Kirloskar Brothers Limited (KIRLOSBROS) Q4 FY23 Earnings Concall Transcript

Kirloskar Brothers Limited (NSE:KIRLOSBROS) Q4 FY23 Earnings Concall dated May. 12, 2023.

Corporate Participants:

Sanjay Kirloskar — Chairman and Managing Director

Alok Kirloskar — Managing Director

Rama Kirloskar — Managing Director

Chittaranjan Mate — Chief Financial Officer

Analysts:

Sunil Kothari — Unique PMS — Analyst

Renjith Sivaram — Mahindra Manulife Mutual Fund — Analyst

Varun Bang — Bryanston Investments — Analyst

Khadija Mantri — Sharekhan — Analyst

Himanshu Upadhyay — O3 PMS. — Analyst

Paras Adenwala — Capital Portfolio Advisors — Analyst

Sujal Chandaliya — Girik Capital — Analyst

Vignesh Iyer — Sequent Investment — Analyst

Aditya Deorah — Divisha investments — Analyst

Devansh Nigotia — SIMPL — Analyst

Rabindranath Nayak — Sunidhi Securities — Analyst

Prathik Kothari — Unique Portfolio Managers — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Kirloskar Brothers Limited Q4 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.

[Operator Instructions]. I now hand the conference over to Mr. Sanjay Kirloskar,Chairman and Managing Director of Kirloskar Brothers Limited. Thank you and over to you sir.

Sanjay Kirloskar — Chairman and Managing Director

Thank you. Good evening, everyone. On behalf of Kirloskar Brothers Limited, I extend a very warm welcome to everyone who is joining us on this call. I hope you’ve had an opportunity to go through the financial results and investor presentation, which have been uploaded on the stock exchanges and the company’s website.

The company’s financial results for what fourth-quarter and the fiscal year were good. This was primarily the result of an improved product mix, increased operating leverage, reducing costs, along with a sharp turnaround at our key international subsidiaries.

During fiscal year ’23, the company witnessed a sustained increase in demand for made-to-stock pumps in addition to continued momentum of demand for made-to-order and engineered-to-order pumps. The topline and bottom lines both saw improvements in performance at the domestic and international subsidiaries. The growth was driven by major sectors like small plump business, building and construction and industry sector.

Our company’s consolidated order book as of 31st March, 2023 was higher by 17% year-on-year at INR2,888 crores, which was mainly driven by factors such as irrigation, water resources, and power. Please note that this order book does not include our made-to-stock pumps business, which contributes approximately to 50% of our standalone revenue.

We continue to increase our share of product business, while reducing exposure towards the EPC business, which again is close to about 5% for the year. I’d like to remind all the participants that these EPC orders are legacy orders and we do execute something or the other as sites open up. The company as we have mentioned is not taking any fresh EPC orders.

I now request Alok Kirloskar, Managing Director for Kirloskar Brothers International BV to share his thoughts on the performance of the international business. Alok,

Alok Kirloskar — Managing Director

Thank you. The company’s international subsidiaries have showed resilience in the amidst of challenging business environment, driven by ongoing China, Ukraine conflict, supply-chain issues, currency movements, U.S. dollar shortages in certain North African country and inflationary pressure. In fact, revenue and more importantly bottom-line of these subsidiaries grew considerably, mainly driven by the improvement in the product mix.

Our Thai and South African business continues to do well on the operational financial front. As communicated earlier, the South African business has signed major framework contracts in the power and mining sectors. Our South African business is now getting a good share of revenue from the service business, which is creating a steady and consistent cash-flow. We are implementing similar strategies in Norway and especially starting slowly with the Thailand.

The U.K. and U.S. business also witnessed growth in the topline. The company continues to focus on cost rationalization and increasing the penetration within the market, as well as enhancing its framework contracts business for services. The company is getting contracts from diversified sectors. In our Dutch entities, we are launching unique innovative products, which will be focused on the Benelux region. We believe this unique value proposition would be a good driver for a turnaround business.

The international order book now stands at GBP97.03 million pound-sterling, which is about EUR109 million. Going-forward, our focus remains on turning around the Dutch business, further diversify the order book by creating more daily business and growing our share of the framework contracts in the service business.

With this, let me invite Ms. Rama Kirloskar, Joint M.D., KBL and MD for Kirloskar Ebara Pumps Limited to take you through the performance of the domestic subsidiaries.

Rama Kirloskar — Managing Director

Thank you, Alok. The company’s domestic operations continue to grow at a healthy pace. The company has outperformed the industry growth during FY23 that will further reinforce the condition. The healthy pace of growth was mainly driven by new product launches across applications in energy efficient pumps. The company has a good product launch pipeline for FY24 as well. The company has made to stock pumps, which cater to agriculture, housing and MSME maintained healthy growth. The company also continued to debottleneck and modernize various plants to reduce cost and increase efficiency. Our EBITDA margins expanded mainly on account of operating leverage, continuous focus on cost rationalization and process optimization. We continue to witness a healthy order inflow, which is getting reflected in our order book. Our order book is expected to grow by the uptick in public and private capex.

Coming to domestic subsidiaries and JVs, Karad Projects And Motors Limited continued its healthy growth pace. KPML revenue grew by 8%, while its PAT grew by 20% in FY23. Kirloskar Ebara Pumps Limited also reported robust performance for FY23. KEPL continues to maintain high margins. We had multiple customer visits and audits for our high-grade costing subsidiary TKSL. We have received approval from many customers during FY23. As a result, TKSL is expected to improve its performance over the next few quarters.

