GMM Pfaudler Limited (505255) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to GMM Pfaudler Limited Q2 FY '27 Earnings Conference Call. [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, Anu. Good afternoon, ladies and gentlemen. A very warm welcome to all of you to the Q2 and H1 FY '27 Earnings Call of GMM Pfaudler Limited. The earnings presentation was uploaded on the stock exchanges yesterday 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 Group CEO, Mr. Gregory Gelhaus; our Group 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 that was uploaded on the stock exchanges and also on 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 several 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. Tarak Patel, our MD, to provide you with an overview of the performance. Over to you, Tarak.

Thank you, Raveen. Good afternoon, everyone, and thank you for joining us to discuss our Q2 and H1 FY '27. Before we begin, I would like to wish everyone a very happy and prosperous Diwali. May the festive season bring happiness and success to you and your families. I am pleased to report that GMM Pfaudler continued to demonstrate strong business momentum during the quarter. We recorded the highest ever quarterly order inflow in the company's history, crossing INR 1,000 crores for the consecutive quarters and reaching INR 1,200 crores with strong India order intake of about INR 483 crores, also being the highest ever and more than double sequentially. This reflects the strength of our technology, customer relationships and market positioning. The performance was broad-based with all four business divisions contributing to order growth. These orders are coming from investments being made in pharmaceuticals, especially in CDMO, peptides, petrochemicals, fertilizers, defense, energy, [indiscernible] minerals. While the external environment remains challenging in certain markets, our diversified portfolio, strong order pipeline and established technology capabilities provide a solid foundation for growth. On sustainability, I'm pleased to share that CRISIL has awarded GMM Pfaudler an ESG score of 61 for FY '26, placing us in a strong category compared with a score of 50 in FY '25, which was classified as below average. The improvement reflects the progress made in strengthening our ESG framework and integrating responsible business practices across the organization. Restructuring. Let me turn to our broader transformation program. Our objective is to build a globally integrated organization with stronger accountability, simpler decision-making, better resource utilization and a more competitive cost structure. We have made good progress in moving our four divisions towards a more integrated global operating model. This structure allows each division to focus on its business priorities while leveraging the group's technology, resources and capabilities. An important part of this transformation is addressing structural profitability challenges in certain European operations. Europe's chemical industry is going through a major reset with multiple plant closures and lower investment in new large-scale capacity. These conditions have particularly impacted and affected some of our European operations where a relatively high cost base is becoming difficult to sustain at current business volumes. During H1 FY '27, our loss-making European entities reported an EBITDA loss of approximately INR 43 crores, impacting the group's reported profitability. We are addressing these challenges through a restructuring program focused on key priorities, aligning costs with the current business volumes, improving manufacturing efficiency and capacity utilization and establishing a more competitive European manufacturing footprint. We are progressively shifting our manufacturing activities to Poland, have completed the closure of the U.K. facility and have implemented the workforce reduction measures in Germany. Europe continues to remain an important part of our technology and business platform. The objective is to improve its operating model and cost competitiveness while retaining the capabilities critical to our business growth. Greg will provide more details on the execution of these initiatives and the operational improvements underway. At the financial and organizational level, our priorities include rationalizing our fixed costs, refinancing, debt reduction, group tax strategy and legal entities. During the first half, we have repaid approximately INR 116 crores of net debt. Together, these initiatives are aimed at improving our financial flexibility, strengthening the balance sheet and simplifying the group structure. Coming to our outlook, we remain confident in the underlying strength of our business. Our core operations continue to benefit from healthy demand and strong order inflows across divisions and geographies. For FY '27, we expect revenue growth, double-digit growth, supported by momentum across our business divisions and the reported EBITDA margin of about 10% to 11%, including the loss-making entities. Most of our loss-making entities, adjusted EBITDA margins are at 14% to 15%. To put in simpler terms, 80% of our business is operating at EBITDA margins of 14% to 15%. This adjusted margin guidance reflects the underlying earnings potential of our core business while recognizing the near-term impact of the European restructuring program. Our focus remains on delivering the growth, improving profitability, strengthening cash generation while building a more efficient and globally integrated organization. Before I hand over to Greg, I would like to acknowledge the contributions of Mr. Thomas Kehl, CEO, International business; and Mr. Alexander Poempner, Group CFO. We thank them for their contributions to the company and wish them both the very best for their future endeavors. I would also like to welcome Ankit as part of the leadership team as Group CFO. With that, let me hand over to Greg, who will provide an update on business performance and take you through the operational restructuring program in greater detail. Thank you.

