have a lot of these big contracts, they came with prepayments of customers. And therefore, a lot of cash that we have on the balance sheet, we require to finance these big orders. We discussed especially the systems business. We received a lot of cash, which we now have to use in the coming months to finance the business. So currently, the balance sheet looks really strong, but let's not say that we generate this kind of cash also going forward. Yes, we also still need some cash.

Right, sir. So I got your point, but can you give some numbers as to what kind of debt profile would it look for FY '27 and '28? And based on that, what will be our interest cost for the coming 2 years? -- at least some directionally, if you can give something or some range or a number would also be good.

We will repay or intend to repay easily USD 20 million from the international -- from the group, let's from the group to reduce the cash and reduce also the debt position. This could be easily done.

Right, sir. So we can assume at least INR 200 crores of debt coming down in FY '27.

This will not be there as of March. The challenge that we have, we have a structuring in place and we also have some financing arrangements in place, which were signed, which came also with the transaction. And it's because we have to check with other parties, we have to check with tax authorities, and I could not get it implemented just within a few months. I know that it takes long, but unfortunately, to change these setups, it takes a little bit longer. It was inherited, and we are working on this. We get some board approval to continue now with the proposed measures. But I do not want to confirm that it's -- matter is solved by end of this financial year.

Okay. So let me maybe just -- because it's a long conversation. And I think from a management perspective, I need to just highlight a couple of things. One is that certain -- do keep in mind the complexity of the scale and size of the operations we have. We have about 18 jurisdictions. So money is there. It is in different jurisdictions. We need to be smart about it, and we are trying to reduce obviously the debt position. If we have cash, there's no point for the cash to sit there and earn interest, right? So these are all things, like I said, besides operations, besides the growth, besides the cost besides the organization, there are also low-hanging fruit in some of these inefficiencies that we have in the system. We are working on them and you will see some improvement, right? Right now, we don't see it because we need time also to first understand the situation. We brought in a big 4. We spent 6 months to identify the ways that we could do it. We looked at multiple different options, some cost us money, some don't. So it's not as easy as saying, okay, let's move INR 400 crores from this jurisdiction to this and pay it off, right? So it is a bit complex. Maybe we are a little bit slower than we should be, but let's do it right. But the intent is there to clean that up once and for all and not have a situation where we do because we as management also and part of this. Sometimes we feel that with the hard work that we do at a business level sometimes doesn't show up at the earnings level, right? So we are working on that. I mean we can't change what happened in the past, but the idea is that we change what we can do in the future.

Right, sir. Right, sir. My second question is on, again, the European operations. So we have completed significant restructuring actions in Europe, especially the closure of the UK Leven facility and there was some workforce rationalization that we did across Germany, France and Switzerland and the commissioning of the Poland plant at a very low-cost manufacturing hub. But we did have an exceptional item and somehow or the other, either a small number or a large number, but an exceptional item keeps coming. So my question specifically is that how much more exceptional items should we expect going ahead? And once this -- the rationalization has already been done, so can you just quantify the annual run rate cost savings that we expect once these actions are fully absorbed, both in terms of the absolute terms and also in terms of improvement in the international EBITDA margins, which are currently at 10%?

So on the one-offs, I don't think we will have anything significant next year. I can't say right now. But as of now, there is no plan. Most of the stuff that we wanted to do has been done. So there's no specific plan right now to do anything in terms of onetime costs, right? So I don't see that hitting the P&L next year. In terms of the cost savings, I think we had mentioned something the contract has said we added about 4 or 5 more people to that restructuring as well. And we could probably articulate some savings. They start over next year and really materialize as and when people retire. So we could share something. Yes, Alex.

In fact, we would like to share that we saved with this initiative, INR 45 crores on an annual basis. the German restructuring. And I echo what -- it's exceptional. Yes, you're right. We had last year exceptional, we have this year exceptional. Why do we have it? Because we really shut down sites. And this, of course, will not continue. There's not a plan to do something. But of course, depending on the environment and if we think we have to improve here and there and we initiate another big restructuring measure, we will report it as a one-off item, but then you will also see additional cost savings in the future. As said, Germany therefore, we see INR 45 crores improvement.

Sir, sorry to interrupt. Just wanted to get a clarification, the INR 45 crores that you alluded to the number, that was an exceptional item in the Leven closure alone cost, right? So when we say that we have made the...

No, you're talking about the German [indiscernible] that we spent this year.

