Kirloskar Pneumatic Company Limited (505283) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Kirloskar Pneumatic Company Limited Q1 (sic) [ Q3 ] FY '26 Earnings Conference Call hosted by Antique Stock Broking Limited. [Operator Instructions] Please note that this conference has been recorded. I now hand over the conference to Mr. Amit Shah from Antique Stock Broking Limited. Thank you, and over to you, sir.

Thank you, Pari. Good evening, everyone. On behalf of Antique Stock Broking Limited, I welcome you all to 3Q FY '26 post 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; and 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.

Thank you, Amit. Good evening to you all. Let me start by wishing you all a very Happy New Year. May the New Year bring peace, prosperity and a lot of happiness all around. Thank you for joining this call today. I have with me Mr. Ramesh Birajdar, the Chief Financial Officer; and Mr. Jitendra Shah, the Company Secretary. Before proceeding with the business update, I would request Jitendra our Company Secretary to read out the disclaimer statement please. Jitendra?

Yes. Thank you, sir. Good evening to all and wish you Happy New Year. 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 judgment 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 judgment in assessing various risks associated with the company and also the effectiveness of the measures, which taken by the company in tackling them as indicated during the discussions. Thank you.

Thank you, Jitendra. Let me now proceed with the business updates. Q3, as always, is a short quarter. We had a solid order bank for execution and the plants were running flat to catch up on our sales target. While we internally met most of our manufacturing targets, we could not get this to translate into sales as some of the larger packages were not cleared for dispatch. This meant a lower sales and a higher inventory. The customers have promised to look these packages in Q4, and we are in active discussion with them as we speak. And hopefully, they should all go by February. Order booking picked up. As on 1st January '26, we have an orders on hand of INR 1,939 crores, which is about INR 60 crores higher than the same period last year. But there is one big difference. Last year, we had nearly INR 600 crores of large package orders in this. This year, however, we have no large package orders in the INR 1,939 crores. This would mean that the sales next year quarter-on-quarter will be far smoother than we ever had. Sales YTD was INR 1,054 crores as against INR 1,046 crores, pretty much flat, almost about 2% higher. With the packages ready for shipment, we expect to close the year with a sales between INR 1,800 crores to INR 1,850 crores, nearly double-digit growth. YTD PBT was INR 172 crores is nearly the same as last year, about INR 175 crores. PBT for the year should end at least between 20% to 25% higher than the previous year. Order inflow has picked up and will certainly support strong growth next year. We continue to create new IPs. A recognition of this is the fact that KPCL was awarded as one of the top 30 IP-driven cockpits in India by CII along with large industries. As on 31/12/2025, we have filed 106 IPs and a significant number of them have also been taken up for commercialization. The net working capital was at INR 276 crores. This is lower than the INR 288 crores in the same period last year. This is behind the back of strong receivable management and significant advances from the customers. Inventories, as I mentioned, is still a challenge, and we hope this will translate into sales during the next month. CapEx spend was INR 54 crores. We expect a total CapEx spend of about INR 90 crores for the year. Free cash generation from operations YTD F '26 was INR 45 crores. This is after the CapEx and the dividend. Let's now discuss the result of our product lines. The air compressor business had a steady quarter, both in new order intake and in sales. The Tezcatlipoca centrifugal compressor continued to shine. We have invested in a couple of new CNC machines from Japan and Germany to double the capacity in this line to meet the growing demand. The additional capacity will be available from Q1 next year. Refrigeration compressors and systems. The Refrigeration Compression segment completed the manufacture of the large projects during the quarter. We also commissioned 2 Zephyros plants as a technology demonstrator, and these plants have been commissioned within our plant to see their performance. Learnings will be used to fine-tune the product for bulk manufacture under the PLI program. We expect to have this clearance during this quarter. Order intake from cold chains, ice plants, dairies, et cetera, continue to be strong. The Khione package sales has picked up, and it has stabilized across various application areas. Sales of the Tyche semi-hermetic compressor has commenced and it's scaling up. The process gas compression system. The oil and gas sector seems to be finally getting out of a state of somnolence. We now see some movement in terms of order finalization. As you know, the whole of last year, there's practically no big orders being finalized in this space. The global uncertainty has -- had impacted this seriously. However, finalizations are slowly picking up, not only in packages, but also in the CNG package orders as well as in the boosters. The installation as of now is the lowest in the last 5 years. We hope to see something better happening going forward. The silver lining in this space has been the significant activity level in the MENA region for the CNG packages, and we hope to benefit from this. We have already installed a couple of orders in this space. We have also picked up a couple of orders for the hydrogen and biogas space, and we expect to complete execution of this in the Q1. The O&M business continues to do well with a growing installed base, albeit at a lower than planned. But overall, this segment will remain -- the Process Gas segment will remain flat for the year. Export order booking was on plan. We should be doing a sale of about INR 140 crores this year compared to INR 124 crores in the previous year. Most of the exports have been for process gas business and a significant part of it is into the MENA region. Outlook F '26. The global economy is in a precarious state and makes planning exercise a challenging one. We expect to close the year with a sales of about INR 1,800 crores to INR 1,850 crores and a PBT of about INR 345 crores to INR 360 crores, a growth of about 12% to 14% on the top line and about 20% plus on the bottom line. While this is below our run rate of the last 5 years, we expect that we will get back to our targeted growth rate of 20% on the top line and an EBIT margin of 20% going forward. KPCL's focus on building sustainable competitive advantage in our offerings based on strong value chain integration, in-house manufacture driven by unique IPs and a sharp focus on targeted markets will ensure the predictable and profitable growth path even with choppy market conditions. A committed and highly engaged workforce is a bedrock on which our growth aspirations are built. This was once again reinforced by our winning the Golden Peacock Award for HR Excellence during 2025. I would now request Ramesh Birajdar, CFO, to take you through the financials. Ramesh?