Thank you, Tarak. Good afternoon, everyone. I wish you also a very happy Diwali and a prosperous new year. As Tarak mentioned, we delivered strong revenue and order growth in Q2, building on the encouraging start to the year. Business momentum remains healthy across our four divisions. Our consolidated order backlog stands at a record high of INR 2,446 crores, up 14% year-on-year, providing good visibility for the second half of FY '27. Order intake grew by 17% year-on-year on H1 FY '27 with nontraditional industries contributing 44% of the quarter's orders with India also recording our highest ever order intake of INR 483 crores and being more than double sequentially, driven by large orders in our HET business. This reflects the progress we are making in diversifying our revenue base and reducing our dependence on traditional end markets. We are also seeing the benefits of our global operating structure through improved accountability, closer coordination and better alignment across divisions. Our focus is now on converting this commercial momentum into consistent execution, improved margins and stronger cash generation. I would like to now focus on our European restructuring program. As Tarak mentioned, certain European entities have been weighing on group profitability. Our priority is to bring the cost base in line with current business volumes, improve operational productivity and establish a more competitive manufacturing footprint. These measures are intended to create a leaner operating structure while maintaining the quality, technical capabilities and customer service standards required by our business. The focus is to improve productivity and ensuring that our cost structure is aligned with business requirements. A key part of our restructuring is the progressive transfer of selected manufacturing activities to Poland. Poland offers a more competitive cost environment and provides an opportunity to develop a scalable manufacturing base for our European operations. This will allow us to improve manufacturing economics, optimize capacity utilization and better align production costs with customer requirements. Over time, we expect Europe to have a rationalized operating model with India and Poland being used as low-cost manufacturing hubs while to retain its strategic technology and business capabilities. The transition is being implemented in a phased manner with due consideration to quality, operational continuity and customer commitments. Our restructuring program focuses on consolidating our European manufacturing footprints. We have closed our U.K. facility and implemented the workforce reduction plan in Germany. The European restructuring program is ongoing. As these operations -- across these operations, our objective is consistent, address structural losses, reduce fixed costs, improve capacity utilization and establish a more competitive operating model. These actions are necessary to reduce the drag from loss-making entities and improve the quality of the group's earnings. We expect FY '28 to be an important year for the benefits of our transformation program. The expected improvements are across five key areas. Number one, four global divisions -- our four global divisions are fully established, clear ownership of growth and profitability in each business. The second is reduced European drag where the restructuring benefits begin to show up in group margins. The third is our group -- overall group initiatives, which gain traction, cost efficiencies and a greater use of low-cost manufacturing sites to support profitability. Number four, stronger earnings conversion with lower financing costs from our refinancing and debt reduction programs and a simpler legal and tax structure. And number five, by a strong order book, including the record backlog that we carry -- which carries us with momentum into FY '28. We expect the benefits of these initiatives to start to come in from FY '28 onwards. The transformation structural exercise aimed at addressing the underlying issues in our operations rather than providing short-term relief. With strong order momentum across our divisions and a more competitive operating model taking shape, we believe GMM Pfaudler is positioning itself for improved profitability and sustainable growth. Overall, we remain confident in the long-term potential of the group and the progress that we are making. With that, I would like to hand over to Ankit to take you through our financial performance and the factors impacting profitability in the first half of our fiscal year. Ankit?

