Kirloskar Brothers Limited (KIRLOSBROS) Q2 FY23 Earnings Concall Transcript

Kirloskar Brothers Limited (NSE:KIRLOSBROS) Q2 FY23 Earnings Concall dated Nov. 14, 2022

Corporate Participants:

Sanjay Kirloskar — Chairman and Managing Director

Alok Kirloskar — Managing Director

Rama Kirloskar — Joint Managing Director of KBL and MD Kirloskar Brothers Limited

Chittaranjan Mate — Chief Financial Officer

Analysts:

Mahesh Bendre — LIC — Analyst

Renjith Sivaram — MahindraMutual Fund — Analyst

Sunil Kothari — Unique AMC — Analyst

Riddhesh Gandhi — Discovery Capital — Analyst

Himanshu Upadhyay — O3 Capital — Analyst

Devansh Nigotia — SIMPL — Analyst

Sanjay Kumar — ithought PMS — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Kirloskar Brothers Limited Q2 FY23 Earnings Conference Call. This conference call may contain forward-looking statements about the company which are based on the beliefs, opinions and expectations of the company as on-date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Sanjay Kirloskar, Chairman and Managing Director at Kirloskar Brothers Limited. Thank you and over to you sir.

Sanjay Kirloskar — Chairman and Managing Director

Thank you. Good afternoon, everyone. I’m sorry for this we had small system failure. So we’ll go on for an hour as had been agreed. So, we’ll end this at 15:45. On behalf of Kirloskar Brothers Limited, I extend a very warm welcome to everyone for joining us on our call today. I hope all of you have had the opportunity to go through the financial results nd the investor presentation, which has been uploaded on the stock exchange and also on our company’s website. The company reported healthy performance along with significant improvements on operational parameters, driven by excellent operational execution across geographies, easing pressure on input costs, operating leverage and improved product mix, domestic as well as international operations witnessed good top-line growth. Growth in the international markets was driven by oil and gas industry, water management, while growth in the domestic market was driven by pumps required for various sectors, including building and construction industry, domestic etc.

On a consolidated basis, Q2 FY23 revenue grew by 15% on a year-on year basis. EBITDA, PAT grew by 72% and 403% on a year-on year basis for Q2 FY23 respectively. The financial performance is expected to improve going-forward as well driven by seasonality impact where in the second half of the financial year is typically stronger for the company, healthy orders in hand, cost rationalization as well as softer commodity prices. Our company has continued to build momentum in order inflows, driven by oil and gas, industry, irrigation and building and construction. The order board– order book as of 30th September 2020 stood at 2,848 crores, up 30% year-on year. We are witnessing green shoots across geographies and sectors especially for our value added products. Many countries like KBL operates including India has shown resilience through ongoing global uncertainties. Many of these geographies are expected to deliver a V shape economic recovery, along with increased public and private sector investment. The company has also not witnessed any significant impact on business operations due to these global uncertainties. Apart from improvements on operational parameters the company has also focused on cost rationalization, working capital optimization and debottlenecking at the plant level to further improve profitability.

I shall now request since Alok Kirloskar, Managing Director of Kirloskar Brother International B V to share his thoughts on the performance of the International Business.

Alok Kirloskar — Managing Director

Thank you. On the international operations front the company continue to do well operationally and has shown resilience to various headwinds such as political uncertainty in the UK, the ongoing conflict between Russia and Ukraine and rising interest rates across the various geographies and the volatility in the currency. This resilience is a clear testament of the company’s operational excellence, diversified product offering and brand recall. Thailand, US, UK and South Africa have performed well in operational parameter. However, the constant devaluation of the pound sterling GBP. The South African ZAR and the Thai baht against the strengthening USD affected the financial performance. This is mainly due to unrealized mark-to-market losses of INR20 arising out of Forex loss on forward contracts of the INR20 crores this amounts to INR14, 45 crores taken for off-balance sheet items and mark-to-market loss on loan revaluation, which amounts to INR5.5 crores of INR20 crores. SPPP UK has implemented hedge accounting with effect from first July 2022. Since hedge accounting is permitted to be implemented only prospectively. SPP UK has booked M2M losses on forward contracts pertaining to hedges taken prior to July 2022, which will be offset by way of higher sales realization in future periods as such the Group has robust foreign exchange risk management policy and hence these impacts are largely transit transitional in nature and the Group has insulated going forward from such moves in currency markets.

The momentum in order inflow continued in Q2 FY23 as well. The order book grew 43% year-on year to INR1,267 crores, driven by a significant pickup across geographies led by robust growth in inquiries and conversions. A point to note, here is that the product mix also changed in H1 compared to the previous year where we’ve had 20% lower oil and gas sales in SPP UK compared to the previous H1 same time, but the difference has been made up by other businesses. That said on the oil and gas price continues to be robust going forwards, because the effect of all the oil and gas uncertainty or investments both in the market have fully come into effect we will only be effective from the future year given the way the orders have come in. Apart from this the company scaled up the subscription platforms where the maintaining business considerably, which provides scalable recurring revenue upfront cash payments and increase engagement with the customer. The company’s primary goal remains to scale up business going forward.

With this, let me invite Mr. Ms. Rama Kirloskar, Joint Managing Director of KBL and MD Kirloskar Brothers Limited to take you through the performance of domestic subsidiaries.

Rama Kirloskar — Joint Managing Director of KBL and MD Kirloskar Brothers Limited

Thank you Alok. The company’s domestic operations continued to grow at a healthy pace, driven by improved product mix and sustained momentum for retail funds across the country. We are witnessing an encouraging trend in recent order inflows as well as consumer sentiment for the retail pumps. The private sector CapEx is on the rise along with significant pickup in government spending, especially towards agricultural irrigation and wastewater management. The company’s APOEM program has performed well since its scale up during the past few months. KBS unique initiatives is expected to reduce the turnaround time significantly, which should further improve the customer stickiness, along with improved engagement with dealers and distributors. Now coming to the domestic subsidiaries Karad Projects and Motors Limited continued its healthy growth pace KPML revenue grew by 27%, while its PBT grew by 9% in H1 FY23. The company is well on track to turn around the Kolhapur Steel Limited, which is witnessing sharp growth in revenues as well as production.

