Kirloskar Pneumatic Company Limited (505283) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Kirloskar Pneumatics Company Limited Q4 and FY '25 Earnings Conference Call hosted by Antique Stock Broking. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Shah from Antique Stock Broking. Thank you, and over to you, sir.

Yes. Thank you, Manav. Good afternoon, everyone. On behalf of Antique Stock Broking Limited, I welcome you all to 4Q FY '25 Post Result Earnings Call of Kirloskar Pneumatic Company Limited. To discuss the results, we have the senior management team of the company represented by Mr. K. Srinivasan, Managing Director of the company; Mr. Ramesh Birajdar, CFO of the company. I would hand over the call to Mr. K. Srinivasan for his opening remarks, post which we can open the floor for Q&A. Over to you, sir.

Yes. So good evening to all of you. Let me start by wishing you all well on the occasion of the various New Years we celebrated last week, Bengali, Punjabi, Assamese, Odia, Malayali and Tamil New Year. I also take a moment to pause to mark of respect in memory of the 26 innocents who lost their life yesterday. Now let's continue with the call. Before proceeding with business update, I will ask Mr. Jitendra Shah, our Company Secretary, to read out the disclaimer statement. Jitendra, please.

Thank you, sir. The presentation uploaded on the website of the company and discussion on the financial results during the earnings call may contain statements relating to future business developments and economic performance that could constitute forward-looking statements. While these forward-looking statements represent the company's judgments and future expectations, a number of factors could cause actual developments and results to differ materially from expectations. The company undertakes no obligation to publicly revise any forward-looking statements to reflect future events or circumstances. Further, investors are requested to exercise their own judgments in assessing various risks associated with the company and also the effectiveness of the measures which is taken by the company in tackling them, as indicated during the discussions. Thank you.

Thanks, Jitendra. Now I'll proceed with the business update. The financial year F '25 was as near to plan as one could get. We achieved both the top line and bottom line plan in spite of the various uncertainties, thanks to a robust business model that allows for the various sectors and markets to compensate for each other. Domestic market was strong in food, dairy, pharma, fertilizer and chemicals and in some sectors of general engineering. Growth in oil and gas sector as well as all the new energy sectors was patchy. Our targeted and modest export aspiration was more than met with export of INR 124 crores, which is roughly about 7% of sales. New product sales of Tezcatlipoca centrifugal compressors, Khione's screw compressor, Calana boosters, Jarilo biogas compressors and Aria low-cost air compressors all picked traction. With record filing of and award of 41 IPs during the year, the company is accelerating in creating a more winning solution for its customers. Order booking remains strong, providing clear visibility for continued growth in F '26. I do understand that there are some concerns expressed about order booking, and I'll address them later. Sales for the year was INR 1,629 crores as against INR 1,323 crores of the previous year, a growth of 23%. Growth came predominantly from the domestic market. Exports too grew and grew by 80% from the very modest INR 69 crores of the previous year. We produced over 3,500 compressors during the year, and this is a new record. Order booking was strong, and this leaves us with an order book as we start the year of INR 1,624 crores, as compared to INR 1,475 crores of the last year. This increase of 12% may be appearing less than our projected sales growth of at least 20%, but considering the fact that our average execution cycle as a whole has come down primarily because our switch between equipment sales and package sales has changed 60-40 in a positive direction. Consequently, this order book does represent adequate order backlog for meeting our growth aspirations. Also, the inquiry pipeline and the orders in hand would allow us to meet the planned growth not only of F '26, but also going forward. We are continuing our efforts to build in-house manufacturing capabilities, both at Nashik and at Saswad. Towards this, facilities to manufacture the Tyche range of semi-hermetic compressors and the lost foam casting, LFC range of cast iron, S.G. Iron and steel castings for our compressor parts have been commissioned. CapEx execution for the year was near INR 100 crores. The acquisition of the 55.26% stake in Systems and Components India Private Limited during the year allows the company to scale up its business in the pharma, chemical and dairy sectors. These are early days. We did have only a quarter and a few days for this company to be brought into our fold. There is strong work in progress to ensure that we have a significant jump in the top and bottom line during the next year. The net working capital at INR 272 crores as against INR 300 crores, a decrease of about INR 28 crores over the beginning of the year. This is about 15% of the sale and is in line with our planned objective. Free cash generation from operation was strong at INR 280 crores, supporting an enhanced dividend to commemorate the 50th AGM of the company. There is a bit of an explanation that would be required to say why 50th AGM is quite different from our 74th year of operation that I think most of you would know. Now let's discuss about our various product lines. Air compressors. The air compressor business ended the year on a strong note with record dispatches of the Tezcatlipoca centrifugal compressors. The sale of large reciprocating compressor packages to the fertilizer and chemical plants added to the sales growth. Overall, order intake was strong, indicating a clear growth in market share. The air compressor business continues to be 20% of our overall sales. Refrigeration compressor systems and Compressor Systems. This clearly was the start of the year as the Refrigeration Compression segment grew strongly on the back of cold chains and ice plants, dairy industry, food processing, pharma, chemicals and fertilizer industry. This more than compensated for the marginal decline in the growth of the gas business. Bringing of systems and components into our fold further enhanced our offering to the growing market. Process gas compression systems. The process gas space continues to throw up new opportunities and challenges. While the sale of gas packages was slow and steady, the sale of CNG packages in Calana booster for gas distribution was in fits and burst. We had periods of good order inflow, bad execution and vice versa. We continue to see a decline in commissioning of mother stations and a preference to put up daughter stations. This is clearly to comply with the coverage commitments that the gas companies have made, and this is not a good sign for us. This is -- the booster compressor is a marginal business, and we are reluctant to pick up more orders beyond the point. However, the new energy business, both in hydrogen and biogas are growing, but it is yet to pick up significantly in terms of execution. Sale of CNG packages to the MENA region is scaling up, and this seems to be a new area of growth as countries in this area find it the quickest way to get energy to meet their growing economies. We continue to operate and maintain near 1,000-odd filling stations across 15 states and the O&M business remains strong and growing. Outlook for F '26. The economic outlook continues to be uncertain, less so in India. The general slowdown across geographies does have a sobering impact on all new projects and investment. Yet in all this, we seem to be in a sweet spot with several things going in our favor. We have a slew of launches, mostly replacing imports. We have good products addressing the growing market segments like dairy, pharma, chemicals and more in-house manufacturing that has been continuously being set up, reducing both our costs and sharpening delivery. The strong engineering capabilities to build customized solutions for very many applications and industries helps us to meet the growing customized requirements of various customers. A large value of active quotes and proposal out there as well as the highest ever order book at the beginning of the year bodes well to meet our growing aspirations. We are quite confident of reaching our first milestone of being above INR 2,000 crores during this year. Now, I request Ramesh Birajdar, our CFO, to take you through the financial aspects. Ramesh?