Thank you, Greg. Good afternoon, everyone. Let me also wish you all a very happy and prosperous Diwali. As discussed, we continue to see encouraging business momentum, strong order flows and healthy revenue conversion. Alongside this, we are making progress on our operational and financial transformation initiatives. Let me now take you through our financial performance for the quarter and first half of FY '27. Order intake during the quarter was a record INR 1,198 crores, up 36% year-on-year and 19% on a sequential basis. This reflects healthy demand across our technology portfolio. Order intake during the half year was a record high of INR 2,204 crores, up 17% year-on-year. Consolidated revenue for the quarter stood at INR 1,065 crores, growing 18% year-on-year and 15% on a sequential basis. For H1 FY '27, revenue stood at INR 1,989 crores, representing a growth of 17% year-on-year. This performance reflects healthy order inflows and continued conversion of our order backlog into revenue. Moving to EBITDA performance and margins. EBITDA for the quarter stood at INR 110 crores on a sequential basis, improving by 18%, which was supported by [indiscernible] across our businesses. Reported profitability continues to be impacted by certain loss-making entities within the group. Excluding these loss-making entities, Q2 EBITDA would have been about INR 139 crores, a margin of 15.9% compared with the reported margin of 10.3%. For H1 FY '27, reported EBITDA stood at INR 204 crores, a margin of 10.2%. Excluding the loss-making entities, H1 EBITDA was about INR 247 crores, a margin of 15.2%. This reflects the underlying strength of our core business and the improvement in operating performance across the group. While the loss-making entities and certain transformation-related costs continue to impact reported profitability, we remain focused on addressing these challenges through cost optimization, operational efficiencies and broader restructuring program. We expect the benefits of these initiatives to become increasingly visible towards the end of FY '27 with the fuller impact accruing from FY '28 onwards. Our gross margins in the quarter have reduced because of the impact of loss-making entities, which Greg spoke about, and we are making restructuring efforts towards them, and we were still able to improve our EBITDA margins on account of operating leverage on top line growth, which demonstrates the strength of our business. Profit after tax for the quarter stood at INR 35 crores compared with INR 38 crores in the corresponding period last year and 59% sequentially. For H1 FY '27, reported PAT stood at INR 57 crores, up 20% year-on-year with a margin of 2.9%, which has already surpassed the FY '26 full year profit. Improving the conversion of EBITDA to PAT remains an important financial priority. We are working on improving operating profitability, reducing finance costs and optimizing our overall capital structure. Alongside operational improvements, we are progressing with several important financial initiatives. Our priorities are focused on three key areas: one, group-wide refinancing and debt reduction. We have made good progress on our group-wide refinancing program with the objective of strengthening our capital structure, improving financial flexibility and reducing. [indiscernible] During H1 FY '27, we repaid approximately INR 116 crores of net debt, and we remain focused on improving cash generation and managing working capital with discipline. As the refinancing program progresses, we expect lower finance costs and reduced foreign exchange volatility, which should support improved earnings and greater predictability in our financial performance. Strengthening our balance sheet remains a key priority. We continue to focus on debt management, cash flow generation and disciplined working capital management. Group strategy and legal entity simplification is another important objective. We have made good progress with our group-wide tax strategy and legal entity simplification initiatives as shared in the last quarter. The objective is to create a more efficient group structure, optimize tax arrangements across jurisdictions and simplify the management of our international operations. We are on track on these initiatives, time lines, which will also help in streamlining intercompany transactions, improve tax efficiencies and support better capital allocation across the group. We are also pleased to report that CRISIL has maintained our credit rating at AA- with a stable outlook. Collectively, these initiatives are expected to improve our financial flexibility, reducing finance costs and strengthening the group's overall financial position. Moving on to the performance of our business divisions. Let me take you through the four divisions. Corrosion Resistant Technologies revenue of INR 500 crores during the quarter, flat year-on-year and up 7% sequentially. Order intake stood at INR 556 crores, up 11% sequentially and up 15% year-on-year. For H1 FY '27, revenue stood at INR 966 crores, representing growth of 5% year-on-year, while order intake was INR 1,058 crores, up 19% year-on-year. Moving to PPT. The division reported revenue of INR 331 crores, growing 30% sequentially and 34% year-on-year. Order intake stood at INR 364 crores, which is flat Q-on-Q and up 85% year-on-year. For H1 FY '27 revenue for PPT was INR 586 crores, representing growth of 29% year-on-year, while order intake stood at INR 731 crores, up 74% year-on-year. HET reported revenue of INR 92 crores, growing 24% sequentially and 38% year-on-year. Order intake during the quarter stood at INR 201 crores, which is up 248% on a sequential basis and 254% year-on-year. For H1 FY '27, revenue was INR 165 crores, representing growth of 17% year-on-year, while order intake stood at INR 258 crores, up 306% year-on-year. PST reported revenues of INR 142 crores, growing 8% sequentially and 57% year-on-year. For H1 FY '27, revenue stood at INR 273 crores, representing a growth of 51% year-on-year. Order intake was INR 157 crores for the first half, including INR 77 crores in Q2. To summarize, while reported profitability continues to be impacted by certain loss-making entities and transformation-related costs, our adjusted margins demonstrate the underlying strength of the business. Our focus remains on improving operating performance, executing the restructuring program, reducing debt and strengthening the group's financial position. We believe the combination of improved operational efficiency, financial restructuring and disciplined capital allocation will support stronger earnings and sustainable value creation over the medium term, and we remain confident of delivering our FY '27 guidance. Thank you. With that, I hand over. [indiscernible]