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

Chittaranjan Mate — Chief Financial Officer

Hello, good afternoon. Let me start with the consolidated financial performance updates, starting with, Q4 FY23. Company had a strong year-on-year growth from operations at consolidated level at 18% to INR1,125 crores, majorly driven by [Technical Issues], which grew 177%. EBITDA grew by 61% year-on year to INR158 crores, while EBITDA margin expanded by 380 basis-points to 14.1%. Profit-after-tax grew considerably by 84% year-on year to INR101 crores.

Now coming to full-year, FY23, net revenue from operations grew by 22% to INR3730 crores. EBITDA grew by 79% year-on-year to INR426 crores while EBITDA margin improved by 360 basis points to 11.4%. Profit-after-tax grew by 150% to INR236 crores. Now coming to standalone performance, for Q4, revenues stood at INR794 crores compared to cement INR763 crores, which is a growth of 4%. This contributed approximately 71% of the consolidated revenue. EBITDA was at INR151crores, a growth of 24% year-on year. EBITDA margin expanded by 240 basis points, 15.2% yearly for Q4.

PAT for Q4 stood at INR80 crores, a growth of 113%. For full-year FY23, revenue stood at INR2,540 cores compared to INR2,166 crores, which is a growth of 17% year-on-year. which contributed approximately 68% of the consolidated revenues. EBITDA was at INR277 crores, which is a growth of 44% year-on-year. EBITDA margin expanded by 200 basis points to 11%. PAT for FY23 stood at INR153 crores, a growth of 95% year-on-year. Thank you. This is from our side.

Now, we can begin with the question-and-answer session.

Questions and Answers:

Sanjay Kirloskar — Chairman and Managing Director

We can start the question and answer session now.

Operator

Thank you very much. [Operator Instructions]. Ladies and gentlemen we will wait for a moment while the question queue assembles. The first question is from the line of Sunil Kothari from Unique PMS. Please go-ahead.

Sunil Kothari — Unique PMS — Analyst

Thanks for the opportunity, sir. Congratulations for really very solid improvement in performance in terms of profitability, international operation and all these things. Really very commendable performance. My question is broadly we are talking more about cost rationalization, process improvement, new product launches. So, combining all these things, the objective of yours was to achieve a very respectable margin, which we achieved in quarter four. International and local both. So how far we are away from those cost-reduction, process improvement, productivity improvement and what is your objective during this year to do on those lines.

Sanjay Kirloskar — Chairman and Managing Director

Thank you, Sunil. I think for the last many quarters, I’ve been saying that we will strive to go higher and higher in our performance, especially in relation to EBITDA and bottom line. So these are all ongoing projects and I believe that as we go-forward, you will see improvement quarter-on-quarter. That’s what we said and we will strive to achieve better performance quarter-on-quarter.

I don’t think there is an end to what can be done. But, it might grow faster, it might grow slower, but our attempt is to keep improving performance.

Sunil Kothari — Unique PMS — Analyst

And sir, domestic, the overall growth of — particularly during last quarter — quarter-four, I mean standalone and order year-on-year if you compare our order size is also modest compared to last quarter four ’22 and quarter four ’23 also. So what is your observation about domestic order flow and competition?

Sanjay Kirloskar — Chairman and Managing Director

Yeah. things tend to fluctuate quarter-to-quarter. I think that’s what I mentioned last quarter also. So, I don’t think we should be overly worried about this.

Sunil Kothari — Unique PMS — Analyst

Do you see sir, any major competitive pressure because our competitor is getting a little bit higher order books, higher-growth. So just your thoughts, what is happening?

Sanjay Kirloskar — Chairman and Managing Director

Well. I don’t know what — I can’t comment on the competitor. Our business will continue to grow.

Sunil Kothari — Unique PMS — Analyst

And sir, last one question is on this Karad project, it seems those product range has very good and very interesting potential. So, some comments on what we want to do maybe over next two, three years at this product segment. And secondly related to Kirloskar Kolhapur Steel which is yet draining very heavily, So what — by when you expect there will be a positive something?

Sanjay Kirloskar — Chairman and Managing Director

What I’ll do is I’ll ask Rama to answer both these questions on KPML and TKSL and after she answers, if anything needs to be add, But I would only say one thing with regards to your previous question and that is we’ve said that we are very selective on our order booking. And we continue to be that way for both projects. We don’t take any projects with even for products business. When it comes to large pumps, the customer has to have money, he has to pay us in advance, and he has to be, has to have an LC. I think you’ve seen the improvement in the balance sheet. And I think customers when we first stop taking orders for large pumps based on these terms, we actually had almost no orders, because EPC contractors do not like to deal with vendor who demands such terms, but I believe that our products deserve that. And that’s the policy that we have stuck to and that we will continue to stick to that. We have to be very careful with the — what happens at the end of the day, because unless the money is collected, no sale is done — complete.

So that’s been our philosophy and I don’t think we should worry too much about that.

Sunil Kothari — Unique PMS — Analyst

Your observation on macro-environment, demand scenario, looking at the orders, which is flowing in from infrastructure projects, Railways, Government, would you feel any better environment or how — what’s your thought process.

Sanjay Kirloskar — Chairman and Managing Director

No, I would not like to comment on either the state government or national government. I think all the other EPC contractors and the people doing large projects, their balance sheets might better reflect that. But we are quite bullish about the future, not only domestically, but also internationally. There are huge number of projects coming up and one thing I would like to again mention is that pumps that we deal with, all the centrifugal pump business is 1.5 to 1.5 percentage points of the size of project that you hear. So, I think that should be kept in mind and that is not only for us. That is for all the pump manufacturers in the end.

So we continue to be bullish. Rama, would like to answer on KPML and TKSL?

Rama Kirloskar — Managing Director

Good afternoon, Mr. Kothari. Hope you’re doing well. As far as your question for KPML, so, as you know KPML is our captive motor manufacturing company and it mostly supplies to our motors for our small pump business, as well as to our EP OEMs. So we are targeting year-on-year growth in both of these businesses and they are large businesses for KBL. So if you see year-on-year growth there, KPML will have healthy growth as well.

