Kirloskar Brothers Limited (500241) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Kirloskar Brothers Limited Q2 FY '23 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 of 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, Chairman and Managing Director at Kirloskar Brothers Limited. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone. I'm sorry for this. We have a small system failure. So we will go on for an hour as had been agreed. So we will end this at 15:45. On behalf of Kirloskar Brothers Limited, I extend a very warm welcome to everyone for joining us on our call today. I hope all of you have had the opportunity to go through the financial results and the investor presentation, which has been uploaded on the stock exchange and also on our company's website. The company reported healthy performance, along with significant improvements on operational parameters driven by excellent operational execution across geographies, easing pressure on input costs, operating leverage and improved product mix, domestic as well as international operations witnessed good top line growth. Growth in the international markets was driven by oil and gas industry, water management, while growth in the domestic market was driven by pumps required for various sectors, including building and construction industry, domestic, et cetera. On a consolidated basis, Q2 FY '23 revenue grew by 15% on a year-on-year basis. EBITDA and PAT grew by 72% and 403% on a year-on-year basis for Q2 FY '23, respectively. The financial performance is expected to improve going forward as well, driven by seasonality impact where in the second half of the financial year is typically stronger for the company, healthy orders in hand, cost rationalization as well as softer commodity prices. Our company has continued to build the momentum in order inflows, driven by oil and gas, industry, irrigation and building and construction. The order book as of 30th September 2022 stood at INR 2,848 crores, up 30% year-on-year. We are witnessing green shoots across geographies and sectors, especially for our value-added products. Many countries where KBL operates, including India, have shown resilience to ongoing global uncertainties. Many of these geographies are expected to deliver a V-shaped economic recovery along with increased public and private sector investment. The company has also not witnessed any significant impact on business operations due to these global uncertainties. Apart from improvement on operational parameters, the company has also focused on cost rationalization, working capital optimization and debottlenecking at the plant level to further improve profitability. I shall now request Mr. Alok Kirloskar, Managing Director at Kirloskar International BV to share his thoughts on the performance of the international business.

Thank you. On the international operations front, the company continues to do well operationally and has shown resilience to various headwinds, such as political uncertainty in the U.K., the ongoing conflict between Russia and Ukraine and rising interest rates across the various geographies and the volatility in the currencies. This resilience is a clear testimony of the company's operational excellence, diversified product offering and land recall. Thailand, U.S., U.K. and South Africa have performed well in operational parameter. However, the constant devaluation of the pound sterling GBP, the South African ZAR and the Thai bhat against the strengthening USD affected the financial performance. This is mainly due to unrealized mark-to-market losses of INR 20 crores, arising out of ForEx loss on forward contracts Of the INR 20 crores, this amounts to INR 14.5 crores, taken for off balance sheet items and mark-to-market loss on loan revaluation, which amounts to INR 5.5 crores over the INR 20 crores, SPP U.K. has implemented hedge accounting with effect from first July 2022. Since hedge accounting is permitted to be implemented only prospectively, SPP U.K. has booked M2M losses on forward contracts pertaining to hedges taken prior to July 2022, which will be offset by way of higher sales realization in future periods. As such, the group has a robust foreign exchange risk management policy and hence, the impact are largely transitional in nature. And the group is well insulated going forward from such moves in currency markets. The momentum in order inflow continued in Q2 FY '23 as well. The order book grew 43% year-on-year to INR 1,267 crores, driven by a significant pickup across geographies led by robust growth in foreign conversions. A pointing to note here is that the product mix also changed in H1 compared to the previous year, where we had 20% lower oil and gas sales in SPP U.K. compared to the previous H1, same time. But the difference has been made up by other businesses. That said, on the oil and gas side continues to be robust going forward because the effect of all the oil and gas uncertainty or investments both in the market have only come into effect -- will only be effective from the future year given the way the orders have come in. Apart from this, the company scaled up the subscription platform, spare and maintenance business considerably, which provides scalable recurring revenue, upfront cash payments and increase engagement with the customer. The company's primary goal remains to scale up this business going forward. With this, let me invite MS. RAMA KIRLOSKAR who joined MD KBL and MD KEPL to take you through the performance of domestic subs.

Thank you, Alok. The company's domestic operations continued to grow at a healthy pace, driven by improved product mix and sustained momentum for retail pumps across the country. We are witnessing an encouraging trend in recent order inflows as well as consumer sentiment for the retail pumps. The private sector CapEx is on the rise, along with significant pickup into government spending, especially towards agriculture irrigation and wastewater management. The company's AP OEM program has performed well since its scale up during the past few months. KBL's unique initiative is expected to reduce the turnaround time significantly, which would further improve the customers' stickiness, along with improved engagement with dealers and distributors. Now coming to the domestic subsidiaries, Karad Projects projects and Motors Limited continued its healthy growth pace. KEPL revenue grew by 27%, while PBT grew by 9% in H1 FY '23. The company is well on track to turn around the Kolhapur Steel Limited, which is witnessing sharp growth in revenues as well as production. With this, let me invite Mr. Chittaranjan Mate, our CFO, for the financial performance highlights.