With this, let me invite Mr. Mr. Chittaranjan Mate, our CFO for the financial performance highlights.

Chittaranjan Mate — Chief Financial Officer

Thank you Rama. Let me start with consolidated financial performance highlights for due to FY23, the top line grew by 15% year-on-year INR2. 864 crores. EBITDA grew by 72% year-on-year to INR66.6 crores, while EBITDA margin improved by 256 basis-points to 7.7%. Profit after tax grew considerably by 403.3% year-on-year to INR30.7 crores while PAT margin expanded by 274 points to 3.6%.

Now coming to H1 the top line grew by 20% year-on year to INR1,006, 48 crores. EBITDA grew by 41% year-on-year to INR114.7 crores, while EBITDA margin improvement by 107 basis points to 7%. Profit after tax grew considerably by 158.1% year-on year to INR46.2 crores. Now coming to standalone performance Q2 FY23 revenue stood at INR591.6 crores compared to INR484.6 crores a growth of 22% year-on-year. This contributed approximately 68% to the consolidated revenue. EBITDA was at INR46.9 crores a growth of 20% year-on-year, while EBITDA margins stood largely stable at7. 9%. PAT for Q2 stood at INR20.6 crores a growth of 18% year-on-year. H1 23 revenues stood at INR1,134 crores compared to INR882.1 crores a growth of 29% year-on-year. This contributed approximately 69% to the consolidated revenue. EBITDA was at INR77.9 crores a growth of 33% year-on-year, while EBITDA margin stood largely stable at 6.9%. PAT for H1 23 stood at INR28.6 crores a growth of 24% year-on-year. This is all from our side. We can now begin the question-and-answer session. Thank you.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen we will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Mahesh Bendre from LIC. Kindly proceed.

Mahesh Bendre — LIC — Analyst

Sir thank you so much for the opportunity and congratulations for the great performance across income statement, balance sheet and cash flows. We have done phenomenal well and I think this performance is commendable after longtime. So the first question is the gross margin during the quarter has improved by374 basis-points for the quarter. So how sustainable they are going forward.

Sanjay Kirloskar — Chairman and Managing Director

That’s the only question or.

Mahesh Bendre — LIC — Analyst

No, no sir. I’ve series of question. Should I go ahead or.

Sanjay Kirloskar — Chairman and Managing Director

Yes. Please go ahead because we will respond to them all at once.

Mahesh Bendre — LIC — Analyst

Sure sir. Sir, you mentioned in your opening remarks that going forward also I think you are seeing a positive environment across geographies and expecting the financial performance to improve year on going forward. So what kind of growth outlook you see over the next 18 months at the consolidated level. And third question is the Karad KPML is doing phenomenally well. But during the quarter the top line of this company has remained I mean it’s almost flat and even the profitability has come bit under pressure. So, what could be the reason for the same. That’s it from my side.

Sanjay Kirloskar — Chairman and Managing Director

Okay. I believe that the gross margin improvement is sustainable going forward. We have told you that the order board is increasing. We’ve told you that we are trying to reduce, reviewing cost rationalization et-cetera. So it’s our belief that you can, you will see that this is something that is sustainable. Business environment from what we see now at the current movement is that the order board as driven significantly over the last year the order funnel, there’s also quite good. So, we are expecting that the growth momentum will continue. As far as Karad is concerned, Karad projects and motors, they are very closely tied to our small pump business and as you are aware the seasonality is such that the business reduces when the rain start. Actually in this Q2 and KBL also tries to ensure that there is not too much inventory on its that we don’t get start with inventory when we don’t need it. So, that is why you’ll see the top line is flat. So that we have not assumed the profitability would have had some effect because of the commodity price cycle, but we expect that this company to continuing to do well going forward.

Mahesh Bendre — LIC — Analyst

Sir last question from my end. The cash flow side we are doing phenomenally well. During the quarter also I mean the change in working capital is I mean almost negligible in terms of growth we are reported. So do you think further there is further scope we generate I mean change working capital has remaining at this level and generating high cash flows.

Sanjay Kirloskar — Chairman and Managing Director

Yes, we do expect because as gentleman sir explained, Q2 is generally lean season for small companies business which is the cash-and-carry. But we also have to build inventory so as not to lose production capacity. So our inventory you would see that are higher than March. And in the remaining H2, we expect inventories to come down and cash flow being under control. Sure.

Mahesh Bendre — LIC — Analyst

Thank you so much sir.

Sanjay Kirloskar — Chairman and Managing Director

That’s it. Thank you.

Mahesh Bendre — LIC — Analyst

Sir, good wishes [indecipherable]

Operator

[Operator Instructions] The next question is from the line of Renjith Sivaram from Mahindra Mutual Fund. Kindly proceed.

Renjith Sivaram — Mahindra Mutual Fund — Analyst

Hi sir. Congrats on robust performance. Given the environment and given the challenges we had in Q1. So good to see margins coming back. So. that when. I look into your presentation like you are US and Thailand has done exceptionally well compared to UK and others. So you, both in terms of revenue growth and in terms of EBITDA. So is there any currency gains because rupee had depreciated much versus dollar. So was this what portion of this might be due to that currency related gains.

Sanjay Kirloskar — Chairman and Managing Director

Renjith, that’s the first question.

Renjith Sivaram — Mahindra Mutual Fund — Analyst

Yes. And also if you can give some view regarding the other geographies like what it led to this decline in overall revenues in UK and other geography and how do you see that going forward.

Sanjay Kirloskar — Chairman and Managing Director

Alok, would you like to answer that. So Mate will pick up whatever you don’t.

