Kirloskar Brothers Limited (500241) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Q1 FY '27 Kirloskar Brothers Limited Conference Call. [Operator Instructions] This conference call may contain forwarding statements about the company, which are based on beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of the future performance about -- of the company as on the date of this call. These statements are not the grantees of future performance and it involves risks and uncertainties that are difficult to predict. I now hand conference over to Mr. Sanjay Kirloskar, Chairman, Managing Director from Kirloskar Brothers Limited for opening remarks. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone. On behalf of Kirloskar others Limited, I extend a very warm welcome to all who have joined us on our call today. I hope everyone has had an opportunity to go through the financial results and the investor presentation, which have been uploaded on the stock exchange and on the company's website. . On this call with me, I have Mr. Mr. Alok Kirloskar, Managing Director, Kirloskar Brothers International B.V.; Mr. Rama Kirloskar, Joint MD KBL and MD Kirloskar Ebara Pumps Limited; Mr. Bhavesh Chheda, our Chief Financial Officer; Mr. [ Dewan Trivedi, ] our Company Secretary; and Strategic Growth Advisors, our Investor Relations adviser. Let me begin my remarks by giving some business side. Pleased to report that for Q1 of fiscal year '27, our consolidated revenue stood at INR 11,049 million, registering a healthy 13% growth year-on-year. This performance was driven by robust demand across our diverse product portfolio of products and services, reflecting our strong market positioning, customer-centric approach and execution capabilities. Growth was well supported by sustained momentum across both domestic and international markets. So we continue to capitalize on emerging opportunities and strengthen our presence. Our consolidated EBITDA for the quarter stood at INR 1,306 million, registering a 2-year -- 2% year-on-year growth with EBITDA margin of 11.8%. And -- during the quarter, we also recorded good order inflows across both domestic and international markets. Our consolidated order intake grew by 4% year-on-year to INR 13,954 million, providing continued visibility for future growth. Turning to our stand-alone domestic business for Q1 FY '27. Revenue increased by 9% year-on-year to INR 6,738 million, while EBITDA grew by 16% to INR 920 million. Profit after tax stood at INR 540 million, reflecting a 15% year-on-year growth. Our healthy order book coupled with our focused approach towards high potential business opportunities provides us with confidence in our growth outlook. We remain confident of delivering double-digit revenue growth in FY '27 over FY '26 for our stand-alone business. As on June '26, our stand-alone pending orders amounted to INR 25,577 million, excluding small pump order book, reflecting a strong pipeline. Further, we are seeing good order inflows across segments. On the international front, we reported a 19% year-on-year growth in revenue during Q1 FY '27. This performance was primarily driven by strong execution across SPP USA and Kirloskar Brothers Thailand Limited. SPP USA continues to witness encouraging traction in data centers, fire and HVAC projects. EBITDA stood at INR 207 million with EBITDA margin of 5.1%. This moderation was primarily attributable to a lower contribution from the services business which traditionally carries higher margins. We are actively focused on expanding the service portfolio, which we believe will support improvement going forward. Our overseas spending order book stood at INR 15,045 million, providing strong visibility for the coming quarters. Looking ahead, we remain optimistic about the company's growth trajectory backed by a healthy mix of domestic and international business, a robust order pipeline and continued focus on operational excellence. The company is well positioned to deliver sustainable growth in periods ahead. This is all from my side. We can now begin the Q&A session. Thank you.

[Operator Instructions] The first question is from the line of Manish Goyal from Thinqwise Wealth Advisors.

I have a couple of questions. Just on the stand-alone business observation on the stock adjustment, it seems that dispatches are being delayed because we have an inventory buildup like in Q1 also stock adjustment crores. And FY '26 annual report also shows that inventory working progress has jumped from [ 180 to 241. ] Advances to suppliers have jumped from INR 32 crores to INR 91 crores Sir, does it imply that a lot of dispatches are withheld? Or is there any concern on that front, which is probably hindering the double-digit growth for us? That was the first question. . Second question is, sir, on -- you did allude that SPP U.K. had a revenue mix issue with lower services contribution. So by when should we be able to see the benefit of expansion of the service portfolio to start reflecting an improvement in margins for SPP U.K. And also, Rodelta is again seen a jump in losses in the current quarter. So maybe how should we look at in context of SCP U.K. and Rodelta overall overseas subsidiaries performance going forward.