Thank you, Ankit. Anu, you may now open the line for questions.

[Operator Instructions] The first question comes from the line of Sameer Thakur from AMBIT Private Limited.

The first question is, what are the cost savings targets which you have for European restructuring? Any target which you have in mind for the margins and all? And what would be the restructuring cost for this? Will that be taken this year or next year? So any color on that would be useful.

So I think a couple of points here. We've mentioned that some of the restructuring work has already been initiated and completed. So of course, the big cost was the U.K. shutdown, which is now done. And then last year, we already had all the costs taken in our Germany restructuring, the 40-plus employees that have been reduced. So that impact will start showing up in H2 of this year and then fully for the next year as well. There are other costs that we have also looked at in Europe. You would have seen that as part of our transition and reorganization, we now do not have a position of CEO International, and we obviously have a group level CFO, which is Ankit. So that cost structure will also be saved. We are currently also reducing and restructuring our Swiss operations as well, and that plan is under implementation as well. So some of those benefits we will see in the next financial year. We don't expect any large additional cost on the account of restructuring in Europe. The big one, which was related to the German restructuring has already been accounted for and fully in last year's numbers. So we don't see -- most of the benefits will start flowing up. We don't see any major restructuring costs attached with this new restructuring program.

Okay. That's helpful. Second question is on heavy engineering, very strong growth here. It seems like you are taking market share, if I'm not wrong. And what end markets you are seeing more traction, whether it's petrochemical, thermal, nuclear and also any export opportunities here or it's mostly domestic? Any color on that.

Sure. So like you rightly said, the heavy engineering business has done exceedingly well, not only last quarter, but the order intake has continued into this quarter as well. There was a large order from Africa that we received, which was basically spread over two industries, oil and gas, petrochemical and fertilizer as well. What has also been quite successful for us is our work in the nuclear sector. So the work that we have done with the Nuclear Power Corporation of India, with Megha Engineering, those are two areas that we believe will continue to be growth areas for us now with the new five new nuclear reactors planned, L&T and some other Indian companies have now been approved and that work will start as well. And then eventually, there will be private participation as well in this nuclear space. So we are quite bullish on nuclear. We want to continue growing our market share in this area. And because of the earlier work that we have done with them through HDO, the company that we acquired, we already have a good footing in that industry as well. Lastly, on the thermal power side as well, we have now broken up into this sector as well, which we believe will be an important sector for growth. We have received orders now for LP heaters and SP heaters, again, both critical to thermal power. Not many people in India qualify for the equipment, and we finally made a breakthrough. So nuclear and thermal power will remain a very important part of our growth story going forward for heavy engineering.

Okay. That's helpful. On the margins, the gross margins were lower than at least my expectations. Was it fair to assume that the gross margins in the backlog could be better than what we see in the P&L? Any commentary on that would be useful.

