Kirloskar Brothers Limited (500241) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Kirloskar Brothers Limited Q2 FY '22 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sanjay Kirloskar, Chairman and Managing Director of Kirloskar Brothers Limited. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone, and season's greetings to all of you who are present on this call, where we will discuss our financial results for quarter 2 and H1 of the current financial year. I'm happy to connect with all of you again. I hope everyone has had an opportunity to go through our financial results, our investor release and the investor presentation, which have been uploaded on the stock exchange as well as the company's website. The company has reported a resilient performance despite facing multiple challenges in terms of higher input costs, shortage of shipping containers in certain rings across the country. H1 fiscal year '22 revenue, EBITDA and PAT grew by 26%, 6% and 114% on a year-on-year basis, respectively. However, continued upward momentum in raw material prices, change in product mix, high level of inventory, which wasn't converted into sales impacted the gross and EBITDA margins in quarter 2. An increase in production did not result in increase in sales as certain components could not be dispatched due to supply chain disruptions. Although higher freight costs and commodity prices are expected to taper off towards the end of fiscal year '22, our company is implementing all possible measures at its disposal to mitigate the higher input costs. Most of these increased input costs are cyclical in nature. And while it's our constant endeavor to create sustainable and countercyclical cash flows driven by product mix, innovative products and services offered by the international subsidiaries and reduced exposure towards low-margin, lumpy and working capital intensive EPC orders, which is close to 3% for last year. Robust space of inquiry generation and order book, which the company has witnessed over the past few quarters continued in the quarter 2, with an order inflow of INR 884 crores, which is expected to remain robust based on the current inquiry flow and the sharp pickup in government spending. The order book of INR 2,183 crores or INR 2,183 crores, which does not include orders for made-to-stock products that contribute substantially to the top line, provide strong revenue visibility going forward. Various internal triggers like debottlenecking, continuous improvement in the product mix and multiple digital initiatives, coupled with external triggers like the continued robust space of inquiry generation, [indiscernible] the government CapEx cycle and revival in multiple geographies are expected to drive the next leg of growth for the company. I'll now request Alok Kirloskar, Managing Director of Kirloskar Brothers International B V, to share his thoughts on the performance of the international business.

Thank you. On the international business front, all international companies in the business continue to do better, except the Dutch subsidiaries, which have continued to be volatile losses mounting due to less inquiries being converted to orders and sales, but no large opportunity has been lost so far. That said, the water business has doubled over the previous year, and this is part of their efforts to grow the daily business and to build sustainability in their business model. The company continued to focus on deepening the market penetration, which it has found hard to do during the pandemic being a newer company with a newer brand. The company continued to deepen its relationship with existing customers as well as to get a better share of their spend where we felt that their time would be better spent rather than developed markets in this pandemic situation. The Thai business has -- which has incurred a loss of -- on the ForEx side, of about GBP 500,000 due to the weakening of the baht, has done much better operationally compared to the previous year. Kirloskar Brothers Thailand Limited has continued its strategy to focus on reducing the lumpiness of its cash flows and focusing to build a standard daily business, along with brand development and distribution network expansion in the ASEAN region. This is evident from the operational numbers. And for the 9-monthly figures, we start from January to September, their [ OPBIP ] compared to -- has grown 6x compared to last year. The South African business has also done better in the 9 monthly year-to-date numbers, Jan through September compared to last year. This is based on continued focus to get more service contracts and build a base business in distribution. Last year, the year-to-date 9 monthly numbers were in a loss while they have a strong profitability in this year. U.K. and U.S.A. in the U.K., we have seen, again, the business slowly picking up. There has been a good resurgence in the services side of the business, the water side of the business. That said, they have also, like Thailand, also have a mark-to-market ForEx loss position of GBP 367,000, about INR 3.6 crores. Thailand, like I said earlier, had a mark-to-market loss position of GBP 500,000, about INR 5 crores, rough number on their ForEx. That said, the U.K. has -- even though this year, there has been less benefits from the coronavirus job retention scheme, which provided some support for salaries. While that has not been significant this year, the business has picked up, and we have seen that it's doing better this year. I'm sure a lot of you have questions on oil and gas, and the oil and gas numbers are stronger. The oil and gas prices are a lot stronger. But at the moment, we have seen renewed inquiries, but the movement to conversion to sale is still slow. The U.S. business continues to be strong as it has been in the last year. It's focused mainly on the commercial real estate segment and the municipal water segment. So overall, the company is witnessing multiple green shoots in terms of pickup in inquiry generation across geographies, which is leading to a much stronger order book, further improving the revenue visibility for the short and medium term. This will be supported by various innovative advanced digital technology initiatives, which will provide sustainability, stability and scalability, along with improved profitability. The company will continue to leverage unique value proposition and technology initiatives to create value for the shareholders. With this, let me invite Mr. Rama Kirloskar, Joint Managing Director, KBL and MD Kirloskar Ebara to take you through the performance of the domestic subsidiaries.

