Kirloskar Brothers Limited (500241) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Kirloskar Brothers Limited Q4 FY '22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sanjay Kirloskar, Chairman and Managing Director at Kirloskar Brothers Limited. Thank you, and over to you, sir.

Thank you. Good morning, everyone, and thank you for joining us today to discuss the financial results for Q4 as well as fiscal year '21/'22. I hope everyone has had the opportunity to go through our financial results, investor release and investor presentation, which have been uploaded on the stock exchange as well as our company's website. The company continued to witness strong operational recovery across geographies and business segments in Q4 of FY '22. On a consolidated basis, the revenue grew by 32% on a sequential basis and by 11% on a year-on-year basis. EBITDA and PAT grew by 66% and 135% on a year-on-year basis for Q4 FY '22, respectively similarly, the EBITDA and PAT margins witnessed a healthy expansion. The company has reported a resilient performance despite facing multiple challenges in terms of higher output -- input, sorry, and fuel costs, ongoing geopolitical conflict and supply chain disruptions. However, consolidated performance was impacted on a year-on-year basis due to pandemic-led slowdown, the supply chain disruptions, which affected the performance of overseas entities. FY '22 consolidated revenue and gross profit grew by 13% and 7%, respectively. Inflationary pressure on raw material costs, product mix and inventory not getting converted into sales impacted the gross and EBITDA margins in FY '22. The volatility in commodity prices as well as other input costs is expected to taper off by the end of H1 FY '23. Our company has proactively undertaken multiple price hikes across the products to partially offset the impact. The company witnessed a healthy trajectory in inquiry generation during the entire year. Consolidated order book stood at INR 2,470 crore. This order book comfortably provides revenue visibility for the near and medium term. Please note that this order book does not include our retail pumps business, which contributes approximately 50% to our stand-alone revenue. The momentum in order book is expected to continue in FY '23, driven by a pickup in the private CapEx cycle and increased demand in higher oil and gas due to the recent price movement. The company is well on track to increase the share of high-margin products and services while reducing exposure towards low-margin, lumpy and working capital-intensive EPC orders, which account for close to 6% of revenues for FY '22. In the year 2007, our company had acquired The Kolhapur Steel Limited, a company manufacturing large steel castings required for pumps as well as other products. It has been a useful source with castings required for our large pumps. This company has made profits and declared dividends in the past. It's only in the last few years that it has incurred losses as recession in the capital goods industry, more particularly in the power sector, brought down the demand for large pumps. KBL has undertaken various measures to augment its facilities and to bring new customers under its fold. The company management is confident about turning around the fortunes of this company. However, with a conservative accounting policy, KBL has made a provision of INR 251 million for impairment in the value of its investment in Kolhapur Steel Limited. This has brought down KBL's profit before tax. I will now request Mr. Alok Kirloskar, Managing Director, Kirloskar Brothers International B.V., to share his thoughts on the performance of the international business.

Thank you. In the international business, our company, both South Africa and Thailand continued to do better on the operational front. However, the continued depreciation of the Thai baht during the whole year led to sharp ForEx losses of THB 14.69 million for FY '22, which impacted the EBITDA and profitability of the Thai business. The U.S. and U.K. businesses witnessed a slight degrowth on the top line due to ongoing geopolitical conflicts and supply chain disruptions. However, the company continued to focus on cost realization and increasing the penetration of the subscription platform, which is our service business. The margins still -- were still retained even with much lower sales as compared to previous years. The Dutch business is expected to witness recovery in FY '23. Looking at the historical numbers, you will notice that it's had one of the lowest sales because of all sorts of disruptions and also real difficulty in moving orders towards sales because of various geopolitical issues. But even with the lowest sales year-to-date, the EBITDA margins have been, while negative, still in control compared to previous years, which reflects the much lower cost base in the Netherlands. The international order book stands at INR 681 crores along with a healthy pickup in inquiry growth. The company is expecting strong traction in oil and gas products, driven by a recent upward momentum in the crude oil prices. The company remains well positioned to leverage this opportunity underpinned by a wide spectrum of products in the oil and gas sector as well as the large framework contracts on the service side in the oil and gas sector. With this, let me invite Ms. Rama Kirloskar, Joint MD of KBL and MD of KEPL, to take you through the performance of domestic subsidiaries. Thank you.

Thank you, Alok. In the domestic markets, the company continued to witness strong recovery across products. The company strategically launched new products across geographies and product segments during the year. The company also continued to debottleneck its manufacturing facilities. The retail and agri pumps segment witnessed partial impact due to prolonged rains across the country, along with subdued consumer sentiment due to multiple waves of COVID-19. However, improved consumer sentiment and expectation of a normal monsoon are expected to drive the recovery in the retail and agri pumps segment in H1 FY '23. Now coming to the domestic subsidiaries and JVs. Karad Projects and Motors and Kirloskar Ebara Pumps Limited reported robust performance for FY '22. KPML witnessed a robust 55% revenue growth and 82% PBT growth on a year-on-year basis for FY '22. Similarly, KEPL witnessed a healthy year-on-year revenue growth of 22% and PBT growth of 34% in FY '22. The Kolhapur Steel, too, witnessed growth in production and revenue. Multiple initiatives have been undertaken for the turnaround of The Kolhapur Steel Limited, and we remain confident to make it profitable in the coming quarters. With this, let me invite Mr. Chittaranjan Mate, our CFO, for the financial performance highlights.

