ION EXCHANGE (INDIA) LTD (IONEXCHANG) Q3 FY23 Earnings Concall Transcript

ION EXCHANGE (INDIA) LTD (NSE:IONEXCHANG) Q3 FY23 Earnings Concall dated Feb. 07, 2023.

Corporate Participants:

Vasant Naik — Group Chief Financial Officer

Aankur Patni — Executive Director

N.M. Ranadive — Group Head of Financial Planning and Risk Management

Analysts:

Anuj Sonpal — Valorem Advisors — Analyst

Chetan Vora — Abakkus Asset Managers — Analyst

Prashant Sharma — Quantum Securities Private Limited — Analyst

Akshat Mehta — Sameeksha Capital — Analyst

Pratik Kothari — Unique Asset Management LLP — Analyst

Sandeep Dixit — Arjav Partners — Analyst

Ruchita Ghadge — I-Wealth Management LLP — Analyst

Saket Kapoor — Kapoor & Company — Analyst

Sunil Kothari — Unique Assets Management — Analyst

Tushar Raghatate — Kamayakya Wealth Management Private Limited — Analyst

Mahesh Agrawal — Individual Investor — Analyst

Jainesh Shah — Individual Investor — Analyst

Ramaswamy — IR Investments — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Ion Exchange India Limited Q3 FY ’23 Earnings Conference Call. [Operator Instructions]

I now hand the conference over to Mr. Anuj Sonpal from Valorem Advisors. Thank you. And over to you, sir.

Anuj Sonpal — Valorem Advisors — Analyst

Thank you. Good afternoon, everyone, and a very warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the Investor Relations of Ion Exchange India Limited. On behalf of the company, I would like to thank you all for participating in the company’s earnings call for the third quarter and nine months ended of financial year 2023.

Before we begin, let me mention a short cautionary statement. Some of the statements made in today’s earnings call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ from those anticipated. Such statements are based on management’s beliefs as well as assumptions made by and information currently available to management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today’s earnings call is purely to educate and bring awareness about the company’s fundamental business and financial quarter under review.

Let me now introduce you to the management participating with us in today’s earnings call and hand it over to them for opening remarks. We have with us Mr. Aankur Patni, Executive Director; Mr. Vasant Naik, Group Chief Financial Officer; Mr. N.M. Ranadive, Group Head of Financial Planning and Risk Management; and Mr. Milind Puranik, Company Secretary.

Without any further delay, I request Mr. Vasant Naik to start with his opening remarks. Thank you. And over to you, sir.

Vasant Naik — Group Chief Financial Officer

Thank you, Anuj. Good afternoon, everybody. It is a pleasure to welcome you to the earnings conference call for the third quarter and nine months ended of the financial year 2023.

For the third quarter under review, on a consolidated basis, the company reported operating income of INR5,121 million, an increase of around 32% year-on year and 14% Q-on-Q. EBITDA reported was INR625 million, an increase of 46% year-on-year and 17% Q-on-Q. EBITDA margin stood at 12.2% and net profit after-tax was INR477 million, an increase of around [Technical Issue] year-on-year and 23% quarter-on-quarter, while the PAT margin improved to 9.31%.

For the nine months of financial year 2023, on a consol basis, the operating income stood at INR13,421 million, an increase of 24% year-on-year. The EBITDA stood at INR1,486 million, an increase of around 26% year-on-year and the EBITDA margin was reported at 11.07%. Profit after-tax stood at INR1,138 million, an increase of 45% on a year-on-year basis and the PAT margin percentage improved to 8.48%.

Let me now take you through the quarterly segmental performance on a consolidated basis. In the engineering division, the revenue for the quarter was INR3,263 million, an increase of around 51% year-on-year. The EBIT for this segment was INR310 million, an increase of 174% year-on-year. The company witnessed steady order flows, both in the domestic and international markets. While the execution of the Sri Lanka order remained significantly affected, the company has discussions for expediting the project closure and the discussions are continuing on an acceptable way forward.

On the other hand, execution of the UP Jal Nigam Project is progressing satisfactorily and revenue has been recognized based on work completion. Also, execution of the other engineering orders picked up pace during the quarter and we expect that trend to continue on the back of the increased order flows and backlog. The order book as of 31 December, 2022 stood at approximately INR1,637 crores. This excludes the Sri Lanka and the UP Jal Nigam and the recent IOCL order, which we announced on second of [Technical Issue].

If we add to this the order book of INR1,637 crores, our total order book would be approximately INR2,923 crores. And we also have a bid pipeline of INR8,400 crores. With this, we have a strong visibility for the next two to three years from the engineering segment and we are well placed to undertake significant increased pace of execution in the ensuing quarters.

Moving to the chemicals division, the revenue for the quarter was INR1,515 million, which increased to around 3% year-on-year. The EBIT was INR378 million [Technical Issue] increased by 23% on a year-on-year basis. The sales in the domestic segment continued to record steady growth, while the export volume remained muted. This segment witnessed improved margins aided by stability in the input costs.

