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

Ladies and gentlemen, good day, and welcome to Kirloskar Oil Engines Limited Q3 FY '24 Earnings Conference Call hosted by Antique Stockbroking. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Dhirendra Tiwari from Antique Stockbroking. Thank you, and over to you, sir.

Thank you. Good evening, ladies and gentlemen. On behalf of Antique Stockbroking Limited, I welcome you to 3Q FY '24 post results conference call of Kirloskar Oil Engines Limited. We are pleased to have with us today Ms. Gauri Kirloskar, Managing Director; Mr. Rahul Sahai, CEO B2B business; Mr. Aseem Srivastav, CEO B2C business. I welcome on the management of KOEL on the call. Now I invite Ms. Gauri Kirloskar to discuss results, following which we will take Q&A. Over to you, Gauri. Thank you.

Thank you very much. Good evening, everyone. This is Gauri Kirloskar, Managing Director of Kirloskar Oil Engines. Thank you all for joining the call today. I have with me Rahul Sahai, our CEO B2B; Aseem Srivastav, CEO B2C; Ankur Gupta, CFO, B2B; Smita Raichurkar, Company Secretary; and Amit Gupta, CFO of Arka. I will first start with the business update. KOEL had a successful quarter, achieving its highest ever Q3 sales, contributing to the highest YTD sales as well. The gross revenue in the third quarter reached INR 1,125 crores, reflecting a [ 14% ] year-on-year increase. The year-to-date gross revenue totaled INR 3,428 crores, marking a 17% growth compared to the previous year. Overall, demand was strong during the quarter based on the continued focus on infra spend in the Indian market. We continue to see mixed demand from CPCB II and CPCB IV+ engines. As you all know, the CPCB II engines are allowed to be sold until June of this year, that is 2024, and we expect the mixed demand to continue till then. Even though BS V has been postponed from April 2024 to Jan 2025, we are ready with the BS V engine platform as well. This quarter also marks the most significant milestone for us. We won the NPCIL order for supply of gensets for nuclear power plants. The order value is INR 768 crores for an order execution over 68 months for the Kudankulam project of NPCIL. This is the largest ever single order for KOEL. Another development on the international business is the Wildcat acquisition. Kirloskar Americas Corporation acquired a 51% stake of Engines-LPG LLC, doing business as Wildcat PowerGen, an Ohio-based -- an Ohio limited liability company and an approximate consideration of USD 357,000. Engines-LPG LLC is engaged in the business of designing, manufacturing, selling and servicing of generators powered by gas, diesel and other environmental, fuel and power solutions under the brand name of Wildcat PowerGen for all types of applications. This acquisition is a step towards business expansion and to enable market development in PowerGen applications for the North American market. We have also appointed a GOEM called [indiscernible] to serve and grow our business in the Middle East. Now coming to B2B business update. In the Power Generation segment, as I mentioned in the beginning, currently, we are experiencing strong demand for our CPCB II gensets. So we are fulfilling the orders which are a mix CPCB II and CPCB IV+ gensets. Additionally, there has been noteworthy expansion in the sales of gas gensets, indicating a substantial surge in the adoption of power generation solutions fueled by gas. As of the year-to-date assessment, this year's figures have surpassed the 150-unit mark, affirming a significant and positive trajectory in the sector's performance. In the Industrial segment, we have observed a strong demand emanating from the construction and railway sector. This serves as the confirmation of the ongoing narrative surrounding India's infrastructure development and the government's dedicated emphasis on capital investment in these specific sectors. In this quarter, another endeavor involves a new product line consisting of remanufactured items that the diverse performance comparable to new ones but with a considerably reduced environmental impact. This not only results in financial savings for our customers, but also contributes to lower carbon footprint. Such efforts solidify our dedication to the circular economy, emphasizing a cradle-to-cradle approach. On the B2C side, we continue our stabilization efforts with the RACE strategy that is reach, agility, cost and engagement. The diesel and electric pump have witnessed more than 25% growth during the quarter over last year. Our distributor base grew 22% over last year's Q3. As a part of our widening efforts, we added 26 new channel partners during the quarter. The B2C segment has witnessed notable profitability enhancement as the segment's profit for the year-to-date period reached INR 36 crores, up 105% compared to INR 17.5 crores in the previous year. I will now briefly update on the financial performance on a quarterly and a year-to-date basis. These are the stand-alone numbers for Q3 FY '24 financial performance. Net sales at INR 1,125 crores for Q3 FY '24 versus INR 990 crores for Q3 FY '23, a 14% increase year-on-year. EBITDA at INR 133 crores for Q3 FY '24 versus INR 109 crores