Thank you, Rama. Good morning, everyone. Now let me first take you to quarterly financial results. The company continued to report an excellent financial performance. On a consolidated basis, revenues stood at INR 954.4 crores, a growth of 32% and 11% on sequential and year-on-year basis, respectively. EBITDA and PAT grew at INR 98.3 crores and INR 47 crores, which grew 66% and 135% on a sequential basis, respectively. Gross margins and EBITDA margins on a year-end -- year-on-year basis were impacted by 2 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 762.8 crores compared to INR 641.8 crores, a growth of 19% year-on-year. It constituted approximately 80% of the total consolidated revenue. EBITDA was at INR 98.3 crores, and EBITDA margin was at 12.8%. PAT for the group stood at INR 37.4 crores. Now coming to FY '22 financial highlights. On a consolidated basis, revenues stood at INR 3,057.6 crores compared to INR 2,716 crores, a growth of 30% year-on-year. EBITDA was at INR 238 crores as against INR 294 crores. PAT (sic) [ PBT ] stood at INR 135 crores as compared to INR 182 crores. That is all from our side. We can now begin question-and-answer session. Thank you.

[Operator Instructions] Our first question is from the line of [ Himanshu Upadhyay ] with o3 Capital.

Congrats on good set of numbers. See, I have 1 or 2 questions. One was -- the first was on the SPP side. Earlier, the proportion of revenue from oil fields in North was pretty significant for that company. What is the current exposure to oil and gas and, again, offshore side? And are we seeing inquiry? What we are hearing is the CapEx, again, improving on the offshore side. So are we getting increased orders? And what is the outlook on that business? And currently, what is the size of -- share of that business in SPP?

Thank you for that question. I think I remember back in 2012, 2013, when the company was really flying, oil and gas was about 65% to 68%, sometimes even 70% of turnover. At the moment, the share of oil and gas, which includes everything, is slightly under 20% because as part of the diversification exercise, we have moved away from oil and gas. But that said, through those years, we have retained the expertise, the people, the technology. We did not remove of that, and that was quite a heavy cost. But we were betting on the fact that there would be a day when the oil prices would come back up. So we retained the strength of being in the business. I think I've explained this in a previous call that one of the areas we diversified into was framework contracts. And today, we have a 3- to 5-year framework contract, depending on the company, but between 3 or 5 years with Petronas, with Shell, with Chrysaor, who took over a lot of the Shell and British Gas assets, as well as many other newer players like Apache and Neptune, who are coming into the industry as the super majors started selling off the assets. And a lot of the assets were taken over by the private equities. So I would say there are 2 parts to this business now, since your question is about oil and gas. We have today had exposure in offshore oil and gas through services, which are through framework contracts and through products. Yes, we are seeing an uptick in the investment and CapEx of oil and gas. But I will also say it is nowhere close to the level that we have seen in 2012 and 2013 because there's still a concern from a lot of the players, the super majors of having stranded assets if they invested significantly. But they are investing. There are a few projects coming online, and we are definitely part of that. And we've also bagged orders for quite a few of them. I would say that we are seeing more resurgence right now on the services side because a lot of people are upgrading the existing oil fields. And that's really where we are seeing some resurgence. And a lot of the order book that we have booked in the earlier part of the year really is in that area. And to be fair, we are not -- we are reasonably happy with that because that tends to have better margins. Does that answer your question?

Yes. One thing. What is the impact of raw material? And are the contracts -- service contracts yearly? I mean, so -- and the spares, is it a separate part of those service contracts? Or it is included -- the spares is included in those service contract?

So the service contract is a 3- to 5-year contract. It is not really based on material prices because our job is really to ensure uptime of the pumps on the platforms. So it is not -- if you want to say -- it's not a fixed price contract, if that's what you want to say. Basically, a contract that says we are exclusive, and it is our responsibility to ensure uptime. So that's really where it comes in. So material cost really does not come into play. Spares is not part of this contract. Whatever we suggest as part of the services side of the business, the operators will buy those spares. Now some of the spares will come from us, which are our own. Many of them are from our competitors. And today, we are offering that we will make those using our 3D printers. So we are making many of those spares. And of course, we give a guarantee for them because we know what the efficiencies will be. So we handle the spares in that way. Does that answer your question?

Yes. Yes. And one thing on the domestic market. And again, on the power side, see, we are seeing a significant amount of CapEx on -- in Europe and many other geographies on ways to heat power plants. Even in India, we are seeing captive power plants again starting to move because of large CapEx, which is happening on steel and which has been announced, okay? One gap we had in the product was boiler feed pumps, okay? And we were trying to fill that gap. What is the situation currently? And are we focusing in power segment, which is large for us, even in Europe and all those geographies where a lot of CapEx is getting announced on even fossil fuel power plants or, again, ways to heat in oil and gas and all those segments?

I would say there are 2 parts of this question, and we'll answer them separately. One is whether we have a boiler feed pump, and second is how active are we in domestic and international power business. So to answer the part of how active we are, I would say that in India, there are projects that have been floated, but they are still in very -- in inquiry stages, as you also mentioned yourself. We are not yet at the order placement stage in many of them. On the international side, we see a large number of coal-fired power plants, combined cycle power plants coming up in the various tans, the Uzbekistan, Tajikistan. So we are involved. We are working with them through our Turkish companies because normally, Turkish EPC companies are the ones taking part in these contracts. And we are quite well positioned for many of these contracts because we have quite good relations with a lot of these large Turkish EPC companies. On the other side, in Southeast Asia, we see such projects coming up in Thailand and Indonesia. Again, we are well positioned. We've already bagged some projects for coal-fired power plants over there. So I would say outside India, we are reasonably well prepared for these projects. Inside India, it is still very preliminary. I think...

