Kirloskar Brothers Limited (500241) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to Kirloskar Brothers Limited Q3 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 risks and 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. Thank you, and over to you, sir.

Thank you very much. I hope I'm audible. Good morning, everyone, and a very warm welcome to all of you present on the call to discuss our financial results for the third quarter and the 9 months of the current fiscal year '21, '22. I'm glad to connect with all of you again. I hope everyone has got an opportunity to go through the financial results, investor release and the investor presentation, which have been uploaded on the stock exchange as well as our company's website. Our company reported resilient performance and continued the strong operational recovery, notwithstanding multiple challenges in terms of higher input costs and continued supply chain disruptions. On a stand-alone basis, the company posted a sequential growth of 12%. However, consolidated performance was impacted due to the pandemic-led slowdown and supply chain disruptions, which affected the performance of overseas entities. Nine months of the current financial year, our consolidated revenue and gross profit grew by 13% and 11% respectively. However, continually rising raw material costs and manufacturing expenses, execution bottlenecks, change in product mix and higher level of inventory that did not get converted into sales, impacted the gross and EBITDA margins for the 9 months period. We believe that high commodity prices will ease towards the end of fiscal year '22. Our company is focused on cost reduction along with calibrated price hikes across the product portfolio to tackle the impact of input cost increases. The company has undertaken multiple cost reduction initiatives along with calibrated price hikes to mitigate high input costs. Company remains well on track 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. The revenues from the old EPC orders is around 3% for the current year now. The momentum in inquiry generation and order book growth continued in the third quarter, which grew 37% year-on-year. The company remains confident of maintaining this healthy growth rate in the order booking based on the current inquiry flow, driven by a visible pickup in private sector CapEx across the sector. Government spending is also expected to pick up with the recent trend of receiving COVID-19 cases. Our order book of INR 2,346 crores, which, as I always mentioned, does not include made for stock products that contribute substantially to the top line, provides strong revenue visibility going forward. 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. Over to you, Alok.

Thank you. In the international business, South East Asia and South Africa witnessed a healthy sequential year-on-year growth. However, the U.K. and U.S. business posted some revenue degrowth on the quarter-on-quarter basis due to supply chain disruptions, coupled with slower-than-anticipated recovery in the market led by COVID-19. However, through redundancy, the company has reduced expenses in the U.K. and U.S. subsidiaries and the U.K. division has continued to push into the maintenance services market. By focusing on developing a standard and engineered daily operation, the Thai business has continued to reduce the lumpiness of the business. We've also seen a strong rise in orders in the Thai business. But for the quarter gone by, the adverse currency movement impacted the Thai business at the bottom line level due to the baht depreciating significantly against the U.S. dollar. The Dutch business witnessed a lot of competition, but also due to COVID shutdown was not really able to have the level of customer interactions required. Being a business that's still in the developing stage, that impacted the Dutch business more significantly than the other businesses, which led to significantly lower number of orders and subsequently less conversion to sales. The other companies in the international business continued to be profitable at the operating level. Of course, ForEx has affected the Thai business very significantly due to the depreciation in the past, like I mentioned earlier. The international order book stood at INR 615 crores, along with a healthy pickup in the inquiry flow. The sustained momentum in order book expansion would be further supported by other initiatives such as digital across sustainability as well as scalability of various operations. We saw this quite effectively in the British business, especially in the last month of the quarter. With this, let me invite Ms. Rama Kirloskar, Joint MD of KBL and Managing Director of Kirloskar Ebara Limited to take you through the performance of the domestic subsidiaries.

