KIRLOSBROSNSEQ4 FY22June 01, 2022

Kirloskar Brothers Limited

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110turns

9analyst exchanges

3executives

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Management on call

Sanjay Kirloskar

CHAIRMAN & MANAGING

Alok Kirloskar

MANAGING DIRECTOR,

Chittaranjan Mate

CHIEF FINANCIAL

Key numbers — 40 extracted

32%

oss geographies and business segments in Q4 of FY22. On a consolidated basis, the revenue grew by 32% on a sequential basis, and by 11%. on a year-on-year basis. EBITDA and PAT grew by 66% and 135% o

11%

nts in Q4 of FY22. On a consolidated basis, the revenue grew by 32% on a sequential basis, and by 11%. on a year-on-year basis. EBITDA and PAT grew by 66% and 135% on year- on-year basis for Q4 FY22 r

66%

ue grew by 32% on a sequential basis, and by 11%. on a year-on-year basis. EBITDA and PAT grew by 66% and 135% on year- on-year basis for Q4 FY22 respectively. Similarly, the EBITDA and PAT margins wi

135%

by 32% on a sequential basis, and by 11%. on a year-on-year basis. EBITDA and PAT grew by 66% and 135% on year- on-year basis for Q4 FY22 respectively. Similarly, the EBITDA and PAT margins witnessed a

13%

ffected the performance of overseas entities. FY22, consolidated revenue and gross profit grew by 13% and 7% respectively. Inflationary pressure on raw material costs, product mix, and inventory not

the performance of overseas entities. FY22, consolidated revenue and gross profit grew by 13% and 7% respectively. Inflationary pressure on raw material costs, product mix, and inventory not getting

Rs.2470 crore

ealthy trajectory and inquiry generation during the entire year. Consolidated order book stood at Rs.2470 crore. This order book comfortably provides revenue visibility for a near and medium term. Please note

50%

e that this order book does not include our retail pumps business which contributes approximately 50% towards standalone revenue. The momentum in order book is expected to continue in FY23, driven by

re towards low margin, lumpy and working capital, intensive EPC orders which account for close to 6% of revenues for FY22. In the year 2007 our company had acquired the Kolhapur Steel’s Limited, the

Rs.251 million

nes of this company. However, with a conservative accounting policy KBL has made a provision of Rs.251 million for impairment in the value of its investment in Kolhapur Steel Limited. This has brought down KBL

14.69 million

tinued depreciation of the Thai baht during the whole year led to sharp Forex losses on Thai baht 14.69 million for FY22 which has impacted the EBITDA and profitability of the Thai business. The U.S. and UK bu

rs,

years. The Dutch business is expected to witness recovery in FY23. Looking at the historical numbers, you will notice that it’s had one of the lowest sales because of all sorts of disruptions and also

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Guidance — 20 items

Sanjay Kirloskar

opening

“This order book comfortably provides revenue visibility for a near and medium term.”

Sanjay Kirloskar

opening

“The company is well on track to increase the share of high margin products and services, while reducing exposure towards low margin, lumpy and working capital, intensive EPC orders which account for close to 6% of revenues for FY22.”

Chittaranjan Mate

opening

“However, the company remains confident in improving its performance significantly going forward.”

Alok Kirloskar

“Many of them are from our competitors and today we are offering that we will make those using our 3D printers So, we are making many of those spares and of course we give a guarantee for them because we know what your efficiencies will be.”

Sanjay Kirloskar

“So that we expect to deliver, it’s completed most of its test so this is part of that fleet order program.”

Sanjay Kirloskar

“It has completed most of its tests and we expect that all the tests will be completed by each one this year.”

Himanshu Upadhyay

“So have we right now decided that everything and all sizes of boiler feed pumps will come through Kirloskar Ebara only and nothing will be made in Kirloskar Brothers Limited?”

Sanjay Kirloskar

“So, wherever machinery is available, those kinds of pumps will be made there.”

