Kirloskar Oil Engines Limited ($KIRLOSENG)

Ladies and gentlemen, good day, and welcome to Kirloskar Oil Engines Limited 4Q FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Shah from Antique Stockbroking Limited. Thank you, and over to you, sir.

Thank you, Sagar. Good evening, everyone. On behalf of Antique Stockbroking Limited, I welcome you all to 4Q FY '26 post earnings call of Kirloskar Oil Engines Limited. To discuss the results, we have the senior management team of the company represented by Ms. Gauri Kirloskar, Managing Director of the company; Mr. Rahul Sahai, CEO of the company; and Mr. Sachin Kejriwal, CFO of the company. I will hand over the call to Ms. Gauri Kirloskar for her opening remarks, post which we can open the floor for Q&A. Over to you, ma'am.

Yes. Thanks very much. Good evening, ladies and gentlemen. Thank you for joining us today. On the call today, we have Rahul Sahai, CEO at KOEL; Sachin, the CFO at KOEL; Kiran, CHRO; and Farah Irani, Company Secretary. Joining us from Arka, we have Ridhi Gangar, CFO. I would like to start this year-end investor call with a thank you to all our investors, especially those who have placed their trust and confidence in us over the last 4 years or more. I remember discussing growth, specifically sustainable growth when we began this journey. As business cycles fluctuate between favorable and challenging, there will always be spurts of growth followed by periods of lull. What matters most is how we build an organization capable of leveraging favorable circumstances while remaining resilient during a downturn. Such an approach is not a quarterly race. It is a multiyear marathon. It requires managing various cycles and building for the future, all while overseeing day-to-day operations. I have always believed that growth must be sustainable. It cannot come at the cost of profitability or for the sake of short-term benefits. At a consolidated level, we achieved 22% growth in revenue. We are now amongst the top 10 manufacturers in the world by volume in the industrial and Power Gen space. We sold over 1 million pumps last year, and our international business crossed 100 crores INR 1,000 crores in gross sales. Our domestic business grew 21% year-on-year, while international business grew 37% in gross sales. While various factors influence our monthly and quarterly movements, our focus remains steadfast on long-term sustained growth. At a stand-alone level, the company achieved its highest ever quarterly sales in Q4, reaching INR 1,522 crores, a 24% year-on-year growth. This resulted in full year net sales of INR 5,604 crores, representing a 25% year-on-year increase. In Q4, the domestic business grew 26%, while the international business grew 10% compared to the same quarter last year. Our Power Gen segment grew 32% over the previous year. On a quarterly basis, Power Gen grew 30% year-on-year. To put this in context, Q4 is traditionally a strong quarter for us, so delivering this level of growth is a significant achievement. Our market share has improved significantly across all nodes. In our high horsepower segment, where our market share was negligible a couple of years ago, we are now approaching double digits. While the overall annual diesel generator market grew 18% to approximately 179,000 units, including telecom, KOEL grew by 41%, selling upwards of 50,000 units in FY '26. Our Industrial segment grew 22% annually, generating revenues of INR 1,444 crores. Construction, mining and railways have been our primary growth drivers. The growth in our Construction segment tells an interesting story. As you all know, in January of 2025, there was a mandatory emission standard shift from CEV BS-IV to CEV BS-V. So emission changes represent both an opportunity to acquire customers and a risk of losing them. In this segment, customer acquisition is a long-drawn process involving technical alignment, product fit assessments and often engineering tweaks to ensure our products integrate seamlessly with the customers' equipment. This involves type approvals and proto-testing, a joint effort that typically takes 18 months or more. Despite these complexities, we grew 24% in this segment in Q4 compared to the same quarter last year. Our Construction segment specifically grew 44% year-on-year, validating the strength of our products under the new emission standards and the capability of our engineering teams. We have incorporated a new subsidiary called Kirloskar Advanced Systems Private Limited. We believe there is significant potential in advanced technology, particularly to serve key accounts in sectors like defense. Beyond our traditional engine business, we see a systems integration opportunity where we can leverage our engineering capabilities. This requires focused effort, which is the rationale behind this new entity. On the aftermarket side, we grew 15% annually and 20% quarterly. As mentioned in previous calls, our journey over the last 4 years has been to transition from a parts provider to a complete ecosystem manager. We are improving our share of annual maintenance contract or AMC customers and leveraging our service channels to offer allied products and whole goods. This shift in perspective is yielding clear results. Kirlosko Fluid Dynamics grew 10% domestically and 13% internationally this quarter. On an annual basis, the business grew 6% domestically and 36% internationally. As this is the first full quarter for the consolidated entity, we saw reasonable growth with exports outperforming. However, I believe there's still significant headroom for growth. Regarding our international business, I have always maintained that growth must be built sustainably. To become a strong brand globally, our products, channels and service processes must be fit for the market. There is a fundamental difference between exports and being international. Exports involve manufacturing locally and shipping to a country to sell through an agent. Being international means building a genuine business in that geography, hiring locally, setting up comprehensive offices and evaluating local manufacturing or assembly where it's viable. Our growth international business grew 33% in Q4 over the previous year's quarter and 37% over the last fiscal year. We remain committed to our strategy of focusing on specific regions to build this business with patience and sustained effort. At Arka, our 5-year strategy centers on a deliberate pivot towards retailizing our book. To ensure sustainable growth, we prioritize building the right foundational structure ranging from onboarding the right talent and selecting markets to building seamless digital journeys and prudent risk guardrails. We scaled from 34 to 137 branches in fiscal year '26. Our strategy focuses on local market depth, operating only in regions where we have the established infrastructure to provide direct high-touch service to our customers. Our AUM grew 10% to INR 7,947 crores, with net interest income rising 11% to INR 266 crores. Even with significant investments in the secured retail business, FY '26 profit after tax remained stable at INR 69 crores, similar to FY '25 profit after tax before extraordinary items. While we are in full execution mode, asset quality remains robust, along with prudent leverage and capital ratios. In summary, we are progressing well against our goal to be a $2 billion company by fiscal year '30, and our numbers indicate that progress. We are very excited about our future. We believe that there is much more that we can do and the opportunity is real. Our last year's performance is a reflection of the inherent strength that we have at KOEL, our leadership, our engineering, our people and the strength of our partners, meaning our suppliers, our channel partners and most importantly, our customers. I will stop here and request Sachin to give an update on Q4 and the full year numbers. Thank you.