Thank you, Alok. In the domestic market, the company is witnessing multiple green shoots in terms of the strong pickup in momentum in the industry segment of small pumps as well as in the overall CapEx cycle in public and private sector. However, retail and agri pumps witnessed some fall in demand due to extended rains and uncertainties about lockdown in December 2021. Working capital cycle has shrunk significantly compared to the same period last year. By the end of the quarter, the traction was evident with the inquiry bank growing and client site clearances beginning at a considerable pace. Pickup in government spending, as envisaged in the budget, along with internal triggers such as new product launches in small pumps and derisking of the supply chain to ensure material availability is expected to drive the revenue and margin growth going forward. As far as the domestic subsidiaries and JVs are concerned, Karad Projects and Motors reported robust performance for 9 months FY '22. Kirloskar Ebara Pumps too had a healthy year-on-year growth with revenue growth of 32% and PBT growth of 19.2% for 9 months FY '22, despite a sharp increase in the input costs. The Kolhapur Steel, however, 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. Now let me first take you through the quarterly financial highlights. On a consolidated basis, revenues stood at INR 725 crores as against INR 760 crores year-on-year. EBITDA was at INR 59 crores and PAT stood at INR 20 crores. Gross margins and EBITDA margins were impacted in Q3 due to the reasons as mentioned by our CMD earlier. However, the company remains confident in improving its performance significantly going forward. On a stand-alone basis, revenues stood at INR 521 crores compared to INR 464 crores, a growth of 12% year-on-year. This contributed approximately 72% to the consolidated revenue. EBITDA was at INR 36.7 crore and EBITDA margin was at 7%. PAT for Q3 was INR 17.8 crores. Now coming to 9 months financial highlights. On a consolidated basis, revenues stood at INR 2,103 crores as compared to INR 1,857 crores, a growth of 13.2% year-on-year. EBITDA was at INR 140 crores as against INR 183 crores. PAT stood at INR 34.5 crores as compared to INR 75.8 crores. This is all from our side. We can now begin with the question-and-answer session. Thank you.

[Operator Instructions] The first question is from the line of Mr. Nisarg Vakharia from Lucky Investment Managers.

Just a slightly broad-based question. A few months back what we had indicated was that our margins have been impacted because of the EPC business over the last few years and about 9%, 10% EBITDA margins is base level of profitability. Now last quarter and this quarter, we've sort of not gone back to those margins. And when we look at some of your peers, may or may not be very direct comparisons, but haven't faced significant margin pressures like us. In this quarter also, as we can see that the domestic pumps business gross margin is 38%, 39%. Just wanted to understand from everyone that, when do we envision going back to 9%, 10% EBITDA margins, which is the base level of profitability, point number one? And point number two, in this quarter or the last quarter or in the quarters going ahead, are we facing any EPC losses, costs which may or may not come off in the near future? That's my first question, please.

Your first question was about the margins in domestic business. Am I right? I'm Mate speaking.

Yes, sir.

Yes. Now I do not know which other pump companies you are referring, but whatever we have seen, Q3, most of the engineering goods industries, including pump industries, have suffered margins because of pressure on input prices. You would be knowing that the raw material prices have increased by more than 20%. And there are certain orders -- or certain businesses, I would say, where it is a made-to-order pumps, engineered-to-order pumps, where the date when we submit offer and the date we get order confirmation from customer and execution time, at normal execution time, the total period is 8 to 10 months. So there is lag in increase in input prices and its passing it off to the customers. That is one impact. And second thing, this margin is not only sale minus direct cost, but even after fixed overheads. If certain orders which couldn't be executed because of supply chain issues, but the factory costs are incurred fixed cost, so that also affects the EBITDA margin. These 2 are the main reasons, which I can tell you.

No, sir, let me rephrase my question. So when we look at some of the other peers, if I look at, let's say, KSB Pumps for an example. Now I'm only talking about the India business pumps versus KSB, which is much smaller than us. Most of the pump companies, the life starts at 10% EBITDA margin. In a good cycle, that margin goes to 13%, 14%; in a bad cycle, that margin goes back to 10%, 11%. Now the initial point of discussion was that we are at suppressed margins because we have faced EPC losses in our business over the last 2, 3 years, am I right? So if we are at pressed margins, going to 9%, 10% EBITDA margin should be very easy for us, right? So in the last 2 quarters, have we faced any EPC losses, which is why the margins are depressed? Or are they depressed only because of gross margins?

