GMM Pfaudler Ltd (GMMPFAUDLR) Q4 FY22 Earnings Concall Transcript

GMM Pfaudler Limited  (NSE:GMMPFAUDLR) Q4 FY22 Earnings Concall dated May. 25, 2022

Corporate Participants:

Priyanka Daga — Deputy General Manager, Strategic Finance

Tarak Patel — Managing Director

Manish Poddar — Chief Financial Officer of India Business

Aseem Joshi — Chief Executive Officer of India Business

Alexander Pompner — Chief Financial Officer of International Business

Analysts:

Jaiveer Shekhawat — Ambit Capital — Analyst

Harshil Shethia — AUM Fund Advisors — Analyst

Amar Mourya — AlfAccurate Advisors — Analyst

Unidentified Participant — — Analyst

Jason Soans — Ashika Stock Broking — Analyst

Nandakishore Divate — Maximus Securities — Analyst

Siddharth — Private Investor — Analyst

Rohit Ohri — Progressive Shares — Analyst

Viral Sanghvi — Private Investor — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Q4 FY ’22 Earnings Conference Call of GMM Pfaudler Limited. [Operator Instructions]

I now hand the conference over to Ms. Priyanka Daga from GMM Pfaudler. Thank you, and over to you, ma’am.

Priyanka Daga — Deputy General Manager, Strategic Finance

Thank you, Steven. Good evening, ladies and gentlemen. A very warm welcome to all of you into the quarter four FY ’22 earnings call of GMM Pfaudler Limited. The earnings presentation was uploaded on the stock exchanges, and it’s also available on our website. Hope all of you had time to go through it.

From the management, we have with us our Managing Director, Mr. Tarak Patel; our CEO of India Business, Mr. Aseem Joshi; our CFO of India Business, Mr. Manish Poddar; our CFO of International Business, Mr. Alexander Pompner; and our Company Secretary and Compliance Officer, Ms. Mittal Mehta. We will give you a brief overview of the performance of the Company, after which, we will get into the Q&A.

Before we begin with the overview, a brief disclaimer. The presentation which we have uploaded on the stock exchanges, as well as on the website today, including our call discussions that is happening now, contains or may have certain forward-looking statements concerning our business prospects and profitability, which are subject to several risks and uncertainties, and the actual results to could materially differ from those in such forward-looking statements.

I will now hand over the call to Mr. Patel to provide an overview of the performance. Over to you, Tarak.

Tarak Patel — Managing Director

Thank you, Priyanka. Good evening, everybody.

So, I think I would like to start off by giving you a perspective for the performance of the financial year. I think we have seen a significant improvement in revenues across both the India and International Business. We are now INR2,541 crore company. Not so long ago before the acquisition, we were about the INR600 crore company, so a significant change in size and scale. And the International Business has performed exceedingly well, a company that started at about $175 million clocked the revenue in excess of $230 million, which is just fantastic in terms of execution. So, across the board, across International Business and India Business, execution has been fantastic. And the revenue numbers, they speak for themselves.

On the profitability front, yes, we’ve had a bit of impact on profitability. This is due to obviously the commodity price increases, metal prices have increased significantly, and in some European countries, namely Germany and UK, we’ve had an impact due to energy costs. We’re already seeing cooling off of metal prices and, hopefully, if this continues, we would see a positive impact on profitability in the coming quarter.

In terms of order backlog, we begin this financial year with a 30% higher backlog than previous year, which is a very strong and healthy backlog for us. In most of our sites across the world, we have about six to eight months of backlog, in some, even more than that. So, we have good visibility for the coming year. The focus for the coming year is obviously to look at internal cost control, to look at ways of increasing profitability and maintain a similar level of execution for the next few quarters as well.

From a capex standpoint, a couple of interesting development. Our Hyderabad furnace is now up and running. We got the final connection a few days ago, so that will add capacity to cater to the Hyderabad and Vizag area. Our Brazilian furnace came online a few months ago and will help us cater to the US market. The new furnace in the US is also under the commissioning and will come on board shortly. And then lastly, we have ordered a new furnace for Gujarat, which should come online some time in September, will also a lot of capacity, both for India and for supplying internationally as well.

Our Vatva facility is now fully ramped up. We have about 200 people employed there. It’s running at full capacity. We expect Vatva to have a good impact on overall growth story here in India.

In terms of the industry that we cater to, chemical still continues to be the driver for us here in India. Agrochemical and specialty chemical continue to invest. The China one story is playing out quite nicely, and we expect investments to continue. With the cooling off of metal prices, we believe that some of the projects that were on hold, will now be reinstated and new business will be coming in. But having a strong opportunity pipeline, there are many large projects that are going to be ordered in the next few months, and we see the next few quarters to be very strong from an order intake standpoint.

We had also a bit of revival in the pharmaceutical industry. There is the PLI scheme which is creating new capacity in Hyderabad and Vizag. A lot of the Hyderabad-based pharma companies are looking at setting up fermentation plants and that would obviously will lead to business for us in the [Indecipherable] front, that’s where we have some technology on fermentation and these large fermentation that will require aggregators which obviously GMM Pfaudler can supply.

Across the world as well the investments continue. Backlog remains high and new orders are — they’re coming in. However, as I said, the only concern is the commodity pricing and energy cost, and if it does to kind of go downwards, you will see that impact profitability in a positive manner.

Besides that, I also would like to inform you that we have added a new Independent Director, Mr. Prakash Apte, who is currently the Chairperson of the Kotak Bank. He will join our Board and he will replace our Chairman — after our Chairman retires after the AGM in August. So, very good addition to our Board. He brings in a lot of knowledge and experience, and from a governance standpoint, having worked with Kotak Bank, I’m sure he’ll bring a lot of experience to the table as well.

With that, I would like to hand over the call to Manish. Manish will take you through the quarter and the financial numbers for the year, and then — we can then open it up for Q&A. Thank you very much.

Manish Poddar — Chief Financial Officer of India Business

Thank you, Tarak. Good evening, all. So, let’s move to the consolidated results for the quarter.

Consolidated results, we were — on the revenue front, we were just shy of INR700 crores, with a 9% growth over quarter three. EBITDA margin stood at 10.2%. Cost pressures continued for the quarter as well on account of metal and energy. However, on a business outlook perspective, we have a strong backlog of INR1,932 crores, which is 30% higher than last year. So, which reflects a strong business outlook for the future.