Yes. So I think before I hand over to Ankit and then to Greg to talk about this, I would also just maybe take you back a little maybe six, seven months. So the backlog that we are eating into right now, obviously came at a time when the markets were obviously a lot softer, demand was slower. And hopefully, going forward, the backlog that we have in our hands today is obviously more profitable, right? We already see an improvement here in India in glass-lined prices. I think across the world, you'll see some of that. And then with the operating leverage kicking in with the volumes now being much, much higher. The Indian factory, of course, is full. Heavy engineering is booked out till Q2 of next year. Our glass line business in India has really recovered well, and we expect the next half to be quite strong with more order intake and more shipment means we -- some of these initiatives like the cost reduction programs of Shikhar, if we have more volumes, we get much better benefit, right? So we will see some of that flowing through. And we believe that there is a possibility of upside when it comes to some of the operating kind of leverage that we will get. Maybe I'll hand it over to Ankit now and maybe he can talk a little bit on gross margins and what we're seeing there.

Yes. So I called it out in my speech as well that gross margins were impacted by the loss-making entities in Europe. But what we see, as Tarak mentioned, this will improve over H2. We are confident that we'll come back to the gross margins that we have delivered over the last few years. So as we are moving ahead and as we are seeing good pricing that is happening because of market coming back, we are confident that we'll come back to the levels seen in the past.

Okay. That's helpful. If one more question I can squeeze in.

Sorry to interrupt you, sir. We may request that you return to the question queue for follow-up questions. [Operator Instructions] The next question comes from the line of Kunal Mehta from InCred Equities.

Congrats on the amazing set of numbers and record order backlog intake. My first question is regarding that. The order backlog stands at INR 2,400 crores. And just wanted to understand what is the execution time line for the backlog? And what are the margins that we have considered for the newer order intake that has happened in the last two quarters? And also, if you can provide some color on are we getting more orders from the peptide side? And any sense on the defense asset recovery system that we got last year? Are we expecting more orders in the new emerging teams like defense or data center, BESS and semicon? If you can provide some color.