Alok Kirloskar — Managing Director

Yes. Thank you, Mr. Sivaram. Thank you for your question. Let me start the US business and since you mentioned that. In terms of dollar terms we are seeing the difference you’re seeing is $4 million between last year and this year $2 million is coming from currency appreciation in the revenues and $2 million is coming from the growth in the business. This is mainly I think we’ve said this before it’s a pure distribution business. And last few years we’ve really been consolidating that business and also releasing new products. So, we have some– we have quite a few new products in the pipeline but, we have released a few of the new products and they, touch wood, have done exceptionally well in the market and we’re just seeing a part of that right now in the numbers. So that’s why the US number looks like that.

Thailand, actually Thai baht, as you know, has depreciated significantly against the dollar from last year — early last year of 30 to 38 at the time when this presentation was made. So there has been significant deterioration in the Thai baht. So actually the performance was hidden of how well they’ve actually done. So I would say that’s, again come — nothing special happened this year. I think we’ve been saying every year that — the companies like Thailand and South Africa as well as the continental European countries, which is Kirloskar Pump and Rodelta and Rotaserve, these three entities are operating in these three geographies are objective really has been to grow the baseline business and grow the distribution part of that business and that’s, really what’s been happening in a year-on-year we’ve been increasing that business. And we’ve seen we seeing the growth coming in more-and-more year-on-year and as we flip over that goes let me call them margin that is in terms of after which you get a huge rise in margin we really at that stage and that’s why you’re seeing the numbers come through in a lot better way. But I don’t think something has significantly changed from two years ago to today apart from the fact that today we reached that level where they able to grow and show that growth in margins for Thailand.

UK was your next question. UK that they will decline, the decline is coming from the fact that the UK currency had depreciated significantly in this time period from last year at $1.34 to$1.11 so to a dollar. So that’s why you’re seeing quite a huge amount of reduction. There is a minor reduction year-on-year, but I would say that I would not really pay too much attention to that because as the UK numbers tend to be skewed towards the last quarter. So, I would judge the UK based on what are the numbers come out in the last quarter more than than just the H1. Does that answer your question.

Renjith Sivaram — Mahindra Mutual Fund — Analyst

Yes. So, what’s your outlook therefore the full year if I looked at overseas business. Do you believe this momentum will continue or there will be some adjustment because of these currencies has been our advantage have been just for this quarter and it will normalize. How do you see the overall growth for the full year.

Alok Kirloskar — Managing Director

I mean when you say overall, I would say actually we’ve taken a massive hit like we’ve said we’ve taken a INR20 crore hit on the bottom line because of Forex so I don’t seasonally helped us marginally in America, but overall it’s it’s a huge hit you’ve got a $2 million gain in topline in America INR20 crore hit across margins across everyone else. So in the scheme of things. I don’t think currency helped us, but if you ask me the business point of view we seen a business quite strong I mean we’ve said that the order intake given the 1,167. So that’s been quite strong and as a stand we are seeing the mix that we want to see in terms of as we’ve always said we want services business to deliver more. We are seeing that you can see that in the margins also when you add-back the Forex mark-to-market situation but, like I said is the transitory. And similarly we see that across other geographies where the numbers has picked up. So overall if you ask me, no I think it’s reasonably strong. We’ve also made the point about hedge accounting, which I’m sure you’ve taken the Q or what that means.

Renjith Sivaram — Mahindra Mutual Fund — Analyst

Thank you.

Chittaranjan Mate — Chief Financial Officer

Hello Sivaram, Mate here.

Renjith Sivaram — Mahindra Mutual Fund — Analyst

Yes.

Chittaranjan Mate — Chief Financial Officer

If you see highland numbers the growth is it whether it is Q2 it is more than 100% growth. I’m referring to Slide 56. H1 the growth than 50%. I would say 60%. You would take out the currency depreciation. One thing the currency depreciation it would be only for export business what is going out of Thailand. And that to the currency has depreciated over last 12 months by around 17%, 18%. So I would call at the most some gain on currency depreciation by around 10%, but the rest is because of higher order, higher execution. So there is a real growth not only due to currency depreciation.

Renjith Sivaram — Mahindra Mutual Fund — Analyst

Okay and the de growth in UK is largely currency.

Chittaranjan Mate — Chief Financial Officer

That is because certain orders [Speech Overlap] but there is no project orders over there.

Renjith Sivaram — Mahindra Mutual Fund — Analyst

In UK.

Alok Kirloskar — Managing Director

No in Thailand. Nothing Mr. Mate mentioning in Thailand. So there were no project orders.

Chittaranjan Mate — Chief Financial Officer

These are all basic regular day-to-day orders.

Renjith Sivaram — Mahindra Mutual Fund — Analyst

Okay and this UK decline.

Chittaranjan Mate — Chief Financial Officer

Sivaram, I’m sorry to interrupt sir. I request you.

Renjith Sivaram — Mahindra Mutual Fund — Analyst

Yes okay okay sure, fine, I’ll take it.

Chittaranjan Mate — Chief Financial Officer

Thank you. I will just respond to Mr. Sivaram, if UK slight decline whatever is there because UK it depends on the order getting released by customer. So some orders even if it is ready if it goes delivery in October, you would say one quarter fall, another quarter pickup, but the overall looking at strong order board we anticipate you care to go up over previous year.

Renjith Sivaram — Mahindra Mutual Fund — Analyst

Thank you sir.

Operator

The next question is from the line of Sunil Kothari from Unique AMC. Kindly proceed.

Sunil Kothari — Unique AMC — Analyst

Thank you for opportunity sir. Congratulation for a good commentary and this press release. Sir, across the sector your commentary talks about very positive momentum in order book. So which are vantage point, would you like to comment some in detail that this turnaround you’ve seen inquiries and orders. How sustainable these are at this is something which you feel after coming along this order, this type of inquiry orders. What’s your thought process.?

Sanjay Kirloskar — Chairman and Managing Director

That is only one question.