Moving onto the full year for consol results. We clocked a revenue of INR2,541 crores, with an EBITDA of INR330 crores at 13% margin. Here, it’s important to mention that during the quarter we had INR17 crore of deferred-tax asset being charged off to the P&L. This is related to the previous year, and this is a non-cash item and helps us in cleaning up the balance sheet. However, in cleaning up, this deferred tax asset has to be charged to the P&L and, therefore, you see a higher tax charge for this quarter to that extent.

Moving on to the cash flow statement for the full year. We generated INR270 crores of cash from business. Out of that, INR99 crores was reinvested back into the business on account of working capital and capex; and thereafter, INR124 crores was repaid on account of tax, lease, interest and dividend payout; and the balance INR48 crores is added to the cash in hand.

Moving on to the consol balance sheet. Our balance sheet continues to gain strength. Our net debt to EBITDA is at 0.5, net debt to equity stands at 0.3, and it was also heartening to note is pension liabilities have gone down from $60 million to $50 million. As the interest rate raise, the present value of the future payables go down as per the actuarial valuation. So, this helps us in reducing the pension liabilities as well.

Moving on to the profitability metrics. EPS continues to grow to INR91.4 per share. ROE and ROCE also show now in a healthy zone; ROCE being at 22% and ROE being 25% plus. That obviously seems that the Pfaudler acquisition has been value accretive for the shareholder.

On integration, Tarak already mentioned. If you think about it.

So, we can go to the income statement for the quarter four. This is probably the last quarter where we show this breakup in Slide number 15, between what the business has performed, what the accounting adjustments have been and stacking up to the reported numbers. The only significant item is on the column C, taxes, INR17 crores is something that we spoke about already.

In the interest of time, the rest of the slides we may skip, but as we may just go directly to the last slide, which is Slide number 30, on account of working capital. On the working capital, on the left side, you see the consolidated numbers. Inventories have risen from INR530 crores to INR670 crores. Obviously because of metal price hedging, we have to buy more material, but what is heartening to see is customer advances have also risen from INR288 to INR422 crores. So, therefore, the net funding at a group level remains almost stagnant from INR242 crore to INR247 crore. So, the inventory days also, in net-net, have produced on a consol basis, although the backlog have risen from INR1,500 to INR1,900 crore.

Trade receivables have been managed well at — stayed static at 51 day. Payable also have been extended from 48 to 56 days, and primarily on the account of India. And as we move on to the standalone numbers, you see inventories have risen in India from INR113 crore to INR231 crore, and you can appreciate that India business is primarily on account of technology and [Indecipherable] services component, so we had to make sure that the backlog — the higher backlog, we had to make sure that inventories are in our hand to avoid any metal price increases. Therefore, the inventory days have been increased from 32 to 61 days for the March 31, 2022. However, that — these, we have tried to reduce on the working capital side by reducing from 64 to 54 days and payables increasing from 53 to 71 days. By doing these two pieces, we have tried to maintain the cash conversion cycling.

With this, we can open the call for the Q&A. Operator?

Priyanka Daga — Deputy General Manager, Strategic Finance

So, Steven, maybe we can open the call for Q&A. We’ll be happy to answer any question that the analysts have.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Jaiveer Shekhawat from Ambit Capital. Please go ahead.

Jaiveer Shekhawat — Ambit Capital — Analyst

Sure. Tarak, firstly, in terms of the strategic plan that we are waiting, could you please throw some light on the avenues for the growth for revenue as well as improving your profitability as well as your revised guidance for the consolidated entity as well?

Tarak Patel — Managing Director

Right. So, we are currently working on our new equity story as well as our future outlook. We are currently in the process of getting this done. Due to the uncertainties in the global market, it is taking a bit longer. However, for the next year, I would say that obviously, the International Business grew 20% plus. I don’t think that’s going to continue. The idea for the International Business next year to really focus on profitability. But the India Business obviously will continue to grow. We have two new factories here; one in Hyderabad and one in Vatva, which will definitely add significant revenue and growth here in India. But from a timing standpoint, we are now looking at August to have a Capital Markets Day, and come out with a new three-year equity story, plus kind of a guidance document. And I think that is when we will be more comfortable to give you some kind of guidance.

Jaiveer Shekhawat — Ambit Capital — Analyst

Sure. And also we understand that the employee expenses for your international operations, they stand at roughly 20% of the revenue. So, wanted to understand what kind of revenue growth — revenue ramp up are we looking at, so that, that percentage of employee expenses at consolidated revenue comes down to more manageable levels for the international operations?

Tarak Patel — Managing Director

So, I think currently the focus in the International Business is improving profitability through internal kind of initiatives. I think many of them will — like for example let’s say operational excellence. The two new factory in Germany and China are now running at full capacity, so there will be better absorption definitely over there. We are also looking to penetrate new market through India-made value sourced equipment — fully made Indian equipment into some European countries like, Spain and Russia and the US. We also look at — Germany buys a lot components from India. So, all of these will help us increase revenues.

But just to give you a number in terms of revenue growth, I think it’ll be too early. I would say the European businesses grew in the range of 5% to about 7%. This year has been an exceptional year. You will see some growth there, but I’m not very comfortable to give you a definite number right now. Maybe in August, I’ll be in a much better position to do that.

Jaiveer Shekhawat — Ambit Capital — Analyst

Sure. But any update in terms of how much more investments will you have to make in manpower over there in order to grow your international operation, or…

Tarak Patel — Managing Director

No. So, there is no plans of adding people anywhere. And just to add here, not a single employee has left the Pfaudler Group since the acquisition. We are not adding any people. We’re just maybe one furnace in Brazil to cater to the US market, because Brazil acts as a low-cost source for the America. In Americas, we are refurbishing an equipment. So, there is no real major capex going on.

If anything, we would even look to rationalizing some manufacturing, we could build right now. We have three facilities in Europe, maybe one too many. So, we could look there as maybe a way of rationalizing our manufacturing. And as more and more stuff moves to India, we can use India to do the heavy lifting and then the final assembly, the testing, the finishing can be done in the European or the American facilities.