Thank you, Alok. The domestic business continues to do better, notwithstanding the effects of the commodity prices' adverse range across the country and the ongoing pandemic. The recent uptick in the CapEx cycle has further led to an improvement in demand for sectors that supply capital goods. Similarly, the valves business is witnessing good order flow as there has been investment by the government in irrigation and water projects and an increased flow of orders in the oil and gas sector for greenfield and expansion projects. Now coming to the company's domestic subsidiaries and joint ventures. Karad Projects and Motors Limited reported good numbers for H1 FY '22. Kirloskar Ebara Pump Limited surpassed the internal revenue estimates for H1 in addition to having a healthy order book. As the road to Ebara focuses on the downstream refinery segment. Last year, the company witnessed a lot of projects getting delayed or deferred due to budget constraints of a few international customers. However, these projects are expected shortly and will further bolster order bookings. APL continues to expand services across the geographies catered by leveraging proven track record and approval with customers to increase its market share. The Kolhapur Steel Limited continues to sail through troubled waters. The company is in the process of addressing its issues, and we should see an improvement in the coming quarters. With this, let me invite Mr. Chittaranjan Mate, our CFO, for the financial performance highlights.

Thank you, Rama, and good afternoon, everyone, all attending this call. Let me first take you through financial results for this quarter. On a consolidated basis, our revenues stood at INR 751.3 crores, which shows the growth of 17% year-on-year. EBITDA was at INR 38.7 crores and PAT stood at INR 3.8 crores. Gross margins and EBITDA margins were impacted during Q2 due to reasons mentioned by our CMD earlier. However, the company remains confident in strengthening the performance going forward. On a stand-alone basis, revenues stood at INR 484 crores compared to INR 430 crores year-on-year. This contributed approximately 65% of total consolidated revenues of KBL Group. EBITDA was at INR 37.4 crores and EBITDA margin was 7.7%. PAT for Q2 is at INR 17.4 crores. Now coming to H1 FY '22 financial highlights. On a consolidated basis, revenues stood at INR 1,377 crores compared to INR 1,096 crores, which shows a growth of 26% year-on-year. EBITDA was at INR 81.1 crores as against INR 76. 9 crores, a growth of 6%. PAT stood at INR 14.5 crores as compared to INR 6.8 crores, which shows growth of 114% year-on-year. Company continued to maintain a strong balance sheet. Net debt [indiscernible] comfortable stood at 0.07. The company has planned CapEx of [indiscernible] [Technical Difficulty] Hello?

Hello?

Are we audible?

Yes, ma'am. You're audible. Please go ahead.

Okay. This CapEx will be utilized, predominantly would debottleneck existing capacity. The major portion of CapEx will come from [ internalized ] and partly from term loans. However, the net-debt-to-equity will remain in a similar range as all debts are getting repaid through internal actuaries. That is all from our side. We can now begin question answer. Thank you.

[Operator Instructions] The first question is from the line of Kunal Sheth from B&K Securities.

My first question is pertaining to the margins, especially the gross margin has been going down. So what gives the sense that we are getting in terms of our most of the legacy orders over now and we should see things improving from here? Or is there pain in terms of commodities left?

On gross margin -- I'm Mate speaking. Gross margin, I would say whatever you could see all in the gross margin in Q4, it's not because of any legacy order. By and large, Q2 sales are lower within the 4 quarters. Second thing, commodity prices have been increasing. That is one reason. Another reason, certain orders with we produce pumps could not be dispatched due to some balancing of incoming materials due to supply chain loss problems. Had those pumps got dispatched, definitely, the margin on this would have come in profit and loss account.

Okay. So is there impact of commodities still left or we have more or less been able to pass on our -- the impact? Or still we'll see this impact cascading in third quarter as well?

I would say periodically, we have been reviewing our product costing and revising our selling prices and passing it on to customers. And since it's a universal thing, we are not witnessing any major resistance from the market, because everywhere, the prices are increasing. It's not that we are raising prices.