Thank you, Amar. Let me start with consolidated financial performance highlights for Q2 FY '23, the top line grew by 16% year-on-year to INR 864 crores. EBITDA grew by 72% year-on-year to INR 66.6 crores, while EBITDA margin improved by 256 basis points to 7.7%. Profit after tax grew considerably by 403.3% year-on-year to INR 30.7 crores while PAT margin expanded by 274 points to 3.6%. Now coming to H1. The top line grew by 20% year-on-year to INR 1,648 crores. EBITDA grew by 41% year-on-year to INR 114.7 crores while EBITDA margin improved by 107 basis points to 7%. Profit after tax grew considerably by 158.1% year-on-year to INR 46.2 crores. Now coming to stand-alone performance. Q2 FY '23, revenues stood at INR 591.6 crores compared to INR 484.6 crores, a growth of 22% year-on-year. This contributed approximately 68% to the consolidated revenue. EBITDA was at INR 46.9 crores, a growth of 20% year-on-year, while EBITDA margin stood largely stable at 7.9%. PAT for Q2 stood at INR 20.6 crores, a growth of 18% year-on-year. H1 '23 revenues stood at INR 1,134 crores compared to INR 882.1 crores, a growth of 29% year-on-year. This contributed approximately 69% to the consolidated revenue. EBITDA was at INR 77.9 crores, a growth of 33% year-on-year, while EBITDA margin stood largely stable at 6.9%. PAT for H1 '23 stood at INR 28.6 crores, a growth of 24% year-on-year. This is all from our side. We can now begin question-and-answer session. Thank you.

[Operator Instructions] The first question is from the line of Mahesh Bendre from LIC.

Congratulations for the great performance across income statement, balance sheet and cash flows. We have a phenomenal well and I think this performance is commendable after a long time. So the first question is the gross margin during the quarter has improved by 374 basis points for the quarter. So how sustainable they are going forward?

Is that the only question or?

No, no. Sir, I have series of questions. Should I go ahead or?

Yes, please go ahead because we'll respond to them all at once.

Sir, you mentioned in your opening remarks that going forward. Also the I think you are seeing a positive business environment across geographies and expecting financial performance to improve here on going forward. So what kind of growth outlook do you see over the next 18 months at a consolidated level? And third question is KPML is doing phenomenally well. But during the quarter, the top line of this company has even, I mean, it's almost flat. And even the profitability has come a bit under pressure. So what could be the reason for the same? That's all from my side.

Okay. I believe that the gross margin improvement is sustainable going forward. We have told you that the order board is increasing. We told you that we are trying to reduce doing cost rationalization, et cetera. So it's our belief that you can you will see that this is something that is sustainable. Business environment, from what we see now at the current moment is that the auto board has driven significantly over the last year, the order funnel is also quite good. So we are expecting that the growth momentum will continue. As far as Karad is concerned, Karad Projects and Motors, they are very closely tied to our small pumps business. And as you are aware, the seasonality is such that the business reduces when the rain start, which is actually in this Q2. And KBL also tries to ensure that there is not too much inventory on it that we don't get stuck with inventory when we don't need it. So that is why you see the top line is flat. I assume that we might assume the profitability would have had some effect because of the commodity price sizes. But we expect that this company will continue to do well going forward.

Sir, last question from my end. The cash flow side, we are doing phenomenally well. During the quarter also, I mean, the change in working capital is, I mean, almost negligible in terms of growth we are reported. So do you think further there is further scope generate -- I mean, change working capital remaining at this level and generating high cash flows?

Yes, we do expect because as Chairman had explained, Q2 generally a lean season for smartphone business, which is a cash and carry. But we also have to build inventory, so as not to lose production capacity. So our inventory, you would see that are higher than margin. And in the remaining H2, we expect inventories to come down and cash flow being under control.

[Operator Instructions] The next question is from the line of Renjith Sivaram from Mahindra Mutual Fund.

Congrats on Robust performance given the environment and given the challenges we had in Q1. So good to see margins coming back. So that -- when I look into your presentation like your U.S. and Thailand has done exceptionally well compared to U.K. and others. So both in terms of revenue growth and in terms of EBITDA. So is there any currency gains because rupee had depreciated much versus dollar. So was this -- what portion of this might be due to that currency-related gains? That's the first question. Yes. And also, if you can give some view regarding the other geographies like what had led to this decline in the overall revenues in U.K. and other geography? And how do you see that going forward?

Alok, would you like to answer that? Mr. Mate will take up whatever you don't.