Lastly, in the consumer division, the revenue for the quarter was INR457 million, an increase of around 30% year-on-year. The loss for the quarter INR15 million. This segment continues to record healthy top-line growth. And just a small correction, the order book after adding the IOCL orders, the UP Jal Nigam and the Sri Lanka order will be around INR3,648 crores.

With this, we can now open the floor for the question and answer session.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] First question is from the line of Chetan from Abakkus Asset Managers. Please go ahead.

Chetan Vora — Abakkus Asset Managers — Analyst

Yeah. Thank you sir for the opportunity, and congratulations for the good set of numbers. Sir, I wanted to ask on the engineering front. What has been the execution on account of the UP project for the quarter and that will be at what margins?

Vasant Naik — Group Chief Financial Officer

The UP execution for this quarter was around INR46 crores. And as regards the margin, as we have mentioned in the earlier con calls, we don’t get into the specifics of the contract level margins.

Chetan Vora — Abakkus Asset Managers — Analyst

Okay. And the capital employed in the engineering division has increased by close to INR130 crores quarter-on-quarter. So that will be towards what thing?

Vasant Naik — Group Chief Financial Officer

Primarily, it is — we have — to take care of the execution in the fourth quarter, there has been a slight build-up in the inventory levels. And also because of the higher turnover, the debtor levels have also increased.

Chetan Vora — Abakkus Asset Managers — Analyst

Okay. And the UP execution, the last quarter it was — I think so it was close to INR76 crores. So this quarter the billing has been lesser. Is it right to surmise?

Vasant Naik — Group Chief Financial Officer

No. Last quarter was around INR48 crores and the cumulative for the nine months it is INR121 crores.

Chetan Vora — Abakkus Asset Managers — Analyst

And by when the traction in the execution will start happening from, because the order book is quite high end? We have to execute it in a span of two months or lesser than two years. So what would be the — from which quarter the execution will start ramping it up?

Aankur Patni — Executive Director

You are talking specifically of the UP order?

Chetan Vora — Abakkus Asset Managers — Analyst

Yeah, UP, yeah.

Aankur Patni — Executive Director

Yeah. We expect the traction to pick-up from the fourth quarter onwards.

Chetan Vora — Abakkus Asset Managers — Analyst

Okay. Thank you. And can you elaborate how is the Sri Lankan project? Right now, we are not doing any work. So how this thing will be getting unfolded in the coming time or it will be a status quo? And how much money is yet to be received from the Sri Lankan project?

Aankur Patni — Executive Director

The pace of execution on the Sri Lankan order has almost come to a standstill. While there are continuing discussions between the Indian Government, the Sri Lankan Government as well as EXIM Bank and other agencies involved in restructuring of the debt of that country. We remain in touch with all concerned agencies. And we can only say that we are getting positive overtones from these discussions. But as of now, till the situation reaches a conclusion which is acceptable to all these agencies, there would be — the fund flow to the Sri Lankan projects will remain extremely constrained. And hence, our project execution also would be going at a very, very slow pace.

Chetan Vora — Abakkus Asset Managers — Analyst

Okay. And on the engineering margin front, the last quarter four of FY ’22, we had posted 19% margin because of the strong revenue growth. So by end of nine months, so far, our EBIT margins on the engineering front is close to 6.7%. So are we on track to achieve that 10% guidance what you had said as a full year?

Aankur Patni — Executive Director

We still believe that we will reach close to the double-digit figure for the full year.

Chetan Vora — Abakkus Asset Managers — Analyst

Okay. Thanks for that. And next on the chemical front. Can you update on the greenfield — update the thing how it is being getting progressed because we are awaiting for the EC thing? That was the first thing. And the second thing is, the margins in the chemical division has been quite good. So the sustainability on that? Yeah, the two questions from my end. Thank you.

Aankur Patni — Executive Director

We are still awaiting the environmental clearance for our project. So there is no movement on that front unfortunately. As it stands, we remain expectant that it can happen anytime. Once it starts, as we had indicated earlier, that will take roughly about a year and a half for the plant to get commissioned. So we are looking at around the last — middle or last quarter of ’24, ’25.

Chetan Vora — Abakkus Asset Managers — Analyst

Okay. And on the margins front?

Aankur Patni — Executive Director

We’ve seen improvement in the margins. And this has happened because of the stability in input prices. And hopefully, the stability as well as lack of disruption in supply chains would get sustained. If that happens, our feeling is that for the full year, we should be able to maintain the current levels or improve it further.

Chetan Vora — Abakkus Asset Managers — Analyst

For the full year FY ’23, which is [Indecipherable] what you did for the quarter, yeah?

Aankur Patni — Executive Director

Yes. For the full year, we should be able to get to margin which is similar to what we have achieved now and maybe improve it a little bit.

Chetan Vora — Abakkus Asset Managers — Analyst

Okay. And next year also we would like to do that number?

Aankur Patni — Executive Director

Yes. This margin is quite sustainable barring some unforeseen movements in raw material prices or some other unprecedented events. But per se, it is quite sustainable.