Yes. So let me start off in terms of the backlog. Like I said again, we have strong backlog across all our divisions. So it's been really encouraging to see backlog improving across all divisions and geographies. This is critical for our success because it means that we are not seeing it in spurge. We're seeing it across businesses, right? So not only in India, but across the U.S., South America, Europe, we will have fuller factories I spoke about Germany and the restructuring there. We expect H2 to be at least -- I mean, we won't lose money. And then next year, definitely, I think we will be in a position to make money in Germany, right? So we are going from negative to positive just because volumes are coming back, and that's already in our backlog. So it's not something that we are expecting. We recently won another large glass-line order just yesterday in Italy in the tune of USD 5 million. So things are improving. There is some kind of investment coming back. And again, let me talk about the major areas that we are focusing on as a company. I think the biggest one for us today is pharmaceuticals, right? Because if you look at CRT and PPT, both these verticals are heavily dependent on pharmaceuticals and the order intake and the backlog that is being built today is because of the investment in pharmaceuticals. And when we talk about pharmaceuticals, we are talking about CDMO and peptides. And you mentioned peptides and peptides has been a fantastic success story for us. We've received already from Indian customers in maybe the last six months or so, maybe close to INR 150 crores worth of orders from just peptides, right? So this is only peptide. I was in Hyderabad on Friday to meet the owner of another Hyderabad company who has plans to invest huge amounts to just invest in the peptides and the manufacturing of peptide, right? So peptides is going to be seeing a lot of investments. We are well positioned because we have technology, which has been supplied to and has been tested in Europe with companies like for many, many, many years. We have installations now in India up and running with global major API and pharma companies. So it's not like we don't have credibility. So people know us for peptides now, and this is definitely an area that we are trying to push on, right? So pharma, CDMO peptides is a massive, massive investment that is happening, and we're trying to piggyback on most of that, not only in India, but across the world. The other industries for us, again, like I mentioned, nuclear thermal power continues to be another strong area for growth. So heavy engineering is focused on that. We are building capabilities, expertise. We've broken into. We've got new acquisitions in place. And now we are also seeing the export business in HET pick up. So the Middle East and Africa, like I said, is now adding to the backlog as well. So the export front is now becoming better. European, I spoke about Europe being tough, but there is one sector in Europe that is doing quite well, and that's defense. And again, we have technology that we are catering to defense, right? So Europe has not built a TNT plant since the 1980s. We are seeing now that our product and our technology is going into NATO sponsored projects for TNT, for nitrocellulose, and that is something that we believe will continue over the next few quarters because we see the inquiries coming in, right? So that's on basically the defense. In the U.S., again, we have semiconductors as a growth area because Edlon has high purity systems and TAM for fab and also for semiconductor chemicals, right? So again, another growth area for us. And then lastly, we talk about our PPT business of mixing, we have critical minerals, metals and minerals as another growth area because people are spending money on rare earths, on minerals going into data centers, into AI, right? So as a company, we're trying to see, hey, what are the five or six growth areas that are really investing, what technologies do we have as a group that we can cater to these technologies and really drive that growth, right? So the focus that the verticals bring in now will kind of allow us to really jump on to some of these growth cycles very quickly, like we have done with peptides, right? We could have stand back and said, fine, we were happy with the first peptide order. But we said this is something that we are doing well. Let's really be proactive here and really try and double down and grow this business exponentially, right? So these are the multiple themes that we are playing out. And again, like I said, if you asked us five years ago, 80%, 90% of our business came from chemical pharma and from glass line. Today, we are a global diversified engineering company, and that's what we are striving to become. Of course, there is some pain as we go through some of the cleaning up, some of the restructuring is part of the process. And the last thing that I would just like to mention is that also from a control perspective today, with the leadership team now realigned and reorganized, we have control over some of these initiatives, and we're going to drive some of these programs with a much more kind of aggression that we need to do. And I think that's something that you will see throughout this conference call, the next few quarters as well. And eventually, when we come to the market with our Investor Day, a lot of -- a lot of the kind of discussion and the details will be around some of these cost structures changing over the next few quarters and how India and some of the low-cost manufacturing becomes part of the global supply chain, right? So that's where we are. And, yes.

Yes. Thanks, Tarak. That was a great clarity on the end segment. My second question is on this interesting slide that you have put up in the presentation for the restructuring of Europe. where U.K. facility was actually already closed in FY '25. But are we still facing some EBITDA loss there? Because I think we have shut down the equipment manufacturing over there and it's just basically services now. So just kind of surprised how that is still contributing to the EBITDA loss.

So when we say Europe, it is a larger continent, right? So U.K., obviously, the restructuring was two years back, and it's a profit-making entity now. It's all driven by Germany, which obviously we restructured last year, and we would be hopefully breaking even in the next few quarters.

Okay. So basically, Germany and Swiss that is -- and how fast can we switch the operations to Poland because Poland is emerging as one of the hotspots for Europe for manufacturing. So what is the current capacity of the Poland manufacturing unit? And what is the planned expansion in the next two years over there?

Yes. So no doubt to your point, Poland is a key strategic priority for us. As I mentioned during my opening remarks, we are really pushing that. We have already a lot of activity that's moving to Poland even in this first half of year. We're expanding the facility at the moment. We expect that expansion to really come into the business at the end of this fiscal year, start of next fiscal year where we can start to really benefit from that extra capacity in Poland. And in parallel, as we mentioned during our opening remarks, we are moving very quickly to realize cost reductions in Western Europe. and moving our operational activities to Poland where it makes sense. But at the same time, as we said, we're very careful in doing that. We have customer commitments. We want to maintain a very strong quality and customer service. So it is a phased approach. But to your point, it is something that we're working very, very hard on to realize quickly.

So with this said, can we expect a significant improvement in margin from FY '28 onwards?

Yes. So maybe, Ankit, do you want to comment on margin improvement here?

Yes. So -- and your question is relating to the European operations?

No, no, overall margins.