Since the beginning of the year, we've done 3 price rises.

This calendar year.

Sorry, sir, you're saying beginning of the year?

Since the beginning of the year, we've done 3 price rises.

Okay. Okay. And what would be the quantum cumulatively for those hikes?

I would say different from product to product. If it's a small pump business, which is an up end sale, it would be around 20% cumulative effect. Whereas industrial products, it is around 15%.

Okay. Okay. And sir, so what should be the margin we should target for the year? I mean, given the first half has been very weak, is it fair to assume that we will be able to get closer to 7%, 8% margin for the year? Or it looks difficult?

I think that is something that we are targeting. We will try to do our best to go past last year.

Go past last year, okay, sir. And sir, next question is pertaining to the outlook in terms of where -- while you cover a lot of it in your opening commentary, but specifically see end markets, especially in domestic, where you think the traction is very high and therefore, what should we expect from KBL from a 2-year perspective? I mean what kind of growth one should assume?

What we are saying is -- and there are certain sectors where we are doing quite well. The inquiry flow is very good. The conversion is good. And this would be building and construction industry, water and irrigation, small pumps business, valves, in fact, is showing a good level of incoming orders. So it's the smaller success that we have where things are a little lumpy, oil, defense and marine or KBL's oil and gas. That's where things are a little slow. But otherwise, across the board, we are seeing good inquiry levels and good conversion into [ all ] of it.

Sure. And most of the supply chain issues are behind that? Or you are still seeing supply chain issues impacting execution?

I think most of the supply chain issues are behind us. If you remember, towards the beginning of the -- end of the first quarter and the beginning of the second quarter, there -- Karnataka had gone through a lot of issues with COVID. And our main plants in [ Kirloskar-1 ] is right on the border, with many suppliers across the border. And that hurt us for the first few weeks. I'd also say that the other vendors also got hurt. We saw one of our engine suppliers shifting a plant, and I believe that problem should be over by this quarter. And the -- in international, also, there are issues with supply chain. That is still there. Engines, I understand, Clarke has more than doubled its delivery. This is from America into England that the deliveries have gone out of -- are very high compared to what they were earlier in a number of days. Similarly, there are issues with containers, finding containers when we want to export from here, controllers, motors, again, U.S. motors is an issue. There is a supply chain issue. But I believe that in this quarter, things will get smoothened out other than possibly engines to the international business.

Sure, sure. Further detailed explanations and best of luck for the future.

The next question is from the line of Keshav Garg from [ TC ITL ].

Sir, frankly, the results are very disappointing. And sir, we thought that after the fourth quarter, the company has finally turned the corner, but it seems that, again, now we are at -- sir, we are doing sub-5% operating margin on a consolidated basis. Sir, so basically, in the consumer side of the business, we must be doing double-digit margin. So the rest of the business is basically either in loss or in low profit, [ loss ]. Sir, so basically then -- sir, how do we overcome this? And I mean, since in commodity prices are not pulling down at least as of now in the quarter that we are in, in Q3. So basically, when do you foresee us finally hitting double-digit margin?

Even last year -- I'm mate here. Our PBT ratio was 8%. And in that competition, a double-digit margin, yes, we also want to achieve it, but it cannot be said at the moment. And as commodity prices are rising, the sales revenues are increasing, material cost increasing. We are passing on the increase in material costs. The markup would always be in line with competition.

Sir, but if you see our competitors, sir they are as well doing good double-digit margins. Sir, if you like, CKSB pumps, for example, then, sir, they are doing margins in mixing -- in mid-double digits over 15%. So then, what is it that they are able to do and we are not able to do? Whereas I think on the consumer side, we enjoy equally strong brand equity.

Historically, KSB has had a higher margin because of -- some of the businesses that they have, especially nuclear and boiler feed side. We are -- I think, this year, like I have explained, there have been supply chain issues. Mr. Mate has also said that certain items that did not go out because of disruptions, which stayed in the plant. That also would have raised the margins if they have gone out. So there are specific issues relating to the pandemic that we are -- we saw in the last quarter. And I'm quite clear that things will improve going forward.

Okay. So sir, my last question is that, way back 12 years, in FY '10, we did INR 265 crores of EBITDA. And last year, our EBITDA was less than INR 250 crores. And sir, now if we just adjust before inflation, then maybe our EBITDA is 1/3 of what it was 12 years back. Sir, so now my question is that when do you foresee us breaking out of this range that we have been starting since a long, long time?