I think we have exceptional in this year, we have INR 65 crores. This consists of the restructuring, mainly severance costs in Germany as well as the impact from the labor codes in India. This INR 45 crores that I mentioned, this is an improvement, the cost saving going forward in the international business in Germany. So in fact, the costs that were taken out with this restructuring initiatives.

So the normalized EBITDA for the international business currently for this quarter, it was around INR 50 crores. But if I even look at the annual EBITDA number, it's around INR 260 crores for this quarter for the international business. We can expect that to be anywhere between INR 320 crores to INR 330 crores. Is that a fair assumption?

So what we're saying is if everything remains the same, if business continues, margins continue, prices don't increase, everything is the same, you will see that savings coming through and adding to that number, yes. That's an ideal situation, but there could be some other savings that might come up, pricing might increase, it could increase to that. It might decrease a little bit, but the savings in terms of what we pay people, the salary that goes out will be...

Right. Currently, if you start with INR 260 crores, INR 264 crores EBITDA this year, you have to add the INR 45 crores to come to a like-for-like comparison just based on the restructuring measures. But as also Tarak mentioned, we will not get everything directly from April because some people will leave during this year. The INR 45 crores is the full year impact.

Next question is from the line of Dheeraj Kumar Reddy from AlphaSqr.

Yes. Sir, I have 2 questions. The first one being in the last quarter, I remember you mentioning our sustainable operating margin structure. I understand there are some gross margin issues this quarter. But if we have to understand our sustainable operating margin structure, how should one think about it maybe if not next year, probably 2, 3 years out, what is the management vision there?

So company of us in engineering, we believe that a 15% EBITDA margin, if you look at some of our peers, that should be something that we should definitely aspire to. So we are today at 11.5%, 11.4%. And we believe that in the medium term, that is a number, at least at a minimum that we should achieve, if not more, right? If our initiatives work out the way we plan them, if the growth comes in, if the order intake comes in, there's no reason why we should do it even faster. But again, general business environment today is a bit slow. So it does take a little bit of time. But we do believe with the current -- this year's also initiatives, we believe that next year, we will improve again, right? So yes, it's an improvement that maybe some of us feel is a bit slow. But keeping in mind the current situation, I think it's a steady performance this year. But again, next year, again, like you said, people would like to see improvements and some of the improvements which are within our control, they would like to be done faster, right? So we are working on those. But I think a 15% margin is something that we should definitely be targeting. And I think management and my colleagues feel I think that is at least a minimum that we should be consolidated level, right? At a global consolidated level. So within that, you will have certain products maybe earning a 20% EBITDA margin and some maybe at a 12% EBITDA margin. But blended rate, we believe a 15% margin would be achievable.

Okay. This is slightly lower to what we had expected last quarter. If I remember it correctly, last quarter, it was more like in the range of 16% to 18%, if I'm not wrong.

Yes. So again, we are taking a 3-year view. So the idea today is again to be cautious and to be, I would say, we are optimistic, but again, promising you something and then not achieving it. So the idea is to get to 15% as soon as possible. If that timeframe becomes faster, then there's no reason why 16%, 17% should not be achievable, right? So...

No, no, makes sense. Makes sense. Right. I think I'll just ask my second question. Sir, fundamentally, any company will drive their growth in 2 ways, right? One is through existing products. And the second one is the new products, right? So I know that now GMM is working in the areas of semiconductor and nuclear. So just wanted to understand like what are the kind of products which we are working and who is the typical customer? What are the end use cases here? And how do you see this vertical growing for us in the -- if not like next year, probably a 2, 3-year view? And what are the typical margin structures like are these higher-margin products? Yes. So I think this is the question I had.

Yes. So just to maybe -- so this is maybe a slightly different way to answer the question. So continuing on the strong order intake for last year, in spite of the current situation, we do see a good amount of traction also in Q1. So order intake is continuing to be of a decent level. So that's definitely a positive. Again, this quarter, we've seen a nice order coming in for Edlon in the tune of $8 million, $9 million. We've had a large order in Asia, in India as well for our heavy engineering business. So order intake is coming in and like I said it's coming in from the nontraditional segments of, for example, defense, oil and gas. We've got some international export business as well, right? So these different industries are definitely driving a little bit of growth. Our current markets of pharma have also seen some improvement here in India. The CDMO is picking up like I told you, the peptide play is also adding to that. Chemical, unfortunately, has not seen significant improvement. We are still kind of waiting for the big projects to line up, but still they are a little bit fewer in between. So I think that's a concern. But generally, some of the slowdown in chemical from the other industries.