for Q3 FY '23, which is a 21% increase year-on-year. EBITDA margin is at 11.7% for Q3 FY '24 versus 10.9% for Q3 FY '23. Net profit is at INR 82 crores for Q3 FY '24 versus INR 68 crores for Q3 FY '23, a 21% increase year-on-year. On the year-to-date numbers, net sales is at INR 3,428 crores year-to-date of '24 versus INR 2,932 crores for year-to-date '23, a 17% increase year-on-year. EBITDA is at INR 386 crores for year-to-date '24 versus INR 328 crores for year-to-date '23, which is an 18% increase year-on-year. EBITDA margin is at 11.2% for year-to-date '24 versus 11.1% for year-to-date '23. And net profit is at INR 244 crores for year-to-date fiscal year '24 versus INR 205 crores for year-to-date '23, a 19% increase year-on-year. I will now give an update on working capital. As we updated last time, last quarter started with challenges on the supply front due to the continuation of CPCB II for another one year, while CPCB IV+ was also introduced. As a result, we continue to see demand for both product lines, which has resulted in a complex supply chain and manufacturing situation. To meet demand and customer requirements on delivery time lines, we have made investments in stocking materials that has resulted in higher inventories, which we expect to normalize over the next year as we go through this period of transition. Further, we have also seen an initial recovery of approximately INR 5 crores from the amount provided for against a customer receivable. We reaffirm that the full balance of the receivable amount was already provided for. Now I will take you through the business-wise stand-alone revenue breakup for the quarter and year-to-date performance. The B2B business reported sales of INR 973 crores for the quarter, which indicated growth of 13% year-on-year. The year-to-date sales were at INR 2,972 crores, which is a 17% growth year-on-year. Within B2B, power generation reported sales of INR 426 crores for the quarter, which is a 5% year-on-year growth and INR 1,388 crores for the year-to-date, which is a 17% year-on-year growth. Industrial segment reported sales of INR 232 crores for the quarter, which is a 23% year-on-year growth and INR 699 crores for the year-to-date, which is a 15% year-on-year growth. Distribution & Aftermarket reported sales of INR 180 crores for the quarter, which is a 17% year-on-year growth and INR 539 crores for year-to-date, which is 19% year-on-year growth. The international business reported sales of INR 135 crores for the quarter, which is 21% year-on-year growth and INR 346 crores for year-to-date, which is 19% year-on-year growth. B2C stand-alone business has reported sales of INR 152 crores for the quarter, which indicates growth of 16% year-on-year. The year-to-date sales were at INR 456 crores for the quarter, which is 17% growth year-on-year. Within B2C, KOEL Water Management Solutions recorded a revenue of INR 133 crores for the quarter, which is up by 32%. The farm mechanization business recorded a revenue of INR 19 crores for the quarter, down by 37% for the quarter and 9% for the year due to seasonality leading to delay in subsidies from the states in which we operate. Now I will update you on the consolidated business. LGM sales were flat, but with significant improvement in year-to-date PBT from INR 11 crores to INR 25 crores. The new plant construction is going as per schedule. LGM exports grew at 10%. Now I will update you on the consolidated business. During the quarter, Arka Fincap raised INR 300 crores through the public issue of secured rated listed redeemable nonconvertible debentures with face value of INR 1,000 each. The AUM, excluding balance sheet items as on December 31, 2023, was at INR 4,475 crores. The company is planning to expand their branch offices and also plans to expand the employee base for the growing business requirements. Overall, if you look at the consolidated results, our revenue from operations is at INR 1,390 crores for Q3 FY '24 versus INR 1,220 crores for Q3 FY '23, 14% increase year-on-year. Net profit is at INR 120 crores for Q3 FY '24 versus INR 88 crores for Q3 FY '23, a 36% increase year-on-year. For year-to-date FY '24, revenue is at INR 4,238 crores for year-to-date FY '24 versus INR 3,640 crores for year-to-date FY '23, which is 16% increase year-on-year. And the net profit is at INR 324 crores for year-to-date fiscal year '24 versus INR 253 crores for year-to-date fiscal '23, a 28% increase year-on-year. Please note that this quarter's numbers had an exceptional item of INR 31 crores due to a provision made for investment in Arka's Alternate Investment Fund due to regulatory changes announced in December 2023. In summary, with the strong performance, we are on our path for the 2x3y journey backed by strong demand in the domestic market. While we are gearing up for the upcoming technology changes in this industry, we feel we stand strong together as a KOEL team. Our R&D team at KOEL is tirelessly working to establish a competitive edge in the alternate fuel landscape for internal combustion engines, and we will continue this path for a brighter future for all of our stakeholders. Thank you very much for listening, and now we can take your questions.