Yes. Thank you, Mr. Chairman. Thank you for your question. Let me start with the U.S. business since you mentioned that. In terms of dollar terms, we are seeing the difference you're seeing is $4 million between last year and this year. $2 million is coming from currency appreciation in the revenues and $2 million is coming from the growth in the business. This is mainly -- I think we've said this before, it's a pure distribution business. And last few years, we've really been consolidating that business and also releasing new products. So we have some -- we have quite a few new products in the pipeline, but we have released a few of the new products and the touch would have done exceptionally well in the market and we're just seeing a part of that right now in the numbers. So that's why the U.S. number looks like that. Thailand, actually Thai bhat depreciated significantly against the dollar from early last year of 30 with 38 at the time when this presentation was made. So there's been significant deterioration in the Thai bhat. So actually, the performance is heading of how well they've actually done. So I would say that's, again, nothing special happened this year. I think we've been saying every year that we have the companies like Thailand and South Africa as well as the Continental European countries, which is [indiscernible] These 3 entities operating in these 3 geographies. Our objective really has been to grow the baseline business and grow the distribution part of the business. And that's really what's been happening. Year-on-year, we've been increasing that business. And we have seen -- we are seeing the growth coming in more and more year-on-year. And as we tip over that those, let me call them, margin barriers in terms of after which you get a huge eye in margin, we're really at that stage. And that's why you're seeing the numbers come through in a lot better way. But I don't think something has significantly changed from 2 years ago to today apart from the fact that maybe reached that level where we are able to grow and show the growth in margins for Thailand. U.K. was your next question. U.K., there is a decline. The decline is coming from the fact that the currency has depreciated significantly in this time period from last year at 1.34 to 1.11 so -- to a dollar. So that's where you're seeing quite a huge amount of reduction. There is a minor reduction year-on-year, but I would say that I would not really pay too much attention to that because, as you know, the U.K. numbers tend to be skewed towards the last quarter. So I would get the U.K. based on what the numbers come out in the last quarter more than more than just H1 number. Does that answer your question?

Yes. So what's your outlook there for the full year? If I looked at overseas business, do you believe this momentum will continue? Or there will be some adjustment because of these currencies has been advantage have been this for this quarter and it will normalize? How do you see the overall growth for the full year?

I mean when you say overall, I would say, actually, we've taken a massive hit. Like we've said, we've taken a INR 20 crore hit on the bottom line because of ForEx. So rupee only helped us marginally in America. But overall, it's a huge hit. So you've got a $2 million gain in top line in America INR 200 crore hit across margins across everyone else. So in the scheme of things, I don't think currency helped us -- but if you ask me the business point of view, we see the business quite strong. I mean, we said that the order intake is given the number of INR 1,267. So that's been quite strong. And as it stands, we are seeing the mix that we want to see in terms of -- as we've always said, we want the services business to deliver more. We are seeing that. You can see that in the margins also when you add back the ForEx mark-to-market situation, which, like I said, is transitory. And similarly, you see that across the geographies where the numbers have picked up. So overall, if you ask me, I think it's reasonably strong. We've also made the point about hedge accounting, which I'm sure you've taken the Q of what that means.

Sivaram, Mate here. If you see Thailand numbers, the growth is the Q2, it is more than 100% growth. I'm referring to Slide 56. H1, the growth is more than 50%, I would say, 60%. So you would take out the currency depreciation. One thing the currency depreciation would be only for export business, what is going out of Thailand. And debt to the currency has depreciated over the last 12 months by around 17% to 18%. So I would call most some gain on currency depreciation by around 10%, but the rest is because of higher order, higher execution. So there is a real growth, not only due to currency depreciation.

Okay. And the growth in U.K. is largely currency.

That is because certain orders...

Project orders over there.

In U.K. .

No, in Thailand. I think Mr. Mate mentioned Thailand. So there were no project orders that are -- these are all basic regular day-to-day orders.

Okay. And this U.K. decline...

So I'm sorry to interrupt, sir. I request...

I will just respond to Mr. Sivaram. If a U.K. slight decline whatever is there, because U.K., it depends on the order getting released by customer. So some orders even if it is ready, if it goes delivery in October, you would say, 1 quarter fall another quarter pickup. But overall, looking at strong order board, we anticipate U.K. to go up over previous year.

The next question is from the line of Sunil Kothari from Unique AMC.

Congratulation for really good commentary on this press release. Sir, across the sector, your commentary talks about very positive momentum and order book. So with your vantage point, would you like to comment some in detail that this turnaround you seen inquiries and orders. How sustainable these are something which you feel after coming along disorders, the type of inquiry orders? What's your thought process?

There's only one question?

Yes. And sir, second question is on sale, I would like to know is the recent -- again, this controversy on legal fees and legal matter and all these things. Would you like to comment on those things? And is it possible that this matter Kirloskar Brothers as a listed entity can be kept away? How this can be, I mean, rectified? That is my question.