I'd just like to add 2 more points. One is that Kirloskar Ebara makes the boiler feed pumps. And for power, we have had successes for boiler feed pumps, including our largest pump, which was supplied through Hyundai Engineering to Mirfa power plant in the UAE. On the nuclear side, also, I think a few years ago, we had announced that we had received a development order for a boiler feed pump. That pump is the first, and I'd like to emphasize that, is the first totally designed and totally manufactured in India, not imported -- using imported components or anything else. So that we expect to deliver. It's going -- it's completed most of its tests. So this is part of that fleet order program. It's completed most of its tests, and we expect that all the tests will be completed by H1 this year.

One thing. In between -- in terms of R&D, we were seeing R&D happening at the Kirloskar Brother also segmental means in 2012, '13, '14 on the boiler feed pump. So have we right now decided that everything and all sizes of pumps will -- boiler feed pumps will come through Kirloskar Ebara only and nothing will be made in Kirloskar Brothers Limited? Or...

We work closely with all the subsidiaries as well as joint ventures. So wherever machinery is required -- is available, those kind of pumps will be made there. The order for Mirfa was totally made in KEPL. It is tested in KBL because KBL has a large test facility capable of testing pumps up to 6 megawatts. Similarly, the -- there was joint work done on R&D with KEPL -- between KEPL and KBL for the nuclear side. The order was taken by KBL because of the fact that KBL has been working with the Nuclear Power Corporation since the late '70s. And it will be delivered by KBL.

Okay. One last question on Braybar Pumps. Again, it was on the mining side, okay? And it had a pretty decent market share in Africa, and that's why it was acquired. What is the outlook on that business? And are we seeing increased traction on that business also? Because commodity prices have gone or increased pretty dramatically. So what is the outlook on that company?

I would say that, that company has captured, as you can see in the presentation as Braybar, which is our South African entities, which includes Braybar, SPP, you'd probably see that the numbers are slowly looking better in the South African business. And that's really because as we've been saying, we've been focusing on increasing our framework contracts, service contracts. And the international business, as I said, we will take 50% of the target. 50% of the business should come from service. And South Africa is the one closest to that 50% mark. I mean, they're still in the 40s, but they're closing in soon with large contracts with mines, with people like Eskom, who have mines doing service contracts. So yes, I mean, we do see more traction in there. I would not say it's enormous because of the commodity prices going up. But I would say that also, it is basically the change in the profile of having a service business and doing this in water services as well as power plants as well as mines that's being reflected in the numbers. The other, of course, is that the South African government has the broad-based Black empowered requirement. And at the moment, we are compliant, and that's positive for the last 2 years, as you can see that, that's a benefit to be compliant with that.

[Operator Instructions] Our next question is from the line of Sunil Kothari With Unique PMS.

Congratulation for a really good number during this very tough and challenging time. My question is to Mr. Sanjay Kirloskar. Sir, broadly, I want to understand larger picture. So looking at the supply chain, global supply chain disruption, some disconnect or discomfort with supply from China, Western world since many years stopped manufacturing -- producing there in terms of these machinery pumps and mechanical products. Do you see any larger opportunity for us as Kirloskar Brothers and how prepared we are for that?

Thank you because the last few years have been going up and down. But if anything, I would say that this company is quite well prepared for all the opportunities that come up all around the world. I'd like to say, and I think I'm correct, that we are the only Indian company that designs pumps for global markets, and that the R&D is done not only in India but also in Europe and the United Kingdom. Our presence in the United Kingdom as well as Holland gives us the -- a window into what's going on in the developed Western market, related efficiency norms that are going to be coming up, the machinery directives that come up. And that helps us actually stay ahead and be able to offer products for global companies and for global markets. There was a sense that KBL's exports are mainly into Africa. But actually, KBL's business, if you look at it, the largest business outside India is the United States, followed by Europe. And our products are quite capable of being sold around the world. Our customer -- if you look at our presentation, our -- the list of global customers that we have also are Fortune 500 companies, which I think very few other Indian companies would have. So I think we are well set with manufacturing or packaging facilities in different parts of the world or in different parts of the world, in different, what do they call them, trade -- trading blocks. We have a presence in America. Our presence in America allows us to sell all -- not only in the U.S. Even under the latest Made by American policy, which calls for over 55% local value addition, but also in the United Kingdom, which is no longer part of EU, from Holland into the EU, South Africa into COMESA and Thailand into ASEAN. So I think as far as KBL is concerned, the opportunity is there with being able to gain market share, which we have been doing now in the last 2 or 3 years. As far as supply chain disruptions, China, these are, I think, common for everyone. It's not necessarily only KBL. It has been -- the commodity price rises and -- has affected us, as we have said a little earlier during the call. And what I'll do is now -- I'll ask Alok to say a few more words beyond this.

I think the only point I'll add is that we are not so dependent on Chinese content in any of our companies, whether domestic or any of the international companies. So that's one aspect to consider. The other also is that we are -- have been changing the, let's call it, Western business versus our Eastern businesses in terms of the CapEx cycle of those businesses and OpEx cycle of those businesses. I mean, as you would imagine, the CapEx levels in Western businesses are not the same level, except for, of course, some commodity and oil and gas, say, businesses in the recent past. And that's one of the reasons why we are pushing our Western businesses to be more service-oriented, where there is a higher CapEx spend, and our Eastern businesses, which is India and, of course, Southeast Asia, to be more product-oriented, where there are CapEx spend. So I would say that's really the general strategy, and we are seeing slowly the benefits of that because each business requires a baseline business. And outside India, I mean, SPP brand is a niche brand. It's a brand known in fire pumps, and we've sort of extended that brand into different areas. So we want to build a brand overseas like we have the Kirloskar brand in India and to get that base-level business and that level of acceptance. And the rest of the Kirloskar brand, I mean, one of our brands, either Kirloskar Oil, SPP Oil, either SyncroFlo Oil, Braybar Oil, Rodelta, but we need that presence, and we need to be able to attract that level of business like we can attract in India.