[Operator Instructions] And the first question is from the line of Ankit Babel from Subhkam Ventures.

My first question on your guidance of doubling your revenue in 3 years, which you mentioned last year. So FY '23, I mean, you had shown a growth of 25%. But this year so far, we are running short of that 25% growth rate, which is required. You still feel that you'll meet your guidance in next, say, 5 quarters. So first of all, can you just throw some light that what is giving you that confidence that you'll still meet the guidance in spite of a slightly lower performance so far?

Yes. Thanks very much for your question. So it's a great question. And I think what I'd like to say on it is that, yes, you have seen that dip in the growth rate. But if you look at what has happened in the industry -- in the B2B industry versus when we set out our targets, there was a delay in the CPCB IV notification that has come about. So we have seen a specific transition that's happened over the last 2 quarters, which will play out. And we have still managed to achieve a certain growth rate in spite of not having the kick in of the price uptick that we would expect on CPCB IV. So the way I would answer your question is I still see our performance is very strong when we compare it to our ambition. And we still very much aspire to the ambition that we have set out to achieve by the end of this -- by next fiscal year.

So the asking rate next year would be very high, maybe at 30%, 35%, whatever that percentage number is. So just to reconfirm that, that kind of a growth is possible next year considering the volume and prices -- price increases to -- considering that?

This is Rahul. So pretty much so. See, because what ends up happening is that when you are in a transition year, it's not the product that you are trying to straddle. It's also the back end and the readiness that we need to create. So a lot of that work is actually done now. And as a result, we had budgeted for a few leaner months, relatively speaking, and those have happened in this financial year. So we continue to aspire for the vision that we had set for ourselves the target, and we will continue to focus on that for next year.

Okay. And second is that though you have improved on your operating margin, but if we still see your margins compared to the industry leader, there is a hell lot of difference. So any ballpark idea where do you see your margins -- may not be this year, next year, but over a medium term in the next 2, 3 years' operating lever on the stand-alone business?

Yes. So if you look at margins, so margins are also a function of the product profile. And if you've been noticing, we've been making some inroads on the high horsepower side as well. So we're executing some large genset contracts and things like that. And all of those things help with the margins along with enhancing our services business. So those are all areas that we are focusing on. So as we mature, we should gravitate pretty close to more mature players in this industry. I wouldn't think of it very differently.

No. So my -- sorry to harp on this question again, but since the difference is too huge, so just wanted to know what could be the range. Can you be in the 15% range or what?

So I can't really answer that on this call. But we can definitely aspire for like a stronger margin profile, for sure.

Okay, okay. And any views -- and is your Arka business now self-sustainable in nature? I mean since you have already said that you want to invest more than INR 1,000 crores in that business, so is it now self-sufficient?

