Kirloskar Pneumatic Company Ltd (BSE: 505283) Q2 2025 Earnings Call dated Oct. 25, 2024
Corporate Participants:
K Srinivasan — Managing Director
Ramesh Birajdar — Vice President & Chief Financial Officer
Jitendra Shah — Company Secretary
Analysts:
Amit Shah — Analyst
Mahesh Bendre — Analyst
Mihir Manohar — Analyst
Sanjaya Satapathy — Analyst
Mayank Chaturvedi — Analyst
Kunal Sheth — Analyst
Sahil Rohit Sanghvi — Analyst
Ankur Kumar — Analyst
Chandrakanth Kanakia — Individual Investor
Shirom Kapur — Analyst
Aashna Manaktala — Analyst
Rohit — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the Kirloskar Pneumatic Company Limited Q2 FY25 Earnings Conference Call, hosted by Antique Stock Broking. [Operator Instructions]
I will now hand the conference over to your host, Mr. Amit Shah from Antique Stock Broking. Please go ahead, sir.
Amit Shah — Analyst
Yeah, thank you, Ryan. Good afternoon, everyone. On behalf of Antique Stock Broking Limited, I welcome you all to 2Q FY25 Earnings Conference Call of Kirloskar Pneumatic Company Limited. To discuss the results, we have the senior management team of Kirloskar Pneumatic represented by Mr. K Srinivasan, Managing Director of the company; and Mr. Ramesh Birajdar, Chief Financial Officer of the company. I’ll hand over the call to Mr. K Srinivasan for his opening remarks, post which we can open the floor for Q&A. Over to you, sir. Yeah. Thanks, Amit. Good evening to all of you. Let me start by wishing you all in advance a very happy and joyous Diwali. May the festival of light bring us all peace, prosperity and progress. Before we start, let me ask my colleague, Jitendra Shah, Company Secretary, to read out the disclaimer and then we will go into the call. Jitendra? Thank you, sir. First of all, wish you Happy Diwali to all. The presentation uploaded on the website of the company and discussion on the financial results during the earnings call may contain statements relating to future business development and economic performance that could constitute forward-looking statements. While these forward-looking statements represent the company’s judgments and future expectations, a number of factors could cause actual developments and results to differ materially from expectations. The company undertakes no obligation to publicly revise any forward-looking statements to reflect future events or circumstances. Further, investors are requested to exercise their own judgments in assessing various risks associated with the company and also the effectiveness of the measures which are taken by the company in tackling them, as indicated during the discussions. Thank you very much.
K Srinivasan — Managing Director
Thanks, Jitendra. So once again, good evening to all of you. Thanks for joining our call. We had a very good quarter, good on all fronts, order booking, sales, collection and making the H1 an overall a good half year. Sales in H1 was at INR706 crores as against INR524 crores of the previous year, a growth of 35%. Most of the growth came from domestic market. Export sales at INR43 crores was better than the previous year’s INR38 crores, but it’s nothing very significant. Order booking was strong and this leaves us with an order book of INR1,780 crores as on 1st October. This as compared to the INR1,450 crores on 1st October ’23 is an increase of over 23%, and that bodes well for our next half year and going forward. The inquiry pipeline too is good and we expect to have continuing growth.
In H1, we had over 20 IP filings. This for us is a very important enabler to continue on our growth journey. The order intake for the newer products; Tezcatlipoca centrifugal compressors, Calana booster compressors, Aria frugal engineered compressors, Jarilo biogas compressor and Khione refrigeration compressors, all picked up, and this bodes well for the growing — continuing growth of the company. Building in-house manufacturing capabilities has been a part of our ongoing theme to build sustainable competitive advantage. Our Nasik plant is being further developed for this purpose and we will continue to invest in this going forward.
The company signed a share purchase agreement to acquire 55.26% stake in Messrs Systems and Components (India) Private Limited. Systems & Components are a reputed supplier of refrigeration packages to the pharma, chemical, food sector for over 30 years. They have over 700 successful installations across the country. And this acquisition would help us to access this fast-growing industry segment with our newer products.
The net working capital of the company was at INR325 crores. While this is higher than the net working capital we had as of 31st March, it also reflects the enhanced activity levels across businesses, mainly on account of inventory. The usual challenges in terms of inspection, site readiness, etc. continue to plague predictable sales, but this is nothing which is different from our normal course of business. Capex spending and capex commitment in H1 was INR24 crores and INR86 crores, respectively. The free cash generation from the operations in H1 was INR55 crores.