Good evening, everyone. Thanks, Gauri, for the update. I will give a quick overview of the financial performance for our stand-alone and consolidated business. The results and the presentation for today's call has already been uploaded on exchange and our website. Q4 FY '26 was a period of remarkable growth, setting a new benchmark for quarterly sales. The strong performance was broad-based with significant double-digit growth in both domestic and international markets. The fourth quarter of fiscal year '26 was a record-setting period for Kirloskar Oil Engines, achieving the highest ever quarterly sales of INR 1,522 crores for the stand-alone operations, registering 24% growth year-on-year. With this strong performance, we closed the full year with stand-alone net sales of INR 5,604 crores, that is 25% growth year-on-year. Coming to the financial performance overview. I will start with stand-alone performance first. For the quarter, net sales at INR 1,522 crores for Q4 FY '26 versus INR 1,225 crores for Q4 FY '25, 24% increase year-on-year. EBITDA at INR 193 crores for Q4 FY '26 versus INR 152 crores for Q4 FY '25. That is 27% increase year-on-year. EBITDA margin at 12.6% for Q4 FY '26 versus 12.3% for Q4 FY '25. There has been improvement by 30 basis points. Net profit from continuing operation at INR 118 crores for Q4 FY '26 versus INR 92 crores for Q4 FY '25, 28% increase year-on-year. Now moving to the full year performance. Net sales at INR 5,604 crores for FY '26 versus INR 4,481 crores for FY '25, that is 25% increase year-on-year. EBITDA at INR 737 crores for FY '26 versus INR 552 crores for FY '25, 33% increase year-on-year. EBITDA margin at 13.1% for FY '26 versus 12.2% for FY '25. So there is a growth of 90 basis points in EBITDA margin. Net profit from continuing operation at INR 464 crores for FY '26 versus INR 343 crores for FY '25, 35% increase year-on-year. Net cash position net of debt and including treasury investment stands at INR 552 crores. Please note, numbers reported here are for continuing operations only and excluding exceptional items. Moving to working capital. Our working capital position continues to remain healthy with payables at approximately 60 days and receivables at around 41 days. Inventory levels stood at approximately 48 days, which improved from 66 days last quarter. Supported by disciplined working capital management led by improved inventory and receivables efficiency, the overall cash conversion cycle has continued to be maintained within a disciplined range, supporting overall liquidity and operating flexibility. In the interest of time, I will break down this performance for the quarterly numbers. You can refer to our earnings presentations for full year performance number. So coming to the further breakdown of the stand-alone sales for the quarter. KOEL stand-alone sales post the restructuring were at INR 1,522 crores, that is 24% growth year-on-year. This strong momentum was backed by double-digit growth across all business units. So within B2B, Power Gen was at INR 708 crores, that is 30% increase year-on-year. Industrial was at INR 371 crores, 24% increase year-on-year. Distribution and aftermarket was at INR 281 crores, which is 20% increase year-on-year and international business of B2B was at INR 162 crores, that is 10% increase year-on-year. Now looking at consolidated performance for the quarter. revenue from operation at INR 2,116 crores for Q4 FY '26 versus INR 1,749 crores for Q4 FY '25. That is 21% increase year-on-year. Net profit from continuing operations at INR 162 crores for Q4 FY '26 versus INR 111 crores for Q4 FY '25, that is 47% increase year-on-year. Let us have a look at consolidated segment performance for the quarter now. B2B segment revenue for the quarter was at INR 1,557 crores, which is 25% growth year-on-year. The segment PBIT was at INR 152 crores, reflecting 35% increase year-on-year. B2C segment revenue for the quarter was at INR 339 crores, which is 11% growth year-on-year. The segment PBIT was at approx INR 42 crores, that is 16% increase year-on-year. Financial Service segment revenue for the quarter is at INR 221 crores, reflecting 8% year-on-year growth. The segment PBT was at INR 28 crores, that is 157% increase year-on-year. Please note, numbers discussed here represent continuing operations only and before exceptional items. To conclude, I would like to sincerely congratulate the entire KOEL team for their contribution to the strong performance. The progress we have achieved this year is a reflection of the collective commitment, resilience and execution capability across the organization. As we close this financial year, we are now preparing ourselves for the next set of milestones in our B2B journey. Our approach will continue to be steady and disciplined, staying focused on our long-term goals, taking one step at a time and remaining agile as we navigate the evolving business environment. Now I would like to open the floor for the Q&A. Thank you.