Yes. margins, as we have called out earlier, the objective or our endeavor is to show growth on a quarter-to-quarter basis. So if you look at Q1 versus Q2, there is an improvement. The objective is to keep growing. The second half of the year, as Tarak mentioned earlier, we'll see some of the savings coming in specifically for Germany and the other initiatives that have been taken. So we're confident we'll see that sequential growth on a quarter-to-quarter basis on margins.

And I would just like to especially mention the improved communication...

I'm sorry to interrupt you, sir. We may request that you return to the question queue for follow-up questions. The next question comes from the line of Sagar Shah from Spark PWM.

First of all, happy Diwali to the entire team actually of GMM Pfaudler. Sir, my first question was to Greg as well as Tarak actually related to our glass-lined business, corrosion resistance business actually because we have seen the domestic chemical companies actually especially giving up good numbers, especially in the Q1 as well as very encouraging even commentary in Q2 FY '27. So I wanted to check from your end that is the -- are you getting some sort of sense in terms of new CapEx done by the chemical companies and that can lead to an order -- good order intake actually, especially in our CRT business because it is flat on a Y-o-Y basis. That's why I'm asking. That is my first question. I'll follow up with the second question to Ankit actually.

Sure. So on the CRT front, again, chemicals still remains subdued. We see spurts of chemicals and mainly specialty chemicals. Agrochemicals, unfortunately, there has not been any kind of major revival. So it's still quite slow. If chemicals were to improve, that would be really bonus. So we're not building any kind of numbers, any kind of plans around the big revival in chemicals. And maybe I'll also maybe add here that the CRT business around the world is improving, right? And again, majority of that is still led by pharma. U.S., again, pharma investment in CDMO peptides, companies like Cambrex are investing. In South America, we've had large glass line orders again coming from CDMO. We've seen our China order intake in glass line actually improve, which where we thought China would be tough place for us, but we've seen the China factory will now have a full factory because suddenly, China is buying more glass line reactors. And again, driven not really by chemical. There is some chemical in there. But again, it's pharma again, CDMO is adding capacity in China. And in India, if you see over the last maybe two quarters, it's really mainly pharma, right? And Hyderabad's pharma, Divi's, MSN, Sai Life, these companies continue to add, right? So that's the normal kind of player in India. And from whatever we speak to owners and management of these companies, they have plans at least for the next few quarters, right? So it continues to be a very exciting time. And then along with the CDMO play, we have the peptide play that is coming back online, and that's really bringing in a lot of investment.

Okay. Fine. Got your point. So basically, our demand will be largely led by pharmaceuticals/CDMO and other inherent sectors within the pharma actually.

Yes.

My second question was to Ankit actually. Actually, in this particular quarter as well, our tax rate was relatively lower actually, and that led to the Q-o-Q uptick. Actually, the tax rate was around 30%. And last quarter, it was 45%. So as part of our restructuring program as well, I wanted to understand what will be our stable tax rate at least for FY '27 and '28? And second, related to that was our finance cost. We have actually reduced our debt by INR 116 crores in the H1 FY '27. So now as part of this and what is the further plan of reducing the debt since we are FCF positive? And what will be the net reduction in finance costs due to the same in FY '27 and FY '28? These are my questions for Ankit.

Yes. So on debt, what I can say is -- so these are two programs that we called out in Q1, right? One is tax restructuring and one is the refinancing. On the tax restructuring, we have made good progress and some of these initiatives have now started to show some color in financials. We have communicated time line in terms of when these initiatives would kick in completely. In terms of guidance on tax rate, as we had called out the last time, our endeavor is to be at 30% or lower, and that is what we are targeting. So you'll see improvements quarter-on-quarter as we make progress on these initiatives. On the debt front, although we repaid debt, if you look at a quarter-on-quarter basis, there were some ForEx -- ForEx impact that happened, but we expect the interest cost to be lower than last year, and that is where we are at the point.

Sorry, I didn't get your point. So what will be the reduction in the finance cost...

Sorry to interrupt you, sir. We may request that you return to the question queue for follow-up questions.