Thank you, Mr. Goyal. Yes. Inventory has gone up as we had explained in the previous quarter, we were improving our foundries. And that exercise is complete. But what has happened was some of the orders were as completed and half not. And that is why we couldn't ship out the whole order. But this month itself, we've seen huge improvements, which we believe will be reflected in the current quarter.

Goyal, you asked 2 questions. One is about SPP U.K. and Rodelta. As I mentioned, I think, last time also, we expect that in their third quarter, the numbers should improve because that's how the order book was structured because a lot of the historic, as you know, chemical and petrochemical, oil and gas order books -- sorry, the service order books were but effectively delayed or they were not really placed in large numbers because the plants were idling. And I think you -- I saw it tilting a lot even on LinkedIn about how the in your...

Sorry, Alok, there was a disconnection after Mr. Sanjay Kirloskar spoke about dispatches. We could not hear anything.

Can you hear me now?

Now yes.

Okay. So I just said that you mentioned about SPP U.K. and Rodelta. So I mentioned last time also that the services business should start kicking in, in third quarter, third quarter for them, which is second quarter for us here. And that's just because of the way the product mix was. I had explained that the chemical and petrochemical business service contracts related to chemical and petrochemical businesses are idling. And I only said that you probably saw even a letter on LinkedIn, where the Chairman of Ayala mentioning the high prices of energy have been killing the chemical industry in Europe and the U.K. So I mean that's reflective of that. But as I mentioned, we've got contracts with power plants, with water utilities. And a lot of those should come into effect, which will again get the blended margin back to a better level. going in the last 2 quarters for them and 3 quarters for us. On the Rodelta side, I would say it's really delayed execution because you're seeing them all to get all our [indiscernible] together. And we expect in the next 2 quarters for that to get better. So we are quite optimistic about both the entities, and we expect it to be in line with what we've always said that all the entities will be profitable and that we will look to have better than previous year numbers.

And Alok,, if you can also talk about your -- how is -- how are we looking at U.S. operations going forward.

Yes, the U.S. operations, I think you have the numbers it is growing at quite a fast pace. -- in the breakup of this presentation, I think you've seen that it's grown about 20-plus percent last -- in the first -- quarter to quarter. And a lot of it is from data centers as well as U.S. infrastructure projects. . We continue to be strong. We are under NDA, but we are looking to sign in the last steps of signing a further framework, a multinational framework contract with a major U.S. operator of data centers. So -- which is not just for pumps and modular systems. So we are still very optimistic about how we look to see the U.S. growing in the future. Does that answer your question?

No. So you said multiyear framework contract for which industry in U.S.?

For data center operator.

Okay. Okay. Okay. In U.S., right?

Data center operator, yes. For all the -- historically, the work put them in the U.S., but now we'll work with them globally wherever they put up data sets, and they are very large -- I mean I can't mention to you because we have an NDA, but it's a very large operator.

The next question is from the line of Raj Shah from ENAM AMC.

Sir, my first question was on the order inflow side. You know the prospects have been going as you have mentioned, opening on as well. However, all that includes number was just look by 4%. And in stand-alone, it was just by 3%. So if you can throw some light on why this number was low single digit. If you can put [indiscernible].

So some of those orders were delayed and that's 1 of the reasons why you do see that. But the growth on a stand-alone basis is around 14.9% for bookings.

Year-on-year.

Are you talking about [indiscernible] sector?

No, I was talking about order inflow. .

Yes, that is the [indiscernible].

Yes. So it has been leased. So in the following quarters, you see good...

There was a certain age order got deal. But other than that, we were at no plan.

[indiscernible] growth, over the last year's first quarter, there has been a 14.9% growth in order intake.

Okay. Okay. Can I see your order book stand-alone order book, the breakup that you've given sector wise, in the customer support and Engineering Services division, I see, on an average, every quarter, there is a INR 80 crore to INR 100 crore amount every quarter order book. But in this quarter, that order book has increased to INR 2 crores. So is there any significant large order that we have received. That's my question.

Yes, there were certain orders that we received -- but I would not take that as a pattern because it purely depends on the customer's requirement. I hope that answers your question. I hope that answers your question. Am I audible?

Yes, yes, you are. I said as a follow-up, do you see that this will help us improve our stand-alone EBITDA margins?

Yes, definitely.