Jaiveer Shekhawat — Ambit Capital — Analyst

Sure. Thanks a lot.

Tarak Patel — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Harshil Shethia from AUM Fund Advisors. Please go ahead.

Harshil Shethia — AUM Fund Advisors — Analyst

Hi, sir. Sir, I just had a question, looking at the International Business, our order intake has drastically dropped for the quarter. So, what might be the reason for it? Are we seeing that the demand environment is very [Technical Issues] prices or what is happening? Can you just elaborate?

Tarak Patel — Managing Director

No. So, there are a certain kind of few items which obviously has impacted international profitability. One is an impact of higher energy costs in the range of about EUR300,000, which is maybe a 0.5% impact on profitability. On top of that, we’ve had a large orders for Russia in the range of about $700,000 odd, which we had provided for, because obviously due to the war, we were not able to ship. And there is another provision for a one-time expense for an M&A. We are planning to sell one of our group companies in the portfolio. So, that has also been provided for. So, about basically a 1.5% impact on profitability of the International Business just coming from these one-off items.

Harshil Shethia — AUM Fund Advisors — Analyst

Okay. And are the new orders which are currently being taken are at higher margins?

Tarak Patel — Managing Director

Yeah. So, we’ve been very sticky and choosy. We’ve changed our strategy over the last few quarters. We’ve kind of held our nerves and decided to kind of wait it out. And I’m happy to kind of the report that we have been able to really win really good margin business, especially here in India for the glass-lined business. Internationally, we have always managed to get a premium, and they’ve always been quite clear in terms of what orders they would take. So, I think the quality of our backlog has definitely improved in terms of margins. And hopefully, if the metal prices support — starts going down, then you will see a double impact probably, one on pricing front and one on the lower input cost front, which will then, obviously, positively impact the profitability.

Harshil Shethia — AUM Fund Advisors — Analyst

Okay. Sir, earlier, when we had acquired Pfaudler Inc., we had a four year plan and we had guided for 14% EBITDA margins. So, can we say that it can be achieved in FY ’23 itself with our focus now on profitability rather than from revenue growth?

Tarak Patel — Managing Director

So, we always try to improve profitability. But I would just give you a kind of — just as you wait till August, everything will become quite clear. As a group, we definitely see a lot of possibility both in terms of growing revenue through new market, profitably improvement through some of these initiatives that we’re working on, like low-cost sourcing, like cost optimization. So, we are really working hard to make sure that we come back to a good level of profitability. And that’s something that we will definitely come back to you maybe in August and give you some kind of guidance in terms of what the next few years will look like.

Harshil Shethia — AUM Fund Advisors — Analyst

Okay. Sir, I had a few questions on the India Business also. So, is our Vatva facility now up and running at full utilization levels or still is it in the ramp-up phase?

Aseem Joshi — Chief Executive Officer of India Business

Hi, this is Aseem Joshi. Yes, our Vatva facility is fully up and running now as was — in Q4. So, we have a healthy backlog there as well. So, we do expect a lot more products to be shifted out of Vatva in this financial year.

Harshil Shethia — AUM Fund Advisors — Analyst

Okay. At full utilization levels, what kind of revenues can it contribute to the overall India Business?

Tarak Patel — Managing Director

So, it really depends on the product mix, the material of construction, etc. So, ultimately this can be about INR400 crore or so, which will quite really come down to what products are being made and particularly what material of construction we may use. But it’s roughly that [Indecipherable].

Manish Poddar — Chief Financial Officer of India Business

At its full capacity in coming year.

Harshil Shethia — AUM Fund Advisors — Analyst

You said INR150 crores, right?

Manish Poddar — Chief Financial Officer of India Business

No. The INR400 crores is what the plant capacity is. Last year, we closed the Heavy Engineering business, I think about INR120 crores — sorry, INR140 crores. So, you will see a significant improvement this year, because, as you just heard, now that factory is fully ramped up and would add significant revenue for that business.

Harshil Shethia — AUM Fund Advisors — Analyst

And sir, on the last part of the question, our order intake for Q3 was INR696 crores for the International Business, which has dropped to almost up at around INR343 crores. So, what might be the reason for that?

Tarak Patel — Managing Director

So, this is a combination of reasons, but I think overall, it was basically to make sure that we book a good profit — good margin orders, because we had a strong backlog. So, the strategy was obviously to go after very lucrative business. In Q1 this year, we’ve already had a record April month, more in India and internationally, and they are pretty much now back to the similar level of order backlog. So, I think we are okay from that standpoint.

Operator

Thank you. The next question is from the line of Amar Mourya from AlfAccurate Advisors. Please go ahead.

Amar Mourya — AlfAccurate Advisors — Analyst

Yeah. Am I audible, sir?

Tarak Patel — Managing Director

Yes, go ahead.

Amar Mourya — AlfAccurate Advisors — Analyst

So, sir, couple of questions from my side. Like, what would be now the current facility of GLE in India at this point of time? And what would be the utilization level in this quarter?

Tarak Patel — Managing Director

So, the current capacity before the new furnaces will come in, this is not counting the new furnace in Hyderabad that just came online a few days ago and the new furnace in Gujarat, would have been around 3,000 EU per year range, 2,400, 2,500 in Gujarat and about [Indecipherable] in Hyderabad. So, the 3,000 would be the total the capacity.

Aseem, you want to jump in?

Aseem Joshi — Chief Executive Officer of India Business

No, I think, that’s about the total capacity.

Tarak Patel — Managing Director

Yeah. But with the new furnaces coming in, we will, at that point, also need to update the capacity, because the new furnace in Gujarat is the large furnace and will add a good amount of capacity. The Hyderabad one also will add capacity, so we might need to come back with a new number on the total yield capacity here in India.

Amar Mourya — AlfAccurate Advisors — Analyst

Okay. And what would be the utilization in the current quarter?

Tarak Patel — Managing Director

I would say full capacity. I think both the plants were running at full capacity — they were on full capacity. Obviously, the last line in furnaces run 24/7 in three ship, fabrication run for two ship. So, I think we are pretty much at full capacity. In Hyderabad, we’ve also made some changes to the [Indecipherable]. We tried to kind of bring in operational excellence. So, there will be some improvement possible, but generally we are running at 80%, 90% utilization.