I'll answer the first question. I'll ask Mr. Mate to respond to the second because I think in the interest of good corporate governance, I shouldn't be responding to that. For the last few quarters, we've been saying that the company is taking various actions. Not only on the side of improving our reach, improving our product line and taking whatever actions that need to be taken to have a better top line. But we've also been working on the bottom line in the sense that the company has had some baggage in the with its old project sector. And we've been telling you that Rama has been working on that to reduce the impact to ensure that we close every single project to the full satisfaction of the customer -- to a great extent, we need to wait for the customers to do certain actions so that we can go forward with our actions. So it is a combination of that, that the company is in a better place today. The products are well accepted, not only in India, but around the globe. So the products are all world-class products, so to speak. On the other side, and that is resulting in customer acceptance of what we are doing. On the other side, various initiatives that are being taken with the help of -- earlier, we had worked with BCG, we work with KPMG. There's many things for improvement. We are an old company, and we are doing a lot to improve ourselves to see how going forward, everything can become more sustainable. So for me, it's something that is a work in progress. But I think I have said that to the best of our ability, we will ensure that our ratios keep improving quarter-on-quarter, year-on-year. And I think what you're seeing is just a part of that.

My question is more related to outside world. How do you see this situation? Is it really outside change or just internal [indiscernible]

Outside India or outside...

Outside,I mean internally, whatever you have done the benefits is shown because of better product cost control, optimization, operating leverage. But do you see overall momentum macro things also changing?

We see things changing in the sense I mentioned a little earlier that the funnel, the inquiry funnel has improved quite a bit. And I think that is also something that is helping us. And one more -- the other thing, Mr. Mate will respond to the other question. Please.

Kirloskar Industries Limited, along with Mr. Alok Kirloskar and Mr. Rahul Kirloskar, who collectively hold 24.92% of the company's voting capital has sent to the Board of the company a special notice and requisition under Section 100 subsection 2 Clause A, of the company's Act 2013. This requisition dated 21st October '22, for convening an extraordinary general meeting of the shareholders of the company to pass a resolution for the conduct of an external forensic audit into the affairs of the company, which is for the purported object inter-alia of verification of the participation and the role of the independent directors of the company in respect of or in connection with certain legal proceedings initiated by the company, which according to them are stated to have resulted in huge legal expenses being incurred by the company aggregating to INR 274 crores based on the legal opinions of company from 2 eminent former judges of the Supreme Court of India. The Board of company on 10 November 2022 approved to convene an AGM of the shareholders of the company on 8th of December 2022. In pursuance of the sale resolution of the Board, convening the AGM a notice around which a statement of material facts will be issued by the company to all the shareholders of the company.

I am sorry, but I have minority shareholders, I would like to understand your view that can this be -- bring it to end? Or can it be removed from Kirloskar Brothers balance sheet and P&L? Any for your thoughts will be really grateful.

At the moment, this is all that we can say.

The next question is from the line of Riddhesh Gandhi from Discovery Capital.

Congratulation on the number. Just wanted to understand sort of while all of this is happening, at the promoter level. This is not impacting our operations or any of that in any way, right? Just wanted to kind of clarify that as starting point.

I think it impacted you would have seen .

Okay. Okay.

The performance of the company, there is no way the company will continue to move forward on the same part.

Got it. And the other question was with regards to -- if you guys obviously have done a reasonable amount of optimization to sort of bring up. They actually deliver it -- actually grow profitability and margins. Just wanted to understand that going forward, what are the incremental drivers to sort of bring us to maybe a double-digit EBITDA margin and potentially higher as some of the other industry players were at.

We're beginning to operate all the levers that are possible. There are many programs, which I obviously can't mention over here that are all in the company whether it is product development or cost reduction exercises, better working capital management. All of these activities are going on within the company. I think time and again at different investor calls, I have been asked when will you reach a double-digit margin. And I hope you feel that we are on the way to getting there.

The next question is from the line of Himanshu Upadhyay from o3 Capital.

Congrats on a good set of numbers. I have 3 sets of questions. One is on the power segment. In most capital goods, which are on the power segment, we are seeing a very strong order book growing, okay? And for us, also in the last cycle, it was a big segment, okay, the main driver of the thing. But when we look at our order book in power segment, it is not so much growing versus various other segments, okay? So what is happening on the power side? Secondly, related to power only. We see a lot of ways to heat in other segments also growing, okay, especially in Europe and some of the geographies where we are present, even in the captive power plant and all those things. is there some product gap or so that we are not growing? And can you elaborate on this power segment, both in India, what is the scenario currently? And what is the scope for us to grow our business in Europe, especially on the Power segment, okay? And 1 small thing related to this only, we give a stand-alone order book breakup. Can you give the consolidated order book breakup also so that we just know [Foreign Language] which segments are the top 3, 4 growing overall at the company level. So that was on power-related. Second was related to Kolhapur Steel and Rodelta Limited, okay? My question is more on the Kolhapur Steel steel, okay? See, we have been spending a lot of energies on Kolhapur Steel breakeven and growing that business, okay? And the last 5 years, the best what we have seen is INR 45 crore, INR 50 crores. And even if we believe that the company will double or, let's say, even triple, can you really move the needle for us since we are nearing INR 3,000 crores revenue. So what is the strategic advantage of thought process on this business, okay? I mean, why not focus on getting INR 150 crores of revenue in other businesses, which are our core businesses, okay? If my understanding is completely wrong, you can just elaborate on that, and it will be helpful on especially on Kolhapur Steel Limited? And third and final, in the Karad Power and Motor is limited, what percentage of revenue would be from the Kirloskar Brother itself? And what is the scope of selling motors outside also because we are seeing very strong traction for other companies, which are in the motor segment. Even for small and large motors, but the segments, we are seeing very strong traction. So what is the business development opportunity for us on the KPML outside the loss customers. So these were the 3 sets of questions. If you can elaborate on that, it would be helpful.