[Operator Instructions] Your first question comes from the line of Jeetu Panjabi with EM Investco Capital Advisors Private Limited.

I think tremendous performance and very satisfying to see the way you guys have scaled up and managed to get to this place. So congratulations on that. My first question really is that the export side numbers seem very strong. Question is, can you give some level of attribution to help us understand where is that growth coming from? And two, your thoughts on sustainability of that? I've got a second question. I'll answer -- I'll ask after we talk about the first one.

So thank you for the inputs and really appreciate that. On the international side, so our Fluid Dynamics business has done extremely well last year. So seen tremendous growth. As we've been explaining over the quarters, our game plan is deeply structural for each region. So we take a deep look on where should we play, how do we succeed in those markets, what is the regulatory environment. So there is a lot of ponderance before we make decisions to commit to a market. And once we do, then the entrenchment is fairly sustainable. So the way I would answer the question is, do we think this is sustainable? We would believe that this is sustainable. In fact, there is a lot more work that is still underway. And if I look at the split, Power Gen continues to be a very big opportunity on the international side. We continue to be focused on that. This time around, we've seen significant success on the pump side as well as on the Power Gen side in the INR 1,000-plus crores in gross sales.

I really appreciate that. The second question is really, can you talk a little bit about the market share gains in the high horsepower segment? I don't specifically ask for numbers, but I'm just more color on what's happening there and especially Optiprime, how is that shaping up? And what does the order book look like? And one more linked question broadly is with the war and potential fuel price hikes and all the other stuff, can you just again tell us what do you think are the -- any of the challenges that you expect in the environment for our business over the next 6, 9 months?

Right. So Jeetu, just on Optiprime and our HHP focus, if I look at the way we've progressed over the last 1 year, we are already making strides, I would say, significant strides, whether it is Optiprime or HHP. So we have sold units up to 3,000 kVA now. So all of that is already underway, and we have actually sold a few hundred Optiprimes last year. So that has been extremely encouraging for us as a management team as well as the teams within the organization. And we do believe that the moment we enter a particular node or market and definitely domestic first, we have an opportunity to succeed there. And the HHP segment in Power Gen has been not very different. So we do believe that we will continue to grow stronger there. As far as the current geopolitical situation is concerned, we may see short- to medium-term structural changes play out. I think we are keenly watching out for the macro environment. But what I can assure you is whatever happens won't be specific or unique to us. I think if there is a larger macro play that happens, or if there is something that happens, then we will -- we may face some headwinds, but we may also see tailwinds in the form of rebuilding of infrastructure in those respective regions. The good news for us is that, look, we committed to the Middle East market a few years ago, and we are present. So each time -- I mean, if -- once the rebuilding process starts and as and when it starts, we are present there to address that growth in the market.

The next question comes from the line of Ankur Periwal from Axis Capital.

Congratulations on a strong set of numbers. My first question is on the R&D and the overall product development side. Now glad to hear your earlier comment on Optiprime picking up very well. But just on that bit, are there any more products that we are working on over the next, let's say, 1 to 3 years, which can drive the growth further up or maybe even variances of the existing ones, which can see a ramp-up over the coming years?