Amar Mourya — AlfAccurate Advisors — Analyst

Okay. And the India now, sir, since the metal prices and the glass lining everything has gone up, so like earlier, you used to guide like the per unit realization for the GLE in India would be around INR20 lakh. So, it would be around — what would be the average realization now?

Tarak Patel — Managing Director

So, actually I think the INR20 lakh number is on the higher side. What we had I think — so, our normal one EU, which is about 6,300 meters is about INR16 lakh-INR17 lakh odd, that was the current price range is, it would have increased since then, but the new side might have also increased. I don’t have the data on the top of my head. But knowing that we’ve increased prices over the last few months, I would think that those prices would definitely have increased.

Amar Mourya — AlfAccurate Advisors — Analyst

Okay. And sir, now, this glass line, specifically for India, this quarter the revenue has de-grown, but you are indicating now from here on as the new capacities are there and you can expect a good order book in this particular year. So I mean, what should we expect, like what kind of growth in the GLE standalone business could be in the next year?

Tarak Patel — Managing Director

So I think — I don’t think we have de-grown in the glass line. I think glass line year-on-year, we are actually [Speech Overlap]

Amar Mourya — AlfAccurate Advisors — Analyst

I’m talking about the quarter.

Manish Poddar — Chief Financial Officer of India Business

For the quarter, maybe a bit of a…

Tarak Patel — Managing Director

Yeah. But — so, when you compare questions of shipment that was sent out and maybe some the customers didn’t lift, but generally our glass line business now with the new capacity coming in, we should be growing at double-digit early in kind of number. Again, with the market share that we have, which is at currently excess of 50%, a significant improvement in market share will come at a cost, right. So, we don’t really want to go after the low end of the market. We want to kind of stabilize our market share, but really go and take the high-value order.

If we have excess capacity, I would rather use it to either to export to the Pfaudler Group, which obviously is much more lucrative, to really focus on the services and spare parts business again. It’s not a very large component. We expect that business to grow over the next few years, because the number of equipment that we keep the plant in Indian market will continue to grow. Our installed base has increased to maybe now to 20,000-30,000 reactors in India. They all are aging. So, hopefully, that will be another lever of improving profitability. But in all in all, the focus is definitely to kind of pick and choose the right business going forward.

Aseem Joshi — Chief Executive Officer of India Business

And I just like to add to one thing that Tarak said, the premise of the question was about de-growth quarter-on-quarter. We actually have grown just a little bit, from Q3 to Q4, we’ve actually grown in [Indecipherable].

Operator

Thank you. [Operator Instruction] The next question is from the line of Ashish Kabra [Phonetic] from Fairdeal Traders. Please go ahead. Mr. Ashish Kabra, your line is in talk mode. Please proceed with your question.

Unidentified Participant — — Analyst

Yes. So, Tarak, two small questions. One is, what will be the margin guidance for FY ’23? And like can you share some revenue guidance also, not for the next year, but for like FY ’24 or FY ’25?

Tarak Patel — Managing Director

So, the guidance for next year, in the end, like I said, focus will be definitely on improving profitability. I think currently the India Business is around 17% to 18% EBITDA margin. I would like to believe that we would be maintaining something along the same lines, maybe improving it slightly. The International Business are currently around 9% to 10%. I think you’ll see some improvement there as well. If we are then supported on top of that with metal prices going down quite a bit, that would just further add to the improvement as well.

Obviously, keep in mind that there’s definitely a lag between the time the prices come down to the actual time that we use these materials. So, there will be a short lag of maybe a quarter or a few months. But otherwise, I think that in these kind of challenging environment, I think the focus should be more on internal cost measures to look inward and see where are the areas that we can really kind of be very much more efficient. So — but otherwise, I think that these levels that we currently are enjoying, obviously both India and international, should be quite easy to maintain if not improve upon.

Unidentified Participant — — Analyst

Okay. And, Tarak, any revenue guidance like if you can give for FY ’23 or ’24?

Tarak Patel — Managing Director

In terms of revenue guidance?

Unidentified Participant — — Analyst

Yeah.

Tarak Patel — Managing Director

Yes. So, maybe just wait till August, everything will be quite clear. We are working on it. Obviously, we had a plan in place, but these challenging times have kind of impacted obviously a little bit in terms of the outlook, but we have something for you very shortly.

Unidentified Participant — — Analyst

Okay, thank you.

Tarak Patel — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Jason Soans from Ashika Stock Broking. Please go ahead.

Jason Soans — Ashika Stock Broking — Analyst

Sir, one question I just wanted to ask in terms of the shift. So when you look at pharma and chemical capex, a lot of pharma chemical capex, clearly the trend has been shifting from the high-cost destinations, which are US and Europe, to the East. So, countries like China, India, benefiting from this demand shift, especially due to low cost and various other advantages. So, now I just wanted to understand, sir, of course, a lot of volatility all over the world and clearly there is a mark shift here. So, what I understand is, there is a China-plus one — China-plus one shift for sure, and there is also another shift, which is seen — a lot of is high-end work countries have kind of realized that it’s not wise to depend upon a certain country, X or Y. So, basically you do all the high-end work, these pharma chemical capex or whatever, but keep it to yourself. It’s sort of a protectionist measures. So, are you seeing this trend being developed all over the world? And if this trend does develop, it will really benefit Pfaudler, as in your acquisition as well, and your value sourcing and other strategies. Do you see this kind of strategy being played out, this trend being played out — China plus home country, that kind of trend being played out over the world? Do you see this trend taking shift?

Tarak Patel — Managing Director

Yeah, so I tend to agree with you. There is definitely two major trends happening, the India trend in investment and having a kind of a derisking of China is definitely happening. You can clearly see that with the kind of work that is going on for company like SRF, PI Industries, Decan [Phonetic], a lot of product is moving from China to India. And that’s a very small percentage. So, even if another 5% or 10% move to India, that would be a massive, massive amount and would require a massive amount of capex, right. So, that’s definitely a trend that we’re seeing. We also know that the Indian consumption of specialty chemicals, agrochemicals, will also keep increasing. So, that’s something that will continue to be a strong driver.