As far as new products are concerned, we have come out with new high-efficiency IE5 motors which specifically are our industrial customers are very happy to take because they are efficient and essentially the opex cost is a lot less. So we are seeing a good uptake in those products as well.

As far as TKSL is concerned, as we had mentioned in the earlier calls, our main activity for TKSL is to add new customers. And this last year, that’s precisely what we have been doing is adding new customers by ensuring we get our pre-qualification and audits done and it takes around six to eight months to get each of those audits done and it’s a long process. Fortunately, this year, we’ve completed a lot of those audits for many customers. So we should — the benefit of that in this coming year. I hope I’ve answered your question.

Sunil Kothari — Unique PMS — Analyst

Yeah, and Ma’am just last thing is on this — we are talking about some product excellence at current projects in the electronics and smart systems. Just without naming any numbers, if you can talk more about what we are planning to do?

Rama Kirloskar — Managing Director

Yeah, as far as KPML is concerned, we are mostly focusing on motors, because we feel that there’s still a lot that we can do with motor efficiency. It helps with cost optimization. So we are focusing more on motors and their efficiency rather than the electronics that go around it. We are focusing on electronics in KBL. We have our new CHRO KirloSmart, which is a remote condition, remote monitoring system, which goes with all our pumps and you know we can do real time monitoring of performance parameters of our pumps and that goes into many of our power, nuclear, as well as oil and gas customers. So that is our focus in KPL, but not in KPML.

Sunil Kothari — Unique PMS — Analyst

Great, thanks a lot and wish you good luck.

Rama Kirloskar — Managing Director

Thank you.

Sanjay Kirloskar — Chairman and Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Renjith Sivaram from Mahindra Manulife Mutual Fund. Please go-ahead.

Renjith Sivaram — Mahindra Manulife Mutual Fund — Analyst

Yeah, hi, sir. Hello.

Sanjay Kirloskar — Chairman and Managing Director

Yeah, hello, go ahead.

Renjith Sivaram — Mahindra Manulife Mutual Fund — Analyst

Yeah hi. Hello.

Operator

As the line of the current participant is disconnected, we move to the next question. The next question is from the line of Varun Bang [Phonetic] from Bryanston Investment. Please go ahead.

Varun Bang — Bryanston Investments — Analyst

Hi, hello. Congratulations on good set of numbers. My first question is on services business. Increasingly what I’m seeing is, we are talking a lot about our framework services. It seems it is becoming key part of our offerings. So based on your experience in managing these contracts, what value we have been able to add and how are these contracts getting renewed?

Sanjay Kirloskar — Chairman and Managing Director

So on these contracts, usually we find that we go into which work do we have these contracts with, you know, so, usually these contracts are with the oil companies like Petronas or like the new players who are the private-equity players that have gone into this like Apache or hardware energy or industrial players like INEOS or water companies — private water companies. So, usually we would look at all the pumps because it’s not just our pumps. We look at all the pumps and we go in there and we see what — how we can maintain them. And the initial agreement is just to have reduced downtime and we start with maintaining those pumps. We reduce downtime. With that, we obviously build up a lot of data on all those pumps. And the next step is usually in terms of efficiency enhancements that we can do on those pumps, which obviously is for an additional charge that we do this work.

And then from there, we start building up data about what is in those plants, how those pumps are operated, where those pumps are located, what changes it made to those pumps and that data reside with us because we manage the contract. And at the end of five years, usually it goes for automatic renewal sometimes or sometimes the customer wants and this part of the process, they will go for a tender again. But usually, what we find in the tender is that most of the new people who come in usually don’t have all the data that is required to quote on these pumps.

We have [Indecipherable] slowly in both SPP and in South Africa. So, SPP U.K. we’ve seen slowly with rising up from about 8% to 12% of our total revenue to about 35% of total revenue — 35% to 38% of our total revenue.

And in South Africa, we’ve seen this rise from maybe four years ago from 0% close to 45% of our total revenue. So this is generally how we operate. Have I answered your question?

Varun Bang — Bryanston Investments — Analyst

Yeah, that’s that’s a good explanation, just in the same context, how is the traction in the new services. I mean, last year we had some 2025 contracts How is it growing and how do you see scalability in this services business going into next two to four years?

Sanjay Kirloskar — Chairman and Managing Director

We see — we do see definitely there is a growth in the business. I mean if you — I’m sure you have also seen in the newspapers that there is a huge skill shortage across Europe and also in America. And while we don’t have service presence in America and we have sales, we don’t have service presence, but we have service presence in Europe and of course over Southeast Asia. We do see slowly that companies are outsourcing this more-and-more because that technical expertise does not exist as it used to be in the past. So we do see, rise. It’s not like there is huge rise every year, like it rising 50% with a company like this, but there is a rise because obviously the skill-sets are reducing.

And in places where we have got the contracts, we find slowly we are able to by ensuring obviously cooperation with the customer, able to have a deeper and deeper foothold within [Indecipherable]. So that’s how we are seeing the growth there. And our focus there really is more on the margins rather than just top-line growth.

Varun Bang — Bryanston Investments — Analyst

Okay, got it. And we’ve seen strong orders coming for VT pumps from state irrigation departments. So how large is this segment for us and what is the outlook given there is increased focus on improving rural infrastructure and also using the strength — our strength in VT pumps, how can we look at growing irrigation business internationally through our subsidiaries.