So I may not be able to give out information about the product launches and the engineering development. But what I can say is that we are deeply focused on key customer segments and their requirements, and we are fully geared and equipped to develop the products that the market requires.

Okay. Let me rephrase my question. So you did mention you are selling units up to 3,000 kVA. So the incremental focus is on going beyond 3,000 kV as well or within 3,000 kV, our portfolio is reasonably placed and we believe there is no further new product investment required there?

So we have the capability to address nodes even beyond 3,000. What I did mention was where we have actively sold units. We have capability. As you're aware, we are executing order of Nuclear Power Corporation, 10 units. Each unit is 6.3 megawatt genset. So we do have the capability to address larger units. I was just talking about the routine products.

Okay. Sure. That's helpful. Second bit on very strong growth on the industrial side for us. How is your -- what is the growth outlook across industrial as well as distribution revenue going ahead? While till now the growth, as in the initial comments, we highlighted was led by construction. But are these the key segments which will drive the growth further ahead as well? Or there could be more subsegments that we will look to ramp up?

So our guidance, overall, we remain committed to the $2 billion guidance. And industrial and aftermarket have an important role to play as we move and progress towards the $2 billion milestone. As you're aware, on the industrial side, we have multiple segments. There is a game plan in place for each of those segments. depending on the year and the cycle we are in some of those segments will do better than others. But I wouldn't be able to call out anything more than that at this point.

Okay. Fair enough. And just last question. From the company's investments into the subsegments in terms of having the people, the teams, the network in place, are most of the investments there, we have already invested there and now we just need to see the ramp-up and the execution part? Or there could be some more investments which are required?

As you're aware, the -- I mean, situation does change quite a bit. So we may make decisions to hire more people depending on the circumstance. So it's hard to really comment on that. But yes, there is a significant amount of infrastructure as well as network already established that we are fully leveraging at this point.

The next question comes from the line of Jason Soans with IDBI Capital.

First, just had a clarification. I just joined the call a bit late. Ma'am -- Gauri Ma'am did mention that the whole -- how much the industry grew and the volumes. Could you just repeat that? I mean, just for...

Yes, sure. So you want me to repeat that bit of the commentary?

Yes, sure.

Yes. While the overall annual diesel generator market grew 18% to approximately 179,000 units, including telecom, we grew by 41%, selling upwards of 50,000 units in this fiscal year.

That's very helpful. Now I just also -- my next question just pertains to -- I mean, we saw good growth on the Power Gen side, 32% and 22% on the industrial side. Just wanted to know if you could just help us with the volume growth as well for both these segments? For -- I think just for the entire year?

I think Gauri kind of answered the volume part of it. So what exactly is the question?

Yes. I just wanted to know -- I mean -- so Power Gen segment grew by 32% for '26 and industrial grew by 22%. Now -- and there's a CPCB element and all those things. So I just wanted to have a breakup with the volume and the price growth, if possible?

Yes, we won't be giving that.

Sure, sure. Okay. And actually, last time around in the last annual call, you did mention the HHP sales numbers. Would that be -- I mean, would it be possible to have that number for '26?

So yes, that number we don't usually give out. So I'm sorry. I think the qualitative on HHP, we did share right at the beginning of the call.

Yes, yes. Okay. And I also saw the announcement with regarding to the capacity augmentation at the Kagal plant. Now you mentioned some CapEx as well for that. Now considering that, could I -- basically what CapEx do we envisage for '27 and '28 going ahead?

So you must have read this stock exchange disclosure. So we are investing close to INR 1,400 crores on that. So that will be our capital allocation for this next 2 years.

For both. Yes?

For both, Yes.

Okay. And just lastly, I just wanted to understand, this time around there have been the Middle East crisis and things like that, the gas crisis as well. Any short-term disruptions during the quarter? Did the company face any short-term disruptions during the quarter?

No, nothing specific.

The next question comes from the line of Mihir Manohar with Trust Mutual Fund.

Congratulations on great set of numbers, very strong numbers. I wanted to understand the capacity addition side. I mean the 50,000 engines that we are expanding for Kagal. I mean, should one consider that coming operation in second half FY '28 -- because in 2024, we had mentioned it coming in 3 years. So when should we expect the 50,000 engines to come on stream? And the second question was on the 20,000 engines capacity expansion that we are announcing. Now here, we are mentioning about INR 1,400 crores of CapEx versus for 50,000 machines, it was INR 700 crores CapEx. So are these on the HHP side, I mean, why a higher number per machine -- CapEx per machine. So just to understand.