Alok Kirloskar

“And that’s really because, as we’ve been saying, we have been focusing on increasing our framework contracts, service contracts, and the international business has said we will take 50% as a target, 50% the business should come from service.”

Sunil Kothari

“Do you feel now that trusts or that importance of getting better margin Enriching Lives I and better profitability, will be the highest priority and should we see those in near term to medium term.”

Risks & concerns — 8 flagged

Inflationary pressure on raw material costs, product mix, and inventory not getting converted into sales impacted the gross and EBITDA margins in FY22.

— Sanjay Kirloskar

But, I will also say it is nowhere close to the level that we have seen in 2012 and 2013 because there’s still a concern from a lot of the players, super majors of having stranded assets, if they invented significantly, but they are investing there are a few projects coming online.

— Alok Kirloskar

What is the impact of raw material and are the service contracts yearly, and the spares is a separate part of those service contracts or the spares is included in those service contract?

— Himanshu Upadhyay

I totally agree with you, you will see that, as it is difficult to make any kind of prediction, especially now when there’s a war going on in Western Europe, with all kinds of disruptions.

— Sanjay Kirloskar

That is where it gets to be a little difficult to pass on the price rise, but we have not seen any problem in focusing on price rises in the other areas.

— Sanjay Kirloskar

It’s difficult to give you an answer to that question looking forward.

— Sanjay Kirloskar

So, can we expect the raw material cost which has been gone up we were at about 54%, 55% has gone to 62% are you saying that in this quarter, Q1 and Q2 beginning this Q1 we are seeing that 61% coming to 58%, 57% because now we are seeing a very sharp decline in steel and aluminium and copper and other prices across the commodities?

— Nilesh Doshi

I think so you will see a decline going forward, but how much I can’t predict.

— Sanjay Kirloskar

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Q&A — 9 exchanges

See, I have one or two questions. The first was on the SPP side. Earlier the proportion of revenue from oil fields and not what’s pretty significant for that company. What is the current exposure to oil and gas and again, offshore side and are we seeing increase, what we are hearing is the CAPEX, again improving on the offshore side. So are we getting increased orders and what is the outlook on that business. And currently, what is the size of share of that business in SPP?

Alok Kirloskar

Thank you for that question. I remember back in 2012, 2013, when the company was really flying, oil and gas was about 65 to 68 sometimes even 70% of turnover. At the moment, the share of oil and gas, which includes everything is slightly under 20%, because as part of the diversification exercise, we have moved away from oil and gas. But that said, through those years we have retained the expertise, the people, the technology, we did not let go of that. And that was quite a heavy cost, but we were betting on the fact that, there wouldn’t be a day when oil prices would come back up. So we retain

My question is to Mr. Sanjay Kirloskar. Sir broadly, I want to understand the larger picture. So looking at the global supply chain disruption, some disconnect or discomfort with supply from China, Western world slow, since many years stop minting, producing there in terms of this machinery, pumps and mechanical products. Do you see any larger opportunities for us as a Kirloskar Brothers and how prepared we are for that?

Sanjay Kirloskar

Thank you, because the last few years have been going up and down. But if anything, I would say that, this company is quite well prepared for all the opportunities that come up all around the world. I like to say and I think I’m correct, that we are the only Indian company that designs pumps for global markets. And that the R&D is done, not only in India, but also in Europe, and the United Kingdom. Our presence in the United Kingdom, as well as Holland gives us the window into what’s going on, in the developed Western market, the latest efficiency norms that are going to be coming up, the mach

Sir, this is regarding the financial numbers, this year we had a fall in cash generation from operations. The PBT was essentially so what is the outlook for the broadly for next two to three years, how do you control the savings and debt okay, you intend to repayments the balance sheet is far healthier than what it used to be. But still, this year has been sort of a negative reversing the trend. So, what do you feel in next two to three years essentially, the financial goals what the company has? Enriching Lives I

Chittaranjan Mate

I would like to say that, you must have seen that over the last few years, our debts have gradually come down. And now our net debt is practically negative, the funds on hand, the current investments and cash and bank balance is more than our borrowing. And as we are coming out from project business, recovering all retentions and the security deposits and focusing on product business. Our working capital would definitely improve further year-on-year and we are keeping tabs on CAPEX. That way, whatever is the growth in every year what we are participating would need only some balancing CAPEX an

Sir there’s a couple of questions. Sir one is, if you can just elaborate a bit more on how are the rise price through happening, the commodity inflation in B2B as well as our B2C pumps. If you could just help us understand.