Many of the chemical companies have recently kind of got listed be in capital market. So, those guys will also continue to — need to add capacity to obviously maintain their growth momentum. So, all these things, you will definitely see investments in the chemical sector here in India. The fewer chemicals [Technical Issues] the actions are also much more critical. So, the need for higher quality, bigger sizes also increase. So, that’s where we really have a very strong foothold. So, that would be definitely something that we would really want to go after.

On the international standpoint, I completely agree with you. What we’ve seen over the last maybe 18 months is, there has definitely been this kind of nationalistic drive where countries were over-dependent on India and China, are building local redundancies. They were dependent on lifesaving medicines, like antibiotic and paracetamol from India and China, and then during the pandemic, obviously, overnight everything stopped, right. So, I think that kind of a revival is being seen. We’ve seen this clearly in Europe. One of our subsidiaries Mavag has nearly a two-year backlog, which we’ve never seen in our life. It’s something that is driving this, and this drive that’s already been created by new capacity being created in Europe. Similarly in the US, we have had a large order in the US for latex manufacturing, again, something that they were dependent on Malaysia for, but they want to create capacity within their own geographies as well.

So, I think the two trends will be continue and obviously bodes well for GMM Pfaudler India but also for the International Business.

Jason Soans — Ashika Stock Broking — Analyst

Sure. Thank you, sir. And another question I had is, in terms of manufacturing process, so obviously you’re the forefront in GLE equipment. So, I just wanted to know in sort of the core DNA, is there a difference between the manufacturing process different, for example, just if I were to take it in local context, [Indecipherable] last quarter is the second in market share. So, is there a major difference within the manufacture? I understand Pfaudler has glass deal with is patented and trademarked. So, just wanted to understand, is there any significant difference in terms of manufacturing or technological difference between these two, if you could elaborate?

Tarak Patel — Managing Director

[Technical Issues] really is the same process that they would follow. They might have different firing cycles for the different glasses. But really where the technology comes in two areas. One is the quality of welding that you do, because glass lining by its nature if welding is not good enough will kind of chip off and will be damage quite quickly. So, welding becomes very important. And two is the formula of the glass itself, right. So, this is a Pfaudler glass that has been developed over the last maybe 100 years, has keep gone through improvement. Pfaudler Germany works with the local universities, and we are actually currently working on a new glass, which we hope to launch maybe in the next few quarters, ESG compliant glass, which is heavy metal free, good for the environment, that’s something that we’re working on. But glass is basically the technology that differentiates our equipment with somebody else’s. And that would directly correlate to the life of the reactor, the life use of the reactor, the better the glass formula, better the glass quality, the longer the reactor will last.

Aseem Joshi — Chief Executive Officer of India Business

Yeah, I’ll just add. I mean, at a macro level, the process is similar, right, and would be to think of it is in terms of an analogy perhaps is car. So, is that you’re going to be same as a Fiat isn’t same as Ford, clearly they all are building cars, but the product you had at the end of the day, very different. So, similar in glass line vessels, our vessels last longer, provide greater performance and therefore, ours is preferred choice amongst the customers.

Jason Soans — Ashika Stock Broking — Analyst

Sure. And sir, just wanted to also if you could elaborate, it just gets talked about less, you clearly had a brand strategy realignment and a global plan as well. I can clearly see that. So, could you talk about more such initiatives such as Mixion, Interseal, Equilloy, which gets talked about less actually in con calls or other aspects. So, if you could just throw some light on Interseal, Mixion, Equilloy, what plans do you have for taking these sub segments forward?

Tarak Patel — Managing Director

Yeah, that’s a good question and we only to talk about glass line, because you only ask us about glass line, So it’s not like choice that we would like to speak about glass line, but that’s obviously a big chunk of our business and people understand that. So, that’s why the main — the most of the question come along. But we recently completed our rebranding exercise. So we now have a unified global brand. We have a common website within the group. Everybody will move to a gmmpfaudler.com website, there’s clear alignment. Our team, myself and Manish were in Germany last week. We had factory visit to the glass line facility in Waghausel. We went and saw our lab process, which were made in Normag, and like you mentioned, we went and met the people at Interseal.

Interseal, the dry9000 is a very, very high technology mechanical steel that went really well. When Pfaudler bought this company few years ago, it was a revenue of $3 million, today it’s talking about $10 million of revenue. So, in three years — in one and a half years, it has grown to three times. Very profitable. They have developed a mechanical steel that we call ace5000 for the Indian market, specifically fully made here in the Indian market. We’ve launched that already. We expect those sales during India to improve. The good part about mechanical steel, it also gives a lot of aftermarket business with the service and components and the spare part of mechanical steel is also very lucrative. We now plan to launch this ace5000 steel in the Chinese market. We decided hiring the [Indecipherable] there dedicated for this mechanical steel. Again this market could be as big as $10 million, $15 million in the first three years, right. So, huge amount of the potential there.

Then, like you said, we have Mixion agitation where we kind of are mainly an India-based player where we sell about INR70 crores odd of agitators. We are in the process of now working with fermentation. So, we received a very large order from Hyderabad-based company for agitation for fermenters, which is for Benjie [Phonetic] plant that they are putting up. So, that could be a great area for growth as well.

And then HDO is our Heavy Engineering business. Again I spoke about this earlier that our Vatva facility will be fully catering to that. And then [Indecipherable] is also a nice interesting business. Obviously, it’s something that is growing. We expect that business to double in size in the next two to three years as well. And that is very large process equipment, so they’re kind of all glass equipment that’s going to any of the pilot plant.

So all in all, we have a nice portfolio of products. We are kind of interconnected, we put the same customer, so cross selling becomes quite easy for us. And the idea eventually is to kind of build on this portfolio, add more complementary products, so we can kind of have a wider basket of products that we can go and sell to the customer.

Jason Soans — Ashika Stock Broking — Analyst

Sure, sir. And if — just last quarter has been very volatile in terms of world markets, you take any aspect, that’s been quite volatile, in terms of the Russia-Ukraine war etc. and lot of other factors. Just wanted your sense on the end market demand, domestic and export both? And any major impact of the Russia-Ukraine on European demand especially?

Tarak Patel — Managing Director

No. So, I don’t think there has been any impact of the Ukrainian crisis on the demand in Europe. What happened is energy costs have gone up in Germany and in the UK, but generally otherwise the business environment is quite strong.

Alex is here. Maybe Alex, you want to add a word on what the economic situation is like in Europe?