Yes. So that's a good question. So we announced the INR 700 like you mentioned, and that's coming online by April of next year, and it's 50,000 engines. That was about enhancing our lines and adding new lines in the existing plant. So that's why you saw that kind of investment. Now for this INR 1,400 crore investment that we're taking on over the next 2 years for 20,000, it's because it also includes -- it includes a new building, of course, at the same site. So there's no land acquisition involved [indiscernible] plant for the new building and of course, completely new lines and equipment.

Okay. So that's because of the building [indiscernible]?

Sorry?

Sorry?

Does that answer your question?

Am I audible?

Yes.

Yes. Okay. So that's the [indiscernible] building involved. It's not the case for higher HHP machine or a typical higher category of machine, that's not the case?

It is also for higher machines. It is also for higher machines, but it involves all of this, all of these things. So we're seeing -- as you can see from the results, we are seeing traction in international markets. We are seeing traction in the high horsepower segment as well as Optiprime. So it is for those kinds of engines.

Understood, sure. Second question was just on the Vizag side. I mean a lot of data center capacity coming at Vizag location. If you can provide some clarity as to are we getting inquiries specifically pertaining to this location? And how strong are these inquiries? Some color on that will be helpful.

So look, we are engaged with different kind of customers, and there are inquiries from all over. I wouldn't say Vizag is any different from that. At this point in time, however, it's hard to comment on that.

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

Congrats, Gauri, Rahul and the team for a great set of numbers once again in the quarter. My first question is related to the margins. So we have seen very good growth and there's a very good growth of -- in revenues across divisions. So I wanted to understand when can we start witnessing the operating leverage gains? Because you had mentioned in the past that you were investing in the sales channel network, educating your distribution network and everyone on the new and the higher HHP products. So are these investments done or -- which is leading to, let's say, the higher other expenses, which we have seen in this year. So are these investments done or there are more to be done in the coming quarters? And when can we see actually the reduction in these other expenses, which can drive your operating leverage gains? So that's my first question.

So look, see, each of the nodes, the kVA nodes have their own associated margin profile. So overall, what we share is a composite number. Now what you would see is that there is absolutely no margin deterioration. And we have seen -- in certain nodes, we've seen operating leverage also kick in. The way I can answer that question right now is a lot of the investments are made. But as you're aware, we've kicked off this new capacity enhancement investment. So there is a lot of traction that we also are receiving on the international side for which we are gearing up for. And we probably will see larger operating leverages kick in soon.

Okay. So that can start panning out maybe from FY '27 onwards?

Yes. I mean that is -- our full intention is to have -- to maximize on operating leverage, yes.

Understood. And my second question is related to your Power Gen business. You have mentioned that you are growing very well in the HHP side with growth in your Optiprime and the other HHP ranges. How do you see the growth in the non-HHP portfolio for FY '27 and going ahead? Like how do we see this segment to grow going forward, given that we already have a very high base for the industry also as well as for KOEL also?

I mean it's going to be hard for me to give an outlook, but what I can certainly say is that, look, we will continue to strive our best and focus on our core bread and butter business, which is LHP. So that certainly will remain a big focus area as we look to unlock new avenues, especially on the projects and HHP side. So we are very committed to the LHP business.

Understood. So this will grow in line or maybe a little better than the industry growth for this year also FY '27?

We will certainly try for that...

Okay. Okay. Just lastly, on the cost side, like we have seen higher RM prices across the board for the entire industry. Do you see that the market is strong enough for absorbing any kind of price hike if industry participants were to take any kind of price hike for RM pressures?

Look, I think each company has its own strategy. So it's hard for me to comment. But I think some of the material cost inflation is such that it's going to be hard for players to absorb all of it themselves. So some of it will certainly get passed on to the market.

The next question comes from the line of Suraj Malu with Catamaran.

Ma'am, of this INR 1,400 crores CapEx that we have announced, is it fully new? Or is there any replacement amount involved in this?

Suraj, this is fully new CapEx, nothing replacement...

Got it. And the INR 700 crores CapEx that is underway, so the current gross block, I assume, would be around INR 2,000 crores. So is this understanding correct that this INR 2,000 crores gross block would become plus INR 700 crores and plus INR 1,400 crores, so roughly like INR 4,000 crores after 2, 3 years?

Yes. Once we complete the CapEx.

Got it. So that INR 700 crores, nothing is included in the current gross block, right?

No, no. Nothing.

Got it. And if you look at the amount, like is the new capacity of this current 20,000 engines that is announced, is this primarily HHP -- because the amount is huge, if you look at the current capacity of 135,000 and the current gross block, the proportions don't add up like the increase in engine capacity is just 15%.

So Gauri has already answered that. So it's a combination of both. So we are investing in the building in existing Kagal facility, plus a larger CapEx will go towards the building the HHP capacity enhancement.

