Kirloskar Oil Engines Limited (KIRLOSENG) Earnings Call Transcript & Summary

As you mentioned INR 6 crores on an investment -- equity investment currently at INR 530 odd crores you have invested so far. So what kind of targeted IRR or ROA you are looking at for this particular business? And what kind of...

I'm not getting into the details of Arka. This is a KOEL call. I don't want to get into detail of Arka, if you want it, we'll arrange a separate call with the Arka management, because day-to-day business is run by completely separate teams.

Okay. And any color on what kind of loans, we are MSME -- as at -- in our previous transcript, that you are targeting? Are you able to provide any strategic color on...

If you want to drill down into Arka, we'll arrange a separate call with the management.

Sure. And secondly, on the Industrial side, you mentioned there's some green shoot, and we are kind of halfway through the bottom of the cycle, the 3-year cycle, you mentioned. How do you see typically the growth coming back in terms of -- it's a lumpy growth in the initial phase and then it smoothens out and then the decline starts. That's the way the cycle works? Or -- it's how do you [indiscernible]?

The way the cycle has been working in the past is if you look at 2, 3 years of growth, you will -- it will be followed by a 2, 3 years of degrowth also, at least 2 years. And what Sanjeev mentioned is that we are seeing a small revival or upturn earlier than we would have expected. So it's barely 1 year since we saw the downturn, we're seeing an upturn. Also, if you look at the kind of -- if you look at the outlays, if our government -- in the recent budget, I think it's encouraging because with the money which they're talking about on roads, it will directly impact your off-highway business. So of course that is -- that would not have factored into Q3, but it's encouraging to see that -- that's something which will come. So if you look at some of the big investments, if you look at what the government is talking about, the Bombay-Delhi corridor, then this 12,500 investment which is there, which is -- or what 15,500 kilometers in the new budget, we just talked about. So it's -- the signs seem encouraging as of now. And there is a small uptick, maybe it's still a little early to talk about whether it is -- has completely turned around. But after having seen 30, 35% growth, and then seeing a sharp dip, we are seeing [indiscernible] revival.

Okay. And sir, the gain from sale of Nagar property is recorded this quarter or during the next...

Yes. INR 16.5 crores.

That's in the 3Q number, right?

Yes.

Right. And lastly, sir, the Agri business, you mentioned heavy rains has actually kind of overall pulled down the demand side. How do you -- how do we see generally when this happens historically, because now -- when we talk to any Agri -- input companies, they are kind of buoyant and are very positive about the demand side because of the heavy rains and healthy water reservoirs currently throughout the country. So do we expect that in the ensuing quarters, we can see some uptick or a very strong uptick in our Agri business?

Yes. You are right. Because see, this year's pattern, the kharif crop almost got wiped up in many states, not all but many. Rabi is very, very -- the people are buoyant on the rabi right now. And there will be a lot of money in the hands of farmers, which will boost the consumer companies as well as it will reflect in [ even ] demand for us, both on the diesel engine side as well as on the Electric Pump, more so on the Electric Pump side because we are seeing the electricity availability in 7, 8 states, especially the earlier BIMARU states. There, the electricity is very good and -- which is boosting the requirement of Electric Pumps. We can see good requirement on that front in coming quarters.

Right, right. And sir -- sorry, coming back to Arka, what will be our average interest rate which we disburse the loans for 9 months. You mentioned the cost of debt, that was 10.2%. What is our…

I'm not too sure.

Not sure? Okay. I'll request a separate call.

[Operator Instructions] The next question is from the line of [ Chandra Mouli from Partisan ].

Last...

Hello? Yes. Go ahead.

Sir, last quarter's con call, you'd said that this year, you'll close comparative [ you're ] flat top line compared to the last financial year due to the new addition of [ more ] OEMs and some things like that. How is it shaping [indiscernible] understand [indiscernible]?

Due to the addition of...

I'm not sure that we said due to the addition of OEM because that's only an Industrial business. And to catch up on Industrial business, we've already -- if you heard my initial comments, we're already down by some 23%, so catching up on that for last year is not going to happen. We were talking about the company as a whole, we were looking at closing close to last year, which is ending flat. And we're still holding on to that as of now.

[Operator Instructions]

Just one small question from my side. This is Abhishek from Axis Capital. On the PowerGen business, you have grown 10%, whereas Industrial you have declined 30% in the current quarter, whereas when I look at the composition of other peers, their PowerGen has declined meaningfully, and Industrial has grown. So just as a comparison, has there been a major shift in the market share in any of the segments there? Or what would be the...