Alok Kirloskar — Managing Director

We already sell VT pumps through our subsidiaries. I think the question you’re asking is in our order book under irrigation and water management section. So, you can see what we’re doing there for the projects like the large irrigation projects that you mentioned. It will give you a picture of what’s happening. But as my father mentioned earlier, we are very selective on those jobs because there are large number of contractors, who — many of them who we are not familiar with and we have very stringent terms of how we deal with those contractors in terms of payment terms, as well as the margins we expect. So, you know, we are quite selective there. [Speech Overlap]

Sanjay Kirloskar — Chairman and Managing Director

The other people — they’ve had experienced people and are still placing orders on a set of commercial terms, which are very different than any one else.

Varun Bang — Bryanston Investments — Analyst

Okay, got it. And one last question, just a broader one. In exports, what I sense is, for one to be successful, the product has to be better in quality and because you’re competing with international players, it has to be lower in terms of price. So where do we stand on both these aspects, if you can just share your thoughts, that would be helpful.

Alok Kirloskar — Managing Director

I think apart those two, the other important aspect also is service and serviceability of those products because like I mentioned earlier, there is definitely slowly a skill shortage in those countries. And so, they do want that you are local and you are able to support locally. Separately, as you are aware apart from those points, there is also an additional point of localization. And countries across the GCC, even very small countries like Qatar, are asking for local content. So, I think there is a lot more than just those two points you mentioned, which are important.

But that said, the fact that we are getting a large number of orders overseas, I mean, highlights the fact that we are able to — we have that level of quality and more than just the quality we have the technology that we can have high-efficiency products, which is what the customer values in those markets, along with the requisite features, which are differentiating features in those markets. So we have that and while price is important, I would not say that we want to be perceived as a low-cost supplier from India. That’s not what we’re going for. We are going for really a premium product, a product that is equivalent to any other European or American product and that’s really where we’re focusing on.

I mean, even in the U.K., we have close to 85% of the water — private water markets and all the water companies that you know are private, and there we sell at 20% premium over competition, which is German. So really that is what our focus is and we say that our total cost of ownership is lower and that’s the philosophy we sell off.

Sanjay Kirloskar — Chairman and Managing Director

I think I would add to that by saying that we have developed the lower lifecycle cost products and recently I was in the Middle-East where the main water utility of that country bought pumps from KBL at almost 30% higher price than the German manufacturer. And they have come to check to our Kirloskar factory at the best facility that we have over there and they were not only very happy to see that and they were even happier to see that the efficiency that we have committed to was — we went over that efficiency, higher than whatever we had committed. So like — what Alok has said. I don’t think — I mean, we do not sell at lower prices just because we are from India. We are able to get a higher price because we are KBL.

Varun Bang — Bryanston Investments — Analyst

That is encouraging. Thank you very much. I’ll join back the queue. All the West.

Sanjay Kirloskar — Chairman and Managing Director

Thank you.

Operator

Thank you. [Operator Instructions]. The next question is from the line of Khadija Mantri from Sharekhan. Please go-ahead.

Khadija Mantri — Sharekhan — Analyst

Yeah, hello sir, congratulations on good set of numbers. Sir, my first question is regarding the EBITDA margin. So we have done almost 10.7% for FY23 but in the last two quarters, the margins are about 15% and 12%. So my question is, we will keep it growing more than 12% margins from current levels or it is you’re are saying that the growth will come only FY23 EBITDA margin.

Sanjay Kirloskar — Chairman and Managing Director

I know this is a forward-looking statement, I said that we will strive to do well. I did not give any number.

Khadija Mantri — Sharekhan — Analyst

Yeah, given that the decline in commodity costs and also the increase in volumes, we should be doing better than at least 11% of overall margin for FY23.

Sanjay Kirloskar — Chairman and Managing Director

[Indecipherable]

Khadija Mantri — Sharekhan — Analyst

Okay, sir. [Indecipherable] you said that you are seeking opportunities in solar and other emerging sectors also. So, is there any update on that particularly [Indecipherable] or decarbonization plans we were looking at the small modular vessels,

Alok Kirloskar — Managing Director

So, solar will continue to grow. But as mentioned, bus as mentioned, we are not system integrator. We supply pumps to system integrators, again on our terms, which is money upfront. We are not going to wait for state governments or whoever is the end-customer to pay and then get paid. As far as nuclear is concerned I think last-time itself. I had mentioned that KEPL had Made the first Indian designed Indian manufactured pump for boilers, main boiler feed applications. We had received development order from Nuclear Power Corporation as part of the requirements for the fleet ordering of the 700 MW reactors. This pump has been dispatched and. I mean not only — I mean it has been disbursed after all these requisite trials and tests and everything else has been done. And I guess, all things considered, and we meeting all the requirements, we are qualified now to participate in those tenders, which will come up for the fleet orders. This is four main boiler feed pumps.

We had to step out of-the primarily heat transfer pumps development program, because of the conditions that were created for who they were going to order on for giving us a development order. We have agreed with Nuclear Power Corporation that we will now get back in and develop this Pomp. As you are aware, many years ago, we again completely designed in India and manufactured in India, the primary heat transfer pumps for the Fast Breeder Reactors and these were delivered over a decade ago. So we believe that we are quite capable and will be able to deliver and qualified for all the requirements of the primary heat transfer pump for the their fleet requirements as well. is that okay.

Operator

Thank you. Ms, Mantri, may we request that you return to the question queue for any follow-up questions. [Operator Instructions]. The next question is from the line of Renjith Sivaram from Mahindra Manulife Mutual Fund. Please go-ahead.

Renjith Sivaram — Mahindra Manulife Mutual Fund — Analyst

Yeah, hi, sir. Sorry. I got disconnected. My congrats on good set of numbers and I’m very happy to see such performance continuously from last quarter onwards. So just wanted to ask, Alok, right, the overseas have been one of your major [Technical Issues] in terms of this [Technical Issues], so what is the current mix of this [Technical Issues] with the overall order book or in terms of the revenue. So, if you can thrown some color just to get an idea is this kind of numbers sustainable or [Technical Issues] any kind of one-offs in these numbers.