Yes. Thank you. Good evening, and wishing you very Happy New Year. Q3 FY '26 financial results have been officially released on the BSE and NSE website following our recent Board meeting. For your convenience, we have also posted a detailed investor presentation on the company's website, which highlights the current performance trends and key business updates. To assist those who may not have had the opportunity to view results, I'm sharing a summary of Q3 FY '26 outcomes. Sales for the Q3 FY '26 were INR 403.5 crores against INR 340 crores of Q3 FY '25. Sales for the Q3 also showed a growth by 18.5% over previous year's Q3 FY '25. Other income for 9 months improved by 28% to INR 21.1 crores compared to INR 16.5 crores in the previous year. Total income YTD ended December '25 was at INR 1,074.7 crores compared to INR 1,062.5 crores in the previous year. The raw material to sales ratio for the Q3 FY '26 was better by 3.7% compared to Q3 FY '25. In terms of percentage, it was 48.1% in Q3 FY '26 against 51.80% in Q3 FY '25. However, YTD percentage of raw material to sales has improved by 1.4% in 9 months of FY '26 due to product -- better product mix, selection of the orders and improvement in service business margins. Staff cost, that is employee-related expenses stands at INR 50 crores in Q3 FY '26, that is 13.7% of total income against INR 44 crores in Q3 FY '25, that is 12.40% of total income. This increase reflects annual increments, commencement of operations at our Nashik forging plant and new foundry at Nashik, additional hirings for new products at our Saswad plant. Company has maintained the status as a debt-free company and we -- the company still has a net cash position of INR 395 crores as on 1st January 2026. Depreciation for the both 9 months period for the current year and the previous year is almost same, INR 22.80 crores in 9 months of FY '26 against INR 22 crores in the 9 months of previous year. Other expenses are mix of fixed and variable costs and are at INR 212 crores in 9 months of FY '26 against INR 202.80 crores in the previous year. Increase in these expenses are on account of traveling, enhanced level of service business and expanding activities in our Nashik as well as in Saswad plant. The year-to-date performance for the first 9 months of the current year shows EBITDA margin at the same level, reaching 18.2% of the total income INR 196 crores in FY '26 compared to 18.6% of total income to INR 198 crores in the previous year. In the ongoing fiscal year, year-to-date profit before tax, YTD PBT has reached INR 172.7 crores, constituting 16.1% of total income against 16.6% to INR 175.9 crores in FY '25. Net profit after tax for the initial 9 months of current fiscal year is INR 114.5 crores, that is 10.7% of total income. In comparison to the previous year, INR 130.4 crores, that is 12.3% of total income. The company has issued 42,200 equity shares during the period ending on December 31, '25 under its Employee Stock Option program, while 93,600 equity share issued in the previous year during the same period. As a result, the paid-up share capital was increased marginally. Year-to-date earnings per share for the current year is INR 17.63 compared to INR 20.12 in the previous fiscal year. Exceptional item in the income statement, the implementation of new labor code, which become effective on November 21, 2025. Based on our current assessment, the estimated gratuity provision has increased by INR 18.3 crores. The amount is an estimate and may vary by end of FY '26. We are currently awaiting clearer guidance and further regulatory directions to finalize the specific requirement and impact on our year ending reporting. In line with our dividend policy, the company -- the Board of Directors has approved an interim dividend at the rate of 175% on the face value of INR 2 per share, that is INR 3.50 per share dividend to be paid as per the regular practice. With about 92% of the revenue coming from the Compression segment, it remains the only reportable segment. The segment earned a profit of -- at the rate of 21.6% in the current quarter, while in the previous year, it was 21.80%. The Compression segment is consistently sustaining within the range of 18% to 20%. As of January 1, 2026, the company holds an order book of INR 1,939 crores, marking at 19% growth compared to INR 1,624 crores at the beginning of the year. Segment asset experienced INR 50 crores increase compared to the previous year, primarily due to increase in inventory in order to arrive at the capital employed for the segment, current liabilities were reduced. As you are aware that company acquired Systems and Components India Private Limited situated at village Patgaon, near Murbad, Maharashtra. Comparable details for the consolidated business will be provided after completion of 1 full reporting cycle. Now this forum is open for the questions from esteemed invest.