Just you mentioned that we were breaking the power segment where coal-fired power was large. And we see movement in the power segment. We see orders inquiries coming in. Orders being received. And I'm also very happy to tell you that if I haven't told you last time that we first, boiler feed pump for a nuclear power plant, which has been totally designed and totally manufactured in India was done by APS and has been accepted by NPCIL. So we expect that this product line, something that KBL was bought in before. We will be able to go forward and have a much broader product line for the nuclear segment. As far as thermal power, I think there are inquiries coming from not only in India but also around the world. Maybe Alok can talk about that. We have also entered into the renewable energy segment. We see many inquiries coming for pump [indiscernible] turbines and for hydro turbines and for our small pico turbines. So as far as we are concerned, the power sector has a large order board. It's about, I think, right now about INR 486 crores. Some of that has not moved because there are development orders that are behind that, which are slowly -- you see that moving in the quarters ahead. As far as Kolhapur steel is concerned, yes, it has not done well in the last 4 or 5 years, and we have had large losses. We will -- for us, it is important strategically because our IP, especially for impellers and what we call impeller walls or casing, it's very important for the large pumps to be -- to have that in-house. Similarly, for the nuclear pumps, we believe it is extremely important to have a company like Kolhapur Steel with us. That being said, I will ask Rama to also speak about the work that is being done to turn around Kolhapur Steel because we see that getting into -- we see that coming out well as we move towards the rest of the year. But before I hand it over to her, KPML is a supplier of motors for our Monobloc pumps, and they do a lot of stator worker units as well as motors for KBM. You may know that Kirloskar Brothers being the original company in the group had offloaded its electrical business to Kirloskar Electric Limited. And therefore, there are agreements in place which we cannot go against. However, KPML does make the latest high efficiency or what we would call ultra high-efficiency motors for KBL pumps. I believe we are the only Indian manufacturer with [ i4 and i5 pumps ], which are available in the market. And these are induction motors. These are not BLDC or whatever. PSM motors. These are induction motors with the same level of efficiency that would qualify as is motors. So for us, KPML is a company that is very important for our growth, and it's also a company that's doing very well. Other than KBL, with our agreement with [indiscernible] Electric, KPML is also able to supply electrical equipment to GE as well as Siemens. They are 1 of the 3, I think, global suppliers for medical devices wherever they need the electric motors KPML supplies them. They also supply to some elevator motor manufacturers, and they supply motors to KBL, complete motors to for when we supply to our AP OEM complete pump set. So every Kirloskar pump, we would like to be coupled with a KBL supplied motor or a KPML supply motor. So that's where KPML comes in. Rama will talk about Kolhapur Steel.

Good afternoon. As you are aware, TKSL was a very strategic acquisition, and we're very dependent on good quality casting, especially for critical sectors like oil and gas, M&D, power and the nuclear customers as they have some very stringent quality norms. That being said, we have mentioned earlier that we have some very ambitious plans for TKSL, and the market potential is there. We have undertaken a go-to-market strategy for this foundry because we're actually transitioning TKSL from being a captive foundry, which it was up to 3 or 4 years ago to a stand-alone foundry that caters to outside customers. We essentially had acquired this foundry to cater to specific sectors, such as the power sector. But as you know, as power sector demand went out, they actually had a huge impact on TKSL's order booking, which is why we see the financial issues as of today. I think the only problem with TKSL today is not having a healthy order board and through our go-to-market strategy, that's essentially what we are trying to do is get external customers in other spaces such as earthmoving, shipbuilding, turbo machinery and valve. And I believe that with those orders and there is no dearth of those orders, we should be able to turn this foundry around. That being said, the foundry is a very important part of our group because it allows us better quality control over our casting that allows us to do very stringent quality checks on our casting such as radiographic testing or magnetic particle testing, and that being in-house, is there a big advantage for us in terms of stringent quality control as well as ensuring that the kind of products that go out of a close company abide to the norms that our customers expect. I hope that answers your question.

Yes, it helps. And on the power prospects in Europe, there where we are positioned [indiscernible]

Yes. We are able to get a lot of orders from outside. We are expecting that simply because the foundries there are going to have huge, huge costs. They're not going to be viable. So we are also targeting customers abroad.

Alok, pride to say anything about outside India?