Alok Kirloskar — Managing Director

Mr. Renjith, can I – I repeat your question, tell me because there’s lot of disturbance. Well, your question, how much of this order book is service. Is that what your question was?

Renjith Sivaram — Mahindra Manulife Mutual Fund — Analyst

Order book is service and also if you can give any clarity, is there any kind of a one-time or an exceptional thing in these numbers because the 9% kind of margins because,is that a sustainable trend you see.

Alok Kirloskar — Managing Director

So, I would say that approximately, if I look at the service business component and now you ask me question offhand. So, I am going to give you a very round number, which is probably less than because as I’ve said in the earlier question that we don’t have any service business in the U.S. So that’s 0. Our main service business is in SPP UK, which is the UK entity, which is the largest amount of service business, which is about 35% to 38% of UKs turnover. And we have about 45% of the South African business in service. So at an overall level, I’d probably say the service business component is little under 20% in the total sales. And obviously our aspiration as I’ve always said is to go towards 50%.

To also your second question, sub part second question is that neither in the last quarter, neither, has there been any special jobs have gone through or anything of the sort. I mean I mentioned that last-time also that there was no large oil and gas job. Oil and gas turnover is pretty low compared to our peak oil and gas turnover, which was in 2011, 2012, 2013 and 2014. Compared to that, our oil and gas turnover is let’s say one fourth compared those years.

So there is no single amount, something special has gone through in these numbers.

What I will say is that, we have been reducing the costs year-on-year. And topline has crossed that threshold of breakeven points quite significantly and that’s sort of generating a little higher-margin now. So, I would say that’s really the the driver. The market had [Technical Issues].

Does that answer your question, Mr. Renjith?

Renjith Sivaram — Mahindra Manulife Mutual Fund — Analyst

Yeah, was there any ForEx gain or loss, just.

Alok Kirloskar — Managing Director

Yeah, Mr. Renjith, I thin in this particular quarter, as you know, we had some ForEx losses last quarter. We had some ForEx gains from last quarter to this quarter. But we have moved to hedge accounting in July ’22. So. I expect that probably after the June quarter, there should be less volatility. But that said, as you know, all our products, contracts are hedged. So anything that we release as profit or loss, definitely loss is not real because we will get the money back because it’s hedged. Anything really the profit would be whatever we should get because the contract is hedged and that’s the value we should receive with it.

Renjith Sivaram — Mahindra Manulife Mutual Fund — Analyst

Okay sir, should we assume with the kind of margins in the overseas business, it should kind of the normalized margins from here on, we should if probably this kind of revenue continues. Is that the right way to look at it?

Alok Kirloskar — Managing Director

I would say really dependent on the revenue. Mr. Renjith. Like I said, its basically the fact that we’ve crossed a certain threshold and it depends on what the revenue is in those quarters. [Technical Issues].

Operator

Mr. Sivaram, may we request that you return to the question queue for any follow-up questions. The next question is from the line of Himanshu Upadhyay O3 PMS. Please go-ahead.

Himanshu Upadhyay — O3 PMS. — Analyst

Yeah, hi, good afternoon and congrats on good set of numbers. This question is to Alok, okay. See, if we look at the Braybar, last three years, consistently, it has been the most profitable, okay, let’s say something like 20% plus EBITDA. Will it be also the company having highest-return on capital employed. And secondly, you stated that Braybar would have 45% of services contract and SPP U.K. will be something like 30%, 35%. The profitability of U.K. is much lower than Braybar. Is there something which is special in Braybar that we have been able to hit consistently this 20% plus EBITDA and whereas in other places, which are you have still about 30% services contract, we are not reaching debt numbers.

And secondly on this one, is the Braybar’ s revenue very different from what it was in FY19 because at that period of time, on similar revenue, the margins were 3% and currently it is 20%, lets say. Just some thoughts on that.

Alok Kirloskar — Managing Director

Yeah, to answer your question, one, Braybar of course is much smaller as a company. The second — the second point is that, in Braybar, like you said, then they had said earlier, the percentage of services is much higher. So that — and that’s really been brought through over the last few years. In 2019, the percentage was much lower. But of course, we have started the process but we have not got some large contracts that we have now on the services side, which are three to five-year framework contracts. So, yes, I mean, after these, the mix of revenue is totally different between 2019 and 2020 and FY23 in Braybar. The value of services is also — close to 45%, like I mentioned and that’s really what’s helping it really from 2021 when a lot of the revenues have come through.

If you’re comparing it to SPP, what you’re seeing there in SPP UK plus SPP USA. And like I mentioned earlier, there is 0 services in SPP USA. So if I consolidate the two entities together, the service revenue would be probably at –under maybe 18% to 19% mark. The services revenue. So if you look at it, the service revenue is much lower And SPP UK is much larger in terms of the sizes, also in the numbers you are seeing in SPP UK, there is a comment there about ForEx. So every time we’ve been having this conversation, so may be you could see through the transcripts, you will see what level of ForEx adjustment and mostly it was ForEx losses have been there in the SPP UK business, mark-to-market ForEx losses, So. I would say maybe factoring those in and also the fact that the service business is lot lower, the SPP business is quite different from the Braybar business. Does that answer your question?

Himanshu Upadhyay — O3 PMS. — Analyst

Okay, yeah, so I mean, what Braybar has achieved for other subsidiaries, it may take a considerable amount of time to reaching the terms of revenue mix.

Alok Kirloskar — Managing Director

Yeah. I mean, if we want services to be at that level yet, it will take — I don’t think considerable amount of time, but it will take us a little while to get us to that level. All of them are looking to get that mix for sure. And each company is at a different level to get there. So, I would say, yes, it will take a little bit of while to get there. And I think that — I think they are on that path to focus on it.