Yes, that's right. We are not going to invest more than INR 1,000 crores, and the businesses are now on its way to raise external capital as well. And we feel that it is strongly positioned for that.

So can we now think of demerging this business?

No, that's not how quickly we would make that decision. And it's something that will play out over time. There's many factors at play for us to make that kind of decision.

Any one particular reason which is preventing you to demerge? Just wanted to understand, if it's self-sufficient, there won't be any inclusion from Kirloskar Oil, then what's the reason of running it in this company, just wanted to understand that.

So I'm not going to be able to answer your question. Basically, the way that we look at seeding businesses and growing businesses is in a patient and in a way that is right for the business. So we will go forward and take the appropriate steps in a well thought-out way. It's -- what you're suggesting is jumping many steps ahead.

The next question is from the line of Aditya Agrawal from Ambit Global Private Capital.

A couple of questions from mine. So the first one is during the quarter, what was the contribution from CPCB IV+ genset?

So contributions in terms of volume, I would say roughly about -- say, about 15% to 20% for CPCB IV, and the rest of it was CPCB II. We expect the CPCB IV volumes to continue to increase as we move closer towards June of this year.

Okay, okay. All right. And just to understand, so what's the margin profile, let's say, if you compare CPCB II versus CPCB IV+? How much is the difference in terms of the absolute margin?

So it will be somewhat similar, but there are variations from low to node, and I don't think I can give that on this call.

Okay, okay. That's fair. Second is regarding the Optiprime release which we introduced recently, so how has been the order book shaping up?

So we've received a fairly positive response to that. We have a relatively strong order book when it comes to Optiprime. There's distraction from a lot of our customers. Especially if you look at infrastructure and real estate, the customers have been pretty positive. So we are hoping to carry that forward in the next financial year. We are executing Optiprime orders across the range in this financial year. So we are already personally doing that.

Okay. Understood. And just the last question. So on exports in the quarter, it's roughly about 30-odd percentage. So where do you see this number shaping up, let's say, 2 years, 3 years down the line?

So our ambition is to have exports be about 30% of our business. So we will make strategic moves in line with that. As you saw our MD talking, so we've made investments in the U.S. along with appointment of the GOEM in the Middle East in this quarter. So we will -- we are evaluating all options, and we want to grow the impacted business. However, we'll do it strategically and purposefully.

The next question is from the line of Teena Virmani from Motilal Oswal Financial Services.

Congratulations for a good set of numbers, first of all. And my question is related to PowerGen segment of the company during the current quarter. The growth was a little weaker than what you would have seen in, let's say, the industrial distribution and even exports. So is it more to do with the demand? Or is there anything specific that would have impacted the sales of PowerGen segment during the quarter?

So we continue to see a strong demand. Now we are struggling between CPCB II and CPCB IV+. So I think it's a lot of rigor around execution that we are focusing on. I don't see the demand softening or any issue on that end. We have a pretty strong, pending order goal, which we'll carry forward in this coming quarter.

Okay. So this quarter, I believe the demand would have -- like you mentioned that this would have been more dominated by CPCB II.

Yes, that's correct.

Okay. So in the coming quarter, again, it will be more or less demand coming in from CPCB II. So can we expect a little better growth in the PowerGen segment? Or it may be -- because that challenge will continue to remain in quarter 4 also between CPCB II and CPCB IV. So how do you see this traction in the PowerGen segment, particularly when the demand drivers are much stronger in the industry?

Yes. So what's going to happen is as we approach deadline, the contribution of CPCB IV+ is going to increase. So what was 16% in the last quarter will keep increasing because even our GOEMs would want to mitigate risk of stopping CPCB II gensets with them. Because the guidelines says that there is -- the deadline for both GOEMs and the Indian manufacturers are co-terminating. The deadline is co-terminating in June. So CPCB IV is going to solely come in the forefront in any case. In this -- in quarter 4, we may see -- still see a lot of CPCB II, but a higher contribution of CPCB IV+ than what we did in the last quarter.