Let’s now look at the results product group-wise. The air compressor business had pockets of heightened activity, particularly in the areas of construction and in the areas of pharma and metal. Consequently, portable compressors and the centrifugal compressors had a larger growth. This meant the new products like KRAMIS and Tezcatlipoca had enhanced traction. Sales of reciprocating compressor packages to various applications like the air separation plants, carbon dioxide plant, LPG plant, etc. continued to do well.
The refrigeration compressor business, this segment saw heightened activity, particularly with major packages getting shipped to refinery, fertilizer, ammonia terminals, etc. There was also a strong demand for compressors going into coal chains, ice plants, dairy industry. Sale of Khione refrigeration packages too picked up. The challenges that we had on receiving compressors from Europe on time abated a bit, and this hopefully would give us strong performance in the next two quarters as well. With continuing strong order inflow in this segment, we expect this segment to continue to grow even during the next year.
Process gas compression systems, execution of packages for the oil and gas projects in India was to plan. Sale of CNG packages and Calana booster packages picked up and we expect this to stay strong even for the rest of the year. We started shipping the biogas packages with a new Jarilo range of compressors. With significant inquiry and order pipeline, we expect this space to materially contribute to the top line next year. Export sales are still coming in a trickle and we expect to remain — and this is expected to remain muted even in the current year and maybe even in the first half of next year. Overall, export for the year was — will be marginally over INR100 crore as compared to the INR69 crores of the previous year. Tie-up with PDC Inc. USA in offering comprehensive compressors for hydrogen and other difficult-to-handle gases has helped us to win package orders with special applications. We expect significant order intake in this space in the next couple of quarters. The O&M service business continues to grow with the installed base growing, and this will continue to add to our regular business.
Outlook for H2 F25. The industrial activity in India has slowed down a bit with three consecutive months of lower PMI. However, there are pockets of heightened activities, be it in natural gas space, food, dairy space or on special projects. We continue to offer and finalize orders from these customers. The thrust to enhance manufacturing in India as a part of the government job creation initiatives will ensure that capital goods sector continues to grow in an accelerated manner even during the rest of the year. At KPCL, the strong focus on in-house manufacturing, IP creation and localized supply chain will help us not only in achieving the quickest response to customer needs, as well as to be more competitive, based on our cost position. We will — this will help us both in our top line growth and in margins. With strong order book to back, we expect to deliver on the planned double-digit growth for the year and progress on our aspirational target of INR2,000 crores-plus for the next year.
Now I’m going to request Ramesh Birajdar, CFO, to take us through the financial numbers. Ramesh, can you?
Ramesh Birajdar — Vice President & Chief Financial Officer
Yeah. Thank you. Good evening, everyone. I trust you had the opportunity to review the results we promptly posted on the BSE and NSE website following the conclusion of the Board Meeting. Additionally, we have uploaded a presentation on the financial results on our company’s website. However, for the benefit of those who may not have had the chance to review the results, let me now provide a summary of our Q2 and H1 performance for FY ’25. Sales of Q2 FY ’25 were higher compared to Q1 sales of current year as well as Q2 sales of FY ’24. Sales at INR431 crores, it registered a growth of about 56% compared to Q1 of INR275 crore, and compared to Q2 FY ’24 sales of INR282 crore. The H1 FY ’25 sales were higher at INR706 crores compared to INR524 crore in H1 FY ’24. So there was an increase by 35% in sales H1 year-on-year.
Other income for Q2 FY ’25 was INR6.17 crores, which is higher than INR4.15 crore in Q2 FY ’24, with — other income for H1 FY ’25 remained same compared to H1 FY ’24. Material cost for Q2 FY ’25 was at 51% compared to 54.1% in the corresponding quarter of the previous year. For H1 FY ’25, material cost improved to 52 — 50.2% against 52.8% of H1 FY ’24. This is due to better product mix, package sales in Q2 FY ’25. The equal split between projects and the products orders continue to remain — reduction in the material costs — we expect material cost to remain in this level.
Employee-related expenses remained consistent in Q2 for both years. During the year, deserving employees were granted generous increments and promotions aligned with the prevailing industry trend. As a result, H1 cost for FY ’25 stands at INR87 crores compared to INR86 crores in the corresponding period of FY ’24. In addition, ERE for Q2 FY ’24, that is last year, includes a one-time settlement cost impact of approximately INR4 crores paid to resolve a pending labor dispute related to termination of 117 employees. There is no interest cost relating to any borrowing, either for Q2 or H1 as the company is debt-free company. I would like to state that company has net cash and cash equivalent position of INR252 crores as on 1st October ’24. During H1 FY ’25, the company incurred a capex of approximately INR24 crores and paid a dividend of INR26 crores.