Yes. Thank you. Good evening. The presentation highlighting the trends observed in the Q4 as well as FY '25 results is now available on the company's website. You can find it in the Investor Relations section. Additionally, we have released the financial results on the BSE and NSE website following the conclusion of the Board meeting held today. These filings contain detailed information about the company's performance. Before discussing the specifics of our financial performance, let me first highlight some of the year's significant achievement. The company recorded new order booking exceeding INR 1,860 crores during FY '25. This is highest order gaining in the history of the company. The sales of INR 1,629 crores, witnessing the growth by 23% over the last year. Export sales gone up from INR 69 crores in FY '24 to INR 124 crores in FY '25. PBT, that is profit before tax showed a growth by 58% to the tune of INR 281 crores reaffirmed AA- credit rating by CRISIL with positive outlook, dividend at the rate of 500% for FY '25, which is the highest in any financial year, completed 1 acquisition successfully in FY '25 and as our commitment to ESG, all our 3 factories have started using the solar energy to the extent of 30% of the total consumption. Now I will run through the business results for Q4 and the year-ended on 31st March 2025. Sales for Q4 FY '25 were at INR 583 crores against INR 490 crores of Q4 FY '24. The sales for Q4 also showed a growth by 19% over the previous year Q4 FY '24. Other income for Q4 is almost same for the both years, INR 557 crores in FY '25 against INR 595 crores in FY '24. The total income for Q4 FY '25 was at INR 588 crores compared to INR 496 crores in the previous year. There is a minor change in the percentage of raw material to sales for Q4 FY '25 compared to Q4 FY '24, 56.36% in Q4 FY '25 against 56.21% in Q4 FY '24. However, the YTD percentage of raw material to sales has improved by 1.1% in FY '25 due to better product mix, better selection of orders, execution of the large packages and export sales. The staff cost stands at INR 45.5 crores in Q4 FY '25, that is 7.75% of the total income against INR 37.88 crores in Q4 FY '24, again, the same percentage 7.7% of the total income. YTD employee-related cost stands at INR 177 crores, that is 10.72% of total income against INR 164 crores that is 12.21% of the total income in FY '24. Lower depreciation is in FY '25 compared to FY '24 is due to the impairment of road railer assets in FY '24, reduction in depreciation of the lease assets, which are fully depreciated now. YTD other expenses are mix of fixed and variable costs and are at INR 302 crores in FY '25 against INR 244 crores in previous year. Increase in these expenses are mainly surge and execution of packages, higher export sales, enhanced level of service business and expanding activities in our Nashik plant. The year-to-date performance for the year shows an improvement in the EBITDA margin, reaching 19% of total income to INR 313 crores compared to 16.5% of total income to INR 222 crores in the previous year. In the ongoing fiscal year, the year-to-date profit before tax, that is PBT has reached INR 281 crores, constituting 17% of total income against 13.25% to INR 178 crores in FY '24. Net profit after tax for the current fiscal year is INR 211 crores that is 12.8% of total income. In comparison to previous year, INR 133 crores, that is 9.9% of the total income. Company has maintained status as a debt-free company, and I would like to state that company still has a net cash position of INR 330 crores plus as on 1st April 2025. The company issued 124,300 equity shares during the year FY '25. Last year, 138,400 equity shares under the stock option -- employee stock option program. As a result, the paid-up share capital increased to INR 12.98 crores compared to INR 12.95 crores at the beginning of the year. YTD earnings per share in the current year has shown growth by 58%, reaching to INR 32.50 per share, while INR 20.60 per share was at the previous year FY '24. In line with our dividend policy, the Board of Directors has approved a final dividend at the rate of 325% on face value of INR 2 that is INR 6.50 per share. This is in addition to interim dividend at the rate of 175% that is INR 3.50 per share. So the total dividend for FY '25 is 500% that is INR 10, which is the highest in the history of the company. With about 94% of the total revenue coming from the compression segment, it remains the only reportable segment. The segment earned profit of about 21.71% in the current year, higher than the previous year when it was 19.8%. The Compression segment is consistently sustaining the profitability within the range of 18% to 20% and which is directionally will maintain in that range. As of 1st April 2025, the order book amounted to INR 1,624 crores Unallocable assets includes the Karur assets and assets of transmission business and the Nashik plants to the tune of INR 763 crores. As you may know, the company recently acquired the Systems & Components India Private Limited situated in the village Atgaon near Murbad, Maharashtra. Following this acquisition, company has published its consolidated income statement along with the balance sheet from the date of acquisition that is 4 December '24 to 31st March '25, reflecting the financials of both entities. Comparable details of consolidated business will be provided after completion of a full reporting cycle of 1 year. Now, this forum is open for questions from our investors.