You are comparing with the year 2010, I would suggest that you also see the working capital and the monetary position. Today, I would say that we are in a far better way in our borrowings, our bank guarantees, our margins. And if you see it from 2016 onwards, continuously, there is a rise in our profit.

Sir, do you think that there is something to rational our subsidiaries that we still -- many subsidiary spread across so many countries and continents and basically, our consolidated EBITDA is lower than our stand-alone. So sir -- and then there is so much effort, the management bandwidth is going across. So sir, you'd think that we are trading assets to train and maybe there is some scope to prove our portfolio of subsidiaries?

We have 2 subsidiaries in India: Kirloskar Corrocoat and Karad Projects and Motors; and 1 international subsidiary, which operates in about 6 countries. Each of them is in a specific market where we get benefit out of being like that. If you just check out our global competitors, you will see hundreds of subsidiaries, because that's the way the industry is set up. KSB India that you talked about is 1 of 40 or 50 subsidiaries of KSB, because that's how the pump market operates around the world. And I think it will be difficult without the benefit that the subsidiaries bring us of having continuous orders month-on-month in all these geographies and allowing us to build our network over a period of -- we've had them for 10 years now. Earlier, the orders used to be one-off, two-off. Now on a continuous basis, we get orders as we establish ourselves in those markets.

The next question is from the line of Pritesh Chheda from Lucky Investments.

Sir, 1 question on a slightly medium-term outlook. With every passing quarter, are you seeing more confidence emerging in the non-agri non-consumer side of the business in your stand-alone operations, which is basically industrial and building construction and pumps of ours related to there. Are you seeing, incrementally, confidence building up in terms of visibility and orders? And do you see a situation where this business -- this piece of the business can at least kind of double over the next 3, 4 years?

Yes. We -- like I said in the opening statement, we see in almost every sector, the inquiry flow is higher, and the conversion of inquiries into orders is also higher. So there is increasing confidence for the next 3 or 4 years.

Okay. And this piece of the business is about 40% of your standalone operations, right?

No, I would say, in most of the sectors, we are seeing this. Not just the small pump business. But whether it's building and construction, whether it's industry, whether it is water and irrigation where we supply large pumps to the EPC contractors. In all these areas, we see increasing confidence.

So my question was ex of irrigation and of ex of [ Bajaj ] products, it is about 40%, 50% of our revenue, right?

[ Bajaj ] products, yes, would be about 40%, 50% of our revenues.

No, I'm asking not [ Bajaj ], sir.

I'm giving you answers, which is not only the [ Bajaj ] products, but building and construction industry, water irrigation, irrigation, not in -- for farms, but where the state governments give orders to EPC contractors, those kind of large pumps. In all these sectors, we see increasing confidence.

Okay. Okay. And 1 question from your comments that you made. So I know your stand-alone operations do have variability in margin because of the type of product mix each quarter or the way the project -- the way larger orders are executed. You mentioned 1 comment that, eventually, on an annual basis, your margin will be higher than on standalone operations, will be higher than what was reported in FY '21. Is that the comment you made?

The comment I made was we will try and exceed last year's margins.

Okay, okay. And then what...

I said we will try our best, because things are still fluid. So we have to take whatever steps that we need to take.

No problem, sir. And at what scale of business on a stand-alone operation should you reach a double-digit margin? At what scale of business I'm asking. Hello?

Yes. I think about around INR 3,000 crores or so.

At INR 3,000 crores, you'll reach double digit. Hello?

Yes, yes, INR 3,000 crores.

[Operator Instructions] The next question is from the line of Manish Goyal from ENAM Holdings.

Yes. A couple of questions. Just on the margin front, again, if I probably look at the quarter 2 numbers, particularly, we see that other expenses have been significantly higher on Y-o-Y basis and sequential basis, especially in the stand-alone. So if you can highlight if what is the reason for such higher expenses; and how do we see it going forward, number one. And number two, what is the kind of revenue booking, which would have missed due to supply chain issues in quarter 2? If you can please quantify and follow up with more questions.

Coming to your first question, about other expenses being higher. I believe you are comparing with the previous year same quarter.

Yes. I have -- yes, even if you look at stand-alone, yes. The numbers are, Y-o-Y is also quite significantly higher.