Last 3 quarters is the total EPC losses, which we had to suffer -- yes, there were.

Yes. Can you quantify those losses, please?

I would say those are around INR 18 crores to INR 20 crores because of the old projects, which we finally closed and are in the process of handing over.

INR 18 crores to INR 20 crores over the last 3 quarters cumulatively, right?

Yes.

Are we going to face any more EPC losses going ahead?

We don't foresee anything.

We don't foresee anything. Okay. Okay. So now with all of these parameters as of now in your visibility in terms of the raw material prices, you would have taken hikes for incremental orders and all those things, when do we see the company going back to 9%, 10% EBITDA margin?

Now as far as one part of our business, which is a made to stock, that hike has already been in place. And the other business, we have increased prices. We have started getting the orders as per new prices. But as those get executed in current quarter and next quarter, it would be a normal business.

Got it, sir.

I would just add that one of the problems with the old EPC business is some of those old companies are in IBC. And as soon as we realized that there is a problem with that company, when that company enters IBC, we have made full provision for what we were expecting out of that. So this is what has happened in this year.

Okay. Okay. Okay. Got it. Just 1 more point, sir, that what is the net debt on the balance sheet as of now?

I'll come back to you a little later.

[Operator Instructions] The next question is from the line of Devansh from SIMPL.

Sir, if you can just give a commentary on how is the price pass-through in case of retail funds, considering the demand has been weak. And how is the channel generally responding to the cost inflation?

Could you repeat the first part of your question, please?

So how is the cost inflation -- how are the customers responding in retail pumps as well as industrial pumps? Also in terms of retail pumps, since the demand is weak, if you can elaborate more on how the competition is responding to that. Are they retaining the prices or how is the price pass-through basically happening?

Right. We have had 3 price increases for our retail pumps. And I believe the rest of the market is also doing the same, I mean our competitors, because the price increases have been quite substantial. However, the fall in demand is not only because of the price increase, a lot of it contributes to the pandemic as well as the seasonality situation with the rainfall. So I would not say that it's only the inflation that has caused the fall in demand. And this has happened to everybody in the market, it's not just us.

The next question is from the line of Renjith from Mahindra Manulife Mutual Fund.

Yes. I just wanted to get some understanding like what's the range of price hike that we have taken? Will it be in the 5% to 10% range or 10% to 15% or more than that?

It depends from business to business. In the case of small pumps -- around 14% to 15% in the case of the retail business and the others are around 8% to 10%.

Okay. And this will get reflected probably next quarter or the quarter after that?

Yes. I think in the retail business, it gets reflected within a month or so. In the other business, the engineered-to-order and made-to-order, it will take about 12 weeks or so.

Okay. And sir, now we've seen good numbers from these oil companies like Schlumberger and most of these offshore companies. So are you also seeing improved activity in terms of at least orders from these, because the crude has also gone up. So is that a positive signal for our overseas business?

Yes. I mentioned that when I spoke that the last month of the quarter, we did see an uptick in the aftermarket business, which is our services business. We are seeing inquiry rise on the product side of the offshore business. But I think they will probably be finalized sometime during this quarter and the effect would only come maybe later because those tend to be longer lead time jobs. But definitely on the services side, which is also where Baker Hughes and Schlumberger plays, and as you know, we also have service contracts, we have started seeing the uptick in December.

Okay. And sir, finally, like just wanted to get some color like there is some corporate activity happening with one of the families, they are exiting the business. So any impact on our segment or anything you would like to talk regarding the exit of this family from the Kirloskar Group. It's in the news and they have already come out with a press release.

It doesn't affect this company. Whatever has happened, I think the question is best asked over there. But we are continuing to evaluate the situation as it goes forward.

Because I think Kirloskar industries has substantial shareholding and that family has substantial shareholding in Kirloskar Industries. So that's the reason I was asking.