And just to say a little bit more about China. There's very little that we import from China at all, and we also don't sell much into China. Whatever we sell -- from India that is. Whatever we sell into China either goes from our Western factories again, but very little sales into China. And I think when we come to our customers, we don't have any Chinese competition for any of our products. We don't see them even in Southeast Asia for any of the engineered products. I think the problem is the ability to speak the language at the moment. I'm sure China will get over it. With the ability to understand the customer's requirement and deliver to that customer's requirement, I think that's where they need to work.

Right. Sir, my second question is just comparing KSB with us. They are a local player basically, multi [indiscernible] but with focus in India. We are a global player, and focus is valve. And they are talking about some better numbers in terms of growth, margin. We've also done a really good job during the last 4, 5 years to come back to double-digit EBITDA margin last year, 2021, consolidated level. And our aspiration is also to reach some mid-teen numbers maybe midterm, maybe 3 years, 4 years, 5 years, whatever. Do you feel now that thrust or that importance of getting better margin and better profitability will be the highest priority? And should we see those in near term to medium term? Would you like to comment in terms of EBITDA margins possibly, too?

I would not like to take names and compare companies. What I would say is look at -- because we are more like KSB Germany with the R&D costs and everything else, which is the local case it doesn't have. We are also, I think -- and hopefully, you will see that our projects business is getting closed step by step. So we are becoming more and more a product-related company. Our turnover reflects that, but we still need to make some provisions every year. And maybe Mr. Mate can tell you how much we've done this year. It's much lower than the previous years, but some provision had to be made. So we are doing that. And step by step, I think you can definitely, in the next few years, look at us and KSB and see how we perform.

Great, sir. Great. Congratulations. And if Mr. Mate would like to comment on the provision we made or the possibility for current year '22-'23?

I would like to say that for '21-'22, we have made a provision of about INR 16 crores.

Can you repeat?

Yes. For the year '21-'22, we have made a provision of INR 16 crores, 1-6. And at least at present, we do not anticipate any provision for '22-'23 because as on the date, whatever our monthly figures, we have already provided it.

It seems to be earlier about INR 16 crores, INR 17 crores to lower and lower number. Last year was INR 16 crores, 1-6.

So sir, with this lower and lower provisioning also, we are going towards a respectable margin, but yet we deserve to be more. So would you like to comment that this 11%, 12% consolidated EBITDA margin is visible in a year or 2 or yet it's a distant tale?

I totally agree with you. You will see that -- it's difficult to make any kind of prediction, especially now when there's a war going on within Western Europe. With all kinds of disruptions, I think the situation is too fluid, commodity prices going up and down. But we will try our best, that I can assure you.

Our next question is from the line of Bhagyesh Kagalkar with HDFC Mutual Funds.

Yes. Sir, this is regarding the financial numbers, okay? This year, we had a fall in cash generation from operations because the PBT was essentially. What is the outlook for the -- broadly for the next 2 to 3 years? How do you control the sales and debt, okay, you intend to repay? I mean, the balance sheet is far healthier than what it used to be. But still, this year has been sort of a negative in a sense, sir, it looked reversing the trend. So what do you feel the next 2 to 3 years essentially, the financial goals, what the company has?

I would like to say that you must have seen that over the last few years, our debts have gradually come down. And now our net debt is practically negative. The funds on hand, the current investments and cash on balance sheet is more than our borrowing. And as we are coming out from project business, recovering all our retentions and the security deposits and focusing on product business, our working capital would definitely improve further year-on-year. And we are keeping tab on CapEx. That way, whatever is the growth in every year, what we are participating, would need only some balancing CapEx and some replacement. But there is no any major CapEx planned. So in normal circumstances, we expect financials to add capital to improve further.

Okay. And sir, my second question is to Mr. Kirloskar. Okay, you mentioned the KLB (sic) [ KBL ], how does the R&D work there. The local company does not have much cost. And in the longer run, you would like to be as good as them in products, which you may be already essentially. But then what are the further investments needed to achieve that kind of a brand image in the industrial circle essentially? Is it on CapEx front or is it on R&D front, if you take next 5 to 10 years' view?

Are you talking India or overseas?

Just whatever your mind tells you, India or overseas.

I don't think, because the company continuously invests in CapEx as well as other technologies that are there. If you go on the website today, you will see that KBL India has AR/VR, that's augmented reality, virtual reality. It has IoT pumps, which are controlled through the Internet of Things, which KSB India doesn't have. Of course, KSB Germany has it. So these are the investments that KBL has made. KBL wants to be a global player, and it already is to a certain extent. But I think in those areas, there's a lot of work, which KSB Germany -- I don't want to mention the names, but which Indian companies which are subsidiaries of foreign companies will get on a platter. We also are looking at different product lines to get into as new opportunities come up, but we don't expect much CapEx because we already have all the facilities internally.

Okay, sir. And one good thing...

I didn't bring up KSB. Someone else brought it up.