Sunil Kothari — Unique AMC — Analyst

Yeah. And sir, second question is on [indecipherable]. I would like to know is to that extent again this controversy on legal fees and legal matter and all these things. Would you like to comment on those things and if is it possible that this matter Kirloskar Brothers has listed entity can be kept away. How this can be I mean rectified that is my request order or question.

Sanjay Kirloskar — Chairman and Managing Director

Okay. I’ll answer the first question, I’ll ask Mr. Mate to respond to the second because I think can be interest of good corporate governance I should be responding to that. You know for the last few quarters, we have been saying that the company is taking various actions. Not only on the side of improving our each improving our product line and taking whatever actions that need to be taken to have a better topline, but we’ve also been working on the bottom line with [indecipherable]. The company has had some baggage. In the past with its all projects sector and we’ve been telling you that Rama has been working on that to reduce the impact to ensure that we close every single project to the full satisfaction of the customer to a great extent we need to wait for the customer to do certain actions. So that we can go forward with our action. So it is a combination of that, the company is in a better place today. The product are well accepted not only in India, but around the globe. So the products are all world class products so to speak. On the other side and that is resulting in customer acceptance of what we are doing. On the other side, various initiatives that are being taken with the help of earlier it was with BCG, we’d worked with KPMG. There’s many things for improvement we are an oil company and we’re doing a lot to improve ourselves to see how going forward everything can become more sustainable. So for me it’s something that is a work in progress. But I think, I had said that to the best of our ability, we will ensure that our ratios keep improving quarter-on-quarter, year-on year and I think what you’re seeing is just a part of that.

Sunil Kothari — Unique AMC — Analyst

Sir, my question is more related to outside wealth. How you see this situation is it really outside changed or it is just internal auditor.

Sanjay Kirloskar — Chairman and Managing Director

Outside India or I would say outside.

Sunil Kothari — Unique AMC — Analyst

I mean internally whatever you have done the benefits is soon because of better product cost control, optimized, operating leverage, but do you see overall momentum macro things also changing.?

Sanjay Kirloskar — Chairman and Managing Director

We see things changing in the sense I mentioned a little earlier that the funnel, the inquiry funnel has improved quite a bit and I think that is also something that is helping on.

Sunil Kothari — Unique AMC — Analyst

Okay. Thank you.

Sanjay Kirloskar — Chairman and Managing Director

And one more, the other thing. MR. Mate will respond to the other question please.

Chittaranjan Mate — Chief Financial Officer

Hello.

Sanjay Kirloskar — Chairman and Managing Director

Yes.

Chittaranjan Mate — Chief Financial Officer

Kirloskar Brothers Limited along with Mr. Atul Kirloskar and Mr. Rahul Kirloskar who collectively hold 24.92% of the company’s voting capital had sent to the Board of the company a special notice and requisition under Section 100 subsection two Class-A of the Companies Act 2013. This requisition dated 21st October 22 for convening an Extraordinary General Meeting of the shareholders of the company to pass a resolution for the conduct of an external forensic audit into the affairs of the company, which it further purported object inter alia of verification of the participation and role of the independent directors of the company in the respect off or in connection with certain legal proceedings initiated by the company, which according to them are stated to have resulted in the huge legal expenses being incurred by the company aggregating to INR274 crores. Based on the legal opinions obtained from two imminent former judges of the Supreme Court of India. The Board of company on November 10, 2022 accrued to convene an EGM of the shareholders of the company on December 8, 2022. In pursuance of the said resolution of the Board convening the AGM in notice along with statement of material facts will be issued by the company to all share the shareholders of the company.

Sunil Kothari — Unique AMC — Analyst

I am sorry but is it minority cylinders, I would like to understand your view that can this be — brin it to end or can it be removed from Kirloskar Brothers, the balance sheet and P&L. Any of your thoughts will be really grateful.

Chittaranjan Mate — Chief Financial Officer

At the moment, this is all that we can say.

Sunil Kothari — Unique AMC — Analyst

Okay.

Chittaranjan Mate — Chief Financial Officer

Thank you.

Sunil Kothari — Unique AMC — Analyst

Thank you Sir.

Operator

Thank you. The next question is from the line of Riddhesh Gandhi from Discovery Capital. Kindly proceed.

Riddhesh Gandhi — Discovery Capital — Analyst

Hi, sir, and congratulations on the numbers. Just want to understand the sort of look while all of this is happening at the promoter level, this is not impacting our operations or any of that in anyway, right? Just wanted to kind of that clarify that as a starting point.

Sanjay Kirloskar — Chairman and Managing Director

I think if impacted, you would have seen it.

Riddhesh Gandhi — Discovery Capital — Analyst

Okay. Okay —

Sanjay Kirloskar — Chairman and Managing Director

— performance of the company, there is no way — the company will continue to move forward on the same path.

Riddhesh Gandhi — Discovery Capital — Analyst

Got it. Sir any other question was with regards to you guys obviously have done a reasonable amount of optimization to sort of opening up the actually deliver actually don’t profitability and margin. Just wanted to understand that going forward what are the incremental drivers to sort of bring us to maybe a double-digit EBITDA margin at the end of potentially higher as some of the other industry players [indecipherable]

Sanjay Kirloskar — Chairman and Managing Director

— operating or beginning to operate all the levers that are possible. There are many programs, which I obviously can’t mention over here. That are on in the company whether it is product development or cost reduction exercises, better working capital management. All of these activities are going on within the company. I think time and again, at different investor calls, I have been asked when will you reach double-digit margins. And I hope you feel that we are on the way to getting there.

Riddhesh Gandhi — Discovery Capital — Analyst

All right, sir. Thank you.

Operator

Thank you. The next question is from the line of Himanshu Upadhyay from o3 Capital. Kindly proceed.