That Board would decide what to do. But if I have individually shares in a company, I don't see how that would affect the shares that the company owns, right?

And any impact on the pending case -- the court case which we have. Will this be positive or negative or anything on that because that family is exiting. So will that case also be resolved?

The matter is sub-judice. So it's very difficult to give an answer on this question.

Okay. But the bottom line is that we will be the least impacted among the old group company.

That is our hope.

Okay. Okay. Great. And like oil and gas now will be a good area where there will be some more investment. So in the domestic market, are you seeing an uptick in terms of ordering coming in?

Yes, we have been seeing quite a few orders coming in. there has been an enhanced booking in the oil and gas segment because, as you know, there is a lot of expansion of this happen, both for API and non-API pumps as well as turbines.

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

Yes. So a couple of questions. One is on the order inflow. What we see is that order inflow is quite robust and improving quarter-on-quarter. And in this quarter particularly if we see, order inflow from other segments...

Manish, could you speak a little louder. We can't hear you very well.

Now is it better? Yes, sorry for that.

Yes, this is better.

Yes. So on the order inflow, basically, we are seeing a very strong inflows quarter-on-quarter. And this quarter, particularly, the other segments like other than large project segments apart from irrigation and water and power, we see other segments also contributing strongly to the order inflow. So just wanted to get a perspective of this kind of engineered pumps order and how do we see margins outlook on the basis of this pending order book going forward? And related question, now are we seeing improvement in execution and supply chain-related issues getting resolved in both domestic and international also?

As far as supply chain issues are there, with the problems with commodity price rise as well as logistics, there has been quite a large amount of disruption. But I think it's starting to ease off at least domestically. But internationally, there are still issues and the prices of containers are like almost 10x of what it was earlier. So these are some of the things that I'll ask Alok to speak about afterwards. Mr. Mate, would you talk about the order inflow?

As rightly pointed out by you, Mr. Manish, the order flow, if you compare the last 5 quarters, there has been a substantial increase in oil and gas, marine and defense, and building and construction, big sectors. And these sectors, I do not think they would be having many issues on supply chain. And though it is engineered to -- these are mainly manufactured as per order, very few engineered-to-order. And the execution period is not that long here. It would take about 4 to 6 months on an average. And we see that this is a good sign, and that is why we mentioned in our earlier speeches that we are confident about the coming quarters.

Manish, just to address 1 question about supply chain, I think while India's supply chain issue seem to be getting better, I think overseas...

Alok, sorry, we can't hear you clearly. Yes, sorry.

Yes. Sorry, Manish, let me start again. I think -- I'm just addressing the point about supply chain issues overseas. We find that supply chain issues are getting worse overseas, especially when it comes to price movers. If you look at specialized engines, which are used in many of our packages, even offshore packages, as someone mentioned earlier, as well as our regular fire packages overseas, we are finding that something that used to be supplied in 6 weeks has now gone up to between 20 and 35 weeks, especially from companies like Clarke -- Clarke Engine company; as well as people like Caterpillar enhanced things that they would supply us in 30 weeks to over 60 weeks. So generally, we find that supply chain is harder. It's not just the case in engines, it's also in motors and things like that. So there is still quite a bit of disruption, and we don't yet feel like it's getting better at the moment.

Can you repeat that, from how many weeks to what number of weeks it has got extended to?

For the more standard engines, which we buy from Clarke, as an example, usually, these used be supplied to us in 6 weeks, and these have gone up to 30 weeks, and in some cases, not all, in very few cases, they've gone up to even 50 weeks. The other one is Caterpillar. Engines that we buy Caterpillar for our offshore kind of requirements, they've also gone up from around 30 weeks to over 60 weeks, which are the more specialized engines. So generally, on the engines, which is one of our key drivers, the supply chain has gotten worse. On motors, again, which we buy from major players around the world, those have enhanced lead times again, sometimes double to triple the lead time. So my point was that we're not yet seeing that we're over the hump and getting better at the moment. Hopefully, it gets better soon.