Yes. I think in terms of [indiscernible] pumps that we supply in Europe, we see 2 kinds of business. One is replacement, where the same plant has been updated in Europe in the current environment than the other one new coal-fired power plants or gas-fired power plants. So we don't see so many of those right now in Europe. Most of them are being done through Turkish contractors, the depreciation in lira. Many of them have taken jobs replacement aberration dominates. But majorly the new job that they're doing are mainly in the old CIS countries, which are not aligned to Russia, like Kazakhstan, Tajikistan all these countries as well as some African -- North African countries. So actually, we're working closely with them, and we've already got orders from them on -- for the power segment. The other, I think, area that we're also looking at when we talk about power is hydrogen. So Rodelta has also supplied to a major company in the Netherlands oil and gas company for the hydrogen process pumps where they have orders at the moment. And they've also supplied to Shell for the red to green project, which is the new biofuel project. So they are quite closely aligned with both biofuels as well as green hydrogen.

Okay. Hope to see better results or growth in the Power segment, not results, but growth in the order book of power.

The next question is from the line of Devansh Nigotia from SIMPL.

Regarding order intake, if you can dissect between all the sectors and give a perspective and also share your outlook for irrigation, oil and gas, building construction and power. How do you see the order intake going forward?

You're asking for a forward-looking statement, I guess.

Yes. Yes. So you qualitatively mentioned that the inquiries have been very strong, but it sector as you can just [indiscernible] detailed perspective.

You know what [indiscernible] Water Resource Management. I think we are the only company in that does pump manufacturer that takes orders on our own terms, which is we say that -- these are our terms. We'll need advance. We want a letter of credit. We will not sign a joint venture agreement where we are solely and jointly responsible. So these are the terms that we have set for ourselves. Even then, we continue to get a large number of orders for big pumps as well as small pumps. And there are many projects going on in different parts of the country. And we are there in every single state wherever irrigation and water resource management is taking place. One good thing that I see, especially in water resource management is they have now started asking us for our predictive maintenance and remote monitoring system. You may be aware that our KirloSmart system is the only system available from an Indian company or from any company for monitoring pumps on a -- remotely. It also allows people from an app on the phone, not only can you monitor your own pump and many parameters on your own farm. But also you can order spare parts if you need to do some quick maintenance, the entire way to do maintenance comes across to augmented and virtual reality. We are one of the few companies that say in the world where such a system is available. And I'm very happy that whether it is Varanasi or whether it is Angul in Orissa or whether it is Bombay, our system is working very well across the country. And it worked in Indian conditions, especially because we have had over a decade-long experience of having it to work in Indian conditions . And it's not just private sector that's buying the system but also public sector that's buying such a system. So this is something that is very encouraging going forward. We have dispatched quite a large number of very big pumps, I believe, to [indiscernible] in the last quarter. And there are more orders that we can see in the pipeline. As far as building and construction is concerned, I think we -- we've mentioned that there's quite large growth in that. In the investor release, we've said that sales have increased 30% year-on-year basis. And there is a 62% growth in the pending order board. This basically is either the way the construction industry is moving in India, where there are requirements for modern systems. And as you're aware, our pumps are used globally, whether it is in Southeast Asia, North America or Western Europe. Some of the most iconic buildings in the world have pumps made by Kirloskar. So as Indian buildings become smarter and smarter, I believe that this business will continue to grow going forward. Power, I believe I've already answered. I'll now ask Rama to speak on oil and gas, especially since he also Managing Director of Kirloskar Ebara and maybe Alok can also talk after her about oil and gas around the world.

So we do see a healthy order book for oil and gas. There are quite a few upcoming projects, both domestically as well as internationally. Domestically, I believe there are quite a few pipeline projects, pipeline expansions and refinery expansions happening. We are seeing a good inflow of orders from outside as well whether it is the Central Asia or it is the Middle East. So as far as order booking is concerned, in oil and gas, it's been quite healthy.

Just in oil and gas, I mean, when we look at our peer, I mean, we've been winning really large orders, especially in oil and gas. But when we look at our order inflows have not been as strong. So I'm just trying to understand where is the gap here.

So I think the way you need to look at it is not only for oil and gas, KBL and KEPL together need to be seen. Yes. Right. So if you look at the KEPL order booking, pending order board as of Q2 was around INR 363 crores along with the KBL aspects. If the KBL sector only does non-API, which is non-American Petroleum Institute oil and gas pumps. So essentially, it's all the utilities that go into a refinery, but the refinery pumps and the pipeline pumps itself are catered to by KEPL. So when we look at oil and gas, it has to be the KEPL order booking as well as the KBL order board for oil and gas.

Okay. And the order book, which you mentioned for irrigation and water source management that does not include the agriculture residential or agreement standard on it.

Although that comes under our small pump business. And as we have informed earlier as well, that is made to stock business. It does not reflect the order board because pumps are dispatched during the month. And the other thing is that we continue to be the only company in the country, which does not give credit to customers, whether they are dealers or end customers.