Himanshu Upadhyay — O3 Capital — Analyst

Yeah. Hi, good afternoon. Congrats on good set of numbers. I have a three sets of questions. One is on the Power segment. In most capital goods, which are on the Power segment. We are seeing very strong order book growing. Okay. And for us also in the last cycle it was a big segment, the main driver of the thing, but when we look at our order book in Power segment it is not so much growing versus various other segments. To what is happening on the power side. Secondly, related to power only. We see a lot of these two heat and other segments also growing especially in Europe and some of the geographies where we are present evening in India Captive Power plant and all those things. Two is there some more product gap also that we are not growing. And can you elaborate on this power segment both in India what is the scenario currently and what is the scope for us to grow our business in Europe especially on the power segment. And one small thing related to this only, we give a standalone order book breakup can you give the consolidated order book breakup also so that we just know which segments are the top three four growing overall at the company level. So that was on power related. Second was related to Kolhapur Steel and Rodelta Limited. My question is more on the Kolhapur Steel. See we have been spending a lot of energies on Kolhapur Steel breakeven in growing that business. And last five years a bit what we have seen is INR45 crore, INR50 crore. And even if we believe that the company will double or let’s say even triple. Can it really move the needle for us. We are nearing INR3,000 Crore revenue. So what is the strategic advantage our thought process on this business keeping. Why not focus on getting INR150 crores of revenue in other businesses, which are our core businesses. Or my understanding it’s completely wrong, you can just elaborate on that and it will be helpful on especially on Kolhapur Steel Limited. And third and final, in the Karad Power and Motors Limited what percentage of revenue would be from the Kirloskar Brother itself and what is the scope of our selling motors outside also because we are seeing very strong traction for other companies which are in the motor segment. Even for small and large motors both the segments we are seeing really strong tractions. What is the business development opportunity for us on the KPML outside Kirloskar Brothers. So these were the three sets of questions if you can elaborate on them, it could be helpful. Yes. Thank you. Yes, you mentioned that we were building the power segment with coal fired power was large. And we see movement in the Power segment we see orders inquiries coming in, orders being received and I’m also very happy to tell you that if I haven’t told you last time that we first boiler feed pump for a nuclear power plant, which has been totally designed and manifest, totally manufactured in India was done by 8 years and has been accepted by in PCI L. So we expect that this product line something that KBL was walk in before. We will be able to go forward and have a much broader product line for the Nuclear segment. As far as Thermal Power, I think there are inquiries coming from not only in India, but also around the world we are looking and talk about that. We have also entered into the renewable energy segment. We see many inquiries coming for pumps as turbines and for hydro turbines and for our small PICO turbine. So as far as we’ve concerned the power sector has a large order board. It’s about I think they’ve now got, INR486 crores. Some of that has not moved because there are development orders that are behind that which are slowly, you’ll see that moving in the quarters ahead. As far as Kolhapur steel is concerned. Yes it has not done well in the last four or five years and we have had large losses. We will–for us it is important strategically because our IP especially for impellers and what we call impeller bowls or casing, it’s very important for the large pumps to have that in house. Similarly for the nuclear pumps we believe it is extremely important to have a company like Kolhapur steel with us. That being said, I will ask in a Rama to also speak about the work that is being done to turnaround Colombo steel, because we see that getting into. We see that coming out well as we move towards the rest of year. But before I hand it over to her PML is their supplier of motors for our mono-block pumps and they do a lot of status rotor units as well as motors for KBL. You may know that Kirloskar Brothers being the original company in the group had offloaded its Electrical business to Kirloskar Brothers Electric limited and therefore there are agreements in place, which we cannot. Go against. However, KPML does make the latest high efficiency or what we would call ultra high efficiency motors for KBL. Pumps. I believe we are the only Indian manufacturer with IE4 and IE5 pumps, which are available in the market, and these are induction motors. These are not BLDC or whatever, PMFM motors. These are induction motors with the same level of efficiency that could qualify as IE5 motors. So for us, KPML is a company that is very important for our growth and it’s also a company that’s doing very well. Other than KBL with our agreement with Kirloskar Electric, KPML is also able to supply electrical equipment to GE as well as Siemens. They are one of the three I think global suppliers for medical devices wherever they need these electric motors KPML supplies them. They also supplied to elevator motor manufacturer and the supply motors to KBL complete motors to KBL for when we supply through our APOEM complete pump sets. So every Kirloskar pump, we would like to be coupled with the KBL supplied motor or KPML supplied motor. So that’s where KPML comes in. Rama will talk about Kolhapur Steel.

Rama Kirloskar — Joint Managing Director of KBL and MD Kirloskar Brothers Limited

And good afternoon. As you are aware TKSL was a very strategic acquisition and be very dependent on good quality castings especially for critical sectors like oil and gas, M&D, power and the nuclear customers as they have some very stringent quality norms. That being said we have mentioned earlier that we have some very ambitious plans for TKSL and the market potential is there. We have undertaken a go-to-market strategy for this foundry because they’re actually transitioning TKSL from being a captive foundry, which it was up to three or four years ago to standalone foundry that KBL to outside customers. We essentially had acquired this foundry to cater to specific sectors such as the power sector, but as power sector demand went down they actually had a huge impact on the TKSL order booking which is why we see the financial issues as of today. I think the only problem with TKSL today is not having a healthy order board and through our go-to-market strategy that’s essentially what we’re trying to do is get external customers in other spaces such as earthmoving, shipbuilding, turbomachinery and [indecipherable]. And I believe that with those orders, and there is no dearth of those orders, we should be able to turn this foundry around.

That being said, this foundry is a very important part of our group because it allows us better quality control over our castings. It allows us to do very stringent quality checks on our castings such as radiographic testing or magnetic particle testing, and that being in-house is a huge advantage for us in terms of stringent quality control as well as ensuring that the kind of products that go out of a Kirloskar company abide to the norms that our customers expect. I hope that answers your question.

Himanshu Upadhyay — O3 Capital — Analyst

Yeah. It helps. And on the power prospects in Europe and where we are positioned, that is the only [indecipherable]

Rama Kirloskar — Joint Managing Director of KBL and MD Kirloskar Brothers Limited

We should be able to get a lot of orders from outside we are expecting, simply because the foundries there are going to have huge, huge cost they’re not going to be viable. So we are also targeting customers abroad.