Git it. Lastly, in the oil and gas side, as Presales mentioned, sort of 5,000 petro from order. So my question was, is the beetle from the previous customer or we have been able to get into your new customer as well.

Yes. So there are only 3 to 4 large PSUs that buy this, and we are qualified by all. Now as of the end of Q1, we have around the booking of approximately INR 217 crores in this business.

The next question is from the line of on from [indiscernible].

Sir, my first question is on the stand-alone business. We've seen our sales growth picking up after a few quarters now. So do we see this momentum containing and improving from here on? And as a result with margins and operating leverage also kick in.

We just did a huge foundry project, which we've come out of. So yes, that should enable higher revenues.

Okay. Secondly, on the order book breakup, we've given the split for industry where our orders have come -- pending order book has come. But do we see any challenges on that side?

No. Actually, it is in line with our annual operating plan for the quarter. And this was based on what we thought was that were going to be customers orders the orders that they would release. So this is why I've always said, don't look at our business quarter-to-quarter. Look at it at least half clearly or better yet annually, then you will see the difference because these are capital goods that we supply and sometimes the orders get delayed and sometimes they all come in a rush. But this is as per what we expected it to happen.

Okay. And Alok bhai, one question on the international business. So we've seen top line growth, but margins have impacted, as you mentioned, because of SPP UK. But given the increased traction in the U.S. business and U.K. coming back, so we see double-digit growth and margins improving from here on?

Yes. I mean I mentioned that earlier to Mr. Goyal that one is that we expect the service business to sort of come back in based on our order book in the last 2 quarters for them and the last 3 quarters for us here because, as you know, they're 1 quarter off because the calendar year end financial year is the same. . And the second point, I think is that overall level that as the execution of orders takes place in Thailand and in the Netherlands because we're a little bit delayed on order execution. Then those numbers also should get better.

The next question is from the line of Balasubramanian from Arihant Capital.

Sir, [indiscernible], U.S. business data center, data center share, it's 3%. So I'm trying to understand like which are the products we are supplying for data centers. And in the U.S. around the 4,000 detail centers are operating. And I think another 2,000 is coming up. How do you plan to scale from distributors to capture your large share in the market? And if you could talk about the specific addressable market for your specific pump solutions or data center. And how does that compare to your current average ticket size?

Market in the U.S. has -- as you know, there are different players in the market. There are the operators. I'm just naming the operators. They are like people like Google or Amazon who have their own data centers. Then there are private equities. As an example, Brookfield, let's say, who puts up data centers and other companies hire space or took out the data center for a 20-year period and these companies basically make a utility-style cash flow. . And then there are other sort of versions of how these work in terms of data center size, scale, et cetera. So usually, our target market is hyperscale data centers. hyperscale data centers require different packages. One is the intake water package, which gets the water to the data center. From there, there is a treatment facility usually and that requires some pumps, not usually bought by the data center, but bought by the person or the company that makes the treatment facility. And after that are the main pumps data centers, which is the cooling pumps, the firefighting pumps, and the booster parts. There is another system called on-chip cooling, which don't do, but our booster pump sends the water as well as receive the water back with the warm -- sell the cold water to the on-chip cooling system and received the warm batter back from the on-chip cooling system and send it to the chiller. So I would say this is the overall package. We don't sell just the pumps, as you know, anymore. We sell modular systems that are in a container, plug-and-play along with the piping and the control systems, everything for the fire as well as the chiller system as well as the pumps to the chiller system as well as the Buda package. So that's usually what we supply. In the past, we used to say that about 1% to 1.5% of any CapEx really has pumps -- relevant CapEx. And as we talk about power plants or whatever else. And that was also a bit of data centers. But now usually the data center package for a hyperscale data center, excluding the intake water system is between into million, sometimes we go $12 million, but this is the usual kind of package that is there. The intake water system changes because that's really dependent on what type of water you're pumping. If you're pumping seawater and the price is totally different from what -- from pumping river water or leak water because obviously, the corrosion and all those kinds of things. So it's not worth me telling you a number because that number varies significantly based on what kind of media you're pumping for -- in terms of water, whether it's a line or on sell. So I think that gives you a picture of what is happening. I think the question was how many data centers. I think I have mentioned it in the past, but I think the approximately operating data centers in the U.S. and there are another currently 2,000 data centers that have received planning permission, which includes power and water in the data -- in the U.S. So from that point of view, there is a good opportunity. To answer your other question about distributors, yes, we are taking on national distributors, but those are not necessarily connected to data centers because data centers have, like I said, operators, financiers, private equity players, and all we have some key consultants. I'll just name one as an example, let's say, [indiscernible] as an example. So really, our work goes in working the consultants as well as the end users ensure they understand what we are supplying them. And what is the specialty. So as an example, hyperscale data centers in anything from 99% uptime to 99.2% uptime. And usually, this means in the whole year that there is a couple of hours between 8 and 9 hours of total downtime available for maintenance. So in our case, we have some specialized pumps and maintenance can be done from the outside. And this obviously is time for the pumps. So key items of the pump can be replaced and upgraded from the outside. So these kinds of things are what an operator or a consultant would appreciate, but it's not something a contract I would appreciate if you see the difference. So I would say, definitely, we are working to grow the distribution channel, but that's not still connected to our data center business. I hope I've answered all the questions you asked.