Okay, okay. Got it. And my second question is related to gross margin for the company during current quarter. Do we have seen an improvement on a year-on-year basis for KOEL for 3Q? So what led to this increase? Is it more driven by CPCB IV+ or is it more driven by HHP contribution into your product mix or maybe export or distribution?

So if you look at what's been happening, we've been executing more orders in the medium and high watt power range. That's number one. Number two, if you look at our Distribution & Aftermarket business, we are seeing a higher penetration there. Also, if you look historically, our contribution from international business is higher in the last quarter than what it has been same time last year or in the previous quarter. So these are the 3 main profitability drivers.

Okay. And on your B2C division, if I may ask, this is the last question. On your B2C division, is the B2C division at similar profitability as B2B division? Or like what kind of sales would be required for this division to see a better absorption of cost?

Yes. So if you see in the results, B2C margins are already there. On the consol if you see, it is already there.

[Operator Instructions] The next question is from the line of Rahul Jain from JM Financial.

Congratulations on a good set of numbers. I have 2 questions. So my first one will be on the B2C business, wherein we saw a 4.8% EBIT margin during the quarter. So how sustainable is the profitability for this B2C business? And can you help me with the trajectory in which the improvement can come in the next 1.5, 2 years?

Yes. So this is Aseem here. So if you see last year, we came up with a strategy of RACE where we were focusing on margin improvement in LGM and also growth in WMS. Now these 2 things we have achieved where the WMS business is growing by around 25% to 30% and LGM is now very stable with margins of around 5% to 6%. So whatever strategy we adopted, I think this is sustainable, and there will be some improvement in margins going forward. And in LGM also, around 10% to 15% growth is possible going forward.

Sir, in the medium to long run, can we expect that 8% to 10% margin levels in this business, which will contribute to your 2x3y strategy? If you can just give...

Yes, so if you see our pump and small engine business, already they are at 8% to 9% margins.

So farm mechanization is where we are getting pinched?

Yes, yes. That's right, yes.

Okay. My second question will be on Arka. So Arka saw a fantastic growth in AUM quarter-on-quarter as well as the revenue was up significantly on year-on-year basis. However, the profits were significantly down. So just needed to know the reason for lower profitability during this quarter.

Yes. That's due to the exceptional items. So I'll let's -- Amit, are you there? Will you explain that, please?

Yes, ma'am, I am there. So Rahul, you got the right point in place. If you remember, there is an RBI circular, which has come in the month in November, which has given a mandate for any NBFC to provide for the investment they have made in any AIF and if both the entity have a common downstream investments. So Arka has made an investment to the extent of INR 30.8 crores in Arka Credit Fund I index sub-sponsor kind of a category. Because they have one common investment, that is why because of the regulatory provision, we have to make a provision of INR 30.8 crores in Q3 itself in December 2023. Had this provision not been there, our PAT for the quarter would have been approximately INR 24 crores. Currently, I'm sure the reported number which is coming in the media is roughly around INR 4 crores or at Arka independent level. Had this provision not been there, it would have been at INR 24 crores.

INR 24 crores in total, right?

For the quarter itself.

Yes, yes. So can we -- so the profitability can come back in Q4 onwards? There's a quarterly phenomena.

For the quarter, definitely, it will come back.

It's an exceptional onetime item.

Onetime, okay.

It's a onetime item. As the fund life will get over, the amount will be coming back, the provision will be get reversed.

The next question is from the line of Sagar Parekh from One Up Financial.

So first question is on this price difference between CPCB II and CPCB IV+. What would be the price difference on average? I understand from different notes, it will be different. But broadly, can you give us a range?

40%.

40%. Okay. So when you mentioned that this 15% of our volumes were at a higher price, still our PowerGen overall growth was only 5%. So I'm not just able to reconcile that revenue number then. Because the -- yes, so maybe if you can throw some light on that?

You're asking for the quarter?