Okay. And that was primary reason why -- ideally, the December quarter is a peak quarter for overseas, and we have seen a decline in revenues in the international business. So do we expect -- and what kind of dispatches would have gotten delayed or were not able to dispatched due to shortages of these engines and motors? And how do we see it going forward now?

I would say that, that probably reduced dispatches by around 10%, 12%. We also had one job that didn't go out, a very large oil and gas job, it's called [indiscernible], it was going into Azerbaijan. And that also affected the numbers a little bit. Of course, that is expected to go out this year, but it's deferred again due to some delays on engines and things like that. So it's a combination of a few things that have led to the decline, but I would say approximately 10%. If you just want an approximate number on what happens in terms of supply chain. Because we've also taken other precautions in terms of building inventories. So we have been building inventories. And of course, that's very painful on our cash, because one of the things we've said is that we want to reduce our working capital requirements. And at the end of December '19, if you remember, Manish, SPP U.K. had a debt of INR 160 crores. And at the end of '21, it was debt free. And that's really through the management of working capital and reducing our general cash disruption all around. So building inventories really goes against the grain, but we have been doing that for the last 3 to 4 months. So we expect slowly it will get better. I don't want to make a forward-looking statement, but at the same time, we don't foresee it getting better immediately.

Sure. Okay. And also just wanted to get a perspective on domestic business growth, like in last quarter also we mentioned that there was a INR 50 crore revenue which could not be dispatched in Q2 and would have got spilled over to Q3. And also like second point, we have taken price hikes also to the tune of, say, 10% to 15%, and the order inflow was also quite good. But still the quarter 3 revenue growth in domestic is quite subdued, and you did mention that supply chain issues are more or less getting resolved in the domestic. So just want to get a perspective, number one. And number two, also on the other expenses also, we continue to see an increase. So is it that on a low base we are seeing this thing, or there is onetime effect also? Two questions, sir.

Yes. Well, we have -- our large pumps business depends on some large motors coming in from different motor vendors. And we've had issues of getting motors on time, which results in large -- because these are large pumps, the inventory number is also large being stuck. So I have written to the senior management in those companies to ensure that at least before March all the motors that we need do come. And then with that, you will see a reduction in inventory and increase in sales.

Okay. So ideally, we expect that in Q4 the dispatches should look much better and in turn should help improve our margin...

That's normally the case with KBL because a lot of large items go out in the last quarter. If you look at last year also, you'll see a similar uptick.

Sure. And really, last question on the ForEx impact, what was the ForEx impact in the Q3 in both stand-alone and overseas?

Mate here. Stand-alone, there was not any major impact. But on foreign, yes, Thai baht, there was an approximate 10% depreciation in the last 1 year. So Mr. Alok would explain it.

Manish, approximately INR 6 crores is the number that was the ForEx impact. And most of that came from the Thai baht depreciation. There was some also in the U.K. I think, Manish, you know this, and it also now, unfortunately, because of IFRS accounting standard affects our revenues, especially in the U.K., because in the past we only used to do a mark-to-market loss or profit position. But now as per the new IFRS rules, we have to book the sale at the spot rate. So this is also causing fluctuations in the revenue number now. And of course, there is corresponding entry on the other side. But that might make it look more volatile than it really is as well. So I just thought to bring that to your notice as you asked me about the revenues a little earlier.

[Operator Instructions] The next question is from the line of Riddhesh Gandhi from Discovery Capital.

You highlighted a reasonable amount in the presentation about our investments in the technology, be it effectively the 3D printing, the AI, et cetera, et cetera. If you could maybe speak about this a little bit? And do you see this as being more slightly helpful to the business? Or do you it ultimately actually over time being a reasonable source of competitive advantage, which should help us increase our share. And how should we be looking at these investments?