[Operator Instructions] The first question is from the line of Balasubramanian from Arihant Capital.

Sir, commercial refrigeration side, especially across AC systems, the market size nearly INR 5,000 crores for Commercial Chilled Water segment. I think we have a patented zero GWP refrigerant technologies. How will this differ from standard refrigerants used by Voltas or Blue Star? And how do you look at in this market, what kind of market share we are targeting, sir?

Okay. Bala, thanks for your question. See, I will explain our Zephyros concept. Zephyro uses ammonia as a refrigerant. As you all know, there are only 2 natural refrigerants, which has got 0 ozone depleting potential and 0 carbon warming -- global warming. So we are using ammonia as a refrigerant. This is quite different from what most other companies use. Most other companies use refrigerants like R134a, R-32a, et cetera. All of them have -- even the best one, the newest one is R-32A, which has got 0 ozone depletion potential, but its global warming potential is 765 and above. So the earlier ones are all 2,600 and above. So these are all, let's say, global formulation. The manufacturers in India pay them a license and make them. They cost on an average between INR 2,000 to INR 2,500 a kilo. Their COP, the efficiency of refrigeration is much, much lower compared to an ammonia system. That's why we believe ours is not only environmentally friendly, but also far more economical for using. Now the 2 questions why this has not been used all along. There are 2 reasons. There is one, ammonia tends to react with copper. Consequently, if you use ammonia as a refrigerant, then you cannot run it on a semi-hermetic compressor. Semi-hermetic compressor, the refrigerant itself cools the copper winding in the motor. Our patent is around the process by which we use ammonia, but still are able to achieve what is called as a quasi or a semi-hermetic system by which an alternate material is used to cool the motor windings. So consequently, we get the benefit of ammonia, but also get the benefit of being a near semi-hermetic motor. That's a system that we have developed. That is where all our IPs are on. The second disadvantage, which ammonia was thought to have is saying that ammonia's use can be seen as in low concentrations, not toxic, but very high concentration toxic. So we generally don't bring ammonia into the homes. If you look at all your window air conditioners, which is all there in your offices, et cetera, they are all what is called as VRV, variable refrigerant flow compression system, where the refrigerant itself comes into the rooms. In our case, we don't use refrigerant coming into the room, it is only chilled water. So we have mitigated the disadvantages and enhanced and utilized the advantages of ammonia as a frost system. Our IPs are around this space. This will allow us to offer a system which is not only environmentally friendly, economically cheaper and much more efficient to run and use. The market size, like you said, can be anywhere up to INR 5,000 crores. We will increasingly take market share. In any of these systems, first is, it has to be established and comfortably used in a critical number of applications. And after that, it scales up very rapidly. We are working on a PLI scheme to get the volumes to be produced. Currently, we can make with our existing facility, a reasonable number, which is what we will do to deliver a few in the market. And as the PLI scheme is approved, we'll really scale up and get volumes. That's a long answer for a good small question.