Yes, for the quarter. So the PowerGen revenue growth is 5% for the quarter. And you're saying 15% of the volumes would have been at a higher price of 40%.

Yes. So actually, if you look at -- see, if you look at the last year's same quarter, we had an unusually high and we were executing some onetime orders on PowerGen, which is why actually the same time last year was higher than our normal, which is why the growth looks muted. But if you look at on a year-to-date basis, you will see that the PowerGen performance is much stronger.

Got it. And for the quarter 4, do we expect any kind of prebuy for CPCB II? Or are you already seeing prebuy already doing in the market?

Yes. So we are expecting some amount of prebuy, although people are going to be slightly careful. So it would be to the same extent as what we saw earlier, but we are expecting some prebuy to begin.

Sir, if I remember correctly, I think last year -- I mean, this year, current year, the prebuy was about INR 100 crores in 1Q, if I'm not wrong. So you're saying that for this quarter, the amount will be slightly lower than that?

Yes, should be lower than that, yes.

Okay. And if I heard you correctly, you are still sticking to your guidance of INR 6,500 crores top line for FY '25 from stand-alone business?

Yes. We still continue to drive that as a target.

[Operator Instructions] The next question is from the line of [ Prolin ], an individual investor.

I just want to understand that for the...

Sorry to interrupt you. There's some disturbance on your line. So can you just speak a little closer to the mic.

Sure, sure. I will do that, Gauri. So is it better now?

Yes, much better. Thank you.

Okay. I'm sorry. So I just wanted to understand that for 9 months FY '24, have we lost any market share in PowerGen segment? And how do you define market share? Is it in the product segment where we are present or in the entire market share? And where I'm coming from is that the market leader for 9 months has grown at a much more faster pace than what we have done, right, in some time. And when we had defined this 2x3y strategy, you wanted to gain market share in the high horsepower kind of segment as well, where our market share was low. So from that point of view and assuming that there is a 40% price hike in CPCB IV genset, in terms of volume, have we lost some market share, because that's what our -- whatever publicly data that is available, that's what it points to, right? I mean, so is that a correct assessment? And if not, why is this number a bit on the lower side versus the market leader?

Yes. So if you look at our market share on power generation side, excluding telecom, because one of the things that we have consciously taken a call, if something is not profitable, we are not going to get into it beyond a point. So we want to enhance value for the organization. But if you look at our market share excluding telecom, our market shares have remained somewhat similar. Of course, if you look at node-wise market share, we have gained some market share at the higher end, a little -- a few percentage points. And at the lowest end, we've lost a little bit of market share because of our own intentional call. So -- but if you look at without telecom, the market shares are somewhat similar. They are not very different.

Okay. So ex of telecom, in lower nodes, you're saying market share is similar, right? Is that a fair assessment?

Yes, the market shares haven't changed too much, barring telecom market. That's a different kind of market.

Okay. Sure, sure. And then in higher nodes, right, I mean, where was our market share, let's say, a year back before we embarked on this 2x3y journey? And can you tell us a little bit about your aspirational market share that you want to be in 3 to 5 years' time, right? And what is the -- what are some of the white spaces where we have -- not exactly white spaces, but what are some of the right-to-win segments to case that we are targeting where we think that we can gain over some of the existing players?

Sure. So if you look at the power generation market overall, what you will see is that the market is broadly categorized. So you look at the 750 kVA upwards, 250 to 750 kVA and below 250 kVA. Now if I look at 750 kVA upwards, our market share was single digit at, say, 750. And 1,010 kVA, we've grown that to double digits. We had practically no presence beyond that. Now we have a few single-digit percentage points in. Now especially when you compare that to the revenue and the margins, there is a significant gain there as a result of node-by-node focus and entry into the higher nodes. So just to give you a sense of how the market is on the lowest end, like I said, if there are segments that are not taking money or are not profitable, then we, at times, have taken conscious calls. And as a result, we may have seen some intentional drop in market share there. Overall, however, we are at very similar market shares. There's not much change.