Yes. I would say there are 2 broad reasons. One is if we -- were this previous year. Previous year, the first quarter was total lockdown and you are not operating, you are not incurring certain expenses. And then we had taken some temporary measures to control expenses and some permanent major structure. Now this year, it was not total lockdown in factories. Factories are working, but there was -- it was affected. So when you're operating, you incur expenses. And then temporary measures, you cannot keep permanent, so you have to roll back. But the resultant output of operating, keeping the plants running wouldn't happen because of the supply chain issues. So manufacturing expenses decrease, but the corresponding increase in sales is not witnessing because of certain imbalance inventory, which happened due to supply chain. And then your next question, how much it's impacted I would say that this imbalance production has increased our inventory by at least INR 50 crores. The things would not have been there, those would have been converted and are turned into sales. But sales would have been definitely more than the increase in inventories.

Okay. Okay. And on the notional ForEx loss, which we incurred in the international subsidiaries. So that notion ForEx loss is reflecting in other expense on a consolidated basis?

Yes, it has to be accounted for. It is a notional loss to the extent that whatever borrowing the company had, they had mark-to-market. Because of the issues that tourism industry getting affected in Thailand, that current -- high currency became weak as compared to dollars. And whatever dollar loans they had, they revalued at the current rate, and they [ shouldered ] the loss, which has come in that other expense on consolidated.

What was that number, sir, if you can please share, in Q2?

It is about INR 5 crores.

That was only for Thailand, right?

Yes.

And overall total, like, you also mentioned U.K. also had certain losses?

U.K. had GBP 367,000 -- I mean roughly INR 3.67 crores over exports, mark-to-market.

Okay. And 2 more questions. One on the export side, especially from India. How is it progressing? And maybe, want to know that in the current order book, is outstanding order book of exports also included? Or it is not part of the export order book? And how do we see it progressing, number one? And number two question I have on Kirloskar Ebara, I would like to know what is the order book over there. And how is the progress on the API drive turbines? Even one of the other domestic player, they have -- the turbine has launched [ AP-type ] turbines and are we seeing competition from that?

Manish, on the export -- the export numbers are included in the order book numbers. I think that answers one of your questions. The second part is that between the international companies, I mean, most of the companies, where they're located are based on certain requirements in terms of local value addition, et cetera. And so whether it's South Africa or EU or U.K., U.S.A. or ASEAN, that's got their area they're operating in. Markets that are not covered in any of those blocks are directly -- so our products are directly sold from India because there is no -- may not be duty issues. So a lot of North African countries, a lot of old CIS countries, a lot of the Eastern European countries that apply from KDN. But of course, it is not a blanket thing because really are focused on only certain countries where we can keep getting debt and we evaluate our team based on repeat orders rather than just random orders. So that will be something where they're focusing, and we are seeing growth in direct sales. We're also seeing growth on repeat sales, and that is really the important aspect for us in these countries. Because, I think, like Chairman mentioned before, one of the problems we had before having our own companies in these areas is we did not have regular repeat business continuously in those regions. They're very sporadic businesses where you would end up with a few large contracts some years and no for, like, other years. So with the same philosophy, we looked at certain regions, which we will handle directly from India, and there are certain regions, which we handle locally from the local subsidiaries. And often, it has to go with duty structures and things like this. I think, Rama, a few questions in this, yes.

Manish, so I'll move to Kirloskar Ebara. I think your first question was about the order board. We have an order board of around INR 2,060 million at the end of...

Sorry?

INR 206 crores at the end of H1. And in terms of other players in this sector, I think the API sector is very exclusive and premium sector. So penetrating that sector because of the expertise level required and -- required in both the execution of the orders at design of those turbines. I think only time can really tell whether one is able to penetrate that market or not because it's a very difficult area to get into. Having said that, our turbine team has been seeing the increased order booking because we are one of the most competitive players in this field. And I think 1 advantage we have is we also understand the integration of the turbine with the pump because -- which many of our pump competitors also appreciate and they are giving us those turbine orders. And we are concentrating on the international business as well because there are a lot of international refineries that are also interested because they are more cost competitive than some of the other brands -- foreign brand.

And how is the order improved inquiry pipeline for the Kirloskar Ebara?

So it actually seems to be quite good, because in terms of the international business, a lot of the projects internationally had been deferred because of budget constraints last year, but we do see some of those projects now coming up again, and they'll go live, I think, in the upcoming quarters, maybe in the next 2 to 3 quarters. So hopefully, we should be able to get some more bookings.

Okay. And also on domestic side, now with almost 20% price hike we have taken in the small pumps, Rama, do you think that we have covered for also most of the cost increase, and going forward we should be able to get back to the normalized margins?