Sir, I think customer site delays have impacted installations for nearly 3 to 6 months for especially large refrigeration packages. How is the situation currently improving? And sir, secondly, I think we can -- if we are making AC system, whether we have the capacity to make 20, 30 CFM for RAC compressors. I think right now, we are in the progress of A800 800 frame -- 800 CFM. Is there any scope to develop in future?

Okay. So in the centrifugal compressor, the Tezcatlipoca, we currently start with 2,100 frame and go up to 7,000 frame. The actual CFM it can deliver can be as high as 8,000-plus. But on the lower end, we try and stay nearer to the 2,000 range, but we have a new frame that's coming up, A800 800 like you said, it is already proposed done. It has been running in our factory for alpha testing. We'll probably launch it in the market before first quarter. That will cover then starting from maybe 600 CFM onwards. So this will be the smallest centrifugal compressor available in the Indian market. It will replace a significant number of dry screw compressors as well. So this will be a breakthrough, and we hope to have it in the market in the first quarter.

Okay, sir. So I think you have missed like I think the whole industry is importing RAC compressors, whether we can able to develop those capabilities. I think that's a very small compressors, 20, 30 CFMs.

Okay. So at the moment, our range of Zephyros starts from 15 TR. You were talking of very small compressors like 20, 30 CFM compressors. We do not make them for refrigeration. But for air conditioning, we are in the midst of developing a small CFM compressor. It can be very, very small. And this is being done for oxygen. That product will be available in the market from the first quarter. We have not announced it yet, so it will come and then we'll announce it.

The next question is from the line of Sameer from Ambit Capital.

So if I back out the orders inflow numbers on the backlog and sales, it comes out to be around INR 679 crores, which is like almost more than 50% of Y-o-Y, and probably the highest in many quarters. I just wanted to check whether this number is right. And this growth is broad-based or any particular market or product you want to highlight? And do you have any target for orders for FY '26?

Okay. See, the orders have not come from -- I mean, the big orders have not come from the traditional areas. Like I said during the opening comment itself, we generally get large package orders both in refrigeration and gas. This just did not happen during the entire calendar year '25, last quarter of last financial year as well as the first 3 quarters. We hope to see some order finalization in large packages from traditional markets only from January. We have seen a few coming in, mainly from the oil sector, but we expect more. The bulk of our orders that we have taken this time are not bulk, a significant part of the orders that we have taken this time are from nontraditional areas, which utilize our manufacturing capacities and capabilities. And that would probably drive growth during the first 2, 3 quarters.

Okay. And the second one I have is you talked about the 20% growth in margins is probably the midterm target. Do you see any green shoots to feel confident about, let's say, for FY '27 or FY '28?

You're talking about EBIT margin?

Yes. 20% growth you talked about, right? And...

Yes. So the 20% top line growth, see, today, if you look at for the first 4, 5 years, last 4, 5 years, we have been at a growth rate of CAGR roughly 19%. This year, we're going to be lower. We're going to be probably be 10% to 12%. We expect to come back to a 20% growth rate from the next year onwards on the top line.

The next question is from the line of Niraj from White Pine Investment Management.

Sir, just wanted to know color on the orders from the Middle East. Can you tell us how the clients are thinking because we have heard about delays in the orders in the Middle East side and our large value of orders might be delayed or might be coming from that side as well. So color on that side of the end market would be useful?