Sanjay Kirloskar

Can you just repeat that question, because it was a little muffled? How are the pass through is happening for the commodity inflation which is there right now. So how are the end customers in B2B, as well as the B2C part of the business responding to that? Can we just repeat your question just for clarity, are you asking us how is the price rise happening to our B2C and B2B customers, is that your question? How are the customers responding to it and how is the demand scenario shaping up, are we seeing the delays in projects because of such high inflation or so if you can just elaborate a bit m

Sir a couple of questions, one on the standalone P&L side, so from the initial commentary you mentioned that the provision number is lower. So it’s about 16 crores versus 60 crores that you have provided for. Now, I can understand the gross margin impact because of higher commodity price, but I still couldn’t understand why has the other expenses line moved up so much, which is impacting the margin more, despite lower provision. And if you could give some color on this other expenses line and its movement, this is my first question. My second question is, we have operations in South Africa, Th

Chittaranjan Mate

Yes, I would respond to your first question first, this is about other expenses. I’m sure you are referring to our results. I am referring to the annual number only. Yes, so I’m taking that. It increased from 331 crores to 441 crores, that’s what I believe you are referring. So these other expenses include a major portion, which is manufacturing and selling expenses. The rest two things our manufacturing, our sale increase by roughly 20% but the product mix was such that more number of bear shaft pumps increase, which increase Enriching Lives I manufacturing expense per se. And another thing w

Thank you for the opportunity. Sir on the domestic B2B side, how do you see the order booking momentum in FY23 and which segments you see growing at much faster rate?

Alok Kirloskar

The B2B side basically in our chart covers irrigation, water management, power, oil and gas, marine, defense, industry, building construction. So these are traditionally our B2B businesses. We have seen that, there has been growth in building, construction industry. There has been some growth in marine and of course, there’s investment right now in oil and gas, we have not seen much growth in power, because while they are projects outlined, they are not at a level where they are at provision. And we see some growth in irrigation and water resources, but it’s a very, very competitive and cutthr

I had a question on KEPL, you have a part of the API turbine business sitting in there just wanted to understand the size and potential opportunity in this business that is one. Second is from what I understand companies like AVB and Siemens, they have been talking about replacing these drive turbine by electrical drive. So does that impact opportunities for you in any way?

Rama Kirloskar

So these drive turbines are mostly for the oil and gas sector. So again, they are API drive turbines. So, I do not believe they are going to be replaced by electric drives anytime soon. Second, is that these turbines have a lot of potential. We had some issues with proven track record, which is why that does not show in our booking. But this year we were able to get most of the PTRs that we require to cater to this segment and we are also very aggressively going for export markets. So we should see this sector growing. Any size or total addressable market opportunity you can talk about in this

Yes, just few questions Alok one on the international business in Q4, we did about 200 crore revenue, but at PBT we have a 10 crore loss. So can you just explain anything one off or what has actually happened, whereas in domestic we are still making some EBITDA?

Alok Kirloskar

So in Q4, which is Q1 over there, what happened was that, last year coming out of COVID, in 21, a lot of projects in the international market went on hold. So basically what we had to do is consume to get the numbers right, as you know we now have a framework in service contracts. And we have a little bit of flexibility with the customer in terms of working with them for upgrading the platforms on a timeframe that we both decide. So we pull back or advanced or preponed that from Q1 of international which is Q4 of KBL into Q3 of KBL and Q4 of international because we needed to ensure the intern

Thank you all for joining us on this call. For any queries please feel free to reach out to us or our Investor Relations consultants at SGA. Thank you.