Sorry, sir. The line for the current participant has dropped from the queue. We'll move on to our next question. Your next question comes from the line of Amit Anwani from PL Capital.

I just saw the press release on the Netherlands subsidiary. So if you could elaborate more, I think you have highlighted about some heat engines and ICE engines as a product plus some energy transition products. So just wanted to understand, what we're trying to achieve with this subsidiary in Netherlands?

Yes, sure. So given international is a very big component of our 5-year goal, it's just important for us to structure ourselves efficiently as we're growing to create value for our stakeholders. So it's in line with that.

Right. So second question on the data center. Just wanted to understand in terms of capability and $2 billion goal, how much we are factoring in, in terms of the data center growth addressable market in terms of higher nodes in the data center. Some color definitely would help. And how has been at least the growth in the past, the targets for growth from the data center piece that will help.

Sure. So look, I cannot give out how much we are factoring in the $2 billion from a data center segment contribution standpoint, but the response that we've received is quite encouraging. We remain committed to the segment. We do believe that we have a unique proposition for the data center segment. And we are hoping that we get more traction as we move along, but we've seen successes even in the last year.

All right. Lastly, on -- you did highlight it about the CapEx and the international lag will also -- is something which you're considering while doing this CapEx. So could you elaborate more which markets and nodes you're actually trying to address with this CapEx? Anything which is there to understand in terms of any particular markets or nodes you're looking for?

It's focused on HHP markets in Power Gen mostly. So that will be the key theme of the capital deployment.

Which? Any particular geographies we are looking at initially?

So at this point, we can't give that out. But of course, the capacity is being set up for whole of KOEL to use across the board.

Yes. It's across the board. So it's not that we're only setting up the capacity for a specific geography. It would be for any demand that we see across our markets.

We will take our next question from the line of Mr. Suraj Malu from Catamaran.

Sir, my question was on the proportion, like the CapEx that we have announced, it's like roughly double of the current gross block, including the INR 700 and INR 1,400. So what is the asset turn that we can expect on this gross block?

So Suraj, Sachin will answer the question on asset turns, but I think you dropped off. And what he was saying is -- and what we had mentioned before as well was that the difference in 700 and INR 1,400, even though one is 50,000 engines and one is 20,000 is because this one includes a new building as well at our existing Kagal land, and it's for the high horsepower engines. So I just wanted to make sure that you heard that. And Sachin will answer the second part of your question.

So Suraj, asset turn will be in the range of 4% to 5% depending upon the nodes.

Understood. On the total base, right, including the land and everything, so INR 2,100 crores?

Yes.

Your next question comes from the line of Palak from MIV.

Am I audible?

Yes, Ma'am. You are audible.

So my first question is on the short-term margins. So with all the commodity inflation situation, are we comfortable that we will be able to sustain this level of gross margin? And second question is that I think that a lot of -- I think approximately 40% to 50% of our export revenue is from the Middle East market. So what was the impact on this quarter and the next quarter, what we are expecting? And the last question is that can you give us the proportion or the contribution of HHP to our Power Gen segment?

So on the last question has been asked before on the call as well. But I'm sorry, we're not going to share that breakup, Palak, on the HHP bit. On your first question on raw material inflation, I think we're in a pretty sort of turbulent period or perhaps going to be entering a pretty turbulent period. And I think every effort will be made for us to focus on our long-term growth and maintaining our margins and keeping them sustainable. So -- but as we know, it's a turbulent period, and hopefully, that only remains for the short term. I think in terms of the demand drivers in our industries, we do feel that they are remaining strong. So we feel we're in a good position, and it's not anything that we're going to go through in an isolated way. On your second question, which was on Middle East, do you want to answer that?

Yes, Middle East.

Could you repeat the question? Middle East, you were saying -- I think what you said was 40% to 50% of our international revenues are from Middle East and have you seen any impact, right?

Yes, correct.

Yes. So in the last quarter, we've not really seen any impact. It would be hard to comment on this quarter or the subsequent quarters. But in the last quarter, we haven't really seen an impact.

Okay. Sir, just last question. So considering the current energy crisis situation, are we seeing the demand on the gas-powered power generators? Or do we have a strong portfolio in that segment?

Look, we have a pretty strong portfolio across the board, something that we would back. And every demand that and every opportunity that comes up, we will go out and strive to meet that demand.

And I think what I would add to Rahul's comments is we've developed engines that run on different fuels. And it was defined in our technology tracks about 3 years ago, it's in our investor materials where we talked about developing internal combustion engines that run on gas or ethanol, methanol or blends of hydrogen, et cetera. So if there's demand that picks up for any of these alternative fuels, then we are ready to address that.

So have you seen any pickup in the inquiry for this specific segment?

Which market are you talking about?