Yes. So the export business for KPCL itself is only going to be about INR 140 crores this year. Last year, it was about INR 124 crores. So for us, as a percentage, it has never been beyond -- it has never even crossed double digit. Most of this order, I keep saying is from MENA region. They're not exactly Middle East. Some of it would be North Africa. And we do not do very large distribution of them. It is a few package orders. You are 100% right when you say there is a huge delay in orders, particularly from oil and gas sector from West Asia. That is true. We don't have any orders from them. Most of it is for us from the MENA region.

Okay. And any -- okay. Okay, got it, sir. Got it. And any guidance on the revenues for this year?

I think we said so it will be INR 1,800 crores plus.

The next question is from the line of Kunal Sheth from BK 361.

Sir, I just wanted to get more light on -- in view of our completion of tenure, Mr. Aman has been appointed as the MD. So any particular reason for -- we're not opting for extension as well as what would be the pathway going ahead as far as the leadership is concerned?

So I think this would be probably one of the better managed organized succession that the companies are going through. My tenure here was primarily to ensure a smooth succession. And as you know, I came out of retirement. I was retired already in Carborundum. So I came in here post-retirement with a particular mandate of developing the next generation of leadership. So -- and it was only for a period of 3 years, and I actually stayed on for 2 more years. So it's been near 5 years. And I think it has been one of those very nice succession planning. Every bit of it has been done together. It was -- cannot be more structured, more organized, and I think this will be one of the nicest transfers that happened. And he would do far better, far quicker and far nicer than anything that I have ever done. So I think I'm extremely happy about the way it has developed and you people will all see how it goes as we go forward.

Sir, but if you can talk more about how involved was Aman for all these years, how in the business? And if you can talk a little bit about the second tire leadership structure, what kind of leadership in terms of second tire have been developed? What is the structure like?

Yes. So Kunal, I had mentioned in my last part of my opening comment on the enablers, which makes us confident about the outlook. The primary enabler, 2 measures I'll give us. One is our employee engagement scores is industry standard. It's even higher than industry standard. We have a score of 86 when manufacturing industry is about 82 or 83. So it's better than industry standards. My attrition rates are below 10. My IP filing of 106 is averaging more than 40 per year. So in terms of employee engagement, employee productivity, employee measurement, these are all engagement scores coming out of a whole lot of people, all the say 900-odd people in the company pulling together and getting into a very productive phase of growth and development. So this is coming out extremely well. And Aman has been intensely part of all of this. So he brings in a freshness of thought, he's been championing all the newer things that we are trying to put out. And that -- and it has allowed him to work on different spaces. He's been reporting to the first-line reportees. He's been learning from the line. And that has been a good development. Yes, he is from the investor family, from the promoter family, but he has gone through the rigors of being trained to take on this role. Having said it, we have also supported him with a whole lot of leadership team around. It's not going to be Aman alone sitting there and fighting the battle. There's a whole lot of team out there. There are 200 engineers and manufacturing specialists, design specialists, marketing teams and of course, the whole financial, legal, secretarial support teams as well. So I think it's a collective team with a fine young leader who will come in to take it forward from here. Like I said, I'm very pleased and happy the way the whole thing has developed. When you people, any of you have a chance to come and visit, you will yourself go around and see whether it makes sense to you or not.

Sure, sir. And best of luck for the future year, sir, and thank you for the valuable contribution.

Thank you.

The next question is from the line of Khush from Electrum PMS.

So a couple of questions. So first, since you are maintaining the guidance of around INR 1,800 crores to INR 1,850 crores of revenue. So could you elaborate more on what are the reasons because this would result in around 35% growth for the quarter. So the reason for this is basically the inventory like you mentioned, which has not been picked up from the factory? Or is it some large orders that we expect to execute in Q4? And apart from that, secondly, on the employee expense cost, should we assume that this combined expense of INR 69 crores, INR 70 crores is the new quarterly run rate because of the change in the law? And post that also, we are confident on maintaining around 19%, 20% EBITDA margin going ahead?