Management

Speaking time

Sanjay Kirloskar

Alok Kirloskar

Rama Kirloskar

Moderator

Devansh Nigotia

Pritesh Chheda

Chittaranjan Mate

Himanshu Upadhyay

Nilesh Doshi

Sunil Kothari

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Opening remarks

Sanjay Kirloskar

Thank you. Good morning, everyone and thank you for joining us today to discuss the financial results for Q4 as well as fiscal year 21-22. I hope everyone has had the opportunity to go through our financial results investor release and investor presentation, which have been uploaded on the stock exchange as well as our company’s website. The Company continued to witness strong operational recovery across geographies and business segments in Q4 of FY22. On a consolidated basis, the revenue grew by 32% on a sequential basis, and by 11%. on a year-on-year basis. EBITDA and PAT grew by 66% and 135% on year- on-year basis for Q4 FY22 respectively. Similarly, the EBITDA and PAT margins witnessed a healthy expansion. The company has reported a resilient performance despite facing multiple challenges in terms of higher input and fuel cost, ongoing geopolitical conflict and supply chain disruptions. However, consolidated performance was impacted on a year-on-year basis due to pandemic led slow

Alok Kirloskar

Thank you. In the international business our company, both South Africa and Thailand continued to do better on the operational front. However, the continued depreciation of the Thai baht during the whole year led to sharp Forex losses on Thai baht 14.69 million for FY22 which has impacted the EBITDA and profitability of the Thai business. The U.S. and UK businesses witnessed a slight degrowth on the top line due to ongoing geopolitical conflicts and supply chain disruptions. However, the company continued to focus on cost realization and increasing the penetration with a subscription platform which is our service business. The margins were still retain even with much lower sales if compared to previous years. The Dutch business is expected to witness recovery in FY23. Looking at the historical numbers, you will notice that it’s had one of the lowest sales because of all sorts of disruptions and also little difficulty in moving orders towards sales because of various geopolitical issues

Rama Kirloskar

Thank you Alok. In the domestic markets, the company continued to witness strong recovery cross products, the company’s strategically launched new products across geographies and product segments during the year. The company also continued to debottleneck its manufacturing facilities. The retail and agri pumps segment witnessed partial impact due to prolonged rain across the country along with subdued consumer sentiments due to multiple waves of COVID-19. However, improved consumer sentiments and expectation of a normal monsoon are expected to drive the recovery in the retail and agri pump segment in H1 FY23. Now coming to the domestic subsidiaries and JVs. Karad Projects and Motors and Kirloskar Ebara Pumps Limited reported robust performance for FY22. KPML witnessed a robust 55% Enriching Lives I revenue growth and 82% PBT growth on a year-on-year basis for FY22. Similarly, KEPL witnessed a healthy year-on-year revenue growth of 22% and PBT growth of 34% in FY22. The Kolhapur Steel t

Chittaranjan Mate

Thank you Rama. Good morning everyone. Now, let me first take you through quarterly financial results. The company continues to report excellent financial performance on a consolidated basis revenues stood at 954.4 crores a growth of 32% and 11% on sequential and year-on-year basis respectively. EBITDA and PAT stood at 98.3 crores and 47 crores which grew 66% and 135% on sequential basis respectively. Gross margin and EBITDA margins on a year-on-year basis were impacted due to reasons as mentioned by our CMD earlier. However, the company remains confident in improving its performance significantly going forward. On a standalone basis revenues stood at 762.8 crores compared to 641.8 crores a growth of 19% year- on-year. This contributed, approximately 80% of the total consolidated revenue, EBITDA was at 97.3 crore and EBITDA margin was at 12.8%. PAT for Q4 stood at 37.4 crore. Now coming to FY22 financial highlights on a consolidated basis revenue stood at 3057.6 crores compared to 2716

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