I mean the alternate engines power generator.

I would say that there's nothing meaningful to talk about as far as this conversation is concerned. We are obviously hopeful, but nothing meaningful at this point.

[Operator Instructions] Your next question comes from the line of Parikshit Kandpal from HDFC Securities.

Congratulations on a great quarter. I hope I'm audible.

Yes, you're audible.

So my first question is on -- I mean, in this year, we have seen a substantial increase in copper prices. And now this last quarter, we have seen almost 15% increase in pig iron prices. So have you taken any price hikes already for this correction? So if you can bifurcate between the copper and the pig iron, because pig iron is a recent phenomenon. So just your views on that.

We won't be able to comment on that because it pertains to this quarter.

But about copper because copper has been rising throughout the year. So last financial year, have you taken any price hike?

So when -- as and when there's raw material price [ hike ] -- I mean, we continuously evaluate our pricing policy, and we take price increases at regular periods. So yes, that's where we are.

So can you quantify how much price hike you have taken in FY '26?

No, we can't.

Okay. Sure. Second question is on HHP side. So is this engine totally localized? I mean, are we manufacturing it in-house, especially the HHP portfolio?

Yes.

So it's a [indiscernible]

It's developed by our own engineering teams, and it's completely localized.

Okay. Just one question on the Netherlands investments which you're doing. I think you mentioned about gas turbines, transformers, energy storage solutions. So is it the research which will go into and the product rollouts will happen in some years? So how does one look at this comments which you have given on the background of the research you're going to undertake on this?

We couldn't hear your question very clearly. Sorry. Could you just speak a little slower more clearly?

Yes. So in the announcements on the incorporation of the new entity, Netherlands, you have given a brief background about the businesses which will happen in this. So there's a mention of gas turbines, transformers, energy storage solutions, including batteries -- so just wanted to understand a little bit more. Is this new business line? Will we do manufacturing here? Or is it in a very initial stage? If you can give some more color on these new verticals?

Yes. So look, we have -- we had outlined our technology path, and there is a focus on different combustion technologies also, but there's nothing significant to speak about at this point in time.

And I think you're also referring to the format which is disclosed, and that's the incorporation of a company. Usually, when we define that, it includes everything that we could possibly do. It doesn't necessarily mean that we will do it. If we're looking at international, if we're looking at the power systems space, it can involve a range of technologies over time, which is what we're trying to address in the description. It may not be where we are today. Does that make sense?

Yes, understood. So aspiration may happen, may not happen is what you're saying.

Exactly, exactly.

Just last question on the Power Gen revenue. So if you can give us some color on what was the data center contribution? And how are you looking at the journey from COLOS to -- so what's the presence in COLOS right now, edge? And how are you looking to get into the hyperscalers?

Yes. So I think in some sense, that question is leading. But yes, so we are present in edge and COLOS, and we are solely also making our presence in hyperscalers, too. It would be premature to give out those contributions at this point in time. So I would reserve my comments there.

But will it be single digit, double digit, early double digit, any color at least on the contribution of everything on the Power Gen revenue base?

I mean we certainly strive for double digit as far as contribution is concerned. But yes.

The next question comes from the line of Sourabh Arya with Oaklane Capital.

Am I audible?

Yes. Go ahead.

Congratulations, Gauri, Rahul, Sachin and to the whole team. See, my question is actually, of course, you have not commented on the new products, et cetera. But I want to understand from you like in terms of R&D, how as a percentage of sales, it is going up for us? Or if you could talk about any patents, et cetera, in terms of number of patents which are increasing for the company or not? And why I'm asking this is I came across this latest patent which was on maybe hybrid generators. And of course, Rahul's name was there. So it's quite encouraging to see CEO of the company -- and is it there on the patent. So maybe some thoughts on how R&D and new products will come together, if you could throw some light there.

So maybe we'll talk about R&D as a percentage of sales. Maybe Sachin, if you can.

So Sourabh, R&D as a percentage of sales is roughly 2% on the revenue side and 2% on the CapEx.

So is there any increase there? I mean to say year-on-year, are you putting more efforts there?

Yes, yes. So it's steady at 2%. But with our sales quantum is going up, so R&D expense is also going up because we are getting the same rate of 2% and 2.5%.

Okay. And second, I think Gauri at the start of the call commented that international is now more than export. So does it mean Kirloskar Americas portion of business is doing well, if you could comment on that because we've been in Americas for quite a long time. And after, of course, Middle East, how the traction is happening there?