No, no. Abhishek, the only change there is the -- PowerGen, you are right because we gained something from railways in PowerGen. So we count railways in our PowerGen, whereas some of our competition counts railways in their Industrial. So this is one composition change, the way we...

Look at our businesses.

Look at the businesses. So that is the major change in the composition. And also, you have gone through the transcripts of different competition listings. Even the exports have reflected differently. So our exports are reflected little better side, whereas the other side it is not.

So my market share question was mainly on the domestic market. So it's only railways, which is contributing meaningfully here?

Yes.

As a percentage, what will be the number here out of INR 328 crores, what will be the contribution [Audio Gap]

So power car in Q3 is about INR 35 crores.

The next question is from the line of [indiscernible] from SBI Mutual Fund.

This is [ Bhavin Rio ] from SBI Mutual Fund. So one question on -- if you can just help us with your market share in Power Generation, in LHP, MHP and HHP. And would also appreciate if you help us, how do you classify in terms of kVA ratings in these respective [ markets ]?

I think -- I do not know whether you are attending this call first time, but this question, we've addressed many times. But quickly, I will run down. The way we define our LHP is less than 30 kVA, and 30 to 200 kVA, we define MHP, and more than 200 kVA is HHP for us up to 625 kVA, and more than 625 kVA, we call UHHP, whereas some other players in the industry define it little differently. So you need to check it with that. So that is the composition part of it. When it comes to our market shares, and I'm restricting myself to the quantity market share. In LHP, our market share is around 37%. In MHP, we are around 33% in MHP. In HHP, which is more than 200 kVA, our market share is around 23% to 24%. And in UHHP, which is 625 kVA onwards, our market share is 11%.

Okay. Would it be possible to share value market share?

Value detail level, I do not recollect of the [ term ], this thing. But value, collectively, our value market share is 23%.

Understand. And have you gained market share in any of these subsets?

Yes, that's what I mentioned earlier, that LHP and MHP, we have gained market share in last 3 quarters, not only in the last quarter, but last 3 quarters, we have gained. That is precisely because we launched the iGreen series of products last year. And those products have really caught up in the market very well. In fact, those products are setting the industry trends for the customers and most of our competitions are forced to match our offerings in that segment, so -- which is helping us to gain share. Because markets overall were slowed down, as all of you are aware, but these things have helped us, so this corrective action of KOEL last year, what we have done has helped us to not only retain the share but gain also.

And which are the subsegments of the end-user industry that we are seeing traction? And how do you see -- I mean, if you were to put a guess estimate on FY '21. What would be your expectation of industry growth and KOEL's growth for FY '21?

For FY '21, again, our projection is LHP will -- maybe, 4%, 5% decline in LHP. The MHP will be 5% to 7% up. And HHP should be 8% to 9% up. So overall, industry will be 6%, 7% up in next year. That is what is our estimation.

Understand. And this -- you are expecting a growth for Industry and your new initiatives will also help gain market share. So can we expect KOEL to grow better than the industry?

We will definitely attempt to be better than industry in all the 3 segments.

I understand. The second question is on the exports. We are seeing encouraging trend on the 9 months, although we have seen some slowdown in the third quarter. The initiatives that you have taken in the U.S. also, how do you see export panning out over a 1- and over a 3- year basis? What, in your view, can be the share of exports? And are exports more profitable than domestic?

The first question, first, yes, the exports are more profitable than domestic. That's the first answer to your last question. Coming to our strategies, in export market have worked out better, whatever we changed our stance in the last 2 years have started giving us results. In FM-UL, as a segment, which is a firefighting segment globally. So KOEL is aspiring to be a dominant #2 or #3 globally in this segment, and we are very much on that track. So it may not be all export markets have fared better in terms of market growth, but our strategies have helped us to gain share. So in entire Middle East and from those as a [indiscernible] market going to some other European countries, the products, especially into the firefighting segment has helped us to gain share, and all our products are well-accepted. So -- and that will remain our growth story for next 2 to 3 years, and we'll continue to gain share there. In South Africa and other bids in Industrial segment also, we have given some better solutions to our customers, well accepted, and we are gaining share in those markets. HHP segment in international markets has also started gaining traction, which is a very heartening thing for us. So quite a few countries have started giving us repeat orders in HHP. And U.S. market, we have qualified for the emission norms in last 6 months, so we have supplied our initial batches there, which are getting converted into the finished product, and which will be given to the end customers in next 2 quarters. U.S. remains our prominent focus market for next couple of years. And right now, the operational part is over, so we'll be working on the front-end side of it.