Chetan Vora — Abakkus Asset Managers — Analyst

Okay. Thank you. That’s it from my end.

Aankur Patni — Executive Director

Thank you.

Operator

Thank you. The next question is from the line of Prashant Sharma from Quantum Securities. Please go ahead.

Prashant Sharma — Quantum Securities Private Limited — Analyst

Yeah. Thank you for the opportunity. Sir, my question is regarding the new order that we got for IOCL. When we can see the execution of that order starting?

Aankur Patni — Executive Director

The execution on that order would start very, very soon. The contract is for completing the execution in a 24 month period. And as of now, since we’ve just received the order, in the next couple of weeks, the action on that contract will start in earnest.

Prashant Sharma — Quantum Securities Private Limited — Analyst

Okay. And my second question is regarding the chemical sector. See, I think our growth has somewhat stalled because if you look at the Y-on-Y growth is at 3% and Q-on-Q yesterday is a decline by 5%. So what’s the challenges that we’re facing? And what’s the future growth projects in the chemical segment?

Aankur Patni — Executive Director

Chemical segment is doing quite well on the domestic front. As such, we are seeing good growth numbers. And as you would be seeing, the margins are also doing well. On the international front, however, since two of our important markets are the North American markets as well as Europe, those two markets continue to be slightly constrained and we remain hopeful that it will recover soon enough. Once that happens, the growth should happen on both sides, which is domestic and international.

Prashant Sharma — Quantum Securities Private Limited — Analyst

Okay. And then my last question is sir regarding the consumer product. Our revenue has increased by 30%, but on the margin, they had actually — there is a decline of almost 200, 300 basis points. So what’s the reason for the decline in EBIT margin?

Aankur Patni — Executive Director

Overall, the consumer segment is doing well. On the uptake of the new products, we are getting traction, as we have been disclosing on the previous calls. We expect that the top-line growth will remain quite. As far as the margins on EBIT level are concerned, we are now investing a little bit more to ensure growth in coming quarters. And some of the expenditures which have been made in the current quarter are oriented to improve the top-line as well as overall operations of the company in the coming period. So that accounts for a slight dip which you are seeing. Overall, we are quite happy with the prospects of the segment.

Operator

Thank you. Mr. Sharma, may I request that you return to the question queue for follow-up questions. Thank you. We’ll take the next question from the line of Akshat Mehta from Sameeksha Capital. Please go ahead.

Akshat Mehta — Sameeksha Capital — Analyst

Am I audible?

Operator

Yes, sir.

Akshat Mehta — Sameeksha Capital — Analyst

Right. Thank you for the opportunity. So my first question is regarding this advances that you’ve received over the last six years, because obviously, working capital is negative, and I believe five years back you said that these were mainly pertaining to Sri Lanka project. So I just wanted to understand if these advances also relate to throw some other project? And what is the sustainability of those advances going forward?

Aankur Patni — Executive Director

Vasant, can you comment on that question?

Vasant Naik — Group Chief Financial Officer

All engineering EPC contracts typically will have certain percentage as advance. And as the engineering order book increases or sustains at the current level, then advanced will keep on coming. It’s not only related to a specific Sri Lanka order, but all other large EPC orders or even the medium-size orders always has certain percentage as a mobilization advance.

Akshat Mehta — Sameeksha Capital — Analyst

Okay. So I mean, do you have some kind of a run rate that you can share that going forward, let’s say, INR3,000 crores is the order book right now? So what will be the kind of advances that we’ll receive? What will the percentage may be?

Vasant Naik — Group Chief Financial Officer

Typically, for engineering contract, the advance is in the region of around 10%.

Akshat Mehta — Sameeksha Capital — Analyst

10% of the total advance — total contract value, yes.

Vasant Naik — Group Chief Financial Officer

That’s right.

Akshat Mehta — Sameeksha Capital — Analyst

Okay. Secondly, I just want to understand that in quarter three, we’ve seen a sharp dip in your gross margins on a year-on-year and quarter-on-quarter basis. So what is the — what are the drivers for that dip in gross margin?

Vasant Naik — Group Chief Financial Officer

Can you please repeat that question? Are you talking about cost gross margin?

Akshat Mehta — Sameeksha Capital — Analyst

Yeah, we are talking about gross margin on a — in quarter three, your gross margin have come down to around 37%. So there has been a decline year-on-year as well as quarter-on-quarter in gross margin. So what is the key driver of that?

Vasant Naik — Group Chief Financial Officer

No, as the share of the engineering segment increases, typically that has a higher cost structure compared to chemical segment where the cost structure is more towards the operational and other expenses, while in the engineering segment it’s more towards the COGS side. So as the share of the engineering segment increases, there will be some deviation in the overall cost structure at the gross margin level.

Akshat Mehta — Sameeksha Capital — Analyst

Okay. So that is not on account of some cost lag effect that we are not able to pass on, correct? That is on account of change in mix?

Vasant Naik — Group Chief Financial Officer

If you see, for the quarter, the engineering segment contributed around 61%.