Alexander Pompner — Chief Financial Officer of International Business

No. I could fully echo what you just said. So, energy cost is definitely the key impact on us. But — otherwise we are fine and with our Russian business, it’s so far also comparatively small.

Tarak Patel — Managing Director

Yes. So, we didn’t have too much exposure in Russia. Russia was the market that we would have liked to kind of enter into. So, that already is pushed back. But generally, I think the business environment continues to be quite positive. I mean, obviously [Technical Issues] start returning to normal that would be definitely a better situation. But otherwise, I don’t think that it’s really something that impacting business in the long term.

Operator

Thank you. The next question is from the line of they Nandakishore Divate from Maximus Securities. Please go ahead.

Nandakishore Divate — Maximus Securities — Analyst

Hello? Sir, year is over and I think very much congratulations in place. Congratulations, Tarak, to your Indian team as well as overseas team. I think they’ve done fantastic job. I normally don’t go through quarter-by-quarter performance. I only look at it from years, so from where we came, I think we have come to tremendous position.

Tarak Patel — Managing Director

Thank you.

Nandakishore Divate — Maximus Securities — Analyst

So, congratulations on that. I have just one simple question though. I didn’t see it cover, maybe you covered it elsewhere, and that was not pertaining to the company in the plan, can you take us through the rationale of the bonus?

Tarak Patel — Managing Director

Yeah. So the bonus, I’ve been getting this question over the last five years since I took over as MD, so every year during the AGM or some of the investor calls, I always get when the next bonus would be. I think the idea behind the bonus really — and this is something that we were getting requests from investors, fund houses, that they would like to be part and participate in our growth story. However, the availability and the liquidity of the share were something that was holding them back. Hopefully, this bonus issue will kind of help us increase liquidity. It’s a tax-efficient solution for the shareholder who currently hold GMM Pfaudler shares. But the idea really is to kind of increase and improve liquidity.

Also after completing the acquisition, there were obviously questions around Indian companies buying international businesses. Many of them did not do so well. I think today, after one year of fully integrating both businesses, I can proudly say that we’ve done a fantastic job, both in terms of revenue. I see the motivation, the experience within the group. I was there just meeting people. Everybody is excited to be part of this company now. They finally have an owner that understands the business, who is continuing invest in the business.

So, I think that we are now in a situation where you will see benefits accruing over time and it’s a good time to also reward shareholders who stood by the company for these many years. And after one year of the integration now fully complete and back to business as usual, I thought — we thought that it will be a nice time to reward our shareholders as well.

Nandakishore Divate — Maximus Securities — Analyst

Very good. In fact that’s the perfect answer that I was looking for. Has it been anything else, I may have been a little disappointed, And really I would like to repeat, it’s a fantastic performance in this challenging conditions. So, what your team undertook was a daunting task. I think you can pat yourself, take a bow, sir. Thank you very much.

Tarak Patel — Managing Director

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Siddharth, an Individual Investor. Please go ahead.

Siddharth — Private Investor — Analyst

Hi, congratulations on the results. I just wanted to know the rational behind the Edlon divestiture, given that — I mean based on what little I’ve read, at least it seems like quite a fit [Indecipherable], which is also profitable?

Tarak Patel — Managing Director

Right. So, Edlon is a product that is not core to our main business, has a different customer base. So, that’s why, as part of our portfolio, we will be adding companies, but I think the only way to also remove something that’s not really adding too much value. Even though the company does a revenue of around $12 million and about $2 million of EBITDA, for the next level of that company’s growth, we would have to invest another $2 million to $3 million into that business, which we are not sure if we would like to do. And being, — the Edlon has quite a good brand globally. And if we could get a good valuation for it, I think it’s better to kind of divest Edlon and use the proceeds to kind of add a new company to the portfolio that kind of fit in much better with the complementary aspects of our business.

Siddharth — Private Investor — Analyst

Sure. Thank you.

Operator

Thank you. The next question is from the line of Rohit Ohri from Progressive Shares. Please go ahead.

Rohit Ohri — Progressive Shares — Analyst

Hi, Tarak. Continuing with the question for Edlon, what sort of the approximate valuation you think you’ll will get from sale of this segment?

Tarak Patel — Managing Director

So we don’t know yet, as the process is onwards. But I think the book value is about INR100 crores. [Speech Overlap] Book value of about INR100 crores. We don’t know. We haven’t got this yet, but depending on the demand we always would like to buy cheap and sell expensively, so hopefully, we can get a good value for it.

Rohit Ohri — Progressive Shares — Analyst

Okay. There is another property that you intend to sell in Mumbai. Can you take us through that, what was the area and what is the square meters of that property?

Tarak Patel — Managing Director

Okay. I think square meters, I would not know. But it’s our old office building. We actually moved from Lower Parel to Wadala office. We have a much bigger office, and that office currently is not being used to full capacity. We would rather use the funds for better cash management, that was in own office that we owned. It is a prime real estate on the top floor of Peninsula Tower. So, there will be high demand for it, So that was one thought behind it. The other was the residential apartment that the company owned. I think that also in a building that has become century older. So, it’s a good time to kind of divest that as well and use the proceeds for business purposes.

Rohit Ohri — Progressive Shares — Analyst

And the approximate value of these two properties would be?

Tarak Patel — Managing Director

I don’t know off-hand, but when we bought the office, the office was around INR5 crores or something like that for about 6,000 square feet, if I remember correctly, something on those line. It was very early on. We bought it really in the early 2000s before Lower Parel was even Lower Parel, so…

Rohit Ohri — Progressive Shares — Analyst

So, you’ve got a good value in Lower Parel. Okay. You touched upon parking the proceeds in some new business. What sort of business are you looking at? Will you be going through a green chemistry kind of a business or something that you would like to share?

Tarak Patel — Managing Director

So, we are always looking out for good company. The M&A market in Europe is hot right now. I think lot of people look at Pfaudler now being a global company to piggyback on Pfaudler to really give them the global reach. So, we get a lot of request and a lot of the MoU, the memorandum, to kind of look at. But we really want to get into businesses that are very similar and cater to the same kind of customer base that we’re currently catering to.