Himanshu Upadhyay — O3 PMS. — Analyst

But the intensity of competition is similar across the markets, so let’s say, South Africa versus UK or Netherlands or Thailand. The competition of services remains the same or you find there is drastic difference from realized market and emerging market for services and so pricing also.

Alok Kirloskar — Managing Director

I mean if you look at South Africa, it’s a developing market. And if you look at the U.K., we sre a developed market So, I mean, you have the example there. And so Thailand, really is the focus. Like in South Africa, we were really focused on that business. In Thailand, the first thing we were doing is focusing on the distribution business, because we were at, I would say in terms of the hierarchy, much lower level in Thailand when we started this process. So the first step was to get the distribution business to get the products into the field, into the volumes. Once you have that level of volume in the market, then you approach the customer. First you service your products. Then you say. I want to service everybody else’s products and that’s really how the progression is, right. So. I mean, that’s really the [Technical Issues]. Now we have the installed-base and now we are meeting customers and we’re saying, let us service our products and you know what

[Technical Issues], it seems like we can service the others as well. And that’s really how to keep enhancing the circle. So, I would say that’s what we are doing in Thailand at the moment.

Operator

Thank you, sir. Mr. Upadhyay, may we request that you return to the question queue for follow-up questions. The next question is from the line of Paras Adenwala from Capital Portfolio Advisors. Please go-ahead.

Paras Adenwala — Capital Portfolio Advisors — Analyst

I have a few broader questions. One is, it’s been a tremendous turnaround for the company. So what would you attribute it to? Is it largely the tailwinds and also to some extent any of those efficiencies that you’re eking out. I’m asking this question, the objective is, if current tailwinds convert into headwinds, what would the kind of decline be that one can expect in the business?

Alok Kirloskar — Managing Director

We tend to think its a combination of both. And with the initiatives that we have taken, we will try our best to ensure that whatever headwinds we might yet, we should be able to take care of most of that.

Paras Adenwala — Capital Portfolio Advisors — Analyst

Okay, alright. And secondly, I’ve been observing the Kirloskar Group for a while. around fairly long period of time. And suddenly, I’m seeing this huge spurt of energy within the group. And I’ll let me be specific about Kirloskar Brothers. For the last 10 years, business wasn’t going anywhere. And now suddenly we are seeing the spurt. What would you attribute this huge amount of change in the way the business has been run?

Sanjay Kirloskar — Chairman and Managing Director

Yeah, maybe you were getting for the first time, but about 14 years ago, we were mainly in the PC business where large pumping stations as against products contributed to our turnover to the extent of 75%. And we stopped taking orders for that kind of business that time. And what you saw over a period of time was that the 25% of the business going to now 95% of the business and 75% coming to pipes. So yeah, we were going no where, if you look at it as a company, but there has been tremendous growth on the product side and that too with the strictest commercial terms in our industry. So what we have done in the last few years is. as the project business declined, we came out with many new products. We increased about capacity at our plants. And we’ve tried to ensure that regardless of anything else, the cash situation improve. So that’s what has happened.

On a gross level, you saw turnover stagnating. But internally, as I have pointed earlier as well, the EPC business has come down and the product business has gone up. So that’s the change.

Paras Adenwala — Capital Portfolio Advisors — Analyst

Okay, excellent. And just finally, the kind of top-line growth that we have notched up In FY23, would you say that it’s largely because of the low-base that you had earlier or do you think this probably seems to be a normalized kind of growth.

Sanjay Kirloskar — Chairman and Managing Director

Yeah, it could be because of the low-base we had earlier.

Paras Adenwala — Capital Portfolio Advisors — Analyst

Okay, all right, thank you so much.

Sanjay Kirloskar — Chairman and Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Sujal Chandaliya from Girik Capital. Please go-ahead.

Sujal Chandaliya — Girik Capital — Analyst

Yeah, hello, am I audible?

Sanjay Kirloskar — Chairman and Managing Director

Yeah.

Sujal Chandaliya — Girik Capital — Analyst

Yeah, firstly congratulation on this great set of numbers and a couple of questions from my side. Firstly, on a standalone basis, the order intake was somewhat lower than overseas, of course. Are you seeing any slowdown in any particular vertical, like per se building and construction or industrial segment?

Sanjay Kirloskar — Chairman and Managing Director

You know, in the domestic area, Industrial or B&C, we actually not seeing a slowdown. As you probably are aware, there is lot of investments in distilleries. steel plants, cement plants. So, I think that business is quite strong and similar situation in B&C. I would say that sometimes, I think quarter to quarter, the situation changes and as you know very often there are other delays in order placements, but in terms of opportunities, I think the number of opportunities in the domestic market still seems strong.

But at the same time, maybe on the infrastructure projects like irrigation water, we are more selective and we will only pick-up the orders where our commercial terms and our profitability thresholds are met.

Sujal Chandaliya — Girik Capital — Analyst

Okay, okay, okay. Got it. And my second question was around, so, the quarter four. so the presentation we have got, in that 23 slide breakup in made-to-order and made-to-stock and engineered-to-order, is it on a consolidated basis or a standalone basis.

Alok Kirloskar — Managing Director

This is all standalone basis.

Sujal Chandaliya — Girik Capital — Analyst

Okay, okay, great. So that’s from my side. Thanks.

Operator

Thank you. [Operator Instructions] The next question is from the line of Vignesh Iyer from Sequent Sequent Investment. Please go-ahead.