[Operator Instructions] We have our first question from the line of Amit Anwani from PL Capital.

Congratulations, teams for the strong set of numbers. My first question is, sir, you highlighted about the air compression, very strong growth and Tezcatlipoca received a phenomenal response. I wanted to understand what was the absolute contribution or value from Tezcatlipoca, how it has grown versus last year? And second thing is any top 2, 3 industries where you highlight -- definitely you highlighted a few sectors. Any top 2, 3 sectors where the Tezcatlipoca is receiving strong response. And you highlighted about the market share gain. So any sense whether we gained -- to what extent we have gained the market share versus the competition?

Yes. The ACD business itself is a pretty small business. It's only 20% of the company's total sales. Tezcatlipoca centrifugal compressors now account almost about 15% to 18% of the ACD business. So that's a big growth that we are seeing. This was not a product line 3 years back. So that's a big jump. So in terms of multiples, it's growing many times every year. So we see how big it can be. Like we said in the beginning, it can be anywhere between INR 300 crores to INR 500 crore opportunity in 3 to 5 years. We are the only people who make the entire centrifugal compressor in India, and that gives us a huge advantage. In terms of industries where this is being accepted, metal, all kinds of metal, carbon black, cement, so these are some of the big industries that are buying material conveying industries like power plants, et cetera, conveying coal and all. So these are broadly wherever large volume of air is being used at moderate pressure, this has picked up. And this is a very popular product now. We hope to see much bigger traction going forward.

Sure. Now coming to the gas segment, you highlighted that the oil and gas remains patchy. So any ballpark you want -- are we expecting that the package orders will moderate? Any color you want to give what was the contribution from package and CNG this year and how it will shape next year?

See, we have -- the package business is about half of our process gas business. The other half comes from the gas distribution, which is the CNG packages at the petrol stations and the boosters as well as in the O&M maintenance and operations of all these stations. It's about half and half, very roughly. And the package business is okay. It's not as patchy as the CNG station and the installation of the booster packages. Their orders are coming in. The installation is at a muted on and off. There's some urgency sometimes and then they say, no, the sites are not ready. So it's going a little up and down. The PNRB's approval of 18,000 stations out of that, they are supposed to do about 2,000-odd stations every year. I think if you look at most of their numbers that they are putting out, they are still calling out somewhere between 1,500 to 1,800 stations is what they're looking to put out. Unfortunately, a significant number of them end up being booster stations. That is where the whole story changes completely.

Lastly, on the order intake, if I can see roughly about INR 1,860 crores versus INR 1,770 crores. So this 3%, 4% growth this year in order inflow. So is it a right read through that this includes now the package orders might have increased. And as you highlighted that the duration has gone up? Or can we understand that there was some slowdown in receiving the inflows?

No, I think there is some error there. The order -- full year order pickup was up by 23% -- we were some 1,460-odd numbers. I'm now giving you a number without -- could be 1,465, 1,462, whatever it is. And this year, it's about 1,800 something. So it was up by almost 23% for the full year order booking. Now the opening order bank as we start the year is 12% higher than the opening order bank that we started the previous year with. So booking for the year was 23% up. Our execution obviously was much faster, quicker during the year, and I gave an explanation for that, that we are having now a significant change in the breakup between equipment as a part of the total sale versus packages as a part of the total sale. As we go more towards equipment as a part of the total sale, the execution cycle shortens. So we have now actually moved down on an average, the execution cycle from about 7 months to about 5 months. So that means the order bank will automatically be lower.

We have our next question from the line of Shubham Sehgal from SiMPL.

So my question -- first question was on the process gas segment. I mean, you mentioned that earlier the slowdown is still very apparent and like the stations are not coming up and we're supplying the daughter package or the boosters. But do we see any improvement coming up in this year? Like will we be -- will we start to supply the mother packages? Or how do you foresee? And another one thing on our processed gas segment. I think Reliance had planned 500 compressed biogas plants like -- and I think one of the plant showed some progress like earlier last month. So did we supply our compressor there? And do we have any -- do we have any outlook on this?