Sanjay Kirloskar — Chairman and Managing Director

Alok try to say anything about outside India.

Alok Kirloskar — Managing Director

Yes. I think in terms of industrial pumps that we supply in Europe. We see two kinds of business. One is replacement where as same plant is being updated in Europe in the current environment and the other new coal-fired power plants or gas-fired power plants. So we don’t see so many of those right now in Europe most of them are being done through Turkish contractors, with the depreciation of the lira, many of them have taken jobs. Pump replacement ablation jobs in Europe,s but majority of the new jobs that they’re doing are mainly in the whole CIS countries, which are not aligned to Russia. Like that define that you can find all these countries as well as some African– not African countries. So actually we are working closely with them and we’ve already got orders from them for power segment. The other I think area we also looking at when you talk about Power is hydrogen. So Delta has also supply to a major company in the Netherlands oil and gas company for the hydrogen process pumps where they have ordered at the moment. And we’ve also supplied to Shell for the red to green project which is the new biofuel project. So they are quite closely aligned with both biofuels as well as green hydrogen.

Sanjay Kirloskar — Chairman and Managing Director

Okay. Thanks hope to see better resilience or growth in the Power segment not results but growth in order book of power.

Himanshu Upadhyay — O3 Capital — Analyst

Yes. Thanks.

Sanjay Kirloskar — Chairman and Managing Director

Thank you.

Operator

The next question is from the line of Devansh Nigotia from SIMPL. Kindly proceed.

Devansh Nigotia — SIMPL — Analyst

Thanks for the opportunity. Is it regarding order intake if I said between all the sectors and give a perspective and also share your outlook for irrigation oil and gas, building construction and power. How do you see the order inflows going forward.

Sanjay Kirloskar — Chairman and Managing Director

You’re asking for a forward-looking statement. I guess.

Devansh Nigotia — SIMPL — Analyst

Yes. Yes. So –you mentioned that the inquiries have been very strong. But if September you can just give a deeper perspective.

Sanjay Kirloskar — Chairman and Managing Director

Water resource management I think we are the only company that does pump manufacturer that takes orders on our own terms, which is we say that these are our terms with advance we want a letter of credit. We will not sign a joint venture agreement where we are — what separately enjoyed only responsible. So these are the two that we have set for ourselves even then we continue to get a large number of orders for big pumps as well as small pumps and there are many projects going on in different parts of the country and we are there in every single state wherever irrigation and water resource management is taking place. One good thing that I see especially in water resource management is they’ve now started asking us for our predictive maintenance and remote monitoring system. You may be aware that our Kirloskar smart system is the only system available from an Indian company for many company for monitoring pump on a remotely. It also allows people from an app on the phone. Not only can you monitor your own pump many parameters on your own pump, but also you can order spare part if you need to do some quick maintenance the entire way to do maintenance is comes across to augmented and virtual reality we are one of the few companies that say in the world we’re such a system is available and, I’m very happy that whether it is Varanasi or whether it is Angul in Orissa or whether it is Bombay our system is working very well across the country. And it works in Indian condition especially because we have had over a decade-long experience of having it work in Indian condition and it’s not just private sector that’s buying this system, but also public sector is buying such a system. So this is something that is very encouraging going-forward. We have dispatch quite a large number of very big pumps. I believe to Madhya Pradesh in the last quarter and there are more orders that we can see in the pipeline. As far as building and construction is concerned. I think we’ve mentioned that this quite large growth in that in the investor release. We’ve said that sales have increased 30% year-on year basis and there is a 62% growth in the pending order board. This basically is either the way the construction industry is moving in India where there are requirements for modern system and as you are aware our pumps are used globally, whether it is in Southeast Asia, North America or Western Europe some of the most iconic buildings in the world have pumps made by Kirloskar Brothers. So as Indian buildings become smarter and smarter. I believe that with this business will continue to grow going forward. Power I believe, I’ve already answered and now ask Rama to speak on oil and gas, especially since she also is managing director of Kirloskar Ebara and maybe Alok can also talk after her about oil and gas around the world.

Rama Kirloskar — Joint Managing Director of KBL and MD Kirloskar Brothers Limited

So we do see a healthy order board for oil and gas. There are quite a few upcoming projects both domestically as well as internationally, domestically I believe there are quite a few pipeline projects by plant expansions and refinery expansion happening. We are seeing a good inflow of orders from outside as well whether it is the central Asia or it is the Middle-East. So as far as order booking is concerned in oil and gas. It’s been quite healthy.

Devansh Nigotia — SIMPL — Analyst

Just in oil and gas I mean when we look at our peers. They have been winning really large orders especially in oil and gas. But when you look at our order influence has not been as strong. So I’m just trying to understand where is the guide here.

Rama Kirloskar — Joint Managing Director of KBL and MD Kirloskar Brothers Limited

So I think the way you need to look at it is not only for oil and gas. KBL and KEPL together need to be seen. Yes. right, so if you look at the KEPL order booking pending order board as of Q2 was around INR363 crores along with the KBL aspects. If the KBL sector only does non-API, which is non American Petroleum Institute, oil and gas pumps. So essentially it’s all the utilities that go into a refinery, but be refinery pumps and the pipeline pumps itself are catered to by KEPL. So when we look at oil and gas, it has to be the KEPL order booking as well as the KBL order board for oil and gas.

Devansh Nigotia — SIMPL — Analyst

Okay. And the order book which you mentioned for irrigation and, water resource management that does not include the agricultural standard pump right.

Alok Kirloskar — Managing Director

Although that comes under a small pump business. And as we have informed earlier that is made to stock business, it does not reflect the order board. Because pumps are dispatched in the month. And the other thing is that we continue to be the only company in the country which should not be credit to customers whether they are dealer or end customers.

Devansh Nigotia — SIMPL — Analyst

Okay.

Alok Kirloskar — Managing Director

Devansh sorry to interrupt sir, request you kindly get back in the queue for further questions. Thank you.