Vignesh Iyer — Sequent Investment — Analyst

Hello sir. Just two questions from my side. I just wanted to know or just from the perspective of this quarter, on a small pump business, what was the utilization of the small pump business, only for quarter four. And my second question is, tax rates on blended basis for the entire year was around 29%. So what would be going in for the FY24, what would the estimated tax rate or you will be maintaining at the same rate.

Rama Kirloskar — Managing Director

As far as capacity utilization was concerned, it would be around 70% for small pumps for Q4. And I’ll let Mr. Mate answer your second question.

Chittaranjan Mate — Chief Financial Officer

Hello. The tax-rate is 25% plus charges, roughly 25%. But it looks differently because of various provisions made, additions made like that. Because you know the profit as per books and taxable income varies on a quarter-to-quarter.

Vignesh Iyer — Sequent Investment — Analyst

Okay, okay, I got it. Thank you.

Operator

Thank you. The next question is from the line of Aditya Deorah from Divisha investments. Please go-ahead.

Aditya Deorah — Divisha investments — Analyst

Thanks for the opportunity, sir. Sir, in the standalone balance sheet, we have a capital work-in progress of around INR78 crores. So, is there any capacity addition we are doing.

Alok Kirloskar — Managing Director

I will say there are two things. One thing is at our Kirloskar audit plant, we are modernizing and rationalizing some capacities. And at Dewas, we are putting up one additional line.

Aditya Deorah — Divisha investments — Analyst

Okay. Sir just announcements on a generalized note like over last 10, 15 years, this particular year, the amount of cash that we have generated maybe around INR250 crores free-cash flow in the standalone books, maybe around INR300 crores plus in the consolidated books. So what would be the capital allocation policy for the company going ahead because I’m sure we are not going to put this money into trade receivables. So what could be the thought process behind be using this cash going ahead for the company?

Sanjay Kirloskar — Chairman and Managing Director

I think it’s a very good question. We will see whatever opportunities come up. If you looked at, we are controlling our inventories. We hope to continue to be as profitable. And if you look at our debtors, actually we have Karad debtors, as well as debtors which are, I mean total debtor number, which are still to be collected from various state governments for projects that were done by us in 2010 to 2015. So our attempt is to collect that cash — collect those debtors and the commercial terms are quite tight. I mean, like I said, the best in the industry for a manufacturer. We will continue with that. I mean, why would we give away money.

Aditya Deorah — Divisha investments — Analyst

Thank you. Sir, your numbers were very, very pleasant surprise. Thank you.

Sanjay Kirloskar — Chairman and Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Devansh Nigotia from SIMPL. Please go-ahead.

Devansh Nigotia — SIMPL — Analyst

Yeah, thanks for the opportunity and congratulation on the great set of numbers. Sir, in the subsidiary, the order inflows has increased 20%,20% Q-o-Q, y-o-y, so this is related to which segments or industries.

Rama Kirloskar — Managing Director

Which subsidiaries? Are these international or domestic?

Devansh Nigotia — SIMPL — Analyst

Subsidiaries so, If I breakdown their order book, the major increase has happened from increase in order inflow in subsidiaries. Is that right?

Sanjay Kirloskar — Chairman and Managing Director

Yeah, so, I would say the main increase in the international subsidiaries is coming from SPB both SPP UK, USA as well as Kirloskar Thailand, KBTL These mostly are coming from jobs in water supply, fire, as well as certain segments in storm water drainage, which is in Thailand. In the U.K., we have come from service and we also have some new orders now come in for firefighting for regasification platforms. So that’s something that was not seen in our order book probably in the last quarter. But that’s something that’s coming in this quarter.

Devansh Nigotia — SIMPL — Analyst

And how is the demand on ground for residential pumps, as well as the agricultural pumps.

Rama Kirloskar — Managing Director

The demand is actually quite healthy. In fact, a lot of our growth this year was attributed because of our focus on the agri sector. We were really aggressively pushing our Agricultural pumps into some of the most rural parts of the country and that has really given us a lot of growth this year.

Devansh Nigotia — SIMPL — Analyst

And how do you mention of competitive intensity in this segment?

Rama Kirloskar — Managing Director

So this segment is extremely fragmented, but I mentioned this earlier in the calls, we have quite a large breadth and depth of product range, which others don’t and I think that’s one of the main advantages of of KBL in the agri sector.

Devansh Nigotia — SIMPL — Analyst

And In case of oil and gas, are you seeing any kind of demand moderation incrementally?

Sanjay Kirloskar — Chairman and Managing Director

In the case of?

Devansh Nigotia — SIMPL — Analyst

Oil and gas, oil and gas sector.

Rama Kirloskar — Managing Director

So there are quite a few expansion projects going on and in fact Kirloskar Ebara, which specializes in the API oil and gas pumps, they have quite a healthy order booking of around INR500 crores this year. So, I think we are seeing quite a bit of uptick in this area, both in the international and the domestic area.

Devansh Nigotia — SIMPL — Analyst

Okay, thanks a lot for answering my questions.

Operator

Thank you. The next question is from the line of Rabindranath Nayak from Sunidhi Securities. Please go-ahead.

Rabindranath Nayak — Sunidhi Securities — Analyst

Thank you for the opportunity sir. Sir my question is regarding this Kolhapur Steel Limited, we have — we are actually again for losses in this subsidiary and this is despite raising the turnover, the loss is also expanding. So what is the plan there. That is the first question. And also when we expect that we are having a better traction in the U.S. market?. Thank you.

Rama Kirloskar — Managing Director

Sir your second question was satisfaction in what?

Rabindranath Nayak — Sunidhi Securities — Analyst

U.S. markets, just what to say, when are looking at the growth from the U.S. market particularly?