The next question is from the line of Sanjay Kumar from ithoughtpms.

We are very glad that you've asked for the Extraordinary General Meeting by requestion of certain shareholders, keeping in mind the spotless reputation of the Kirloskar. We are shared you shall be voting in favor of the forensic audit asked by the shareholders. As you have nothing to hide given the strong legacy over the 130 years, it will only reinforce the great legacy of Kirloskar to be voting in favor of the audit.

Is that a question or -- [indiscernible] and that is all that we will say about that resolution.

Okay. Okay. So first question on nuclear funds, your MNC peers on orders to NPCL for coolant pumps. Why have we not been able to participate in these orders? Any commentary on the future orders? Are we on NPCL approved list of manufacturers for both primary and secondary [ oculary ] pumps?

And so there was a bidding on [ ball ] pumps and compressors and maybe Rama can answer this. Because in the first bid, we were only 2 lakh short of the winning bid and then in the rebidding the M&T peer recorded [indiscernible] So we had INR 145 crores cash. So did it not make sense to go for it. So any commentary on that would be helpful.

So as you may be aware, the company has provided primary coolant pumps to fast build a reactor. And hence, the company decided that it would go to NPCIL for development order for primary cooling pumps. And what happened was is that they took about 7 years to give us that order. And within 8 months of that, it came out with a tender of 24 pumps and also that we were disqualified from sitting in that bid. So we didn't know whether we should continue [indiscernible] And therefore, we have to them that it doesn't make any sense for us to participate in the tender. They believe that only suppliers, even if they have not designed a pump or not made all the components in India should be qualified and someone who has made a primary cooling pump for the fast build to reactor is disqualified. So in that, we have taken ourselves out of the primary cooling pump business or the tenders. And we still haven't received the response from NPCIL to what they would like to do since there is only one effect in the intention. So that's as far as primary cooling pumps are concern. As far as BPCL is concerned, I think Rama [indiscernible].

Yes. So we had taken part in the auction for BPCL. I believe that tender was won by an entity for [indiscernible] part during the first auction. But from what I heard from various sources was, for some reason, they had to reenter this simply because the was made by a third party, which was not in line with the tender conditions. However, our board had only approved up to a certain amount simply because our legal concern had brought to our notice that there were a lot of various aspects of the tender terms and conditions, which were not the conduced to doing business as there's no number one, the technology and the IP was given to us on an annual basis. Number two, if there was very little time to actually do due diligence and that was given, I think, barely any time was given to all the parties. Number three, our legal punters as per the tender conditions told us that there was actually no rights that were transferred. There was -- BPCL was not actually in a position to transfer, right? So many of that technology to us. And that we felt was a bit of risk in taking part in such an auction simply because I believe their contracts with their partners, which we have new book, new knee and a few other European companies they had gotten various technologies from good contracts did not allow BPCL to transfer that technology to anybody else. So with some of these risks in mind, there was a cap or a limit to the amount that we were able to spend in that capital enforced by our Board. So that was one of the reasons why we stop at a certain amount. I hope that answers your question.

Yes. And so does that pulls out of the NPCL raise because we were disqualified from primary. And now we have lost access to the existing set of pumps installed at NPCL. Will we participate in future primary or at least a secondary and auxiliary pumps going forward? .

There were 2 things that -- there are reasons why we took part in this. One was for that there was some nuclear pumps and there were some oil and gas pumps. But as it happened, we are already developing both nuclear and oil and gas. So it does not really harm the company pretty much because at the end of the day, as far as the BPCL pumps are concerned like serious already only on an L1 basis. They have old technology. And as far as nuclear is concerned, we are taking developmental orders anyway. So we don't believe that it's going to hurt our future.

To answer your question, we have a design for DCP. We can make every other pump for the nuclear business. So our withdrawal from the PCB process was on a matter of principle that if you are going to take it or if you want to only a supplier not the designer because they basically own [indiscernible] Bharat. And so that everything needs to be done there. And if by supplier is only qualified part is a supplier who has never been such firm. I don't tell you they even designed a water pump in India. It is -- that is the kind of vendor that you want, then please go ahead with it.

Okay. Fair enough. Second, on the EPC...

[indiscernible] What is it called, pressurized daily water they access.

Okay. Okay. So second was on the solar pump orders that you received from large EPC contractor. So is it -- if you could name it, is it Tata Power or are there any -- can you talk about the order scenario and the pipeline.

We don't talk about other companies. [indiscernible]

Sorry?

We do that orders for solar pumps. We do not supply completely integrated units, the [indiscernible] pump to integrators who then -- this was a single auditor. That's why it was mentioned. Otherwise, continuously, we are supplying.

Okay. So this one continue in future?

[indiscernible] continue in future.

Okay. And since it's only the pump, the real stations will be around 30,000 per pump?

Approximately, I guess.

