KIRLOSBROSNSEFebruary 17, 2023

Kirloskar Brothers Limited

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189turns

18analyst exchanges

3executives

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Management on call

Sanjay Kirloskar

CHAIRMAN AND

Rama Kirloskar

JOINT MANAGING DIRECTOR OF KBL & MANAGING DIRECTOR OF KIRLOSKAR EBARA PUMPS LIMITED

Chittaranjan Mate

CHIEF FINANCIAL

Key numbers — 40 extracted

rs,

ve been uploaded on the stock exchanges and on the company's website. You must have seen the numbers, stand-alone as well as consolidated as well as the order book. So I thought I would ask Alok and R

52 million

just from a point of interest for KBI B.V. company's opening in January 1st, 2022, was about GBP 52 million. And the opening order book position on 1 January, 2023, is about GBP 84 million. There are new

84 million

2, was about GBP 52 million. And the opening order book position on 1 January, 2023, is about GBP 84 million. There are new projects coming up in the pipeline. And as we have focused on developing standar

11%

aries, Karad Projects and Motors Limited continued its healthy growth pace. KPMLs revenue grew by 11% while PBT grew by 6% in 9 months FY '23. The company is well on track to turn around the Kolhapur

and Motors Limited continued its healthy growth pace. KPMLs revenue grew by 11% while PBT grew by 6% in 9 months FY '23. The company is well on track to turn around the Kolhapur Steel Limited, which

INR 31 crore

n of revenue as per rules that follows consistently. Consequently, there is a favorable impact of INR 31 crores on profit before tax during the quarter and 9 months ended on 31 December 2022. Let me start w

23%

with consolidated financial performance highlights, starting with Q3 FY '23. The top line grew by 23%= (Note: To be read as 32%) year-on-year to INR 957.5 crores. EBITDA grew by 160% year-on-year to

32%

l performance highlights, starting with Q3 FY '23. The top line grew by 23%= (Note: To be read as 32%) year-on-year to INR 957.5 crores. EBITDA grew by 160% year-on-year to INR 153 crores, while EBIT

INR 957.5 crore

hts, starting with Q3 FY '23. The top line grew by 23%= (Note: To be read as 32%) year-on-year to INR 957.5 crores. EBITDA grew by 160% year-on-year to INR 153 crores, while EBITDA margin expanded by 787 bps to

160%

top line grew by 23%= (Note: To be read as 32%) year-on-year to INR 957.5 crores. EBITDA grew by 160% year-on-year to INR 153 crores, while EBITDA margin expanded by 787 bps to 16%. Profit after tax

INR 153 crore

= (Note: To be read as 32%) year-on-year to INR 957.5 crores. EBITDA grew by 160% year-on-year to INR 153 crores, while EBITDA margin expanded by 787 bps to 16%. Profit after tax grew considerably by 308% year

787 bps

957.5 crores. EBITDA grew by 160% year-on-year to INR 153 crores, while EBITDA margin expanded by 787 bps to 16%. Profit after tax grew considerably by 308% year-on-year to INR 88.9 crores. EBITDA with

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Guidance — 20 items

Alok Kirloskar

opening

“We expect those orders reflecting in our order book will come into sales over the next few quarters.”

Alok Kirloskar

opening

“The company is well positioned and is able to build up this business going forward.”

Rama Kirloskar

opening

“We expect to reduce lead times for delivery through such productivity improvements and ensure no sales losses.”

Rama Kirloskar

opening

“We expect this program to propel growth going forward.”

Rama Kirloskar

opening

“The company is well on track to turn around the Kolhapur Steel Limited, which is witnessing a sharp growth in revenue as well as production.”

Mahesh Bendre

“So these margins are sustainable going forward?”

Mahesh Bendre

“So do you think the execution will be very strong over the next 3 to 4 quarters?”

Alok Kirloskar

“And there will be some -- hopefully some in and out business as well.”

Renjith Sivaram

“So in this INR 31 crores additional which we have told, this cost till the threshold will be booked in the previous quarters, and now we are booking the profit?”

Chittaranjan Mate

“Inquiries would be there, but the time which they take for finalizing, accordingly, there will be ups and downs quarter-on-quarter.”

Risks & concerns — 7 flagged

Consequently, there is a favorable impact of INR 31 crores on profit before tax during the quarter and 9 months ended on 31 December 2022.

— Chittaranjan Mate

EBITDA without the impact of revenue recognition referred above of INR 31 crores would have been INR 122.1 crores.