We've been investing in it, like we've said, for over a decade. I think we kicked off this investment in 2011 with our Dolphin systems. And really what the objective was, was to ensure that slowly over time the customers can select and order our products directly. And that's really what happened for the last 5 or 6 years, where we've not needed to really enhance the number of people, and we've been able to make the transition from being a project company to a product company without huge spikes in the number of people, because a lot of this knowledge, a lot of the information, in terms of application engineering information as well as selection of product information for especially the front end of the business is done by a team that some are experienced and some are not experienced, but the experienced ones are liking the system and it goes all the way down. The system is able to go and give you a bit of material. So there's no confusion between what a new person has selected on the front end or our customer has selected on the front end and the factory is manufacturing. This is definitely proprietary. We are not aware of any other company that is able to select products and be able to give a bill of material at the end of it to the plant; where not just us, but even a customer can do this; where information for the last 40 years is on the system and you are able to select specialized products, not just box standard products, but products that are used in special applications, special materials, things like this. So this kind of information today is with the company. It's not in any individual head, and the company is able to repeatedly deliver the right kind of product. If there's ever an issue on the warranty side of it, the system on the front end automatically becomes aware and makes corrections, so that the issue is not repeated in the future. So it's a self-learning system. And...

But are we going to ultimately see impacts of all of this either in terms of profitability because your labor costs are lower or in terms of higher share because sort of perception is better?

I would argue that we are already seeing the benefit of it because today we are able to grow this business without really any rise in number of people. As you've seen that we have transitioned from being a project company, where order values were very large and projects, to selling a large volume of products with a huge amount of penetration in the market and without any corresponding rise in the number of people. So I would argue that already we're seeing the benefit of that. And I would say that as we start getting the volume numbers higher, you will see the numbers at the bottom line on the Dolphin system. But we have other systems like our augmented reality, virtual reality system, which are being used in our services business. As we've said, we already have seen the growth of our services business overseas. And now we're also seeing our subscription business in India pick up with a number of KirloSmart units in operation. We have already crossed the 150 mark of KirloSmart units and we will see more and more of these in operation. The international business, like I mentioned earlier, maybe you are not seeing the numbers because the profile of the business has changed. A lot of people compare it to our business in 2013, 2012, where almost 60% of our business came from oil and gas, when oil and gas prices were sky high. And today, most of this business has been replaced with services, where margins are higher. And so the numbers are getting slowly better over there. But without a huge chunk of business which was there before. So that's why I would argue that, that is there. And maybe, I hope, as the oil and gas business comes back, and we see the old business coming back, we see those numbers get better. So you would get an impact of what those investments have done for us in those markets. So...

Got it. Understood. Sure. And the other question was...

Which is helping us get new products to market quicker, number one. And also number two, helping the services business in terms of providing parts to our own pumps customers within 1.5 weeks to 2 weeks as well as our competitor products when the customer requires them.

Got it. Understood. And the other question was, you've indicated that due to supply chain issues, we have even recognized some amount of the revenue this quarter, however, expenses were already in the books. Is there any way to quantify that? And I'm assuming if we have effectively already recognized expenses and have already recognized revenues, actually over the like coming couple of quarters we would see reversal of that?

Just now I cannot quantify, but there are certain expenses which are incurred on a monthly basis, or whatever material we have manufactured, but could not be dispatched for want of motors or other bought-outs. The manufacturing expenses are already incurred. But once the pumps go out, the sale happens, those margins will be reflected in our financials.

Got it. If we are effectively under-earning right now, we would see that things sort of caught up over the next couple of quarters?

Yes. That's right. I'm hopeful that most of it will be recognized this quarter. If everything, the material that is due to us from our vendors comes in, I'm hopeful that we'll recognize it this quarter.

[Operator Instructions] The next question is from the line of Samir Rachh from Nippon AMC.

I just wanted to understand...

Would you speak a little louder?

Sir, is it better?

Yes.

Yes. So I just wanted to understand, we received in domestic orders worth INR 624 crores on a stand-alone basis, so how much of these orders are from government and how much are from non-government?