And like you rightly said, we would love to get into something on a technology process, green chemistry, automation, digitization, those are the kinds of things that — see, as a company, we have a very strong base and we have a very strong brand name. But I think we need to kind of bring in new tech, new age technology to kind of really add value.

Aseem, do you want to jump in and…

Aseem Joshi — Chief Executive Officer of India Business

Yeah. As you said, we always run a very disciplined process around the targets we go after, and we’ll continue to do so. So, you will see our track record is pretty strong on the portfolio of companies that we have. And you can expect the same, if not more, in years to come.

Operator

Thank you. The next question is from the line of Harshil Shethia from AUM Fund Advisors. Please go ahead.

Harshil Shethia — AUM Fund Advisors — Analyst

Hi, sir. Sir, I just want to ask our — is there furnaces in Germany are gas-based or?

Tarak Patel — Managing Director

No, they’re electric furnaces in Germany and in the UK.

Harshil Shethia — AUM Fund Advisors — Analyst

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

Operator

Thank you. The next question is from the line of Ashish Kabra from Fairdeal Traders. Please go ahead.

Tarak Patel — Managing Director

Ashish, we can’t hear you.

Unidentified Participant — — Analyst

Yes, Tarak, can you hear me now?

Tarak Patel — Managing Director

Yeah.

Unidentified Participant — — Analyst

Yeah. So, one small question from my side. In the presentation, you actually mentioned that you are looking to increase the wallet from the — from our UK business. So like, what kind of synergies are you seeing till now like go to panning out?

Tarak Patel — Managing Director

So, I don’t think it’s very specifically with our UK business, it’s the general statement for all our businesses where we have opportunity to kind of — and the potential to sell Indian-made equipment. There are customers in certain geographies in Europe, some parts of South America, east — Southeast Asia, that are value buyers, and it would definitely make more sense either building the entire vessel here in India or also looking at maybe a hybrid solution where we build most of the vessel here and some component from the other geographies.

So, low cost sourcing from India will obviously pick up steam. In the first year of this program, this year, the budget was already crossed by about 300%. So, we’ve already done exceedingly well in terms of this program. We also now planning a stocking sales, a program where we will stock equipment in Europe for the European market, that will be sold by our German entity. So, all these things are progressing quite well. And the idea behind that is to really kind of come and get business that usually was not coming to Pfaudler.

Unidentified Participant — — Analyst

Okay, thank you.

Operator

Thank you. The next question is from the line of Jason Soans from Ashika Stock Broking. Please go ahead.

Jason Soans — Ashika Stock Broking — Analyst

Yes, sir. Thanks for taking my question again. You highlighted some one-offs actually. I kind of missed on that. Could you just repeat that?

Tarak Patel — Managing Director

On what, sorry?

Jason Soans — Ashika Stock Broking — Analyst

You had mentioned some one-offs in the quarter in the initial part of the call, but I missed that part. So…

Tarak Patel — Managing Director

In International Business, so the Edlon sales, there was EUR300,000 provisions for that. There is a power cost increase in the range of $300,000 between Germany and the UK as well. And there is a EUR700,000 provision made for an order which was manufactured, but we were not able to ship to Russia. So, these are obviously one-off and won’t be recurring, except for the power cost, if that continues to go up and that will continue, but otherwise, the other two are definitely one-off.

Jason Soans — Ashika Stock Broking — Analyst

$300,000 of power cost increase and $700,000 [Phonetic] provision for the Russia — for the Russian order?

Tarak Patel — Managing Director

Yes. And another $300,000 [Phonetic] for the Edlon sale, associated with Edlon sales. All in all, about EUR1.4 million, which probably impact profitably at the international business by about 1.5%.

Jason Soans — Ashika Stock Broking — Analyst

Okay. So, the total amount comes to how much did you mention?

Tarak Patel — Managing Director

EUR1.4 million.

Jason Soans — Ashika Stock Broking — Analyst

EUR1.4 million?

Tarak Patel — Managing Director

Yes.

Jason Soans — Ashika Stock Broking — Analyst

ERUR1.4 million. Sure. Okay. And just wanted some new on new [Phonetic] from yourself. On the Pharma City development in Hyderabad, I remember a lot of time back, you get used to speak about when you were acquiring the DDPS facility especially. So you said that you could address a lot of demand coming from the Pharmacy City in Hyderabad. So, just wanted to know your take on it, what are the current developments and how is it shaping up?

Tarak Patel — Managing Director

So, that is the very interesting question and very timely question, because as we speak, the CEO of Pfaudler International is with KT Rama Rao in Davos, meeting him and asking him to give our allocation for land in Pharma City. That’s going on as we speak, and maybe there’ll be a tweet or something from the Telangana Ministry later today. So, the Pfaudler CEO was invited and the government of Telangana wanted to discuss with us our plans and expansion plans in Hyderabad. Our current plant is in Nacharam, which has been year marked for an IT development. So, eventually five years down the line, we have to leave that site. And we are now working with the government there locally to give a land allocation within Pharma City, so we can then cater directly to the new pharma plant that will come up in that area.

In terms of timing, this is something that we spoken about for quite some time. I don’t have a real clear idea in terms of — but land allocation, I believe, is complete. But I think over the next few quarters, once things start stabilizing after the pandemic, I think, that got pushed back a little bit, but I think people will start moving to Pharma City sooner than later.

Operator

Thank you. The next question is from the line of Rohit Ohri from Progressive Shares. Please go ahead.

Rohit Ohri — Progressive Shares — Analyst

Hi. The question for Pharma City is already asked. I just wanted to ask, in terms of the green chemistry, are you thinking for moving towards hydrogen?

Tarak Patel — Managing Director

No, So, I think we were looking at green diesel technology. There were some other technology, specifically in the US that the US teams are working on. But we are really kind of open minded when it comes into green technology which is something that we could even do in the EV space, I think recycling of batteries is becoming quite important. And I think some of these sulfuric acid, which goes into the batteries require glass line equipment as well. So something that we can build around the glass line, having a heart of glass line would be definitely an area. And maybe there could be new avenue where new, maybe, the chemistry, which can open up as well. So, this is something that we’re working on. And as soon as we have some more information on this, we will definitely let you know.

Rohit Ohri — Progressive Shares — Analyst

Would you like to share anything on the new developments for acid recovery?