— Chittaranjan Mate

EBITDA without the impact of revenue recognition referred above of INR 31.3 crores would have been INR 236 crores, that is 9.1% margin as compared to 6.7% margin in previous year, and it's a growth of 69% in value terms year-on-year basis.

— Chittaranjan Mate

So yes, I mean, definitely there is more pressure for them to deliver.

— Alok Kirloskar

So whether it can go up to that level or it is very difficult to achieve to that level?

— Ravindra Nayak

So the impact of incremental revenue for which there is no related expenses this quarter is about INR 30 crores odd, is it?

— Riddhesh Gandhi

So I would say that even after that, it was difficult for the other business to make up that gap immediately, and it takes some time, as you will appreciate, is taken a while actually for us to cover all those that difference in revenue and the other businesses.

— Alok Kirloskar

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Q&A — 18 exchanges

Very impressive performance. Sir, one clarification is that we said that we have received INR 31 crores of benefit at PBT level because of threshold level in one of the projects we achieved. Is this happened in domestic business or its international business?

Sanjay Kirloskar

It's a special order for domestic business. Okay. Sure. And sir, the margins have been very significantly gone up. So what could be normalized margin one could see from both domestic and operating -- export side? I think we have consistently maintained that since all the investors felt that margins could be improved, we've said that we feel margins will rise consistently over a period of time. It's all the efforts that has been put in by the entire team that's resulting in this performance. Because, sir, operating performance for even international business, our margins are -- EBITDA margins a

Hi sir, congrats on good set of numbers. Sir, if I look at your -- this threshold to these cost associated --

Management

Yes, I'm using handset only, is it audible now? Hello?

Management

Yes. So in this INR 31 crores additional which we have told, this cost till the threshold will be booked in the previous quarters, and now we are booking the profit? That's how it works, right, as per the accounting standard?

Chittaranjan Mate

Yes. As per the accounting standard, when the percentage of completion exceeds the 25% of whatever is set by the company, that time, we book a pro rata income also. Earlier only cost was booked, cost at equal amount of revenue. Okay. So in the previous first quarter and second quarter, the corresponding cost was booked and this quarter the margins are also booked, right? Yes. So how much -- As well as the pro rata margins would be booked in subsequent quarters. Okay. And how much the spending was? What percentage of this is over? No that we cannot disclose because it is as disclosing margin pe

Sir, first question, again on international. Being after a gap of 2 years, we're seeing the margins that we are in profitability. Alok, if you can just throw more like -- and is this just a quarter three phenomenon? Or how should we read into these numbers?

Alok Kirloskar

Pratik, I would look at the 9-month number, and also, as you know, generally, and I'm not making a forward-looking statement here, but generally, the first quarter in any company tends to be a little slower. And what you're looking at, and I'll not look at the Q3 number at all in here, I'd look at the 9 months and then consider what a Q1 would be like. So that's really how I look at the numbers, if you want to look at the international holistically. And -- but I would say that the main -- like we've said earlier, there's no major job that's gone through. In fact, just to put it in context, SPP

Sir, 2, 3 questions from my side. One thing is on the overseas side, the margins which you are now saying on a sustainable basis would be around 9%, which comes on a 9-month basis for our future? Is that the correct one?

Alok Kirloskar

I think what I just said earlier was that you're seeing it on a 9-month basis. And effectively, in these numbers, the first quarter of KBI BV is not included. I've just mentioned that, traditionally first quarters are not always the strongest quarter for most company. I'm not making it at any forward-looking statement on that. But I think we should factor that in when we look at general margin for rather than just looking at second, third and fourth quarter of the company. Okay. So probably, it will be somewhere between the 5% to 7%. Is that the correct assumption -- at the end of first quarte

Mr. Rawat, sorry, I was answering your question. And I think all I was saying is that, one should consider it from a 12-month point of view.

Vikram Rawat

Sure. Another question on the domestic side. So can you just highlight what is the inquiry pipeline on an MTO and ETO order side currently outstanding? And what was it 1 year back? You want to know the inquiry pipeline? Yes. We don't have the numbers here And can you just also highlight how is the working capital and the cash position or net cash position in the book on net debt? On the domestic side, I would say that we are cash positive.

See, I had two questions, okay. The first was, after a very long period of time, we are seeing the capex cycle recover, okay? And last time was 2002 to 2010, okay? How different is this cycle versus the previous one? And is the intensity of competition similar or you think the intensity of competition is less or more? And scope to increase the pricing, especially on the industrial side of the business, can you give some of your thoughts of current cycle versus historical, how it has been?