Sure. Sir, just to double click a little bit on that. If you can talk about certain segments that you are targeting, certain use case that you are targeting to gain this market share? And if you can probably help us understand what can be that aspirational market share in higher nodes in 3 to 5 years' time that we will see?

So one of the segments is infrastructure, and we are seeing a lot of growth in that segment. We aspire for 20% market share in most of the segments that we operate in, at least 20%. And we see a significant opportunity there. So I mean, since you asked for a segment, infra segment is fast growing. It contributes to a large chunk of our portfolio. And we would aspire for 20% market share across the node.

Okay. And anything on data centers? I mean when you said that in higher kVA, we have got some single-digit market share. So if I talk about just data centers, is it fair that there also we have got some -- certain single-digit market share?

Correct. So data centers are also some of our customers that we are executing our orders with. Most of our orders are in 500 to 1,010 kVA range. Solely, we are also getting inquiries and leads and they are in advanced stages talking about the 2,000 kVA and upwards. So those conversations are also happening.

Sure. And on the press release right of this JV with MAN Energy France SAS, is it anyway related to the NPCIL order that we won? And if not, what is this regarding? If you can share a little bit more extra on this JV?

Sure. So it's not a joint venture. It's a transfer of technology for specific processes. But at this point, I won't be able to comment on whether it's related to NPCIL or not.

Okay, okay. But in future, do you think that this technology transfer will help us target a larger market in the domestic side of it or the export side of it? I mean how did we decide on build versus buy or this technology agreement, if that also you can help me with.

What I can say is that it's not a strategic larger corporation. So it's for us a very specialized purpose. And in case there is a larger corporation, we are evaluating or that we sign off, we will update you.

Okay. Fair point. And Gauri, my one question to you would be that as we have already -- you have reiterated that we are online for our 2x3y strategy. But when we look at the margins, we have already reached double digits, right? So that is something which we have already achieved maybe 6 quarters before what we had targeted for. So we -- is there a need to probably set some higher targets when it comes to margins in terms of mid-teens, low teens, right? I mean anything on that?

We will aspire to improve from where we are when -- yes, thanks for acknowledging that we have made that improvement. As Rahul also mentioned in response to an earlier question and Aseem as well, I think there is still scope for us to improve. So we hope to show you that improvement in the coming quarters.

No, that's great, Gauri. What I was wanting to think was, I mean, your inputting in that out on the presentation so that everybody on the firm is also aligned. That was my objective. We will...

It's already fetched double digit. So what exactly are you looking for?

No. I mean in terms of -- we have already reached that double digit, right? So I was just thinking better in terms of further maybe mid-teens to low teens kind of number that we want to put in.

Yes. So I mean, I think you know where the competition is at and where strategically we are looking at making improvements, whether we've talked about the high horsepower space or service penetration or the export side. So we do see that there is scope for us to improve margin. But I'm not going to talk about a very specific number. Because I think we will know where that ends up.

Okay. Lastly, on this INR 5 crores that we recovered, if you can just remind us as to what was the total that we had already provided for and what is -- what are the kind of mechanism that we are using to probably recover the remaining receivable? While I understand that we have fairly provided for that, but what was the total amount that was provided for? And do we expect recovery to continue happening down the line as well? Or this was INR 5 crores was a base that could have happened from that account?

Sure. Happy to answer that. So if you remember over the course of last year -- maybe 3 quarters, we have fully provided for this amount, which was a total of approximately INR 47 crores. So with this INR 5 crore recovery we now stand as an outstanding of INR 41 crores. And the team is continuing to make full efforts to recover the outstanding amount.

The next question is from the line of Amit Shah from Antique Stockbroking.

Yes. My question is more on the export side of the business. So on exports, that is one of the key pillar to achieve our 2x3y guidance. We have already reached INR 150 crores kind of a quarterly update on the export side of the business. I just wanted to know that when we just come to your competitor's commentary, they guide us for a muted kind of an export market and the demand has been slowing down. So in that background, what is our thought process with regards to exports? Because I think we were targeting somewhere around about 30% kind of contribution coming up from exports. So we have already established our GOEM in the Middle East and U.S. But how do you look at exports growing in the current challenging environment? If you can please help us understand that.