Okay. First thing first, the employee cost will remain between 10% to 12% of sales. That will not change. What has changed with whatever is visible at the moment with the new labor code, the Maharashtra State thing has to be notified yet are 2 parts. One is there is a change in the gratuity that will impact and there will be a change on leave encashment and the value of leave encashment that will impact. Our measure of both on a forward basis will be about 0.8% to 1% of the leave total. So it's not very big. In terms of value, we are talking of less than INR 2 crores a year. So that's not going to be significant. We will handle it. We can manage it multiple ways with a slightly lower increment or whatever it is. There will be a onetime top-up of gratuity. There could be a onetime encashment of leave that would have to be done. And these are already notified. We have already calculated this onetime top-up to be about INR 18.3 crores on gratuity. The onetime leave encashment could be about INR 1 crore. So these are the only onetime impacts. There is no grandfathering allowed. So we are expected to pay for all that is on the book even during the date of transfer as of 21st November 2025. So that is the only thing, but I don't think that's going to go without some kind of a challenge. So let there be some clarity because this is all for the past period that we are talking of this INR 18.3 crores plus another maybe INR 1 crore from leave. So that is something that we will have to see. Even assuming this has to be taken, the tax, et cetera, will come up only when you have to top up the contribution. And we may top it up not in one go. We may even decide to top it over 1, 2, 3 years. So there is enough time on this. Short answer for the employee cost is this is important for the employees, but not significant for the company to make any material impact on the profitability. So that's a detailed explanation on that. The second question you asked is on the third quarter. See, third quarter, if we had dispatched the packages that are ready, it is primarily to 2 customers really. And these are large, large customers. I don't want to mention their name because they're also in private sector. So if it in -- the site has been ready and if they have taken it, the sale in the quarter would have gone up by more than INR 150 crores. So to that extent, I'm not going to make it in the last quarter. So the last quarter is going to be as of manufacturing dispatch, a very routine, normal fourth quarter like we would have in any other year. So there's nothing big that's going to happen. It's going to be a routine, normal fourth quarter for us in this case, and we will get the numbers what we have planned.

Right, sir. And sir, just one last question on the gross margin. I think this quarter, we have seen around 52%, which is around 400 bps change compared to last year Q3. So what were the major reasons? And will this be the new sustainable gross margins?

Last year, December, the quarter 3, the percentage for the raw material, it is 51.8% against it is 48.1% for this quarter. So what I am saying that it is again the developing the manufacturing capability that is giving the benefit plus selection of the orders and getting the business only when we are able to maintain the profitability between 18% to 20%. And most of this, it is a O&M business where we purposefully took a target to reduce the cost, and which is working very well for this quarter. And going forward, this will a little bit improve because we are developing our manufacturing capability. And this manufacturing capability to bringing raw material at the lowest price or the price which we want to build our sales for the compressor. So both put together, roughly we are expecting to reduce 1% to 2% further going forward.

Right, sir. Sir, just the last follow-up on that. So how much would be the service revenue for 9 months?

Okay. See, I think service as we don't split it. We generally keep it at 15% of our top line sales because if you get detail without get into a quarter-by-quarter too much of variation. We bundle it up and give a number of 15%.

The next question is from the line of Ajinkya from Kriis portfolio.

My question is regarding the Zephyros product. So I wanted to understand like we will be supplying only the compressor or in the package, we are going to supply the controls and other things as well. And what will be our sharing value terms per TR of the CapEx?

You are talking of the Zephyros project?

Yes, yes. Yes.

Okay. So for Zephyros, the way we are currently thinking is a significant part of the initial sale will be that we make the Zephyros package and also have to do the installation related things, which is really the air handling systems, the controls, putting it in place. Maybe the first 100, 200 packages. Later, our interest would be to focus only on making the Zephyros packages, allowing the installation-related activity, which means the air handling units, site work, pile -- piping, et cetera, to be done by a local installer or currently, whoever is doing it. So we won't really get into that space. But for them to have the confidence, we initially maybe the first 100 installations we will do assets.

What will be our share in the CapEx, like the per TR, how much we are targeting?

Okay. Maybe market price of depending on, let's say, if you're looking at the 35, 40 TR air conditioning space, they are now calculating around anywhere between INR 35,000 to INR 40,000 per TR. And we would take about 2/3 of it, 1/3 will be with the installer.