Yes. So first, let me answer the cash distribution business, which is really the mother station and the daughter station. This business is not something that's going away. There is a slowdown, but this goes up and down with the availability of gas and the pricing of gas that is available. So the plan to have overall in the country more than 96% of the geography covered by city gas. And as by corollary, you need to have also there along with the gas distribution for the industries and automobiles. So this both goes together. Otherwise, they won't be able to make money. 18,000 stations have to come up, and I think they still have to do something like about 12,000 to 14,000 stations. The exact numbers will be difficult to tell at the moment. So this keeps coming up. So it's not going away, and we are still a very, very strong player in it. We continue to manage and run over 1,000 stations across the country. So that's on the PGS gas system. Now coming to the biogas business. Yes, Reliance had announced 500 biogas plants. There is an overall Government of India scheme saying that there will be 5,000 biogas plants across the country in 5 years. We have several products for this. We have the Jarilo range of compressors, which can take biogas as it is generated from 0.5 bar and take it up to 250 bar to fill cascades or to fill into vehicles directly or we can even compress it and put it into pipelines for conveying to various places. Now Reliance project, we are an approved supplier of compressors. So there is a move by Reliance. Earlier, they were offering the complete package as an order out to a person who will set up the plant for generating biogas, for compressing it and to bottle. Today, they seem to be convinced that the equipment can be directly ordered on reputed manufacturers like Kirloskar. So we expect more orders to come directly from Reliance, and we are an approved supplier to Reliance for both the low pressure and the high-pressure gas. We expect the biogas business would scale up, but it is not scaling up as fast as everybody would expect it to happen. And we had explained this reason earlier also. This slowdown is not because of intent. It is because of the signs of generating continuous biogas from a variable bio source and still delivering the kind of requirement of gas that is stipulated. That is where the challenge is. And I think they will lead this.

Okay. All right. And on margin expansion, so I mean, like initiatives we have been taking like our fabrication plant and other backward integration we are doing. So can we expect margins to -- like can we do over 20% in FY '26? Or will it take time to gradually reach there or we can maybe like out to 20% -- like how is your outlook on margins?

See, on the EBITDA margin, I think we have said directionally, the company will move towards 20%. We are already something like about 19%. The Compression segment margin, we said will be about 20%. We're already at 21.7%. So we have moved directionally. Now Ramesh had explained several times that there is a trade-off between margin and volume. So we have to keep that in mind that we would like to get a 20% top line growth continuously. And we would use margins prudently to trade off to see that the volume of top line does not diminish. Most of the businesses we work with are government, government related and they're all tender-based, and we would like to stay very competitive. So the in-house manufacturing gives us the capability to be cost competitive and allow us to work for customers who still buy on L1, but still also make reasonable margins as we go forward.

Okay. That seems fair. Just my last question. So I think last quarter, we had mentioned that we reported like around INR 130 crores revenue for Tezcatlipoca, like whole 9 months -- so I mean, if you can provide the number for it for the full year? And do we have other compressors, which are kind of like crossing the INR 100 crore mark? And any other compressor other than Tezcatlipoca that we are betting on I mean, we have very high hopes that it could reach good scale?

Tezcatlipoca has not crossed INR 100 crores this year. We are still working to cross INR 100 crores during the current year. We are booking orders and we expect to cross INR 100 crores during the current year. At the moment, it is not INR 100 crores. It's significantly lower than that, but we are booking orders and scaling up. As far as the question of which are the compressor packages where we do more than INR 100 crores, the KG series of compressors, which is really ammonia reciprocating compressors has been well above INR 100 crores for many years now, and it continues to be the largest selling reciprocating compressor for with ammonia, which is a natural refrigerant used in cold chain rice plant across the country with a dominant position. And all the CNG compressors also, the KG series of compressors also have been over INR 100 crores for many years now.

[Operator Instructions] The next question is from the line of Mahesh Bendre from LIC Mutual Fund.

Sir, I just wanted to know your input on the order inflow for the full year. Will be able to see a 20% kind of growth in order inflow as well?

If you see the order received in the year FY '25, we got almost INR 1,860 crores plus, and this is the highest order booking in any financial year. And in terms of the sales also, this is the highest sales ever in the company. Going forward, where which is switch from the packages to equipment, where the cycle time for the production and sales is lower, and that is giving benefit to achieve our aspirational sales.

Okay. So we have not witnessed any order inflow slackness in the current quarter at least?

No, there are many orders. There are inquiries also. We are working on that. And on that basis, we are saying that we'll achieve the aspirational sales of INR 2,000 crores plus.

So I think since there are quite a few questions on order book and order backlog. Let me explain this. We have said in the beginning that our business modeling of working on different segments and markets allows us the comfort of managing order inflow, obviously, trading off some margin between various segments. If the gas distribution segment sees a slowdown, we can pick up traction in the segment, which is the refrigeration segment, which also offers us opportunities both in commercial and industrial. We do more on the commercial side as an optional thing where we can pick up more orders. So overall, our position has been literally the same. We've been saying that we will meet the 20% growth. Our order intake supports this aspiration. And there is patchy slowdown and patchy good things also happening. The refrigeration plant, which really runs into food processing, dairy, these are all doing exceptionally well for pharma, fertilizers, chemicals, all of them are doing exceptionally well. So on the whole, our order intake is adequate to meet our growth aspiration. That's the sum and substance that we would like to leave with you.

[Operator Instructions] The next question is from the line of Manoj Bahety from Carnelian Asset Management. [Operator Instructions] We have our next question from the line of Manoj Bahety from Carnelian Asset Management.