No. Got it, sir, my question was more in the line of what are the applications in semiconductor and what are the end applications over the typical customers you're working with and what are the typical operating margin structures?

Yes. So in Edlon our business, we have maybe the big focus on semiconductor where we work with Micron, we work with Intel. We work with all these companies who manufacture fab and chips and things like that, right? So because they require very high purity linings within those vessels where they do these kind of chip manufacturing and things like that. So the who's who of semiconductor. But today, Edlon, if you remember a few years ago, it was a $10 billion business. It was put up for sale. And as this market turned and semiconductor started booming, we decided to keep that business within the group. It's now a $25-odd billion business, high-margin business and good growth as well. So that's the application. Edlon also now is seeing some traction into the nuclear industry in the U.S. where they're making glove boxes with the same material. So that's another area that we are kind of trying to get into. The third part for the other products where I think we've done a lot of work in diversification. We have a lot of new emerging kind of technology like lithium extraction, battery technology. We build systems for that. And then in our mixing technology business, we've done a lot of work with metal and minerals. So both our South American unit, SEMCO has done exceedingly well. This quarter, they got another large $12 million, $13 million order for agitators as well. And the MixPro in Canada also based on the same investment going into metals, minerals is growing quite well and highly profitable, right? So there are different pockets around the world that are doing quite well and generating good order intake. The chemical traditional markets of chemicals are a bit slow in battery. Hopefully, that will come back.

Next follow-up question is from the line of Kunal Mehta from InCred Equities.

Just a couple of follow-up questions. One is the other intangible assets in the balance sheet has grown about INR 150 crores to INR 160 crores. So can you -- if Alex can maybe just guide us how the acquisition has been distributed on the balance sheet? How much is for goodwill, how much is for the intangible and how much assets, the property, plant and equipment.

Yes, we can probably better if you just connect directly, we can share the working with you because on the call, you might get some different numbers. So probably better to get these details, it's easily available. I think Raveen can share with you. So just reach out and we'll share it.

Sure, sir. And just one on the provisions. Provisions also have increased by INR 110 crores -- so these are the pension liabilities have increased provisions?

So this is just -- you asked regarding the pension liabilities on the balance sheet.

Yes.

Yes. No, this is coming just from a different interest rate. It's a valuation which was provided by the actuary, but the plants are closed. So in fact, we have regular there are some fluctuations, but this is just driven by the assumptions by the interest rates maybe. And just coming back also regarding the intangibles and goodwill, I think it was provided. You see it in the papers and the amount, the new amount is coming with the SEMCO acquisition and partly Inox. So the 2 acquisitions. But the split, I think you also see here.

Okay. What is GMM Inox. Can you...

That's a Poland facility that we incorporated this year -- Poland facility.

And do we plan to acquire 100% of that in future?

Yes. So we are...

Yes, go ahead, Alex.

We have the possibility to acquire at one stage. But currently, we have a strong local partner. And currently, it's not the interest to increase it to 100%.

And how much is the capacity utilization over there right now?

It's full. It's completely full. We need to build another 2 shares as soon as possible.

Yes. Currently, we -- this acquisition, we invested more or less it was a cash investment to get the 51%. And now we are setting up, we are increasing the site. And as mentioned before, it's more or less to set up more production facilities for the other sites in Europe to also benefit from cost savings...

Okay. And how much revenue from Vatva facility, the heavy engineering, how much revenue has been done this year?

Heavy engineering, I think INR 300 plus crores.

And all is domestic, right?

I think we would have had some small export component, but not major. But the new orders that have come in, there have been some good export orders. But for last year, I don't remember them having a very large export -- maybe a couple of ones to the Middle East, but nothing significant. But yes, generally mainly domestic, but the current order backlog will have a little bit more exports. -- you're talking about the Vatva facility, right?

Yes, yes.

So that's grown year-on-year double digit. It has grown for sure. So -- and the plan there is to continue growing as well because that's one business line that has the leg for growth.

And we can do how much revenue from there about INR 600 crores from current.

No, I think from the current facility, we can -- we could expand a little bit more there, but I think around INR 700 crores to INR 800 crores can be targeted from that facility with some more investments, small investment. More than that, we will be a new facility.

And this will be...

Ladies and gentlemen, due to time constraint, we will take this as the last question for the day. I now hand the conference over to the management for the closing comments.

Thank you, Yousuf. Thank you, everyone, for joining us today. It was a pleasure interacting with all of you, and we look forward to many such interactions during the course of the year. Take care and see you soon.

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