No, no. So I didn't say international was more than export. I was just saying that the way we look at our business outside of India is what I call international rather than export, just a difference between the 2, say, business models. Export is when you make locally and when you ship out to like an agent or a distributor and you just -- you have no presence there yourself versus an international business, which is what we are trying to build, which is we first understand each market very deeply before we decide how we're going to enter. And then we actually have to invest in capability and people and possibly set up some sort of manufacturing there perhaps. And then we're deeply entrenched in that geography. So that's what my commentary was about. So I'm not sure I understood your question.

I was trying to understand, I mean, how Kirloskar Americas is doing now? Like in this year, has it done well than other regions because, of course, we'll have to wait for annual report for it to come. But if you could give some qualitative color how that has done for you?

I think this past year, Kirloskar Americas has been -- I mean, there's a lot of effort that we are putting into the Americas region. But at this point in time, you may not -- I mean, there's nothing meaningful or significant to discuss at this point in time.

Sure. And very lastly, in terms of single engine, can you tell us like what is the exact size of single engine you are selling right now? Like I know Optiprime series is there, which can take you to 3,000, and all. But in terms of single engine, what is the maximum capacity you are selling?

So like our nuclear power execution is single engine, 6.3 -- like around 8,000 kVA, 6.3 megawatts.

Okay. Sure. And then for data centers, et cetera?

For data centers, right now, we go up to 1,650 in single engine. And obviously, we are on track to increase that as well.

We take our next question comes from the line of Prateek Srivastava with Nivesh Wisdom.

Congratulations again on a very great set of numbers. Today, there is some problem with this conference line. I'm not sure the moderator is seeing that, but calls are getting disconnected. So I'm not sure if any question on Arka's asset quality was taken. But in Q3 con call, the GNPA numbers were 1.2% and the NNPA was 0.03% -- 0.3%, correct? Can you please provide what are the updated numbers as of today for GNPA and NNPA on Arka?

Ridhi, are you there? Can you answer?

Yes. So the GNPA number for Arka as of 31st March '26 is 1.2%, so it remains at the same level. And NNPA also remains at the same levels of December, which is 0.3%. And in absolute terms, the GNPA has actually come down.

Great. Great to hear that. The other question was on the order value. I guess Rahul sir mentioned that in last Q3 con call. This was the order around the nuclear NPCIL and the marine order. I guess the combined order at that point was INR 798 crores. The execution was 2-year time line. Any update on the execution of this order? And are we on track?

The NPCIL order execution is by 2029.

Okay. Okay. And is there any update? Are we -- is there like any -- are we actively working on it or we have got to start any kind of color you can throw on the execution time line?

Yes, yes. All the teams are actively working very hard on it because the execution is absolutely critical for us to do on time, and it gets tracked on a regular cadence. It's project managed, and we are on track to deliver it by the time lines that we have committed to.

Got it. Got it. And do we have any like quarterly revenue recognition in this order?

I mean as the billing happens, yes, we will recognize revenue.

Okay. But that hasn't started happening yet, right?

No.

The next follow-up comes from the line of Jason Soans with IDBI Capital.

Since it's 8:00 p.m., could we request that this is the last question, please?

Sure.

Just final 2 questions. Just you did highlight some segments which are -- which have contributed to the growth in industrial. Now for the same thing, I just wanted, which are the areas of strength for PG, for Power Gen and some areas of strength, any weakness in certain areas? Just some qualitative color on demand for the PG segment.

Look, we take a lot of pride in the fact that we can offer solutions that are practical to our customers. So I mean, if there were weaknesses, we would certainly try and plug those weaknesses over a period of time. We are focused on -- focusing on our high horsepower customers. That remains a consistent focus. So I think I wouldn't be able to comment more than that right now.

No. Actually, I wanted to see in terms of segments, it's not that the portfolio, I meant in terms of, let's say, residential or hospitality or certain segments. That's how I wanted to approach the question in terms of industry verticals?

Yes. I mean so it's actually -- I mean, it's actually pretty broad-based. So it becomes pretty hard to answer it like that, but it's pretty broad-based.

Okay. Okay. Sure. And just finally, the INR 14 billion CapEx, the peak revenue potential, what can it be? And how many years can it be -- some broad color on that. So INR 14 billion, what is the peak revenue potential? And how many years you aspire to eventually reach it?

So the CapEx which we have announced is INR 1,400 crores. And what is that we are targeting to complete the capitalization in the next 2 years. So from therein, the revenue will start kicking in our P&L.

Right. Yes. So what could the peak revenue be for that?

So at the asset turn of 4, you can calculate, it will be close to INR 5,000 crores, INR 6,000 crores.

Sure. So it's a INR 10-odd crores.

Ladies and gentlemen, we will take that as the last question for today. I now hand the conference over to the management for closing comments.

Yes. Thank you very much for all your compliments to the team, and thank you for your interest in the company. Good night.

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