And how large is the firefighting segment globally, where your aspiration is to be #2 or 3 globally?

Again, a good question. This market is not very big market, but we felt the -- margin-wise, this market is better. And overall, if you look at it, 10,000 is the quantity globally [indiscernible] converting into roughly kind of INR 900 crore to INR 1,000 crore as a market size globally. So -- and we, aspire when we'll settle down in this segment, 30% global market share in this domain.

Last question to Vinod housekeeping. Can you help us with La-Gajjar revenue, EBITDA, PAT numbers?

Pardon me?

La-Gajjar numbers. Sorry, if this is a repeat question. Actually, I got disconnected in between. La-Gajjar revenue, EBITDA, PBT, PAT numbers.

Just one minute. Of LGM?

Yes.

So I'll give you 9 months, April, June.

Absolutely fine.

So 9 months, INR 357 crores of top line, EBITDA of INR 30 crores, PBT of INR 21 crores.

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

Just I missed the PBT number of La-Gajjar. How much was it, sir?

INR 21 crores.

INR 21 crores in 9 months, right?

Yes.

Yes.

Okay. So just on overall Agri portfolio, sir, so basically, looking at the segmental numbers, what we see again, seems to be that the domestic -- sorry, the stand-alone Electric Pump as well as the power tiller business seems to be losing money. Just wanted to...

[indiscernible] domestic Electric Pumps?

Basically the pumps -- Electric Pumps, what you sell from stand-alone entity?

Doesn't lose -- it's not losing money. Why do you say so?

Because your 9 months' PBT -- PBIT number in Electric Pumps is INR 21 crores.

I have not given PBIT for Electric Pump separately.

No, no, sir. You gave consolidated numbers. And you also gave consolidated segmental numbers. So from segmental numbers, the Electric Pump revenue is INR 423 crores in 9 months and a PBIT number of INR 21 crores.

You've got it wrong. Because I'll tell you the numbers. Electric Pumps is [ INR 423 crores ], we've not even reached INR 100 crores.

No, no. On both La-Gajjar and...

Firstly, don't mix those 2 and don't -- because -- I'll tell you for 2 reasons. One is that LGM is not a pure-play Agri business. It is rural plus urban. Also, KOEL is rural and urban. But, of course, the share of urban, rural in LGM would be almost 50-50. Whereas here, it is much more of Agri because the whole idea of Electric Pumps in KOEL was to make up for the degrowth in diesel engine pumps. Okay?

Sure. Okay.

Don't add these 2 anyway and -- But even if you add them because on a stand-alone basis, if you look at LGM, I gave you the number. If you look at Agri -- are you also adding power tiller, you're adding power tiller, engines, everything put together. So let me just give you a straight answer. The only place where we are losing even now is power tiller. And that also, we hope that going forward, that will be -- we're looking at a breakeven for the simple reason that the 12 horsepower is now completely gone into the market. And the large volumes is in the 12 horsepower as against the 15 horsepower which we were selling. So I think if you add pumps -- okay, now I know what you've done. But if you add the whole Agri portfolio as a total, then you'll get this. You'll probably get what you're getting. Don't look [indiscernible], look at LGM completely separately, and you look at our Electric Pumps separately, you look at -- even our Agri standalone is making money in diesel engine. It's only the power tiller, which we have lost.

Okay. So the Electric Pumps sold from the Kirloskar Oil is...

That's making money.

[Foreign Language] That is making money, okay. Okay, fine. And on financial services, just -- I know, but just wanted to get a sense that now that you have got credit rating approval as well. So are you looking to now go forward and leverage...

We will. We will, Manish. Like I said, like I was saying earlier also, if you want more detail on that, I'll put you on a call. But you -- we will -- as we're going forward, we will -- we're already in -- we are already in discussions with banks, so there will be some amount of leveraging happening there.

Sure. And last question on the higher rating gensets, the 1,200 and 1,500, what is the status in terms of product readiness and the launch in the market?

[indiscernible]

We are looking at Q4 '21. [indiscernible] in the market, yes.

Thank you. Ladies and gentlemen, that is the last question. I now hand the conference over to Mr. Abhishek Puri for his closing comments.

Yes. Thank you so much for giving us the opportunity to host this, and thank you to the investors for being on the call.

Thank you.

Thank you. Thank you very much.

Thanks.

Ladies and gentlemen, on behalf of Axis Capital, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.