Yes, sir. Sir, my next thing, the subsidiary KPM, I think it's nearly deals with stampings, motor and casting. And so I'm trying to understand the margin impact from 12.5% to 7.3% in this quarter, this impact because of the transition to EV. Or is there any other reason? And if you could mention demand power stamping motors versus traditional ICE components.

Yes. So KPML, we had -- many times we've had questions as to why we have so many subsidiaries. And internationally, we are structured just like our major competitors around the world because almost every country demands that there be a local company doing business in that country. Domestically, we had 2 subsidiaries and 1 -- 2 joint ventures. The joint ventures being Kirloskar Corrocoat, and [indiscernible] and the 2 subsidiaries being KulakoSteel and KPM. KPML makes status, state rotors and motors for specialized applications as well as motors that KBL uses in captive power plants. And PKS makes casting steel castings for KBL as well as other customers. As you are aware, PKSL has been loss-making, but now they have started turning around the corner. The output has started increasing. And we expect that PKSL will also be a profitable company going forward, especially as the requirements for power, whether thermal or clear pumps are required, this is where steel castings and large steel castings are required. So as KBL builds on its order board and the fact that BHEL is also a very large customer of TKSL we expect that this company will grow going forward. But at the moment, as you are aware, KSL was making losses. And the reason for the drop in margin at KPML has been that, we expect the margin to improve going forward. I hope that answers your question.

The next question is from the line of [indiscernible].

Am I audible?

Yes.

So just to understand a consolidative basis for in Q1 from 13% in Q4 to 10% a 3% margin growth. So just wanted to understand the moving for that.

Can you repeat your question?

Has there has been a margin from -- in the consolidated order book.

In consolidated or a lot mentioned a drop in U.K. business. Otherwise the standalone, the profit is more than the last year. EBITDA margin for the KBL was at 12.8% and current year 13%. The drop is in -- and the complete numbers are lower.

Okay. So as you mentioned that we expect the lows business to improve from Q2 for us. So now we can expect the margins to improve as well, right?

Correct.

Okay. And you mentioned that on the talon business, we expect a double-digit growth for the whole year. What is the revenue growth we expect on a consolidated basis for the full year?

There also, as we have mentioned, we will strive for double-digit growth.

The next question is from the line of Priyesh from Mahindra Mutual Funds.

First on order booking domestic, which is around at INR 2,500 crores. How much it is executed in FY '27?

Almost 2/3 of this order board, we believe we can execute in this year. However, I'd like to tell you that this does not reflect the retail sectors, the small pump business order board because there is no order board. Everything that is ordered is delivered in the same month, and that is approximately 45% to 50% of our business.

Stand-alone business. Okay. Okay. And sir, another question with respect to a standalone gross margin, so your revenue has been declined by around 26% quarter-on-quarter, but your gross margin has improved. Is it just because of the product mix? Or how do I integrate the same?

Yes, it is essentially the product mix that has changed and the price rise that has been done.

Okay. How much price hikes we have taken, let's say, in last since, let's say, January?

10% approximately.

And is it sufficient to actually cover the, let's say, our raw material costs, which we have seen in the last 6 months or so?

Yes, we believe that will be sufficient.

Okay. And another question was on power order book, which has grown by 30%, and we have also spoken about the clear opportunity for a couple of times now. of the, let's say, INR 600 crores of order book, how much did you relate to operas of now? And if not -- if any, then what this segment is actually driving this growth in the power order book.