Congratulations on the good set of numbers. I know specifically when I see, INR 83 crores of PAT this quarter, I mean the number when we started the journey in 2022, this was a full year PAT. So kudos to the team for that full year of PAT has come in a single quarter, definitely the revenue of progression which has happened. Lastly, sir, I wanted to understand on the order booking side. I mean, when I see the order book for this particular quarter now stands at the at INR 1,625 crores and you are also mentioned INR 2,000 crores kind of visibility you are still looking. So just wanted to get a sense execution cycle -- the execution cycle has come down, but how can there be a changed just in a single quarter that last quarter, we were still looking at an order book-to-bill sufficient enough for us to have INR 2,000 crores. Now there's a change in that. So if you can provide some clarity on that, some color as to what will be if you can send the order intake for this particular year -- equipment order intake and order intake out of the INR 860 crores of order inflow and also on a last year basis?

I think we have gone through this, and I'll repeat again. Our order booking for the year was 23% higher than the previous year. Our order backlog as we start the year, as we call it the order bank for execution during the year is 12% higher than the last year. So these are the 2 criteria benchmarks that you have to look at. Will a 12% higher order bank allow us to deliver 20% growth on the top line is a question that is to be answered. We believe we can for 2 reasons. One is, compared to the last year, this year we will have an even higher execution of equipment compared to packages. So we expect to execute more of the orders that we booked this year quite quickly. Consequently, we still are confident that we will deliver the 20% plus growth that we are planning for the year. Now we will have to deliver quarter-on-quarter. And as we go forward, we will be able to convince everybody that this is possible. Our modeling shows that we are booking enough orders. As of now, I'm busy for the first quarter. I'm quite busy for the package orders for the full year. We still have to see that the order traction is good, and we believe it is good to complete the numbers that we have put out. We will talk about it every quarter.

Sure. Understood. How much would be the equipment order booking for this particular financial year of the bookings to be reached?

The equipment orders get booked and executed during the same year. Out of the INR 1,465 crores of order banks that we start with, only about INR 400-odd crores would be equipment, more than INR 1,000 crores will be the packages. So we're quite about INR 1,000 crores. I won't say exactly packages and maybe the AMCs are there. So we should be okay. That is our estimation is that we have enough orders to do the numbers.

Sure. And second question was just on the compressor. I mean over here, the business has done well for us over the last 2 years. Now close to 4% to 5% of our business is coming from this particular category. Just wanted to understand, and we are also gaining market share. Just wanted to understand the differentiation here. I mean what is the product differentiation from a competition perspective or from an offering perspective? If you can throw some color over there, that will be helpful. And how should one see this particular number building over the last 2 years.

The centrifugal compressor business in India is roughly about INR 300 crores. We expect it to be about INR 500 crores in the next 2 to 3 years. Current customer -- manufacturers who deliver these compressors are almost all imported. Some of them will be 100% imported. Some of them will have the airs and significant parts imported and just put together in India. In any case, they are significantly import dependent. They're expensive, and they are all based on supply chains which are anywhere between 7,000 kilometers and above. Parts would come from China, parts would come from Europe, parts would come from the U.S. The compressor that we make is designed by us, manufactured entirely in a supply chain within 200 kilometers. I have 3 factories within which we do this. And whatever we have delivered has been delivering the lowest cost of utilization or lowest lifetime cost of usage as we believe. Initially, it is just a demonstration as customers buy and use it, the repeat orders demonstrate that they find that it is far superior to anything that they've experienced so far. It's economical, it's efficient.

We have our next question from the line of Ashish Kumar from Ampersand Capital.

So my first question is, you have already given a guidance of INR 2,000 crores for next year. My question is more of a medium term, like beyond FY '26, do we see this 20% kind of revenue growth sustaining? And my second question is this change in this order book mix. Do you think it is structural? And what does it mean for our margins from a medium-term perspective?

Now coming to the medium-term perspective, we have been saying that we are in an industry where delivering a 20% sustained growth over a longish period of time is possible. We are at a very early stage of this growth curve. We can deliver it. So what are the enablers that give us the confidence that we can do it? One is our current market share, if you look at air compressors, we are now somewhere moving between 5% to 7% -- if you look at our market share as a country in the refrigeration business, what compressors are made in India and the product addressed through the Indian manufacturer is very, very small. India is still the largest importer of compressors. If you look at the gas business, we are probably the only one who does most of the packaging and the work within India. And also, we have the distribution compressors that we build ourselves 100%. So there are a lot of things going in our favor. Our modeling is done in such a way that we increasingly do more and more manufacture within the country, which allows us 2 things. One is it allows us the speed of execution. Second is it allows us customization to meet specific requirements of customers. Third is it allows us to be cost competitive. With all this, we have a huge opportunity out there. We are a small, small player in a huge developing market predominantly served with imported inputs. The market itself is India, and I see this 20% growth for a significant period of time is a definite possibility. Now what are the things we are doing to give us the right to play there? One, our R&D investment of trying to put in enough number of IPs is one big investment to build the capability. Two, we are setting up manufacturing, and these are not traditional old manufacturing. And we do have a casting plant that has been running for 60 years. But the new casting plant that we set up would be a lost foam casting, which is probably there may be 2 or 3 plants in India of such type. And even that, what we do is even more special. It's hydrocarbon-free. It's got so many other features that make it even more competitive and even more environmentally friendly. So all we're trying to do is build capabilities that will allow us to deliver this 20% growth in an opportunity that is already there, creating that opportunity. That's why we are not so worried about market slowing down, going up, et cetera, because our share of the total market even today is so small that, even if the market doesn't grow and stays where it is for 1 a year or 2 years, I still can continue to grow.