Akshat Mehta — Sameeksha Capital — Analyst

Yes.

Vasant Naik — Group Chief Financial Officer

It’s almost 5% to 6% more than what was there in the earlier quarter.

Akshat Mehta — Sameeksha Capital — Analyst

Okay. Another thing that I wanted to understand is, are any of the projects currently that are there in the order of multi-laterally funded?

Vasant Naik — Group Chief Financial Officer

Other than the Sri Lanka project which is funded by EXIM Bank of India, all other — there are no other projects.

Akshat Mehta — Sameeksha Capital — Analyst

No other projects for multi-laterally fund. Okay.

Vasant Naik — Group Chief Financial Officer

Yeah.

Operator

Mr. Mehta, does that answer your question? Thank you. We’ll take the next question from the line of Pratik Kothari from Unique Portfolio Managers. Please go ahead.

Pratik Kothari — Unique Asset Management LLP — Analyst

Hi. Good afternoon. Congratulations for a very strong execution and also the beginning of this process of consolidating our wholly-owned subsidiary. Sir, my first question is on the engineering. I believe the IOCL orders, which we won, the INR350 crores and the subsequent INR750 crores. I believe this is the first thing that we have won a ZLD order for a refinery. So can you just throw some more light of what is driving this? What the opportunity can be regarding the refinery orders?

Aankur Patni — Executive Director

Thank you for the compliments, Pratik. Yes, certainly, this is a momentous order for us, but not the first ZLD. We have executed quite a few ZLDs in the past. This certainly is one of the largest in the industrial segment. And we look forward to more opportunities from the refinery and other segments in India. As you would know that there is quite a bit of a push on the front of environment management by all companies and especially the larger PSUs have been quite proactive on this front. So the investments are coming not only with respect to new capacities or expansions, the investments are also coming to ensure that the technologies are upgraded on the older plants. So a lot of brownfield investments in ZLD and other such technologies. The prospects look very good. Thank you.

Pratik Kothari — Unique Asset Management LLP — Analyst

Sir, any color on how much of the refining capacity that we have has already been covered under ZLD? I mean, the opportunity size available?

Aankur Patni — Executive Director

I would not be able to give you exact number on that, Pratik, right now. But certainly, our team can get back to you at a later date.

Pratik Kothari — Unique Asset Management LLP — Analyst

Sure. And sir, my second question on chemical. I mean, like you highlighted, due to some reason, we are seeing — at least in the near-term, we are seeing subdued volume offtake. But given our stated ambition of doubling the capacity in the first season and then taking it to 3 times, can you just maybe qualitatively highlight what are the signals that we are receiving from our customers in Europe and North America? What is giving us this optimism that after a long time, we are going on such an ambitious capex, at least on the chemicals side?

Aankur Patni — Executive Director

I’ll say the growth momentum which we had on international chemical sales was quite good till we hit sort of a stumbling block on account of COVID and because of the ongoing war in the Eastern part of Europe. We do believe that the kind of acceptance that our products have got in that market, continued positive feedbacks from the distribution chain as well as from the customers, and indeed, our own depreciation of the specific requirements in the different markets and/or different customers, always are coming together in a very nice way. And I am more than sure that it will translate into much bigger numbers in the coming years.

Unfortunately, as we have been seeing over the last couple of quarters that the situation in Europe has not been favorable for a very fast increase in the revenues coming from that market. But having said that, our expectations remain that in the coming quarters, the growth momentum in both North America and Europe will pick up and that would provide a very good flip to our aspirations.

Pratik Kothari — Unique Asset Management LLP — Analyst

And sir, just to reclarify this, we had guided for some 30%, 35% growth for FY ’23. This is at a consolidated level, right?

Aankur Patni — Executive Director

That’s right.

Pratik Kothari — Unique Asset Management LLP — Analyst

Okay. So last quarter will be very, very strong. Okay. Thank you, sir, and all the best.

Aankur Patni — Executive Director

Thank you.

Operator

Thank you. The next question is from the line of Sandeep Dixit from Arjav Partners. Please go ahead.

Sandeep Dixit — Arjav Partners — Analyst

Thank you. Just wanted to understand on this Sri Lankan exposure. Do we need to make any provisions? Have we made any provisions?

Aankur Patni — Executive Director

Ranadive, can you vaguely comment on that?

N.M. Ranadive — Group Head of Financial Planning and Risk Management

Can you repeat the question, please?

Sandeep Dixit — Arjav Partners — Analyst

On the Sri Lankan project, is there any need — do we need to make any provisions for whatever — is there any debt or anything? Is there any provisions required for the Sri Lankan project?

N.M. Ranadive — Group Head of Financial Planning and Risk Management

Right now, we do not anticipate that maturity of making the provision. And in every quarter, we take our exposure. And as you are aware of it, we are not being inverting — the progress of the job is almost cancel only and only our retention money is lying with the bankers.

Sandeep Dixit — Arjav Partners — Analyst

So there is no debtors out there from the Sri Lanka project?