And in solar pumps, you did talk about motors, [i4 , i5] But in specific to Solar pumps, I -- from my understanding, so that PMSM is more important than the pump itself.

What is required for the solar pump.

So do we make those motors announced or..

I don't -- I think we buy them currently.

The next question is from the line of Mahesh Bendre from LIC Mutual Fund.

Other question, [indiscernible] I mean we are paying that most of [indiscernible]

Your audio is not very clear. Can you use the handset.

Am I audible?

Yes, much better now.

So the question is for Mr. Alok Kirloskar. The domestic entities, most of the [indiscernible] is fairly well in terms of growth margin and there is some predictability in terms of how that is going to and behave in the future. the international operation, there is some unevenness in terms of gross margin. So what kind of initiatives we are taking brings stability in the operations in terms of you think there has been some productivity in terms of growth margin and how the business are going to. So maybe on what the steps we are taking are taking for that? Secondly, there is -- I mean, 1/3 of the even comes from the international operations now. Globally, you were talking about the capital expenditure cycle. Global is coming back. I mean most of the countries are investing using infrastructure. So how do we think that we'll be able to capture at the international end that will benefit to us. And third is, there is a possibility of India, U.K. free trade agreements might designed probably near term. But how this will benefit us? Is there any benefit that will come to look in the site?

So I think the first point you mentioned is in terms of predictability in sales and margins. One thing that we've been saying that we're doing continuously, I think, in multiple calls, is that SPP U.K., as you remember, it is very oil and gas dependent. And really, that's where we are trying to focus on services business, develop a baseline business in every company independently. And the baseline business can be products through distributors that can be services where you have a framework contract, 3- or 5-year framework contract against [indiscernible] predictability. And that's really what we're looking at in every individual legal entity. You see that coming through, and I mentioned that earlier even in SPP U.K., where our project sales for U.K. were 20% down over last year. When I say project, it's mainly large pumps, engineered pumps. But even then the top line has been more or less the same because it's been taken over by other sides of the business. And the margins actually are far better, which you can see when you add back the ForEx losses compared to last year. So I would say that every entity has an objective. Thailand, as an example, has an objective to develop a baseline business. So Thailand is a much newer company. And one issue there historically, we didn't have a baseline business there to be a lot of volatility because there was large jobs that are going through. But year-to-date, there have really been no large jobs that have gone through, it's really an all baseline business, and we're seeing that underlying business come through in this last -- in H1. So I think one thing we're doing is developing a baseline business in every country. It's not been done since today or yesterday, we've been saying we're doing this for a while. We are seeing the results of that now. And we're trying to get the right mix in terms of product versus services because operating in European countries, especially, the product EBITDA margins are not at the level that we want KBL EBITDA margins to be -- when you look at the Indian side of it. And that's why we blend in these services to get the right EBITDA margin. While in Southeast Asia, we see margins to be a lot better. So I would say that this is really what we're doing, managing the product mix as well as developing baseline businesses in different geographies to deliver that sustainable and consistent number that investors trade for. On the capital cycle, I would say that we are in different zones, one in the U.S., one is the U.K. and Europe, one South Africa and one Southeast Asia. So every area, we have something different that caters to the business. And we are taking advantage of those capital cycles in those respective geographies. Just to give you an example, in the U.S., where is it happening? It's happening in water supply, which is infrastructure and that's happening in real estate. We are in both those geographies. And we have those products with us. In the U.K. and Europe, it's happening in -- especially in oil and gas as well as [indiscernible] LNG platforms, which are really important at the moment as well as offshore exploration as well as green energy, like things like hydrogen and areas like that. We have products and we are working with the largest companies in these segments. In Southeast Asia, we are in Thailand, working closely because there is a lot of outward movement probably from China and a lot of investment in Thailand as well as Vietnam. We, again, are in these territories. We cater to industrial, we cater to real estate and we cater to services in this segment, which basically caters the key areas that are coming out of China. And in South Africa, we cater mainly on the services side because we see slowly a lot of movement towards OpEx from CapEx. And that's something we've been seeing for the last 2, 3 years that we are pushing that as the development of our strategy. And we see that in the South African business, when you look at the EBITDA margin, where over the last few years, from a real basket case business, they're delivering 12%, and that's really coming from the services side of the business. I hope that answers your key points. Your last point [indiscernible] [ FDA ] [indiscernible] we worked quite well between the British company and the Indian type of business. We have products like our multi-charted products, which we are earlier to earlier when we talked about iconic buildings around the world having our pumps. Any major building had these pumps whether the new world trade centers, Burj towers. So the same pumps are anyway working in India through KBL. We have another product, patented product called Autoprime. It's made a big dent in the Indian market for water supply. So whether there's [ FDA ] or there is in the [ FDA ], I think that's not really stopped us. We have a good IP policy and companies across the group are able to leverage the IP to use them as anchor products and develop around them in their respective markets. I hope Mr. Bendre, that covers your point.

Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. 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 Strategic Growth Advisors. Thank you.

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