Okay. Okay. And like you said, like we will be targeting our capacities at about 15 TR. So as far as I understand, ammonia-based systems require a higher CapEx as compared to the traditional ones. So how it becomes economically competitive with the existing products? Like am I getting something wrong here? Like how is the economics for that?

Your question is correct. See, the ammonia-based systems costing more is the accepted practice. With our IP, we expect to break that belief that we can make an ammonia-based system and at a price point comparable or cheaper than the current other machines. So that is where most of the IP and the manufacturing. Ramesh alluded to it saying that unless we make most of the manufacturing in-house. Today, you look at most of the air conditioning company manufacturers, they are an integrator. They get most things from different people. Almost all of them get their compressors imported. Many parts are made by different people in India or outside and they integrate it. We would be an exclusive in-house manufacturer of most or almost all of the parts. That's why the PLI scheme. That will allow us a scale and cost advantage, which is quite different from what the current people are doing. We expect to make a fundamental change in the cost structure of this industry by doing all these assets.

Yes. Okay. And the last question is, so have we worked on the replacing of the copper pipes with the steel pipes and the toxicity issues by ourselves or we onboarded some technology partner? Because what I can see in the international market, the bigger player like GEA, J&D Hall have done such products, but those are for like bigger applications like airports, huge malls. So you are targeting smaller systems, how we did that?

Okay. So you got it right when you said the large systems are all in airports. The airports and other places have systems where most of it is where cool air is transferred. They also have water pipeline systems available. We are making several products that will finally be a part of the package. I don't want to get into details of what we are replacing with because there are several projects that are running within the company and several IPs are being filed on the input material. So we know -- as you all know that today, the only thing that is growing faster than silver is copper. So you got to be careful about what copper we want to use where. And so there are several IPs that we are working around with, and we will talk about it once we are established in these states.

Okay. And the last question is like if we get the PLI benefit, what will be the size of the CapEx for like the benefit from the government, any ballpark?

Yes. So the PLI application, what we have filed entails that we have to commit a CapEx of around INR 300 crores, but this includes the CapEx that we have already committed over the last 2 years. So that means for this specific project area, which includes input material, raw material all combined. So we may have to make an additional CapEx of about INR 200 crores, which we will do in the next year, 1.5 years. And we have to deliver a sales of at least 5x, which we are very comfortable about doing. Ramesh, are we okay?

Yes.

Yes, that helps. Yes.

The next question is from the line of Nipun Sharma from VLS Finance Limited.

So my first question would be in 2 parts. The first part being that, if I can recall that you said in your second quarter con call that there was a situation of general slowdown in the finalization of orders across industries for air compressors. And for the Refrigeration segment, you said that large projects were running slow. So I mean, I know you said this in your opening remarks that the orders are picking up. But I really wanted to know the situation as of now. And the second being that you said that overall, the delays in the approvals or the slowdowns in the project executions were one of the main reasons in quarter 2 that the business was affected. So how is the situation as of now? And are there any chances for it to occur again in the future?

Okay. So let me talk about the comments of Q2 and what we have done in Q3. Air conditioning is still running slow. General CapEx commitment across most segments is slow. That has not changed. What we meant in particular was the whole of the year '25, that is calendar year '25, no major project orders in the oil and gas sector, in the petrochemical sector was finalized. And that is what has created a shortage of large package orders. So this is what really happened. This is probably just -- I'm seeing the brief of some change coming. Somebody else also asked a question about Middle East. Yes, even Middle East orders were not finalized. Nothing was happening or whatever was finalized also is getting canceled. This condition of the economy has not changed dramatically. Like we said in Q2, there are segments or spaces where it's doing well, which is largely consumption driven. The -- if you look at the cold chain, the ice plant, the food processing units, the diaries, they continue to invest, they are doing well. There are pockets of chemical primarily going with the pharmaceutical and other spaces that are still continuing to invest. So these are the areas where our refrigeration air conditioning packages still small ones are coming in, and we are delivering it. Similarly true with some hydrogen packages, some biogas packages. These are sporadic. The kind of pace at which we were expecting and at least putting out quotes for orders are just not happening, and that's true even today. The orders that we have picked up to cover up, which is really giving us the hope and confidence of doing numbers next year comes from nontraditional businesses for KPCL, which is why I said these are not from the compression area, but parts and components of another industry, which we are able to make in our manufacturing capability. That is what is driving our confidence and growth for the next year. We hope that the regular traditional orders would also pick up as we go forward.