Operator

The next question is from the line of Sanjay Kumar from ithought PMS. Kindly proceed.

Sanjay Kumar — ithought PMS — Analyst

Hello, sir, thank you for the opportunity. We are very glad that you’ve asked for the Extraordinary General Meeting by requesting of certain shareholders, keeping in mind, the spotless reputation of the Kirloskar we are sure, you shall be voting in favor of the forensic audit asked by the shareholders. As you have nothing to hide, given the strong legacy over the 130 years, it will only reinforce the great legacy of Kirloskar to be voting in favor of the audit.

Sanjay Kirloskar — Chairman and Managing Director

IS that a question or what? As we — Mr. Mate spoke, that is all that we would say about that resolution.

Sanjay Kumar — ithought PMS — Analyst

Okay, okay. So first question on nuclear pumps. Your MNC peer won orders from NPCIL for coolant pumps. Why have we not been able to participate in these orders? Any commentary on the future orders? Are we on NPCIL approved list of manufacturers for both primary and secondary auxiliary pumps?

Sanjay Kirloskar — Chairman and Managing Director

Okay. So as you may be aware the company has provided the primary coolant pumps. So the phosphate reactor and hence the company decided that it would go NPCIL for development order for primary coolant pumps. And what happened was they took a lot several years because that order and within 8 months of that it came out with a tender for 24 pumps. And also that we were disqualified from [Technical Issues]. So we didn’t know whether we should continue further than that and therefore we have told them that it doesn’t make any sense for us to participate in the tender. [Technical Issues] believe that only suppliers, even if they have not designed the pump or not made [indecipherable] the components in India, should be qualified and someone who has made a primary coolant pump for a reactor is disqualified. So with that, we have taken ourselves out of the primary coolant pump business or the tenders. And we still haven’t received a response from NPCIL as what they would like to do. Since there is only one player in contention. So that’s as far as primary coolant pumps are concerned. As far as BPCL is concerned, I think it’s — I’d let Rama answer this.

Rama Kirloskar — Joint Managing Director of KBL and MD Kirloskar Brothers Limited

Yes. So we had taken part in the auction for BPCL. I believe that tender was won by an entity called Vasavi Power during the first auction, but from what I heard from various sources was for some reason, they had to retender this simply because, I believe, the payment was made by a third party, which was not in line with the tender conditions. However, our Board had only approved up to a certain amount simply because our legal concern had brought to our notice that there were a lot of — various aspects from the tender terms and conditions if we’re not paid conducive to doing business such as there is no — number one, technology and the IP was given to us on an as if basis. Number two, if — there was very little time to actually do due diligence and that was given — I think barely any time was given to all the parties.

And number three, our legal [indecipherable] as per the tender conditions told us that there was actually no rights that were transferred. There was — BCL was not actually in position to transfer rights of any of that technology to us and that we felt was a bit of risk in taking part in such an auction simply because I believe their contracts with their partners which they had [indecipherable] name and who are they are in, own companies that they had got in various technologies from those contracts did not allow BPCL to transfer that technology to anybody else. So with some of these risks in mind, there was a cap or limit to the amount that we were able to spend and that cap was enforced by our Board. So it’s one of the reasons why we stopped at a certain amount. I hope that answers your question.

Sanjay Kumar — ithought PMS — Analyst

Yes. Thank you. And so does that pull us out of the NPCIL raise because we were disqualified from primary and now we have lost access to the existing set of pumps installed at NPCIL will be participate in future primary or at least the secondary and auxiliary pumps going forward.

Rama Kirloskar — Joint Managing Director of KBL and MD Kirloskar Brothers Limited

There were two things that. There is why we took part in this. One was for there is new nuclear pumps and there were some oil and gas pumps, but as it happened we are already developing both nuclear and oil and gas. So it does not really harm the company pretty much because at the end-of-the day as far as the BPCL pumps are concerned, like [indecipherable] only on an L1 basis. They have old technology. And as far as nuclear is concerned, we are taking developmental orders anyway. So we don’t believe that it’s going to hurt our future.

Sanjay Kirloskar — Chairman and Managing Director

To answer your question, we have a design for a PCP. We can make every other pump for the nuclear business. So our withdrawal from the PCB process was on a matter of principle. If you are going to take, if you want to own a sapphire, and not a designer because they basically want Atmanirbhar Bharat, and for that everything needs to be done here. And if supplier, if only qualified parties who are suppliers who as never seen such pumps. I don’t think they have ever designed a water pump in India. If that is the kind of vendor that you want then please go ahead with it.

Sanjay Kumar — ithought PMS — Analyst

Okay, that’s fair enough. Second on the EPC.

Sanjay Kirloskar — Chairman and Managing Director

We should think about every transformer or nuclear, what it is called, a specialized pressurized heavy water reactor.

Sanjay Kumar — ithought PMS — Analyst

Okay. Okay. So, second was on the solar pump orders that you received revenue large EPC contractor. So is it if you could name it, is it Tata Power or Adani, can you talk about the order scenario and the pipeline?

Sanjay Kirloskar — Chairman and Managing Director

We don’t talk about other companies. We do order for solar pumps.

Sanjay Kumar — ithought PMS — Analyst

Sorry.

Sanjay Kirloskar — Chairman and Managing Director

We took the order for solar pumps. We do not supply completely integrated units, the entire pump to integrators. This is a single order that’s why it was mentioned, but otherwise continuously we are supplying.

Sanjay Kumar — ithought PMS — Analyst

Okay. So this one continues in future.

Sanjay Kirloskar — Chairman and Managing Director

Yeah, this we can continue.

Sanjay Kumar — ithought PMS — Analyst

Okay. Since it’s only the pump the realizations will be around 30,000 by pump.

Sanjay Kirloskar — Chairman and Managing Director

Approximately. I guess.

Sanjay Kumar — ithought PMS — Analyst

Okay. Okay, sir. And so in solar pumps, you did talk about motors, i.e., but in specific to solar pumps i.e., from my understanding BMS there is more important than the pump itself.