No, I can't predict the commodity prices because they have been quite volatile and unpredictable.

No. But if you can take, like, till date, like, whatever has cost increase has been taken. And have we taken commensurate price hikes?

Yes. We have ensured that we have done those price rises in advance, and we've ensured that we have mitigated any hit to the company as far as commodity volatilities are concerned.

The next question is from the line of Anurag Patil from Roha Management.

Sir, how much contribution will be there in revenue from the traditional agri pumps?

The traditional what?

Traditional agri pumps.

We normally don't give that breakup, but our Bajaj pumps, normally, is between 40% to 50% of our total turnover. And these pumps go into home, they go into farms, they go into industry as well.

Okay. So my question was that in the agri side, the solar pumps coming from consumer scale, do you see any impact on agri side, like, cannibalizing that market over the medium term?

No, not really. And as far as the solar business is concerned, historically, we've always worked through the integrators so that we don't have any payment issues.

And it pumps in tens of thousands per year to the solar integrator.

Okay, sir. Sir, the planned CapEx number for this year, I just listed. Can you tell it again?

The planned CapEx number is about INR 105 crores.

The next question is from the line of Bhagyesh Kagalkar from HDFC Mutual Fund.

Look, this is regarding the year opportunity. I'm not talking just over the large nuclear portion. There has been a talk in some circles, I mean, from your side that these smaller nuclear parts, they won't be your 100 megawatts, may be the answer for the current ongoing crisis. The backlog in nuclear is so much in certain European countries like Germany. So which markets you feel that we'll be talking of these 100-megawatt smaller nuclear power plants.

We are seeing these kind of nuclear power plants being developed in America and in Europe.

And what is your opportunity size?

We supply all kinds of pumps to these -- for a nuclear power plant, right from the primary circuit to the secondary circuit. And we are also one of the [ few ] who can make canned motor pumps, which are used for -- whether it is by amenity transfer or moderator duties or whatever. If rather than going with very large nuclear plants as the thinking goes with GE or Rolls Royce and other companies who are in this space. There is a huge -- they probably will go towards that rather than have very large plants with our having to be moved across regions through transmission lines. And these are -- people are looking at prepackaged nuclear power plants.

Congrats, sir. So the actual time to put up these plants will be quite small?

It will be quite small, yes.

In those countries, in the land and sort of the innovations are not there. But ballpark, how many million or billion dollars of going in this sector, basically, with a small nuclear plant...

I believe it's small, but we are one of the companies that can do that.

The next question is from the line of Samir Rachh from Nippon Asset Management.

Sir, I had just 1 question. So from comments...

Sorry to interrupt you, Mr. Samir. Can you speak a bit louder?

Yes. Am I audible now?

Yes. Please go ahead.

Sir, from the comments which I've heard so far, the sense which I'm getting is that we are pretty optimistic on the second half. I'm just a little curious, because looking at your last year second half number, a large part of profits came within the second half. So we have a very strong base there. And you're pretty confident of being well on that high base. So I'm just trying to understand on the -- from where you're getting this confidence of being so well especially a high base?

If you look at the company's historic performance, it's not just last year. It's almost every year. The first quarter is actually the second quarter of the year, because number one, seasonality, the business -- small pump business, it is -- for us, at least, as a company, it's not the best part of the year. The third quarter and the fourth quarter are both very good for the small pump business because the Rabi season starts and summer -- at the beginning of summer, again, there is a good demand. So that is there. Number two, it's that there is a lot of requirements from all our customers, whether government or semi-government or private to meet their objectives before the financial year-end. And therefore, there's pressure on that and people are readier to come to take their pumps away. And number three is the inquiry flow that we see of new requirements from customers, like I said a little earlier, inquiry flow is good. The conversion, this comes from, whether it is steel, distilleries or cement, we are seeing this across the board. And number four, as Mr. Mate mentioned, like in discussions that we've had in the second quarter, the rise in inventory, we expect that, that will get in order into the -- in the third quarter. So these are the 3 or 4 things that make me confident. One is historic that it always happens this way. And number two is the way customers are coming up with inquiries and the conversion. That the conversion of those inquiries in order.

And also your CapEx number, I think, on end cycle was a bit -- and after a long time, we are speaking of such CapEx of the size. So that also shows maybe, to an extreme, confidence of future, right?

I would say generally, it will be around INR 50 crores to INR 60 crores. This year, we have planned about INR 100 crores. So it's not significantly high, but yes, it is higher than last couple of quarters, I would say.