Sanjay Kirloskar

I think the capex cycle is quite strong in certain parts of the business, whether it's steel industry or industry, building and construction. I think in all these areas we see a very strong -- I mean people are coming towards asking for products, etc. And what was the other question? -- Price rise. Price rise, actually, we are doing consistently over the last year. And luckily, I think the commodity prices are softening. So we've been able to hold on to our prices. And the third question was about competition. I think competition is still there. I mean there's no -- there are many more players

Yes. Sir, the results are good, maybe the international operation has been good. Can you please highlight the SPP UK's performance in this quarter vis-a-vis the 9-month period? You have reported EBITDA of INR 34 crores and a sales of INR 140 crores, whereas the 9-month period, the INR 365.7 crores sales, INR 30 crores EBITDA, how we will reconcile it? How -- what are the change in this business? That is question number one. Secondly, about -- what is your contribution for the services in the stand-alone business for the 9 months and how it is growing in the -- in 9 months and also how you are

Alok Kirloskar

Thank you for the question. I think what -- when you mention that, I think we should look -- I mentioned it earlier also, we should look at the company's -- when you're saying 9 months, it's excluding our first quarter. And usually, most engineering companies, the fourth quarter is stronger. So I would say that that's probably why you're seeing the effect. Yes. So that's why you are seeing -- if you look at it last year to this year, I would say the difference in margin is only coming from the fact that the company's main businesses, which are fire, water, dewatering, transform oil pumps, all

Just to triangulate the 9 month financial adjusting for this incremental revenues, which came in this quarter. So the impact of incremental revenue for which there is no related expenses this quarter is about INR 30 crores odd, is it?

Sanjay Kirloskar

Can you say that again? No. I think the amount, which effectively we have recognized as revenues for which we don't have the corresponding expenses in this quarter is about INR 30 crores odd, is it? I won't say there is no corresponding cost, I would say that the margin has been recognized for the first time after crossing threshold and that margin has been INR 31 crores. -There is our cost and revenue, which was booked, but margin was not booked, but as per the accounting standard, after crossing the threshold, we have started to recognise it. Got it. So to put in another way, we are effectiv

Looking at FY '24, so how will your figures are going to look like? Are you expecting any incremental growth?

Sanjay Kirloskar

I don't know whether we are allowed to answer questions -- No, no, just an overview of your operations, it would be nice. Well, we are preparing for growth. I think the country is also preparing for growth. So yes. All right. And how much of the cash do we have at the end of Q3? This would become an unpublished information, because we are supposed to publish balance sheet only half yearly and yearly. So what we have not published our balance sheet position, I cannot disclose at the moment.

We are controlling working capital tightly, that's what I can say.

Management

Yes. So I have 2 questions, one for Alok and a couple for Rama. So Alok, just on the international , you did mention that our order book has grown from GBP 52 million to GBP 84 million. So is it that now as you were discussing earlier that this is more short cycled in nature and which implies that we should be booking revenues at more regular interval than to a calendar -- quarter 4 calendar year phenomenon? And also, if you can also highlight that aftermarket or maybe framework contracts now we are bidding more contracts. So do you see revenue contribution increasing? And always, we were a pr

Alok Kirloskar

Manish, I'll answer your second question first, because I' have not really fully understood your first question. So I may ask you to explain it. But your second question is that, we're a product business that is correct. And that's why a majority of the sale is of products, more than 50%, in fact 60%, maybe a little bit more than 60% also is products. But the product business, as you know, SPP was heavily dependent on oil and gas, and I give the benchmark numbers that the lowest we've done in '20 -- I think 2017 was 4.5 million and the highest we did in oil and gas was close to 25 million in a

Sir, you mentioned that around 20 -- I think INR 31 crores benefit we received at the standalone level because of the change in threshold level for one of the projects. So if I slip aside from the standalone business, our standalone margins are around 7.4%. So is it a right way to look at?

Chittaranjan Mate

Actually, this is a genuine margin. So there is no need to reduce it. But if at all, you want to compare it, yes, the standalone margin for 9 months, which is at 7.1% it would go down to around 1.5%. (Note: To be read as which is at 9.0% it would go down to 7.2%) Okay. Sure, sure. And one question to Alok. I mean, if I look at last 4 quarters for international operations, I mean, if I look at all the subsidiaries and if you remove the foreign exchange gain, I mean then the margins are around 11.5%. So is it the margin we look at for international business? How are you looking at it, because it

Yes. Hi sir, just on the small pump business, I'm just trying to understand because some of the - -

Management

Okay. Hello, is it clear now? Hello?