Aankur Patni — Executive Director

No, right now, there is no need to make a provision.

Sandeep Dixit — Arjav Partners — Analyst

Thank you. That answers my question.

Operator

Thank you. The next question is from the line of Ruchita Ghadge from I-Wealth Management. Please go ahead.

Ruchita Ghadge — I-Wealth Management LLP — Analyst

Hello. A very good afternoon, sir. Sir, my question was on the chemical front. So at the current capacity that you have, what is the revenue potential in it? So first I would like to know about that, if you could?

Aankur Patni — Executive Director

At current capacity levels, given that we are continuously upgrading our product mix towards more value addition and also that we are in a continuous process of modular expansion of capacities for specific product clients, we can expect that from the current levels we would be able to deliver almost 50% kind of a growth based on current capacities only. This is for the chemicals segment as a whole.

Ruchita Ghadge — I-Wealth Management LLP — Analyst

Okay, sir. And on the consumer business, wanted to know that the production of these purifiers, are you outsourcing it or are you making it in-house?

Aankur Patni — Executive Director

The purifiers, we have a vendor who provides us on an exclusive basis based on the inputs that we give to them. This is for the smaller equipments. The larger equipments are all made in-house.

Ruchita Ghadge — I-Wealth Management LLP — Analyst

Okay, sir. And how is the distribution done?

Aankur Patni — Executive Director

The distribution, we have multiple channels that we use for it, which includes direct sales channel. We also go through distributors and also tap on the retail chains.

Ruchita Ghadge — I-Wealth Management LLP — Analyst

Okay, okay. And sir, this 60% growth that you said in the chemicals side of this, that is sufficient for the kind of growth that you’re expecting till this greenfield capacity comes in?

Vasant Naik — Group Chief Financial Officer

Yes. Roughly around 50% is what I indicated to you based on the current capacities. But we are also, as I mentioned, continuously in the mode of upgrading our facilities we are required to fine-tune our product mix towards more value addition. We were certainly hoping that the clearance for our expansion — region expansion project would have come in earlier, but as of now, it seems that at least for the next year, we should be reasonably okay in terms of our growth plans.

Ruchita Ghadge — I-Wealth Management LLP — Analyst

Okay, understood.

Operator

Thank you. Ms. Ghadge, may we request that you return to the question queue for follow-up questions. We’ll take the next question from the line of Saket Kapoor from Kapoor & Company. Please go ahead.

Saket Kapoor — Kapoor & Company — Analyst

Namaskar, and thank you for the opportunity. Couple of questions. Sir, firstly, on the bid pipeline, you did mention about INR8,000 crores is the bid pipeline. So if you could give us some color on the success ratio. What percentage should be [Indecipherable] on a bid pipeline of INR8,000 crores.

Aankur Patni — Executive Director

As we’ve been saying, maintaining over the past few quarters, typical success rate on the bid pipeline is around 20%.

Saket Kapoor — Kapoor & Company — Analyst

Okay. And what should be the timeline, sir, these bids closures. This is on a rolling basis I think, sir?

Aankur Patni — Executive Director

This is on a rolling basis. The smaller projects in the pipeline, they tend to close much faster. They could be between three to six months. The larger projects would typically take between six to 18 months.

Saket Kapoor — Kapoor & Company — Analyst

Sir, just on the ballpark numbers and on a very conservative basis, what kind of order book build-up we can expect on a quarterly run rate? Just to take into account the optimist scenario in the bid pipeline. On a conservative basis, what should be the pillars we can work our numbers will be in order intake, confirm order intake?

Aankur Patni — Executive Director

See, on an overall basis, we can make assumptions based on our current offer bank. And further to that, there are a few opportunities which would come within the quarter and close within it also. So it will not, let’s say, get reflected in the quarterly disclosures of a bank.

Our [Indecipherable] uptick in terms of the order conversions that we have been getting in the current year, as you would probably have noticed, the current year order intake would place us in a position to declare for the full year one of the highest order intakes, which we have had if we exclude the extraordinary order of Sri Lanka. So if one takes that out of the equation, then probably this year would end up being one of the best in terms of order intake. And I would expect this change towards improving order books to continue into the next year and thereafter.

Hence, to give a run rate based on the past would probably not be the best way to look at it. Further to that, sometimes a large order conversion happens in one big lump, INR700 crores, INR800 crores order as we just declared. That would create a big SKU in a particular quarter and would not really follow the average run rate that we’ve been speaking about.

Vasant Naik — Group Chief Financial Officer

So we can work on for — maybe for us at least a multi-year projection from this engineering segment. It is not a one or two years business that we are currently looking into. We can very well look into the visibility even going ahead, depending upon current business scenario.

Aankur Patni — Executive Director

Absolutely,. The current order book itself is looking at we should be expecting this to get executed over a period of two to three years. And as we keep converting the opportunity pipeline, my guess would be we should be looking at certain improvements in the order book as we go forward. We are getting good response both from the domestic market as well as from the international markets. So if you factor both of these in, this is not a short-term phenomena. It is certainly something which in the global market opportunities offered to us over at least seven to seven year period. I don’t see that those opportunities are going to dampen.