Okay. Understood. A comment on the margins.

Yes. So margins, we keep saying, and Ramesh explained it best, capability to deliver superior margins exist. But depending on market conditions, we are willing to trade off margins for growth. So all we keep saying is directionally, company's margin will be about 20% EBITDA and the compression segment already 21% plus, we'll keep it around 21%, 22%, but we will focus on getting scale and volume.

We have our next question from the line of [ Mohit Jain from Cris BMS ].

My questions have been answered. We can move on to the next.

We have our next question from the line of Sahil Sanghvi from Monarch Networth Capital.

Yes. First of all, congratulations. That's extremely amazing execution from your team. So very well done. My first question is, which are these new products that we expect to roll out in the next 1 year or so and where we expect some good response and good order bookings?

Okay. So thanks for this question because it's a nice subject to me to explain. See, if you look at the capital goods products that we bring to the market, generally, our first is the product acceptance. Second is product scale up. So there are 2 parts to it. We need to get about 10% market before it starts scaling up. Tezcatlipoca took 2 years for us to get accepted by the market and then the rapid scale up starts. And then you really get to a cascading effect as customers buy and experience it. We had a similar experience in Khione with the variant that we thought we can sell a bare shaft compressor and eventually, we realized for 2 years, the sales was just so lukewarm that we shifted to packaging it and suddenly now it has picked up very well. So I'll come on and tell you what are the products that will scale up. Our definition of a new product is product launched within the last 3 years. So the Tezcatlipoca has scale up remarkably. The Khione packages will scale up. And here, we have an outlet further added to our chain by having systems and components as one more potential customer internally. Then we have the products like the Jarilo, which is announced. So that is another thing. The new product that we're hitting the market with this year is the Tyche. Now Tyche is a semi-hermetic compressor, probably the only semi- hermetic compressor made in India. Today, over 1,000 semi-hermetic compressors are being imported primarily from Germany, Italy and a little bit from China as well. These are technically a superior product. The Tyche will be comparable or better than what they get from imports and obviously significantly competitive, better priced than the imported German or the Italian machines. Over 1,000 compressors come into this country. Now it depends on how we position. Do we want to sell them as their compressors? Or do we want to package them and offer it as a customer solution? This is something that we will learn as we go forward. Initially, our interest will be, yes, there is a compressor, then it is a ME2 product against an import. But if you package it in offer, then you end up partly competing with your own OEs. So there will be a mix. Our learning from the Q&A has been that you have to go through this in a mixed way. We will do that. There are several other products, but a couple of them are not even announced. So I would wait until they are launched before I make the announcement. Like I said, 41 IPs, both granted and filed is an indication that there's a lot many good things in the pipeline coming out.

Right, sir. And this Tyche, just a follow-up question, will go into which end user industries? Is it refrigeration? Just understanding.

Yes, it is refrigeration. So all commercial refrigeration, starting from cold chains, cold boxes, cold rooms in restaurants and other storage areas. It could be very, very small ones as well. So quite a few small things. We are not -- this cannot go or this -- we have not made the smaller ones yet, which can go into a reefer, containers, milk delivery vans, et cetera. But they are all in the pipeline. There are quite a few things, happy things will come.

Right, sir. And secondly, sir, you said the refrigeration side of the business is very largely dominated by imports. So can you give a number to it as in how much percent of this market is currently catered by imports?

So, almost all 100% all the compressors are imported. So that's the first thing. Now what is the market? Is it only the compressor or the compression system because there is a condenser, there's a fan, there's the whole packaging that has to be done before it becomes a working tool. Now eventually, that part of the work is partly being done in India with imported parts. At which part would we play is the question. So we generally tend to give packages, which is not just a bag compressor, but the condenser, the air handling system, the driver, the whole thing. So if you cut it at different places, the market could be anywhere between INR 3,000 crores plus.

Got it, sir. Got it. And sir, lastly, is it fair to assume that the equipment versus package ratio in our order book will be now something like 60-40, which was vice versa before?

Yes. That's the way we are. Some months plus/minus. But directionally, we are 60-40 equipment favor.

And equipment is a 5-month processing sort of time?

Equipment is about 16 weeks on an average.

We have our next question from the line of Bharat Shah from ASK Investment Managers.

Just one question. We are a 65-year-old company now almost. And if you look at it, say, even 5 years back, we were just about half the turnover that we have just achieved in the year gone by. Therefore, for longish period of time, we have kind of lived modestly. But clearly, in last 5 years, things seem to have improved and accelerated even if it is on a very low base. But things have definitely improved and moved at a faster clip. And there is a greater ambition to grow. There is a greater desire to engage with the outside world and achieve exports and explore more areas where we can find our field. And clearly, our profitability also has improved. So what I wanted to understand is how much of the improvement, both in the top line growth, margin improvement the overall character of the business in terms of capital efficiency. How much of the improvement in last 5 years is because of internal resolve and energizing and engagement? And how much it has improved due to the external opportunity becoming more favorable?