That breakup I do not have now. But nowadays whatever orders we are receiving are mainly from private parties.

Yes. I would say that very little government orders.

Okay. Sir, secondly the kind of...

Samir, the government maybe the ultimate customer. But we prefer to deal with parties with who the payment terms are much better.

Right. And secondly, sir, we are really living in very uncertain times with so much of volatility all around and so much uncertainty. So the risks of doing business have really increased and that's also causing a lot of quarterly volatility in our business. So as an owner like how you're thinking about this? And is there any way where we can like reduce it, like this volatility by using some systems or some risk management practices? Or what is your view on that?

No. I mean risk management, obviously, we have a strong team within the company. And it is looked at every quarter by the Board of Directors. And as you might have noticed, we've got some very good people now on the Board as well, because we do understand that going forward the risks are going to be tremendous. And the regulatory regime is also changing in quite a different way. So we have to ensure that we are able to manage the risk, but something like a pandemic is still a little difficult to understand that and what effects it would have, but the team is looking at all the risks. We meet every month in a formal meeting and we evaluate all the risks and what steps need to be taken to mitigate these risks.

Right. So I'm just a little like curious because we have large unexecuted order book kind of. So we might have taken those order books and raw material prices might be much lower than what they are currently. So will that cause significant impact on margins in the coming year also?

If you're talking about the old orders, then almost everything has been delivered quite some time ago and there are back-to-back arrangements over there. And also, everything that we can look for, I think, more than -- I mean what surprises we could get, more than 90% has been provided. Are you talking about current order or old orders?

No, no. I'm talking of current -- basically, we have a large pending order book kind of so...

No, no, no. These are all orders which are to be delivered now quickly -- back to back.

Okay. So basically, there is not that much -- so either we have escalation clause or we may have booked raw material for this order. So there is no real risk on margins from the raw material fluctuation?

From some of the large orders, yes, there may be issues. But as we have implemented price rises, I believe that we will be able to tide over it.

[Operator Instructions] The next question is from the line of Bhagyesh Kagalkar from HDFC Mutual Fund.

Yes, this is regarding our capabilities in foundry and motors, motors in particular. What is it most of Indian companies suddenly start talking of doing something in the EVs, motors or something like this. Some people see that as a commodity area and don't want to get into it. What is your thought process? Have you done any work on that? Or you would like to avoid that totally, electric vehicle motors?

As you may be aware, we have an old understanding within the group, between KBL and another Kirloskar company, where in 1946, we have given away the right to be in the electrical business. That being said, we also have an agreement with the same company to make motors for ourselves, stator rotor units, motors for captive consumption, plus a certain specified customer where we can supply stator rotor units as well as motor. I think the EV space is a little different and we have not looked at it because our own numbers are growing so large that we need to concentrate, plus we have now, as you might have seen, offered IE2, IE3, IE4 motors, so there itself we need to ensure that we keep up with technology in our own field. So we've not looked at EV motors.

I think also you mentioned that do we see motor as a commodity. I don't really think we see it as a commodity because we make motors especially for special applications and it's not a carpet bombing sort of situation. As Chairman mentioned, I think our motors are made especially for certain kinds of pumps that we have and they tend to be very high efficiency. And also, of course, we have other customers that we have agreed with [indiscernible] company, who we work with. And again, those are very specialized motors. So for us and the kind of business we do in motors, it's not really a commodity.

Ladies and gentlemen, that is the last question. I now hand the conference over to Ms. Rama Kirloskar for closing comments.

Thank you. As Omicron received in the pandemic terms endemic, in the domestic market, we are well set to reap the benefits. As mentioned, momentum in inquiry generation and order book is expected to continue, and the company is confident to meet this demand. We're looking forward to the inventory getting converted into sales in the current quarter as usual and look forward to a strong performance in the coming years. 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.

Thank you.

Thank you. Ladies and gentlemen, on behalf of Kirloskar Brothers Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.