Management

So in the small pumps business, like we are seeing some of the farm-related, irrigation-related that small pumps but submersible pumps through -- companies are doing well. So for us, that portion has been showing good growth on traction?

Rama Kirloskar

Yes, we do sell submersible pump sets in our retail sector as well, and we have seen growth. And we do see healthy growth in both submersible, as well as mono blocks. Okay. And in the other portion of the small pumps, have we seen market share gains or we believe that the overall market has seen such kind of growth? See, we have been continuing to grow. I think you can see from our numbers. I believe it says, we have grown by around 13%. While the market growth would have been? We believe the market growth is less than that. It's around 10%. Okay. So we would have had some market share gains?

Thank you all for joining us on this call. For any queries, please feel free to reach out to us or our Investor Relations consultant Strategic Growth Advisors. Thank you.

Management

Speaking time

Renjith Sivaram

Chittaranjan Mate

Alok Kirloskar

Moderator

Sanjay Kirloskar

Rama Kirloskar

Ravindra Nayak

Mahesh Bendre

Riddhesh Gandhi

Vikram Rawat

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Opening remarks

Sanjay Kirloskar

Thank you. Good afternoon, everyone. On behalf of Kirloskar Brothers Limited, I extend a very warm welcome to everyone for joining us on this call today. I'm sure you've had an opportunity to go through the financial results, which have been uploaded on the stock exchanges and on the company's website. You must have seen the numbers, stand-alone as well as consolidated as well as the order book. So I thought I would ask Alok and Rama to speak more about the international and domestic businesses, following which Mr. Mate will make a short presentation. Thank you. Of course, I'll be available for the question-and-answer session. Alok?

Alok Kirloskar

Thank you. The overseas operations had reported a good performance in Q3 FY '23, healthy revenue growth as well as improvement in operating profit margin. The company's Thai, UK and African business has shown resilience over the last few months amid multiple uncertainties and in fact, has gone from strength to strength. The Dutch business too is at inflection point, and we are expecting the business to do better after the changes that we've made over the last year. The company's focused efforts in developed markets in water, fire and industrial and services has helped it get more regular business rather than be dependent on large product jobs coming from oil and gas. That said, there's been an uptick in the oil and gas market and more new orders have been booked in the sector compared to the last few years. That said, those orders are not reflected in the sales as yet. We expect those orders reflecting in our order book will come into sales over the next few quarters. There have not be

Rama Kirloskar

Thank you, Alok. On the domestic operations side, we see an improving demand for our made- to-order and engineered-to-order products. The market is also picking up for our retail segment. We continue to invest in modernization and productivity improvements at our plants in Dewas, Sanand and Kaniyur. We expect to reduce lead times for delivery through such productivity improvements and ensure no sales losses. We have launched many new products, including numerous energy-efficient pumps and we'll continue to do so in the subsequent quarters. We continue to be the only player in the retail segment with IE4 and IE5 motors, which are the most efficient motors available in the market. Most of our retail competitors offer IE2 motors at most. As all of you are aware, the company's recently launched APOEM program aimed towards reducing our turnaround time continues to gain momentum from the dealers and distributors. We expect this program to propel growth going forward. The government, in the r

Chittaranjan Mate

Good afternoon. Thank you, Rama. Before I share my views on the financial performance of the company, please note that during Q3 FY '23, one order of the company has crossed threshold for recognition of revenue as per rules that follows consistently. Consequently, there is a favorable impact of INR 31 crores on profit before tax during the quarter and 9 months ended on 31 December 2022. Let me start with consolidated financial performance highlights, starting with Q3 FY '23. The top line grew by 23%= (Note: To be read as 32%) year-on-year to INR 957.5 crores. EBITDA grew by 160% year-on-year to INR 153 crores, while EBITDA margin expanded by 787 bps to 16%. Profit after tax grew considerably by 308% year-on-year to INR 88.9 crores. EBITDA without the impact of revenue recognition referred above of INR 31 crores would have been INR 122.1 crores. That is 12.8% margin compared to 8.1% of previous year and a growth of 107% in value terms on year-on-year basis. Now coming to 9 months financ

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