Thank you for a very good analysis, and I must explain this in 2 parts. First part is the environment in which we are currently operating is hugely supporting growth compared to what we were earlier. I think that's the first thing. So credit should go to the external environment and opportunities that is now available for the company to grow, which is significantly more -- significantly bigger than what it was earlier. That's the first thing. The second half of the growth is the ability of the team to address those opportunities and accept those new challenges that have come up. There, it has been a question of building capabilities, be it in the design, engineering, R&D sector, be it in a conscious decision to be, let's say, not in line with the traditional process of saying that everything should be outsourced. We do only minimum number in-house, et cetera. We have done exactly the opposite of what most common manufacturing companies have done. We have in-house a lot of things. We have consciously decided to go more deeper into manufacturing, which means we have looked back and said, which are those things that we and many companies did do in-house, but gave away over a period of time, get back to very basic things like forging, fabrication, casting and say, with the science, with the technology that is currently available, is this still the right solution to get it done by small scalers who are outside there doing it with very old techniques and methods, et cetera. So here is something, I would say, learning from the Chinese model, scale, competence, building the new signs around old processes and seeing how we can build products more efficiently. So that's a capability building exercise. The strategic call that all of us collectively take and do is to ensure that the business modeling is done with 3 tires of aspiration. One is growth is paramount. We need to grow because the market is there, opportunity is there. Second is it has to be profitable growth. The third one is it should be cash accretive. We should generate enough free cash, and that should fund all our aspiration. So everything has been structured in a way choice of markets, choice of mix between opportunities to take call to say whether we should get into exports early enough or choose the markets we export. So all that has come out of a business modeling exercise that we have done to say that we are relatively agnostic to market variation. That's what I've been explaining. Look, we're not too worried when there is a big tariff war out there. We're not too worried when there is a bit of a slowdown out there, because in most cases, we have chosen segments and markets in a way that there is enough headroom for us to meet our current growth aspirations for quite some time. So that's the way we have modeled it. And we are quite confident that we will be able to live up to the expectations of investors and not disappoint them for quite some period of time.

I know that Srinivasan, that you are a humble man, and you do not want to draw a light to yourself. But how much really speaking, the noticeable improvement in last few years would you attribute to the energy within and how much to the opportunity outside? I mean, is it 50-50, 70-30, 80-20 to internal and external? What would be your -- I know it's a bit of a random question, but I'd be very keen to understand your mind because your internal energy of organization is something which is more durable. External opportunity, of course, has to be there in order to gain an upper end, but it is still so small in terms of the size of the business that clearly that opportunity, I think, existed earlier as well.

So Bharat bhai, let me answer like this. I think quite a few investors visited our plant sometime in March. I don't know how many have been there. What I would say is it is a little bit of a judgmental question for me to answer. I think there is -- the energy in-house is measured by, let's say, the IP creations measured by the employee engagement scores, which is an industry standard today, measured by my attrition rate being single digit among the lowest in industries of this size. So the engagement and the capability building that has happened is huge. So I would really leave it for time and judgment to see how we are able to deliver on a sustained basis because that's a very subjective question and difficult to answer. All I would say is, there is opportunity out there. There is capability in-house, and I think both of them work beautifully together.

Bharat bhai, I will add one more sentence because he's sitting in front of me, and I'm also here part of this growth story of the company. One leadership factor is also driving the company from INR 800 crores to INR 1,600 crores, because bringing the new product, bringing the manufacturing capability, driving for the new growth opportunities, sustaining all this thing is, of course, it is a direction of intelligence. And direction of intelligence is coming from the leadership, both at MD level and both at the Chairman level also.

Sure. As I said, I know Srinivasan is a humble man. So he will not like to attribute much light to himself, but you have answered. Thank you. One last thing, Srinivasan. From INR 1,600-odd crores that we are today and given the large size of opportunity and our desire to seize that opportunity and give a good account of our sales, in 5 years' time, will be INR 4,000 crores, INR 4,500 crores or INR 5,000 crores kind of a business? If we grow at 20%, we will be INR 4,000 crores. If we grow at 23-odd percent, we'll be INR 5,000 crores. So where do you think we are likely to be...

Let me answer this question in 2 parts. I think this 20% year-on-year is directionally doable with the capability and the market opportunity. Obviously, we don't factor in inorganics too much because we -- it happens as it happens and we are a value buyer. So I think while growth is an aspiration that we continuously work on as one of our prime objectives, we will not buy growth. So that is one important thing that we're all inculcating in ourselves saying that we would not buy growth, because there is a lot of opportunities which are tempting, but it is not the price or it doesn't bring the capability that the company is looking for. So let's take it modest INR 4,000 crores is a good number to look at. We can go much bigger if the inorganic opportunities fructify. We don't talk about it, but we keep looking, which is appropriate for us.

We have our next question from the line of [ Vedant Sarda ] from Nirmal Bang Equities.

Can you please just give me the components of other expenses, which is at INR 244 crores for FY '24 and INR 301 crores at FY '25?

Yes, we can't give the number because the other ones are also semi-variable. It varies with the volume of our business. Ramesh will give you the exact items that go into it. You can take it as almost semi-variable because there is a lot of things that is related to the volume of business, let's say, outsourcing, our labor for all our O&M maintenance outside, all that comes under this, but we'll give you the headings.

But largely, it is the IT updation plus the maintenance cost plus addition of the massive, power and fuel and...

Outsourcing.

Outsourcing is another part where it is mainly the contract costing. And of course, it is the maintenance of the O&M business through the contractors. It is all inclusive of this.

Okay. So it would be driving according to the volumes?

Variable. As the number of stations go up, you will see this going up.

Our O&M business is growing. And at the same time, our cost is also growing because it is completely outsourced.

We have our next question from the line of Dhavan Shah from AlfAccurate Advisors.