Okay, sir. Understood.

Yes.

Yes, sir, that is [indiscernible] So what you're saying is majorly there are project delays in the gas compressors, I mean, in the oil and gas sector because of the uncertainty?

Absolutely. And oil and gas includes petrochemical. There are some large -- the 2 packages that didn't go are private sector and they are large petrochemical projects.

I don't think you have noted the point of order board as on 1st January is INR 1,939 crores, which is the second highest order board in the company's history. And this order board is more of an equipment side and rather than the large package orders. And this gives the confidence that we are getting more business in the future.

Yes, sir. Noted, sir. I actually noticed that. That is why I recall what your comments from the second quarter. That is why I wanted to know the scenario in this air compressor and refrigeration system thing.

Right.

Right. Still running slow. Yes.

Okay. Okay. So my second question being that your Gas Compressor segment had been facing headwinds earlier, but now they are -- starting to get recovering. And you said in your Q2 con call as well that your segment share is gradually decreasing. So is that the plan for the future? Or is there any hope that this compressor will have a revival in the future?

So let me explain the gas part of it well. The gas package system has got 2 components. The upstream, midstream, downstream are packages and most of them use aerial compressors and we do the packaging. This requires projects. And here, we are not still seeing any great traction either in Middle East or in India. So this is still a struggle. The -- but whatever orders are finalized, most of them we win in India. So that's -- once we finalize, we get these orders. Our market share remains very, very high. Middle East, we are among the several major players. So some orders we get, many we don't get. So that's the way it is on the gas packages. The second one is the gas distribution business, which is really CNG stations. Now in CNG stations, there are 2. There are mother stations with large packages, there are daughter stations with booster compressors. Here, we used to have a fairly dominant position. It was almost a duopoly, at least on the mother stations. This continues to be a partial duopoly. There is a third player now in this. But here, the actual number of packages that have been taken, the CNG stations is actually dramatically declined. It is probably last year was the lowest in the last 5 years. So new gas stations were not being commissioned, new pipelines were not being laid, while PNRGB (sic) [ PNGRB ] had put out a target of at least 2,500 installations overall, it did not -- not even 1,000 would have happened. So there's been a dramatic reduction in new installations coming up. Even -- we manage about 1,200 packages across India. We found that this was not growing, and it was at the lowest in the last 5 years. On the booster side, we have won among many, many players. Most of them are small players. They are the ones who can do anything to get orders. Here, we have consciously -- Ramesh has said it, we are not interested in playing this game. We have consciously reduced our exposure in this. Most of the orders that are finalized, except a few, which we took, we were not even there in this business. That has also not gone up. Any big numbers have not gone up. Overall, the gas distribution sector, one did not grow. Actually, it show a tremendous degrowth. Our positioning has become more clearer, focused on the main stations and only take boosters selectively, which means our actual sale of gas distribution business is probably at the lowest in the last 3 to 4 years. We have never been lower than this. The only redeeming feature is the main stations or CNG packages as we call, we have now started getting exports, which are of significant value for us, particularly from the MENA region. That has been a redeeming feature during this year.

Okay, sir. Understood. I have 2 more questions. If that is fine, then...

The moderator will decide, I have no role in this.

Okay. So what are your FY '26 guidance? I mean, I know you have talked about INR 1,800 crores. So by that, do you expect the fourth quarter revenue to be around INR 745 crores?

You have the numbers.

No, no, no. I mean that is the expectation because I added the first 3 quarters. And then the fourth quarter, I mean, is that the expectation that it would be around INR 745 crores, adding up to a total of INR 1,800 crores for FY '26?

We will do INR 1,800 crores plus for the year.

Okay. And the EBITDA margin will be stable at 18% to 20%, the guidance?

Yes. Yes.

Yes.

We have actually given a number itself for PBT.

Okay sir. Okay. Congratulations on good numbers.

Thank you.