Saket Kapoor — Kapoor & Company — Analyst

Sir, and traditionally, we have always observed that H2 and especially in quarter 4, the agitation cycle, there is a good ramp up. And also, I think in the first quarter, if I’m not wrong, you did articulated the fact that you are building up the team in order to improve the pace of execution. So going by the last year’s numbers or last year’s percentage of revenues booked under the engineering, there is a very likelihood that we can look forward for even a stronger execution cycle for the coming fourth quarter also. As has been the case historically, we can take receivable expectations there?

Aankur Patni — Executive Director

Yes. Certainly, the fourth quarter, we’ll see much higher revenue in terms of execution than we have seen till now.

Operator

Thank you. Mr. Kapoor, may we request that you return to the question queue for follow-up questions. We’ll take the next question from the line of Sunil Kothari from Unique PMS. Please go ahead.

Sunil Kothari — Unique Assets Management — Analyst

Thanks for the opportunity, sir, and my hearty congratulations for such a good number and consolidation we have started in subsidiaries.

Sir, my question is on — I understand you won’t be able to disclose or maybe annualize fully opportunity of these Jal Nigam and PSUs water opportunity. What I understand is now, this is the first time IOC have started with this size of project, this type of ZLD and so many technical involved water-related cleaning projects. India across has many refineries. All the power plants also use so much water. So if you can just try to analyze may not be in a revenue or order possibilities, but the size of refineries, number of plants, number of power plants. Those will be also I think supposed to be converted in slowly ZLD because government is the only agency which can trigger this activity, otherwise, private sector will not follow this. So your thought process will be really helpful.

Aankur Patni — Executive Director

Thank you for the question, Sunilji. Yes, we are seeing some traction from the PSUs. IOC in itself is a very large organization and we are just talking about one refinery here. They are in the process of looking at any opportunity where they can go greener. And we expect others apart from IOC also to be doing expenditures on environment technologies at a faster pace. They certainly have been PSUs as a whole, driven by the central government’s policies have been one of the more collective entities on this front.

But having said that, it is not that the private sector is really lagging. A lot of the large entities when we look across India have been taking very progressive steps to ensure that their respective entities comply with the highest level or highest standards in terms of environmental compliances and way beyond that. We are certainly standing at a threshold where the country as a whole will witness significant strides towards a much greener and much more responsible industrial attitude towards the environment. And I am hopeful that this IOC order is just one beginning to substantially improve flow from similar organizations in the future.

Sunil Kothari — Unique Assets Management — Analyst

[Technical Issue] we have started…

Operator

Sorry to interrupt you, Mr. Kothari. There was some audio loss. Please repeat your question.

Sunil Kothari — Unique Assets Management — Analyst

Yeah. So sir, I just wanted to check is how well prepared are we in terms of manpower or engineering capabilities? Are we doing enough to — because the opportunity seems to be very large. So what preparations are we doing? If you can say whatever possible?

Aankur Patni — Executive Director

Yes, we continue to invest in people, in systems and in other resources to ensure that we are geared up to take on the upcoming opportunities. This is the continuous process. There is a degree of flexibility which one can have in executing these projects. So it’s not like you have to have all the people in your organizations in advance where we get an opportunity to expand the workforce for contract-specific executions. But as far as the infrastructure goes, we have been working on it to take get ourserlves geared for much larger scale of operations than we’re currently in. I can confidently say that with the capabilities that we have added over the last couple of years, we are geared to take in much higher level of executions than what we are currently doing. And we are in a continuous process of augmenting them further.

Operator

Thank you. Mr. Kothari, may we request that you return to the question queue for follow-up question. The next question is from the line of Tushar Raghatate from Kamayakya Wealth Management. Please go ahead.

Tushar Raghatate — Kamayakya Wealth Management Private Limited — Analyst

Yeah. Good afternoon, sir. Congratulations for your good set of numbers. Sir, my question is on the engineering division. Now we are getting a larger ticket size contract. So I just want to understand the guidance which you gave for the current year, will that be maintained to the range of 20% to 30% going forward looking at the current scenario, the order book which you are seeing?

Aankur Patni — Executive Director

Yes. For the year as a whole, we are maintaining the guidance of 30% growth in the top-line.

Tushar Raghatate — Kamayakya Wealth Management Private Limited — Analyst

No, sir, my question is for the next financial year. Considering the bid pipeline, are you — are we confident enough to maintain that group guidance?

Aankur Patni — Executive Director

For the next financial year, I’m not giving out the guidance as yet. But directionally, I can say that the order book that we have needs to get executed over a period of two to three years, and that itself would indicate the next couple of years has to be quite strong. We will be adding more orders to this. And I am quite hopeful that the next couple of years also will be quite good.

Tushar Raghatate — Kamayakya Wealth Management Private Limited — Analyst

Fair enough, sir. Sir, my second question is on the execution UP project. Sir, in the percentage terms, the execution seems to be very less. So is it fair to assume that the heightened expectation — execution will be in the H2 of the contract, like any big contract you take, one year to two to three years, is it fair to assume that the larger execution will happen in the H2 of that respective contract?