So my question is on the order inflow. I think in the last con call, you mentioned that there is some green shoots on the -- from the refrigeration side, while the air and gas business are witnessing slowdown. So I think that is visible in the current quarter order inflow as well, which is around INR 300-odd crores and down by 25-odd percent on Y-o-Y basis. So I just wanted to understand what gives you the confidence that for FY '26, we can grow in terms of the order inflow by 20-odd percent.

I think we answered this, but I'll repeat again. So the order inflow, we should look at it not just only on the quarter because one project order booking in a quarter would change the number, absolute number. But the composition of the order inflow gives us the confidence of what out of it. Almost 300 -- if you look at the total order book during the year of INR 1,860 crores, significant part actually got executed, which is unusual, which got executed also during the year, the equipment order, et cetera. So what we do expect going forward is there will be booking and execution during the same year, which has been much less during the previous year. So that's one first thing. We do have as an overall order for the year, 23% higher booking compared to the previous year. There is a change in the mix between equipment and packages. That's the second step. Third is, even as we speak, the start of the year, we are starting with a 12% higher order bank compared to the previous year. So I think to get to about 20%, I would take it as, let's say, 12% plus 15% of it since 18% is a given. We're not expecting anything big when we say, we'll do at least a 20% growth.

We have our next question from the line of Kunal Sheth from B&K Securities.

I'm sorry, this question has already been answered. Just wanted to check, sir, we have seen meaningful improvement in margin over the last 2 years. Would it be possible to list out key reasons that has been driving this margin? And what part of these reasons are sustainable?

So the margin growth had multiple steps. The company's margin growth, we kept saying from day 1 that we'll take out decretive activities. We had transmission as some of the reasons. We had the road railer business as one of the reasons. These have all been taken out. So on the company side, the margin moving is driven largely by taking out the decretive activities that has happened. On the positive side, we have a better product mix. We have a cost control coming out of in-house manufacturing, better design, better engineering, et cetera, all that combined has helped us -- is the market giving us better margin on the same product? No. It is a competitive market. But what is also happening is our ability to come up with the newer products, which are less material intensive, more engineering intensive, allows us to improve. Ramesh explained that our material cost of sales is down this year by about 1.1%, 1.2%. That's an indication of a better product mix that allows us to make better margins. So, all this combined thing adds up to take our margins up towards. That's why I said in the beginning, we'll take it directionally there, but we are not in a way, saying that we will work only on margin and not to look at taking those L1 orders we still need to take to keep the growth going.

We have our next question from the line of Rohan Vora from Envision Capital.

Congratulations on the number. So you already gave out the reason. I just missed that point. So you said that the CBG as a whole is getting implemented at a slower pace. So I just wanted to understand the reason for that. And also wanted to understand the kind of competition that is there in that segment? And what is the per CBG plant, what is the amount of our supply that can be there at a potential level?

It's a good question. We have dealt with it in an earlier call, but I'll deal with it once again as a subject. Compressed biogas India's stated objective is to have this generated and one consumed locally, where it is filled into cascades. The second one is to mix it along with natural gas and consume it in the regular way, along with vehicle usage and other things or city gas. And we want to say that the compressed biogas would be mixed with natural gas to the extent of about 6% going up to 15% max. So that is a stated objective. We are less than 2% or 1% at the moment. So there is a big plan out there for compressed biogas. And it sort of substitutes a significant amount of gas that is currently being imported. So there are multiple reasons to support this. The challenges today remain that as you set up these -- the biogas plants, generation of biogas is still a challenge, because the biosource is still not a very stable source, except the red mark, which is from the sugar mills, all other biosource, urban waste, spent wash, et cetera, are all sporadic, agri-based, all kinds of things are being tried and used. The generation of biogas in any, many of these projects have been significantly below their expected plan. Consequently, the challenge is now on the gas generation. Once gas is generated, we can help with compressors for cleaning it, either through wet scrubbing with membrane, whatever it is, low-pressure gas compressors, high-pressure compressors, compressor technology is available, proven and available. It is also there with a few other imported compressor suppliers. But that is not the challenge today. The big challenge is the generation of stable, significant biogas. So that is why this is not scaling up. If you ask me, will it scale up very quickly, it will go through again, that initial 10% story. If they crack the technology of getting stable biogas, compressing and distribution consumption is all proven processes. Are we positive about it? We are hugely positive. We have all the range of products for it. We are happily working with all the big companies which are working on this. And we're only hoping and praying that as they scale up, we will grow along with them. That's a short story.

Sure, sir. And sir, just a ticket size per plant ballpark number, if possible?

Okay, sorry. So the plant size, depending on the kind of cleaning and capacity, whether it's a 5 TPR, 10 TPR, 25 TPR, whatever they have, the packages could vary somewhere between INR 13 lakhs to INR 2.5 crores.

Ladies and gentlemen, that would be the last question for today. And I would now like to hand the conference over to the management for closing comments. Over to you, sir.

Okay. So thank you all very much for accepting to be in this call. I think on an overall basis, my understanding is there is a bit of apprehension on the order intake. Let me assure you that is not the key worry for us at the moment. We are quite well placed to deliver what we have promised. What we look ahead is to see that our execution cycles get even better with all the in-house manufacturing, new products hitting the market. We look forward to talking to all of you with a continuing good performance going forward. Thank you all very much.

Thank you.

Thank you.

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