Okay. And you also mentioned that this part of this CapEx is also for capacity expansion. So basically...

I would say capacity expansion. It's the debottlenecking. So whatever capacity we have can be properly utilized.

[Operator Instructions] The next question is from the line of [ Priyanka Singh ] from [ Artisan Securities ].

So I had 2 questions. The first one is, is there any plan to monetize the loss-making domestic and international subsidiaries and invest more into the profit-making company? Hello?

Yes, [ Priyanka ], I heard the question. On the -- when you talk about monetize any of these companies, as you may mean, sell them off. But I think 1 point is that people don't like to buy loss-making subsidiaries. So our response to first turn them around even before selling them off. And I think that whether we are in or not, I think the first step is to turn around any subsidiary that has had an issue. And that's really what we've been doing the last few years. I mean whether it's the Thai subsidiary or the South African subsidiary or even the U.K. subsidiary, which had an issue for 3 years in the middle. We're focused on turning them around. It's step 1. The other point is that, that subsidiary remains in a loss. Of course, we have a lot of new technologies, but we have -- we are working on looking at new ways to turn them around because they have groundbreaking technology that we can use around the world. One issue, of course, that we don't have in the international companies, is we don't have the depth in the brand in any of them that, let's say, we have in India. And that's really what we want to create in whichever region we are in. We need more depth in the brand to be able to command the same levels of premiums and command the same level of repeat business from customers. And that's really been at a very top level, the objective that we get. Those premiums which, of course, translate into profitability. And of course, the base business which translates into regular sales and an ability to stand through varying issues in those regions. So I hope that answers your first part of the question. The domestic subsidiary, I think would be TKSL, which you've probably alluded to. And TKSL, again, is a key part of our supply chain. It makes high-grade castings, which are used in power plants, they're used in chemicals, they're used in water supply. They make basically low-carbon stainless steel castings. And so as it stands, we don't have it in our mind that we want to dispose of the subsidiary at the moment.

Okay. Okay. My next question is, what is the order book, which is mentioned in the press release? And how many -- and it is for how many months? What I meant is how much time is required to execute these orders?

So one part of the order book that is not mentioned over here in the numbers is our small pumps business, which doesn't have an order book. Whatever we -- orders we get during the month are executed during the month. And like I said, this contributes to between 40% to 50% of our turnover. The rest of the order book is partly international and partly domestic. Some of these pumps are delivered -- pumps for [ bios ] are delivered between 6 to 8 weeks. And some of them, especially the large ones, can go up to 12 months to 14 months. I would think the order book, I think, is skewed in favor of things that go out faster.

Got it. And what is the outlook for consolidated and stand-alone order book for FY '22? Are you moving towards margin order book as the pace of order book is growing.

Are they moving towards what?

Towards higher margin products -- I mean, order books?

That depends on what kind of orders we get because I have not understood what you mean by...

Okay. So basically, in the order book, are we moving towards higher-margin business order book or something like that?

Yes. We are moving towards that.

The next question is from the line of [ Atul Kothari ] from [ Progress Securities ].

First of all, wish you a very happy Diwali. Sir, can you share as to how -- because the EBITDA margins on the international business vis-à-vis our domestic business?

Just a moment.

Hello?

Yes, we heard you.

I think domestic business, we already mentioned in our [ level ].

Sir, I'm not able to hear you properly, yes.

There's an interruption on the...

May I request Mr. [ Kothari ] to mute your line when the management is answering your question?

Sure.

On a standalone basis, we already mentioned that our EBITDA margin was 7.7%. So what we say is standalone that is domestic. On international, I would say it changes from company to company.

Okay. Okay. So -- but is it possible to give a blended on [ that ] basis? What could be the results?

It would -- so it would actually be -- it would be a bit odd because, as you know, the subsidiary is loss-making, and that's the one we're actually turning around. But as limited...

On gross consolidated basis, we have mentioned it's around 5.2% EBITDA margin. If it is a consult 5.2%; and domestic, it is 7.7%. On your question, we have not given separately because it changes company to company. But if you refer our presentation on [ the feat ], which is uploaded, you will have company-wide details.

Sorry, Mr. [ Kothari ] the company's EBITDA margin is given, every company's revenue, EBITDA margin, PAT has been given in absolute numbers as well as in percentages, both domestic subsidiaries as well as international subsidiaries.

If you refer Page 30 onwards for each company's [ white ], so we have the separate figures for previous...

Sure, sir. I tend to also, for sure.