Sanjay Kirloskar — Chairman and Managing Director

We supply whatever is required for the solar pump.

Sanjay Kumar — ithought PMS — Analyst

So do we make those motors in-house or?

Sanjay Kirloskar — Chairman and Managing Director

I don’t. I think we buy them currently.

Sanjay Kumar — ithought PMS — Analyst

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

Operator

Thank you. The next question is from the line of Mahesh Bendre from LIC Mutual Fund. Kindly proceed. Hello, Mahesh.

Mahesh Bendre — LIC — Analyst

Sir, last question. What is [indecipherable] Kirloskar, I mean, we got to think that most of these domestic entities are doing [indecipherable] on growth.

Operator

Sir, your audio is not very clear. Could you use the handset?

Mahesh Bendre — LIC — Analyst

I’m audible now.

Operator

Yes, please carry on.

Mahesh Bendre — LIC — Analyst

Hello. I’m audible?

Operator

Yes, Mr. Bendre. Much better now.

Sanjay Kirloskar — Chairman and Managing Director

Yeah.

Mahesh Bendre — LIC — Analyst

So the question is for Mr. Alok Kirloskar. The domestic entities most of them have clearly ways in terms of growth margins and there is some predictability in terms of how that is going to, I mean behave, in the future, on the international markets there is some unevenness in terms of growth margin, so what kind of initiatives we are taking to bring some stability in the operations in terms of investors viewpoint. There has to be some predictability in terms of growth margins and the business were to develop. So that is one step we are taking for that. Secondly, I mean what sort of revenue come from the international operations now? Globally, we are talking about the capital expenditure cycle, globally it is coming back, I mean most of the countries are investing in using the infrastructure. So how we’ll able to capture the international entities, will benefit to us. And third is, there is possibility of India UK Free Trade agreement probably in the near term and how this will benefit to us. Is there any benefit that will come to Kirloskar? Thank you so much.

Alok Kirloskar — Managing Director

So I think the first point you mentioned is in terms of predictability in sales and margins. One thing that we’ve been saying that we are doing continuously I think in multiple calls is that for FTA UK as you remember it is very oil and gas dependent and really that’s where we are trying to focus on the services business, develop a baseline business in every company independently and the baseline business can be products through distributors, it can be services where you have a framework contract three or five-year framework contract again to add predictability. And that’s really what we’re looking at in every individual legal entity. You see that coming through and I mentioned that earlier even in the UK, where our project sales for UK were 20% down over last year. When I say project it’s mainly large pumps, engineered pumps but even then the topline has been more or less the same because it’s been taken over by other sides of the business, and the margins actually are far better, which you can see when you add-back the ForEx losses compared to last year.

So I would say that not every entity has an objective. Thailand, as an example, has an objective to develop a baseline business. So, Thailand is a much newer company and one issue historically there we didn’t have a baseline business. There used to be a lot of volatility because there was large jobs that are going through but year-to-date, they’ve really been no large jobs that have gone through it’s really been all baseline business and we’re seeing that underlying business come through in this last in H1. So I think one thing we’re doing is developing a baseline business in every country. It’s not being done since today or yesterday we’ve been saying we’re doing this for a while. You’re seeing the result of that now and we’re trying to get the right mix in terms of product versus services because operating in European countries especially the product EBITDA margins are not at the level that we want KBL EBITDA margins to be when you look at the Indian side of it and that’s why we blend them with services to get the right EBITDA margin. While in Southeast Asia we see margins to be a lot better. So, I would say that this is really what we’re doing managing the product mix as well as developing baseline businesses in different geographies to deliver that sustainable and consistent number that investors crave for.

On the capital cycle, I would say that we are in different zones, one is the US, one UK, and Europe, one South Africa, and one Southeast Asia. So, every area we have something different that caters to the business and we are taking advantage of those capital cycles in those respective geographies. Just to give an example in the US where, where is it happening, it’s happening, it is happening in water supply which is infrastructure and it’s happening in real estate, we are in both those geographies, and we have those products with us. In the UK and Europe, it’s happening especially in oil and gas as well as floating LNG platforms which are really important at the moment as well as offshore exploration as well as green energy like things like hydrogen and areas like that we have products and we are working with the largest companies in these segments.

In Southeast Asia, we are in Thailand working closely because there is a lot of outward movement probably from China, and a lot of investment in Thailand as well as Vietnam. We again are in these territories, we cater to industrial, we cater to real estate, and we cater to services in this segment which basically cater the key areas that are coming out of China.

And in South Africa, we cater mainly on the services side because we see slowly a lot of movement towards OpEx from CapEx and that’s something we’ve been saying for the last two-three years that we are pushing that as the development of our strategy and we see that in the South African business when you look at the EBITDA margin over the last few years where from real basket case business they are delivering 12% and that’s really coming from the services side of the business. I hope that answers your key points.

Your last point was FTA. I think without FTA, we worked quite well between the British company and the Indian side of the business. We have products like our multi-stage multi-offset product, which my father alluded to earlier when we talked about iconic buildings around the world having our pumps. Many major buildings have these pumps whether it’s the World Trade Center, New World Trade Center, Bush Towers.

So the same pumps are anyway working in India through KPL. We have another product patented product called Autoprime, it’s made a big dent in the market, Indian market for water supply. So whether there’s FTA or there isn’t a FTA, I think that’s not really stopped us. We have a good IP policy and companies across the Group are able to leverage the IP to use them as anchor products and develop around in their respective markets. I hope Mr. Bendre that covers your points.

Mahesh Bendre — LIC — Analyst

Thank you. Thank you so much, sir.

Operator

Thank you. Ladies and gentlemen that was the last question. I now hand the conference over to Ms. Rama Kirloskar for closing comments.

Rama Kirloskar — Joint Managing Director of KBL and MD Kirloskar Brothers Limited

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

Operator

Thank you. On behalf of Kirloskar Brothers Limited that concludes this conference. Thank you for joining us. You may now disconnect your lines.