Okay. No, just -- sir, coming to the manpower issues, is there a shortage of good R&D engineers or good product engineers or, say, good talent in your manufacturing companies?

No. We don't have any issue with good R&D engineers. I mean, tell me which other Indian company has products which are bought by global majors. Finished product, I'm not talking components, which are designed to someone else's designs -- which are made to someone else's designs. But is there any Indian -- other Indian company that you know which sells to Bechtel, which sells to Alstom, Siemens, Marubeni, any South Korean EPC, into the water companies in Britain, even from India. So I don't think -- I think Indians are as capable as any foreign designers. It's only unfortunate that we don't accept that we are as good as foreigners. We've come across situations, especially with certain large consultants or end customers, and the Indian ones who say, "Where is your proven track record, right?" And we say that, "Yes, we are making it for the first time in the country." I mean, for many years, for decades actually, ever since the 1920s and 1930s, this company has been making products for the first time in the country for the country. And it's unfortunate now that Indian companies ask for proven track record. And in such cases, KBL and its subsidiaries, associate companies have been able to get proven track record references from companies like Saudi Aramco, who have far more trust in us than an Indian company. And we have also a pool of designers, as we have mentioned earlier, in the U.K., in Netherlands. We work with various universities directly from here or from those companies. So I think we are quite capable of recruiting people also from foreign nations, if we need anything.

Okay. That's very reassuring, sir.

Yes. And as HDFC and if you are investing in companies, please do ask your -- wherever you invest to ensure that they buy Indian goods, Indian designers. And I would also like to add that in the last 5 years, I think 8 of our products have received India Design Mark. This is something that is set up by the design groups in CII and NID. I think that's what they do.

Our next question is from the line of Devansh Nigotia with SIMPL.

Yes. Just a couple of questions. Sir, one is, if you can just elaborate a bit more on how are the price pass-through happening, the commodity inflation in B2B as well as our B2C pumps? If you could just help us understand?

Can you just repeat that question? Because it was a little muffled. Can you talk a little slower?

How are the pass-throughs happening for the commodity inflation, which is there right now? So how are the end customers in B2B as well as the B2C part of the business responding to that?

Can we just repeat your question just for clarity? Are you asking us how is the price rise happening to our B2C and B2B customers? Is that your question?

How are the customers responding to it? And how is the demand scenario shaping up? Are we seeing the delays in projects because of such high inflation? Or -- so if you can just elaborate a bit more on how is it happening at the customer there.

I think in B2C, we've been implementing price rises throughout the year, and all of them have been accepted. In B2B also, we've been -- we've had 4, I think, price rises -- 3, sorry, 3 price rises in the last year, all in this period. In the large project business, because there is a certain time that is required to manufacture the pump, to get clarity even after you quote, it takes time to get the order. And then the pumps are also long lead time items, and the customer tends to be public sector or government. That is where it gets to be a little difficult to pass on the price rise. But we have not seen any problem in passing on price rises in the other areas.

Okay. And if you could just elaborate on the mix of our agri pumps and residential pumps as a percentage of our total sales for this year. Also, if you can just share how is the demand scenario during this year. And considering the demand of the fresh construction in real estate, how is that helping our residential from scale up? I mean, are we seeing signs of scale up there or how are you...

I think this is one area that we don't give breakups other than if you see in the presentation, I think there is some on order booking. You will see that it is strong across the board.

Okay. But sir, that is for the B2B business. That's not for the B2C business side. I mean, it's not for our residential pumps from or the agriculture pumps.

We don't give those numbers.

Okay. And sir, how is the demand scenario being on this year for both the end segment?

For which segment?

Agricultural pumps and residential pumps.

So for agri and residential, because of the commodity prices, we do see price sensitivity amongst the customers. So I would not say that there is very high demand, but we should still see smooth growth over the year.

Okay. And in case of oil and gas, I mean, when we look at the order book breakup, that is probably less than 5% of the mix. So is it that we are consciously not very aggressive in this segment? Or -- and the customer -- then the CapEx is still not happening in a big way. I think you mentioned in some initial remarks where there is more of service demand than CapEx demand. So how exactly are we shaped -- prepared for this demand?

So oil and gas that you see in the presentation is, I believe, domestic, that's part of the domestic business, 69 is the order book for Q4 FY '22. So this is actually the utility part of the oil and gas segment. KEPL actually addresses the hard core oil and gas segment, and therefore, I'll ask Rama to speak about this.

Right. So I think when you look at oil and gas, you need to look at it in its entirety and KEPL is mostly oil and gas, whether it is pumps or turbines. It caters to the American Petroleum Institute certified pumps. So those are the ones that go into the refinery and pump different types of crude oil. So we do see growth in that area. As you know, there are a lot of projects that have been coming up, both domestically and internationally, and we are catering to those projects.

Okay. So the domestic CapEx in oil and gas has not been that aggressive as it has been internationally because if I look at the domestic mix of oil and gas, it hasn't scaled up in a big way, so...

Partly, there have been a lot of expansions domestically. There has been that the greenfield refinery that's coming up in Rajasthan. I'm sure you heard about Barmer Refinery. There are large pipeline projects, there are expansion projects. So actually, the Indian market is booming. We did see a delay in the international segment, but mostly, there were delays, and there were no cancellations.

And the orders that have been placed in that would be seen in KEPL order book. It will not be seen in this presentation because this is only for the utility side. So you can see that it's gone from 40 to 69 over here, and that's only the utility side from 1 year ago to this year, last year end.

Our next question is from the line of Pritesh Chheda with Lucky Investment Managers.