Yes, because the business models are different. I mean like we've said, at an overall level, international, we are pushing for 50% service business. I think Ms. [ Priyanka ] had asked this question earlier. And what -- I think her question was about product mix. And different companies are at different levels. I think SPP is at 32%, 33%, sometimes 38%, I mean, monthly, if you look at the math, 38%. But there are other companies, which only have 3% of orders. And then, of course, you have Netherlands, which is not making any money, losing money, in fact. And so it's a bit of a mix. So it's better for you to, I think, look at the companies individually, because all of them are in different levels of that changed product mix.

Okay, sir. And sir, given the higher stand-alone order book, are you expecting lower revenue from our international business?

Compared to last year, I think...

Yes, compared to last year, international has grown. I think we've already shrunk the international in 2020, because at that time, we shrunk the business to release cash out the business and reduce debt, which you would have seen in the last year's numbers. Right now, the business is looking like it's growing again. And that's really the objective. But of course, we don't want to grow the business for the sake of growing the business. I mean we will only grow it based on the margin delivery that are acceptable at individual -- in the international company level.

Okay, sir. Sir, you have mentioned that the government CapEx cycle is picking up. So can you please quantify the revenue opportunity and which type of our products possibly could see traction on account of this?

So everything related to water, whether it's for agriculture, domestic city, water supply, we are seeing the traction in all those areas.

Okay. And sir, can you quantify the level opportunity which we may see?

That depends. But I mean, we see that also, like I mentioned earlier, in steel, in demand distilleries, across the board, actually, we are seeing this. I mean, some of it is government, some of this is private, but we are seeing this across the board.

Okay, sir. And sir, lastly, sir, I mean, can you give any order of momentum in the [indiscernible] scheme through system integrators?

Yes, yes, we are.

Okay. And sir, can you throw some insight on the sales?

In the sense? Basically, they participate in all these tenders, and we get orders from a large number of them.

[Operator Instructions]

Just to say a little more about the last question. I think all of you are aware that nowadays, we are quite allergic to doing business with government, state government, especially. So we want to see our money upfront, and that is why we participate through system integration. As I've mentioned in earlier calls.

The next question is from the line of Kunal Sheth from B&K Securities.

Yes, sir, so I was just looking at the slide that you have given, which highlights your subsidiary performance as well. So Y-o-Y, if I see the profits have almost high, especially the [ KBI ] with the -- there, we have a loss of approximately INR 7 crores. Sir, what specifically went strong there? I mean -- and so -- and most of the issues in the subsidiaries are commodity or transitionary issues? Or is there any specific that we should know about?

I think we've discussed this a little earlier. There's a ForEx mark-to-market loss of INR 5 crores in Thailand and a mark-to-market loss of INR 3.6 crores in the U.K. Those 2 are adding factors to the deteriorated numbers that you see in this quarter. Apart from that, I would say that generally, the sales have been a little lower than expected, about GBP 10 million in the U.K. by itself because of supply chain issues and delivery of various components that are required from key vendors, like, engine vendors, et cetera. The same issue we see in our American plant, where a couple of million dollars of sales are reduced. On the other side, we do see -- I mean, generally, the profitability is much better. I mean while Thailand has ForEx profitability, I mentioned earlier that at a [ OPBIP ] level. Their profit is 6x last year, same year-to-date. And similarly, South Africa also is much better. They were, year-to-date, in the loss last year, same time. And this year, the 9-month number I'm mentioning. This year, we have a couple of million Rands in profit. So generally, I would say that their -- I mean, the numbers, history, represent the reality in this situation, unfortunately. But that's where they stand. And of course, the Dutch company, they actually have higher losses compared to last year. And that is an area that we are working on right now. That said, last year's numbers also included some government benefits that America and U.K. has given to keep people employed, which is what they call a coronavirus job retention scheme in the U.K. And I think it's -- I don't know the exact name of the scheme right now in America. But there were 2 schemes that supported. But even without that support, I would say the numbers are okay, which is skewed because of the Netherlands and because of the aftermarket ForEx position.

[Operator Instructions] As there are no further questions from the participants, I now hand the conference over to Mr. Rama Kirloskar, Joint Managing Director, Kirloskar Brothers Limited, for closing comments.

Yes, it's Rama Kirloskar. Thank you all for joining us on this call. For any queries, please feel free to reach out to us or our Investor Relations consultant, SGA. I wish you a very happy and safe Diwali. Thank you.

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

Thank you.