Rama Kirloskar — Managing Director

Okay, I’ll answer your first question. So, TKSL, the last year was focusing more on getting its customers. That could not happen the year before because of COVID, in fact the last two years, we were not able to do customer audits or approvals. And like I mentioned earlier, it takes around six to eight months-to get the approval, the pre-qualification and the sample casting ready for the end-customer to place orders on the foundry. So we should see an improvement in this year.

Rabindranath Nayak — Sunidhi Securities — Analyst

Okay.

Sanjay Kirloskar — Chairman and Managing Director

Can you repeat your second question about the U.S. business?

Rabindranath Nayak — Sunidhi Securities — Analyst

U.S. business, actually you mentioned that your service and also the business in U.S. is almost very limited. How should we grow in the U.S. market? That is my second question.

Alok Kirloskar — Managing Director

In the U.S. market, we are really focused on limited range because as you know, the U.S. market first of all is very large in size and in terms of market size, also very large in terms of physical size and is full of our global competitors. Many of them is their home country. So when we entered the U.S. market, we only entered into select segments because we can’t fight everyone in all segments. So we are mainly in firefighting and. we are in municipal water. We cater to these segments to two companies. One is SPP pumps Incorporated and the other is SyncroFlo Incorporated. One does fire SPP and one does water, SyncroFlo.

So at the moment we are not looking at service business there, because, first of all fire pumps, which are — which we sell into the real-estate segment, as well as Industrial segment don’t require — generally don’t require that much service. And the large water supply pumps that we have at the moment, they are still quite new and our population is quite small in the general American market. So we’re not yet looking at service there. While we do service fire pumps in the U.K. and in the Middle-East in countries like in Emirates like Dubai and UAE,, etc.

Generally, fire pump services are not very profitable, if you have to travel long distances. So usually we have our FireEye system, which is a remote diagnostics system on the fire pump. Usually, we have AMC only visit them once or twice a year. So if you have volume — like in the U.K., we have about 1600 such contracts, then we will as whenever the engineer is in the area, he goes and visits one of these and completes the contract, visiting once or twice a year.

So but the contract itself is not very profitable just on fire. So that’s not a focus area right now in our U.S. business until we build up the critical mass in terms of volume and installations.

Rabindranath Nayak — Sunidhi Securities — Analyst

Okay, so it will take some time to grow in the U.S. market in the process.

Alok Kirloskar — Managing Director

First services, yeah because the market is massive as you know, both in terms of physical size, as well as in numbers. And so we are going — we have presence in certain –, very good presence in certain states and with certain states, we don’t have a lot of presence, when I’m talking about new products. So, I would say first is seeding the products and then after that you get the services, step-by-step. And that’s really how we’ve tried to see that we ensure that that the company makes profits in the U.S.

Operator

Thank you. Mr. Nayak, may we request you return to the question queue for follow-up questions. The next question is from the line of Pratik Kothari from Unique Portfolio Managers. Please go ahead.

Prathik Kothari — Unique Portfolio Managers — Analyst

Hi, thank you and good afternoon. First of all, congratulations to the team for such an outstanding exhibition. My first question to Alok, Alok, historically we have always mentioned that quarter-four is usually a weak quarter for international business, I did take your comment that there was no extraordinary one-offs, no oil and gas large orders and nothing on the services. Can you just because we see this in our execution in the order book and our order inflow etc., I mean, very large jump, even on a quarter-on-quarter basis, which is unlike in the past. If you just highlight what is driving this, where are we getting this business from?

Alok Kirloskar — Managing Director

Thanks, Pratik, yes, the reason why I always say that is because quarter-four for KB:L is actually quarter one for the international companies. And we know usually quarter one is not always the strongest quarter. So that said, I will say that one thing that we’ve been really pushing for is increasing the baseline business, which is our service business and our fire business and our water business, which are the core businesses. So these are something that we’re trying to inch up in terms of how much we do per month, because we have very clear product mix and breakeven levels for getting, especially SPP U.K., as well as each of the other companies. So that has been our main objective over the last two years and that slowly coming up as a service business and the other product businesses is also enhanced to that level.

So. I would say that is one factor. The other factor as I I’ve mentioned is that we do have stony built-up over the last year and coming into this year, a larger order base on Middle-East projects, as well as some oil and gas projects. So the Middle-East projects are mainly in water supply for large expansion being done in Middle Eastern, Emirates countries. And the other is for oil and gas, which is normally FSRU units right now, which are quite popular, as well as some expansions in offshore installations. So, I would say that the order book now, which I think you’ve seen the size of earlier has a mix of these two. And this is why we’re seeing that jump-in the top line. Does that answer your question? Absolutely, absolutely, yes. And my second question is, in the cash-flow, if you look at it, we have taken about INR25 crores of provisioning for some advances of bad debt. So just, is this related to projects?

Sanjay Kirloskar — Chairman and Managing Director

Not necessarily it’s related to projects, even certain large orders where customer are having problems in arranging funds, we have to make provisions. And some provision, we have made-for expected credit loss, which is as per policy. So there are delays from customers in paying. But as we go on collecting, we reverse those provisions. So it’s a mix.

Prathik Kothari — Unique Portfolio Managers — Analyst

I say this because it’s large number, Its double from what it was last year and almost 1% of sales. So, this is an expected number to grow, what do you say?

Sanjay Kirloskar — Chairman and Managing Director

At present, it is not expected to go up.

Prathik Kothari — Unique Portfolio Managers — Analyst

Okay sir, thanks again, all the best.

Operator

Thank you. Due to time constraints, that was the last question. I would now like to hand the conference over to Ms. Rama Kirloskar for closing comments.

Rama Kirloskar — Managing Director

Thank you very much.

Sanjay Kirloskar — Chairman and Managing Director

I’d like to thank all the people who attended the call, for the good wishes and look-forward to all of us having greater growth in the coming year. Thank you.

Operator

[Operator Closing Remarks]