Sir, a couple of questions. One, on the stand-alone P&L side. So in the initial commentary, you mentioned that the provision number is lower. So it's about INR 16 crores versus INR 60 crores that you have provided for. Now I can understand the gross margin impact of -- because of higher commodity price, but I still couldn't understand why has the other expenses line moved up so much, which is impacting the margin more despite lower provision? And if you could give some color on this other expenses line and its movement. This is my first question. My second question is, we have operations in South Africa, Thailand, Netherlands and U.K. In terms of the absolute EBITDA that these businesses contribute combined is not so significant. And it's been some years that we go through these ups and downs. And we are ourselves saying that West India is where rest of the world is where, it's largely maintenance CapEx or service CapEx and the entire growth CapEx usually happens in eastern part of the world. Why not free up the management bandwidth and just concentrate on the India part of the business, and it's been quite a number of years that we are involved with these international operations. So -- from a strategy perspective, any thoughts there?

Yes. I would respond to your first question first. This is about other expenses. I'm sure you are referring to our results.

I'm referring to the annual number only -- so will discuss on that.

Yes. So I'm taking that. It increased from INR 331 crores to INR 441 crores. That's what I believe you are referring. So these other expenses include a major portion, which is manufacturing and selling expenses. There are 2 things. Our manufacturing or sales increased by roughly 20%. But the product mix was such that more number of bare shaft pumps increased, which increased manufacturing expense per se. And another thing, we always talk about increase in input commodity prices. But last year, we also witnessed increase in all other expenses like power cost, transportation charges, employee costs because of increasing year rates by government. So overall expense level increased and our product share in terms of number of pumps increased. These are the main reason.

As far as the other question on international business, I think even earlier, I have mentioned that I'd rather be a small fish in a large pond, then a big fish in a small pond. So we would like to be a global player. We are building ourselves to be a global player, and our product line reflects that. Our service offerings reflect that. And there's a lot that we learn from being outside the country. So yes, the last few years has been bad. It wasn't so before 2015, and we expect that we will get back with large earnings from the foreign businesses.

I think just to add to your point, I don't think it's been up or down. I think since 2015, it's really been down significantly. And that's because, I mean, SPP, which alone would give us between INR 45 crores and INR 50 crores of profit a year at PAT level was heavily dependent on oil and gas. I think really, we are trying to repurpose these overseas companies. And yes, like I mentioned to you, there is a change in the CapEx. But I think we should look at that in a context of the global environment. I think India, a $46 billion pump industry contributes a little under -- just about $2 billion and the rest $45 billion, $44 billion is outside of India. And there -- all that $44 billion is in the territories where we are. So I think like our Chairman mentioned earlier, that our focus is how do we get there. Yes, as a percentage of that, there is a large proportion of aftermarket and services. But when you are in such a large market, the amount of CapEx also is far more than India anyway. When I said that there is a growth -- the mixture is in reference of OpEx that is as a percentage of their market. But if you look at the percentage of India, then obviously, they're far larger than India. So I think we should also look at that in the right context.

Okay. Sir, one additional question on margin side. So you were responding to one of participants on the double-digit margin number. Optically, a lot has to come from stand-alone operations because that's where the significant business is -- but when I look at the numbers, we have been in 6, 7 or between 6% and 9% margin. So to move from there to a double-digit number, which will obviously drive the console number as well. Will it be purely a function of operating leverage?

I would say operating leverage, as well as controlling costs as we go down further because certain material costs, which increased because of certain orders already booked, but it is one time. But going forward, we do not expect such a hit year-on-year.

Okay. And our current operations in domestic, so let's say, we did about INR 2,000 crores, INR 2,200 crores revenue. I see this number even 3 years back. So our current operations based or on our current factory base, what kind of revenue it can support because now in any case, 93% of our business is product is what I could figure out from our presentation. So the current operations can support what kind of revenue or what utilization figure this INR 2,000 crore refers to....

I think it would represent around between 50% and 60% capacity utilization.

There's still a lot of spare capacity. And as you can see, the order board is moving up. We hope that we will be able to meet your expectations.

So your CapEx will be less than depreciation number for quite some time?

Our depreciation and CapEx, I would say, once we listed that, but 1 or 2 years, it may exit depreciation, but it won't have any major impact on our financials.

So you are creating capacity somewhere for which it has to go higher or your capacity or your plants are old, so you need to put it?

It's mostly automation and modernization that we are investing in?

So which should bring in some margin?

Yes and debottlenecking.

Okay, okay. From a stand-alone double-digit margin perspective, how far do you think you are from achieving it?

It's difficult to give you an answer to that question. Looking forward, I mean, like I said earlier, I don't want to make any commitment, but we will try our best to reach that as quickly as possible. Because consistently, it's been going up. So we'll be trying our best.

Our next question is from the line of Anurag Patil with Roha Asset Managers.

So on the domestic B2B side, how do you see the order booking momentum in FY '23? And which segments you see much -- growing rate much faster?

I think the B2B side, basically, in our chart to you cover irrigation, water management, power, oil and gas, marine, defense, industry building construction. So these are traditionally our B2B businesses. We have seen that there has been growth in building construction industry. There's been some growth in marine and of course, there's investment right now in oil and gas. We have not seen much growth in power because while there are projects outlined, they are not at a level where they are at fruition. And we see some growth in irrigation and water resources. But it's a very, very competitive and cutthroat market. And when we're talking about double-digit margins, I mean, that's something that's barrier if we start taking jobs, significant job there. So I think really, it's a balance of where they're playing. And the main area industry building construction we have made some changes. We had talked about this at our or last time, where we have now APOEM in India, where we have 4 APOEMs in India, which allow for packaging of our pumps. And this has really changed the dynamic where we have been able to reduce lead times from maybe 16 weeks down to about -- on a consistent basis, about 6 weeks. So this is changing the market, is helping us gain market share. And we are seeing the benefit of that in the numbers of industrial pumps that have been sold. Does that answer your question?