Thanks for asking that question. This is Rahul. So I understand that a lot of key industry players are seeing muted international business volumes. However, if you look at from our business lens, the opportunity to grow is still very much there because our base is a little bit smaller. So the basic strategic moves are in place and we are geared for growth and which is what we are currently trying to establish. So one example is the GOEMs that we've set up both in the U.S. as well as in the Middle East now. So once we have the structure for manufacturing and the distribution setup, I do see that over a period of time, we should be able to get to a much higher level of contribution. And yes, we aspire for 30% export contribution at a mature stage.

Secondly, on the SMS side of the business, right? So that business is witnessing a sharp sort of a decline in the quarter. When you look at the 9 months number, the number looks pretty muted. So what is the outlook there slightly from a longer-term point of view, both on the WMS and SMS side, what is the kind of contribution that we are expecting from that particular business? And what kind of margins do we anticipate this particular business to contribute? If you can just help us understand that.

Sure, Amit. Good question. I'll answer first on SMS or your question on SMS, and then I'll let Aseem answer on the WMS side. So as a leadership team, we are relooking at our overall business strategy in the farm mechanization business. The performance of this last quarter and -- overall has not been in line with our expectations and I feel there is a need to relook at the strategy that we have there. The agriculture segment is a strategic importance to us, and we want to ensure that we reach our customers with the right products and at the right price in all of the marketplaces where the customer wants us to be. We also know that this market is evolving. It's highly fragmented and there's many organized as well as unorganized players. The market dynamics are different state-to-state, depending on crops, depending on seasonality and also different subsidies. So we haven't actually been very successful in managing it well. So I think there is a need to reevaluate our strategy here. The good news is it's a small business for us when we compare it to our overall portfolio. So changing costs will be relatively easy for us, and Aseem and his team will be working on this, and I hope to see that improvement in the coming months. I will let him respond on the WMS question.

Yes. Thanks, Gauri. So WMS actually has 2 components. One is the pump business and second is the small engine business. So if you see this year, both these businesses have a very strong growth of 25% and 30%. So we have definitely captured market share. And there is a significant improvement in margin also. Those small engine pump business have a margin or EBITDA of around 8% to 9% now. We are confident that this year, we will be able to maintain this growth and margin for the WMS business, which is 90% of our B2C business.

And if you can just highlight which are the end markets which is driving the growth both for the pumps. And is it more on the residential side, agri side of the business? And...

Yes. So if you see on the pump side, we focus into the domestic pumps and the agri pumps. And both these side, we had 25% to 30% growth. On small engine, the construction sector is one and [ OEM ] market is the second where we are seeing significant growth. But see, the market is not growing at that rate. Market is growing at 4% to 5%. We are growing at this rate because of our RACE strategy.

And any market share data points that you would like to share? What is our current market share at this point of time and incrementally, what we aspire to?

So see, this is a very, very fragmented segment and no one player has more than 10% to 12% market share. Our current market share is around 5% in pump. In small engine, our market share is 30%.

My last question would be on Arka. We have done a provision of INR 31-odd crores in this particular quarter because of the change in the RBI regulation. I just wanted to reconfirm that, have we done the 100% provisions? Or can we expect some more provision to materialize even in Q4?

No, it's a 100% provision.

Thank you. As that was the last question, I would now like to hand the conference over to Mr. Amit Shah from Antique Stockbroking for closing comments.

Yes. So thank you, everyone, for joining us on the call. I'd also like to thank the management for giving us the opportunity to host the call. I'll request Ms. Gauri Kirloskar to make the closing remark, post which we can close the call. Over to you, ma'am.

Thank you. Thank you very much, Amit, to you and your team for hosting the call, and thank you very much for all of the investors who have joined and shown interest in the company. Thanks.

Thank you, ma'am. On behalf of Antique Stockbroking, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.

Thank you.