Aankur Patni — Executive Director

Yes. The execution tends to be — the invoicing for the contract tends to be a little bit skewed towards the later part because in the [Indecipherable] clicks or bonds, there’s a lot of pre-engineering, designing and mobilization and those kind of things which happen. Ultimately, the invoicing would happen when things start moving on the ground. So that takes a little bit of a time. There is a bulge which would come somewhere in the middle. And thereafter, as the contract moves towards closure, the invoicing will again become lesser. So instead of saying that it is rear-ended, I would rather say it is a little bit more towards the center of the contract.

Operator

Thank you. Mr. Raghatate, may we request that you return to the question queue for follow-up questions. The next question is from the line of Mahesh Agrawal, an Individual Investor.

Mahesh Agrawal — Individual Investor — Analyst

Hi. Am I audible?

Operator

Yes, sir. You are audible.

Mahesh Agrawal — Individual Investor — Analyst

Hi, Aankur and team. Congrats on another consistent quarter. First thing just wanted to understand was around the Portugal subsidy. Is that a European company that we have acquired or is it something we are setting up ourselves? And then kind of what is the scope of the business we are looking at there? Is that for an EPC kind of business or something in the chemical space?

Aankur Patni — Executive Director

The European subsidiary that we have reported is a subsidiary which we have set-up. And that subsidiary will be looking at all businesses. Currently, the major focus would be towards the [Indecipherable] segment. Having said that, we are looking at — we are actively looking at acquisitions in the European and in other markets, including India, and they are relatively advanced stages of discussions on some of these. So once those happen, they will add to our overall [Indecipherable] and reach to these respective markets.

Mahesh Agrawal — Individual Investor — Analyst

Got it. So these would be manufacturing opportunity that we would be setting up or acquiring? So like actual manufacturing on the ground in Europe?

Aankur Patni — Executive Director

Yes, this would aid our manufacturing abilities in the continued also once you reach that stage of maturity.

Mahesh Agrawal — Individual Investor — Analyst

Understood. Got it. Got it. And then the next one was again on the wastewater industrial treatment side. You already spoke a bit about the opportunity and kind of the change you’re seeing in the mindset from companies to adopt these practices. Just wanted to double-click a bit more on that. Has there been a drastic shift in the government laws and enforcement from the environmental ministry to actually start enforcing this? So that was one, to understand is there actually a drastic change in the laws which will kind of push it or is it more just being driven by promoters becoming more ESG-friendly themselves and sort of the PSU in case of like IOCL setting the benchmark there for private sector to follow?

Aankur Patni — Executive Director

It’s a mix of everything. There is certainly much more awareness today amongst the industry captains about what they should be doing for the environment. A lot of it is being driven through the commentary by the various industrial bodies and associations as also on the international front being driven by the various announcements through agencies like the COP26 or the COP28 that we are talking about.

So that certainly is a lot to push initiatives in this front. As far as the government regulations go or the [Indecipherable] with which the authorities have been trying to impose these regulations. The regulations have been quite tight from for quite some time. As we increase the certainty of implementing these regulations, our infrastructure to monitor and control the various parameters associated with these implementations, that ability has gone up.

As we go further the intent of government would help certainly, but the overall ability of the administration to measure, monitor and control, the implementation would keep going up. And the incentive for the industries to not comply will keep going down because more and more — the investors and the consumers are also asking for environment-friendly products and processes. So it’s the whole which is impacting it, not just one or two of these things.

Operator

Thank you. Mr. Agrawal, may we request that you return to the question queue for follow-up questions. The next question is from the line of Agam Shah, an Individual Investor. Please go ahead. [Technical Issue] The current participant has placed the line on hold. We’ll move on to the next question from the line of Akshat Mehta from Sameeksha Capital. Please go ahead.

Akshat Mehta — Sameeksha Capital — Analyst

Hello.

Operator

Mr. Mehta, please proceed with your question.

Akshat Mehta — Sameeksha Capital — Analyst

Yes. So I just wanted to understand a thing that in terms of — so you have all these large projects that are coming in. But can you share some details on what would be average run rate of smaller projects on a quarterly or a yearly basis, what kind of that made that would be?

Aankur Patni — Executive Director

For the small projects, on a yearly basis, Ranadive, would you be able to give a broad kind of a number. So on a yearly basis, I think we’re looking at somewhere around an engineering revenue of roughly INR400 crores to INR500 crores. And these contracts tend to — some of these contracts tend to be as short as about a month or two months and on the higher side, these contracts could be around six to 12 months. So these do move at a fast pace and are not necessarily disciplined in our quarterly disclosures.

Ranadive, please correct the numbers.

N.M. Ranadive — Group Head of Financial Planning and Risk Management

[Indecipherable] is right and these keep on coming. And the performance time is from the one month or two months for the smaller jobs. And small-to-medium, this will be at the most six months time.