Yes, sure.

And if I could add that, last year, in our small and medium pumps business, which looks after industry, building and construction and other areas. So these are pumps below 500 kilowatts. We have had a 66% rise in volume without addition of much CapEx.

Okay.

And this is a demand that has come through the APOEM.

APOEM network, which is -- which we outlined, I think during our last call that this is a changed strategy that we have been pushing and developing over the last 4 years -- 5 years actually.

Okay. Okay. And in the Kolhapur Steel, you have mentioned that you're confident of turnaround. So can you elaborate what is the actual on-ground strategy that we are implementing for the turnaround?

So for Kolhapur Steel, as you know, it was a captive foundry, which means that most of the orders that TKSL got was from KBL and that too from the power sector, mostly from the power sector and the oil and gas sector. And with the crash in the power sector, because of the scenario is known to all of us. The order booking suffered for TKSL. So we have gotten a go-to-market strategy done for TKSL for looking at other options that it can cater to. So some of the other areas that TKSL will be looking at will be casting not only for pumps, valves and turbo machinery, but also areas like ship building, shipping, earth moving, et cetera. So we are doing a go-to-market strategy for TKSL. Unfortunately, because of the pandemic we were not able to complete many of the prequalification edits by potential customers. So that should start again this year. So I think that is where we had issues really, because of the pandemic. So we should see the improvement soon.

Okay. And one last question. Do we have any direct sales exposure to Russia and Ukraine?

No, we don't have any direct sales exposure to Russia from here. And I'd just like to make a correction because there's a question on oil and gas a little earlier. I noticed that there is a typo in the investor release where it says that the -- for oil and gas, the Q4 order book was 40 for fiscal year '21. The Q1 for fiscal year '22 is not 836, it is just 36, and then 42, 68, 69. So there's one number which is a typo, it doesn't change the total. It's just that in the oil and gas row that number has somehow become 836 instead of 36.

Our next question is from the line of Amar Kedia with Ambit Capital.

Yes. I had a question on KEPL. So you have part of the API Turbine business sitting in there. Just wanted to understand the size and potential opportunity in this business that is one. Second is, from what I understand, companies like ABB and Siemens, they have been talking about replacing these drive turbines by electrical drive. So does that impact opportunities for you in any way?

So these drive turbines are mostly for the oil and gas sector. So again, they are API drive turbine. So I do not believe they are going to be replaced by electric drives anytime soon. Second is that these turbines have a lot of potential. We had some issues with proven track record, which is why that does not show in our bookings. But this year, we were able to get most of the PTR that we require to cater to this segment and we are also very aggressively going for export markets. So we should see this sector growing.

Any size or total addressable market opportunity you can talk about in this business? And I also understand that your partner, Ebara, for example, would they separately participate through Elliott Ebara in this market already. So how does that overall arrangement goes for you?

Right. So Ebara and Elliott don't actually have any impact on KEPL simply because, number one, we have a more cost-effective product. And our efficiencies are also good. So we don't actually have an issue or an issue because of them. If at all, it was an issue because of PTR, which we have now. So I don't see any issue because of the JV partner. To answer your second question, I think this business does have a lot of growth potential internationally as well. And we should see that in the coming year because we've gotten a lot of customer prequalifications done during the pandemic.

Right. So should we assume that initially, this will be more of a domestic market opportunity for you? And gradually, you'll be opening up to the international orders as well?

Well, we are already now supplying to a few refineries outside. So we've already gone into the international market. I think that quantum is just not going to increase now.

I think what Rama has not mentioned is that to get our proven track record for the domestic market, we actually had to get it from the international market. And that's where our first turbines were sold internationally. And after we got the international proven track records from the different customers, it was only then that EIL accepted that it could be sold in the Indian market to Indian customers.

Our next question is from the line of Nilesh Doshi with Green Lantern Capital.

Just a few questions, Alok, one on the international business. In Q4, we did about INR 200 crore revenue. But at PBT, we have an INR 10 crore loss. So can you just explain anything one-off or what has actually happened, whereas in domestic, we are still making some EBITDA?

So in Q4, which is Q1 over there, what happened was that last year coming out of COVID in '21, a lot of projects in the international market went on hold. So basically, what we have to do is consume to get the numbers right. As you know, we now have framework and service contracts. And we have a little bit of flexibility with the customer in terms of working with them for upgrading the platforms on a time frame that the Board decide. So we've pulled back or advanced or preponed that from Q1 of international, which is Q4 of KBL into the last -- into Q3 of KBL and Q4 of international because we needed to ensure the international numbers got better and met the numbers because of so many orders going on hold in the Q4 of international, which is October, November, December last year. And so that's how we pulled back a lot of the orders into last year Q3 of KBL. And there was very little aftermarket service backlog in Q4 of KBL, just Q1 of international. And so a lot of regular business was pushed, which is a basic fire pump and all that business, and margins are not the best because it normally balance the margin through the service and aftermarket business. So that's why -- that's the reason you see that as the outcome because there was very little, almost no aftermarket business executable because we executed it in the previous year.