Tarak Patel — Managing Director

So, acid recovery, there is an on going project; one in India and one internationally. I think there was a recent order that we got from China as well in acid recovery. I think acid recovery is something that we hope will grow over the next few years. Maybe to be honest with you, it’s not as grown as fast in India as I would have liked, but we are not stopping there. We are continuing our focus. We are going and meeting people and there are some strong opportunity in the pipeline. Hopefully, they will materialize into orders in the next few quarters.

Operator

Thank you. [Operator Instructions] The next question is from the line of Santosh Kumar Shah [Phonetic] from Optimize IT System. Please go ahead.

Unidentified Participant — — Analyst

Yeah. Thank you, sir. [Technical Issues]

Tarak Patel — Managing Director

Good evening.

Unidentified Participant — — Analyst

Hi. Yeah. First of all, very, very congratulations for the Company’s growth, earnings and better performance. Sir, I have a little question about stock split. There are any plan for next quarter for stock split?

Tarak Patel — Managing Director

No. No plans right now. We could have split the stock this time as well, but then that will be the last split that we could have done, because we already at INR2 and the lower you can go to INR1, so maybe we keep it for later when the time is right. But right now, there are no plans for a stock split. I think the bonus itself will create liquidity, which we wanted to create. So, I think the focus has been solved and I don’t think we need to look at the stock split for the — at least for the next few years.

Unidentified Participant — — Analyst

Okay. Thank you, sir.

Operator

Thank you. The next question is from the line of Sidharth, an Individual Investor. Please go ahead.

Siddharth — Private Investor — Analyst

Hi. In terms of technology and automation, I just wanted to know if you have already invested in or plan on investing in the asset lifecycle management software systems?

Tarak Patel — Managing Director

So, technology, digitization, automization, have we invested? What are our plans? Maybe you can take that, Aseem.

Aseem Joshi — Chief Executive Officer of India Business

Yeah, I’ll take that. So, clearly digitization Industry 4.0, etc., is happening all around us. And general formula, we want to make sure we invest in the right solutions that are relevant for our business. So, we have thus far built up a basis — a baseline of system in our factories, in our operations and sales, HR, IT, etc., where — on which we can then take further and use the data that’s coming on the system to drive [Indecipherable].

So, over the last couple of years, then really going into this year and probably the next, that foundation will be strengthened. We’ve already started efforts to make sure things like our salesforce system are used consistently across the corporation and there is a power of salesforces. We can’t look it as repository of the sale, but actually to make smarter decisions. As Tarak talked earlier about making — figuring out which orders we really want to prioritize. We extensively use analytics to make such kinds of decision.

And in our factory, using digital systems for project management, project tracking and control, so that we have much better visibility on how orders are progressing and getting, when our product will come out of the factory.

And then last that I’ll touch on is on the product itself, glass line vessel traditionally has not been smart vessel. It’s been a piece of equipment with a lot of technology in glass, but now we are also further enhancing our capacity to sensitize [Phonetic] these vessels. So, we have a portfolio of chrome that we currently sell in Germany. We’re working to enhance that portfolio whereby a customer can get a lot more detailed information about process parameters for their [Indecipherable].

So, we’re pretty excited about the potential that’s offered, but this is — and so this is a priority for us. But we make sure that we invest where it makes sense, and it will be a judicious combination of investments in systems and digitization across both — across three areas; our product, our factory processes, as well as our processes and support function also.

Operator

Thank you. Ladies and gentlemen, due to time constraint, we take one last question from the line of Jason Soans from Ashika Stock Broking. Please go ahead.

Jason Soans — Ashika Stock Broking — Analyst

Yes, sir. Thanks. It is my last question. Just I wanted to ask, well, the CPI impact on the depreciation, we had accounted — we had guided for a $6 million non-cash impact of course. But now this INR15 crore impact on deferred taxes, just wanted some clarification on that, because that wasn’t expected. So, if you could just throw some color? I mean, I understand it is non-cash. But if some color can be provided? The $7 million was — yes, it was — $6 million to $7 million was pretty much part of the cost, but this was — $15 million has come out, the deferred tax that basically [Indecipherable].

Manish Poddar — Chief Financial Officer of India Business

Right, Jason. So, what is happened is, once you get into any acquisition, you get 12 months, after that, you need to review your opening balance sheet and get into what are the assets and liabilities that you want to revisit. And as part of that exercise, there was a deferred tax asset which is completely different from PPA. This was a different tax asset which is existing in the balance sheet, which we wanted to write it off, because that is an asset which is not yielding any value in the future period for us, and therefore, we had to take a write-off in the P&L. And to that extent, that — PAT, PBT ratio got disoriented to that extent. So this is, again, as you rightly mentioned, this is a non-tax item. Only the deferred tax asset goes down and the profitability to that extent goes down as well.

PPA, whereas opening balance sheet, whoever to acquire the business, you have the asset allocation from the new management and that’s what we explained I think on last quarter Q4, that’s a completely different number from there.

Operator

Thank you. We will take one more question from the line of Viral Sanghvi, an Individual Investor. Please go ahead.

Viral Sanghvi — Private Investor — Analyst

Hi, Tarak, can you hear me?

Tarak Patel — Managing Director

Yes. Hi, Viral, how are you?

Viral Sanghvi — Private Investor — Analyst

Yeah, I am all well. Thank you. You talked about the requirement of good demand seeing from the pharma industry. Do you see any good impetus also from the agro industry as well, which is going ahead?

Tarak Patel — Managing Director

Yeah. So, I think also from an agrochemical standpoint, there are large project in discussions right now. People like the UPL, PI Industry grafted, but not really for agro or for specialty chem [Indecipherable] investing as well, so across the board, we are seeing strong demand for chemicals. Agro chemicals obviously will also pick up, but it may be driven by specialty chem, but even company like Decan for example, are really reinvesting in agrochemical business.

Viral Sanghvi — Private Investor — Analyst

Okay. Yeah. Thank you so much.

Operator

Thank you. I now hand the conference over to Ms. Priyanka Daga for closing comments. Over to you, ma’am.

Priyanka Daga — Deputy General Manager, Strategic Finance

Thank you, Steven. Thank you, everybody, for joining us. Look forward to speaking to you during our next investor meeting. Thank you once again, and good night.

Operator

[Operator Closing Remarks]