Akshat Mehta — Sameeksha Capital — Analyst

Okay. And I just want to understand, on the chemical segment side, your margin improved a lot in FY ’21 from around 15% to 20%, 24%. So what was the key driver of that sharp improvement in margin in FY ’21?

Aankur Patni — Executive Director

Going back to ’21 is a long stretch, as you would have noticed. In spite of a couple of bad years in between, the recovery of the margin is back to the levels of yesteryear’s has been quite good. And my belief is that we will be able to sustain these numbers going forward. But I’ll give a broad response to the kind of improvement that we have seen probably around 15%, 16% levels to 20%-plus level.

One of the things which has contributed is of course that we have improved operational efficiency and operational throughput. The second has been the improvement on the product mix that we will be having certainly with rapid improvements on controlling other costs from various fronts and including your efficiencies and yields in our various plants. So a lot of factors had gone into make sure that the profits are at a higher gig. And certainly, stable input prices have helped to maintain these margins without leakages happening because of supply chain issues.

Operator

Thank you. Mr. Mehta, may we request that you return to the question queue for follow-up questions. The next question is from the line of Jainesh Shah, an Individual Investor. Please go ahead.

Jainesh Shah — Individual Investor — Analyst

Hi. Congratulations on the good set of numbers.

Operator

Mr. Shah, sorry to interrupt you. The audio is unclear from your line. Please use the handset mode.

Jainesh Shah — Individual Investor — Analyst

Is it clear?

Operator

Yes sir. Please proceed.

Jainesh Shah — Individual Investor — Analyst

Yeah. So I have a couple of questions, especially one on the international opportunity that you spoke about. We have seen last number of large-sized projects which we have won largely from the domestic market. However, you’ve always alluded that there are opportunities which we are pursuing in the international market. If you can you just update what kind of situation out there given that the world is — the economies are going through an uncertain periods and how are we placing? And second question is, as you just mentioned that you are looking at acquisition opportunities. Could we just get some sense about which are the areas which you are trying to plug? And what kind of a budget which we have assigned for that acquisitions or for the acquisition purposes? Thank you.

Aankur Patni — Executive Director

The international market opportunities [Indecipherable] to report on an update, but yes, we have been pursuing some large opportunities and these are in the infrastructure segment of various countries. The target, Jainesh, is being in Middle East, Southeast Asia and as well as Africa. The current economic scenario and the scenario which has prevailed for the last couple of years has not been the most productive as far as these opportunities grow. But as we have been maintaining in the past, there is slow progress on almost all of these. But it’s very uncertain to really make a remark as to when exactly this will culminate into an order. We remain hopeful, but we prefer not to read on to a period or a forecast for the next few quarters. Once it happens, certainly, we will come out and make a disclosure.

Jainesh Shah — Individual Investor — Analyst

Just to add up to this, does bid pipelines generally do contain this kind of opportunity or is it without that?

Aankur Patni — Executive Director

No, the bid pipelines do not accept these opportunities.

Jainesh Shah — Individual Investor — Analyst

Okay, okay. Thank you. Sorry. Go ahead, sir.

Aankur Patni — Executive Director

You have put a question on the acquisitions. We are not looking at very large acquisitions. These are small acquisitions in the sub-INR10 million. So that’s why I’m saying small acquisitions. The target being better reach into the various geographies that we are looking at, maybe some technology-related improvements also in creating manufacturing marketing base in the geographies that we intend to make acquisitions.

Jainesh Shah — Individual Investor — Analyst

Okay. Thank you, sir. That’s it from my side.

Operator

Thank you. The next question is from the line of Ramaswamy from IR Investments. Please go ahead.

Ramaswamy — IR Investments — Analyst

Namaskaram, Mr. Patni and the management. Heartiest congratulations for the excellent set of numbers. My question is that India is becoming a semiconductor hub. So any improved visibility are you finding from the semiconductor sector, because water — purified water is one of the components there? So if you kindly elaborate on it? Thank you very much, sir.

Aankur Patni — Executive Director

I’m looking at various opportunities emanating from the semiconductor and the related industries in India. We are actively working on it. And the industry will give us good numbers in the coming quarters.

Ramaswamy — IR Investments — Analyst

And if I may ask, currently, do we supply to any semiconductor industry? Anything executed there?

Aankur Patni — Executive Director

Yes, there are contracts [Indecipherable]

Ramaswamy — IR Investments — Analyst

Okay, sir. Thank you very much.

Operator

Thank you. Ladies and gentlemen, due to time constraint, we will take that as the last question.

I now hand the conference over to Mr. N.M. Ranadive from Ion Exchange India Limited for closing comments. Thank you. And over to you, sir.

N.M. Ranadive — Group Head of Financial Planning and Risk Management

Good evening. Thank you all for participating in this earnings con call. I hope we have been able to answer your questions satisfactorily. If you have any further questions or would like to know more about the company, please reach out to our Investor Relations Manager at Valorem Advisors. Thank you.

Operator

[Operator Closing Remarks]