So sir, you expect B2B in at least PBT positive from Q1 -- Q1 of current -- that is from current quarter?

We expect things to be a lot better. I mean, of course, this is dependent on different kind of thing. But if you look at our backlog, the backlog, again, is quite strong on aftermarket and services. So we expect things to be a lot better going forward. Now of course, this -- like I said it depends on supply chain issues or any other issues we may face. But as it stands, we don't have any orders on hold, touchwood and we are negotiating whatever problems come up in the meantime to execute our backlog, which as you can see is quite lengthy.

So that is my -- Alok, I think that question which came from previous few participants, Pritesh Chheda is, it's a very serious question that on an international business since we have acquired, we have spent enormous amount of money to a change variety of strategies, turn around various businesses. And in spite of that, for last 10, 10 years, that business has been not generating any profit at all. So I think that is why his question was very relevant that I mean, how long we keep on experimenting our ability or the tremendous volatility in the world for a variety of reasons. Obviously, all those reasons are beyond our control. And even beyond anybody's guess that anything would happen like that. But at some point, you see, we need to be capital efficient. We have present -- we talk about phenomenal opportunities. We talk about global presence. We talk about technical capabilities, that's perfectly fine. But when it comes to at the end of the day, everything reflects in the balance sheet and the P&L. And what we have been observing is that kind of hard work you all are doing for last 10, 10 years. And still, we are struggling to make any amount of profit in the international business. So -- and that is why I believe I think his question was very relevant that at some point or what is that point when the Board will discuss and say that we are tired or we should give up because we need to come to 15%, 16% kind of EBITDA. I think Sanjay sir did ask about any MNC from India, any Indian company who exports products in Indian brand may not be in pump, but there are in other engineering businesses like compressors and motors, there are Indian companies. And they have been making 15%, 17% EBITDA margin, whereas we are not even close to that. So can you give some serious thought on this part of the -- or at least, can you help us or assure us that yes, we are very close to start making EBITDA margin of the other competitors are making?

Mr. Doshi, I think I appreciate your point, and I think all of us want that level of margin. I mean, that's definitely an expectation from us to ourselves. I think you mentioned the profitability of different companies, but I don't think it's been 10 years. I mean if you see the numbers on the analyst chart. I mean, from the last 3 years, SPP has moved back into the black. And I won't talk about the numbers before because the market scenario is very different in from 2003 to 2015 when SPP was doing exceptionally well. But we are changing the base of those businesses to ensure that we get a baseline business in all these countries. And getting to that number of being profitable. So I mean, even last year, as you know, the international business was profitable. And there is some volatility in some of the companies, which changes the numbers significantly. And one is, of course, Rodelta and the others, of course, some ForEx issue this year in Thailand. But I think, generally speaking, we are moving in the direction of making -- of strengthening the baseline businesses to get that level of return that we expect. I mean, to put it as an example to you, I mean, our competitors in the U.K., I mean, we had 2 major competitors. One was SPX, the other was Weir. SPX was sold to a private equity called Celeros and Weir was sold to another private equity called Trillium. Because -- I mean the -- I mean if you thought we were at bad situation, I would ask you to look at the company results for them. So I would say that when they're comparing ourselves, yes, we are also benchmarking what -- where we are in the local markets. And are we able to make that turnaround. And also, we are, as a Board, also discussing once you make that turnaround, our certain geography is just too risky for us. So I think all these discussions are taking place. And we do have an understanding of when -- where we want to be in each of these companies. But I definitely take your point, I mean margins are important and return is important because finally capital is limited.

Yes. So I think very nicely you said. So does that conclude or does that infer that it's not worth doing business in U.K. at all, because the others are also not making money, we are also not making money, hell with the country. I mean we just dump that country and come out. How does it -- how should we have emotional attachment to it. So I think, as you said, I hope that you all are looking at it. The second question is to Sanjay, sir, that you mentioned in opening report that volatility in RM is expected to taper maybe in another quarter or 2. So can we expect the raw material cost, which has been gone up. We were at about 54%, 55%, has gone to 62%. Are you seeing that in this quarter, Q1 and Q2, beginning this Q1, we are seeing that 61% coming to 58%, 57% because now we are seeing a very sharp decline in steel and aluminum and copper and other prices in -- across the commodities?

I think so, you will see a decline going forward. But how much I can't predict.

So sir [Foreign Language] basic question, that I have been tracking and we have been meeting. Yes, you are one of the company which is extremely well placed on the opportunity, the technology, the product development, 3D printing, et cetera. So that part of business, we are absolutely doing the best and trying to remain ahead. This is other part of the business. And that is your manufacturing efficiency, productivity, financial efficiency -- and that is where what we observe that everything is getting lost. All your efforts on the first part is getting drained out in the second part. And I'm not sure whether -- is there any focus is being given there? Are there any leakages -- when I say leakages in terms of extreme inefficiency in product pricing versus the raw material behavior. So I just want to convey that I hope we are looking at that because an MNC company in India, your competitor is still making 16% EBITDA margin, 15% EBITDA margin. And we are the only one who are suffering from raw material cost fluctuation. So I request if you can help us understand that how fast we can come to a higher margin profile.

We are looking into all those issues whether it's manufacturing cost or whether it's material cost. But as you said, we have met and you know that I'm very reluctant to make any forward-looking statements. So we are working on that. And I said -- as I said earlier also, you will see differences going forward.

Ladies and gentlemen, due to time constraint, this was the last question for today. I would now like to hand the conference over to Ms. Rama Kirloskar for closing comments.

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