Depreciation is lower than the previous year due to discontinuation of RoadRailer business. Other expenses are a mix of fixed and variables. There is no significant variation in the level of expenditure during the current quarter compared to previous quarter, except the power and fuel cost impacting due to the fuel adjustment charged by the State Electricity Board and increasing operation at Nasik for forging and fabrication business.
The EBITDA increased to 22.8% in Q2, which is up from 15.6% in Q1 FY ’25. For H1 FY ’25, EBITDA also rose to 20% compared to 12.7% in H1 FY ’24. The PBT of INR92 crores, that is 21% for Q2 FY ’25, showed improvement over Q2 FY ’24 of PBT of INR27 crores, which is 9.4%, and PBT of INR178 crores for H1 was higher than PBT of INR50 crores in H1 FY ’24 due to product mix and our continuous efforts to reduce cost of manufacturing. Consequently, there was a significant increase in profit after tax in both Q2 as well as H1 FY ’25 with PAT rising from INR38 crores in H1 FY ’24 to INR94 crore in H1 FY ’25.
The company issued 68,200 equity shares in H1 under its stock option — employee stock option program. Previous year, 42,200 equity shares. Consequently, paid-up share capital increased to INR12.97 crores compared to INR12.95 crores as at the beginning of the year. Basic EPS improved to INR14.57 per share for H1 FY ’25 against INR5.89 per share in H1 FY ’24. With over 94% of revenues coming from the compression segment, it remains the only reportable segment. The segment profitability in Q2 improved to 25.59% compared to 19.9% of Q1. And similarly, segment profitability for H1 FY ’25 also improved to 23.1% as against 17.3% of H1 FY ’24.
Order booking during Q2 closed to INR890 crores, taking H1 order booking of INR1,033 crores. As a result, the company has an order book of over INR1,780 crores as on 1st October ’24. Previous year, INR1,450 crores on 1st October ’23. Capital employed in the compression segment rose by INR55 crores, reaching to INR352 crores at the end of H1 FY ’25 compared to INR297 crores at the start of the year. This is increase, attributed to the expansion of the business activities in this segment. We have regrouped — rearranged the financials wherever it is necessary.
Before I conclude, I would like to extend my warm greetings to all participants for the upcoming festive season of Diwali. Now, this forum is open for discussion with our esteemed investors. Over to Amit, please.
Questions and Answers:
Ramesh Birajdar
[Operator Instructions] Our first question comes from the line of Mahesh Bendre from LIC Mutual Fund. Please go ahead.
Mahesh Bendre
Hi, sir. Thank you so much for the opportunity. Sir, in the first half, the performance has been very strong. So when we look at the H2, how do you see — I mean, given the current order book and stronger order intake, is the growth momentum will remain in this kind of growth rate for next two quarters?
K Srinivasan
See, in the first six months, we have delivered a growth of about 35% over the previous year, but you must also understand H1 of last year was not a very great half year. The second half of last year was reasonably good. So keeping that in mind, we still feel that we will deliver, as we promised, 20%-plus growth for the full year.
Mahesh Bendre
And sir, in terms of order intake, do you think — what happened in last six months compared to that, do you think there will be some momentum in terms of booking — order inflow? Like I said, there are several segments where there is definitely a slowdown. But having said it, we have not been so far impacted because the business that we do in areas that are very specific to our products are still doing well. So we don’t expect any slowdown per se. We’ll continue to grow as planned, which is what we have said as our estimation for next year as well. We’ll continue to deliver double-digit growth, strong double-digit growth going forward. Sure. Thank you so much, sir.
Operator
Thank you. The next question comes from the line of Mihir Manohar from Carnelian Asset Management. Please go ahead.
Mihir Manohar
Yes, hi. Thanks for giving the opportunity and congratulations on great set of numbers. Sir, I wanted to understand on the gross margin side. And gross margins during the quarter have gone up by 300 basis points. So if you can explain what has led to this improvement in gross margins. I mean, is it product mix or [Technical Issues]. Second was on the booking side. The order booking also this quarter [Speech Overlap].
Operator
Sorry to interrupt you, Mihir. Your audio is not coming in clear. Could you please [Speech Overlap]?
Mihir Manohar
Yeah, is it audible now?
Operator
Yes, this is a bit better. Please go ahead.
Mihir Manohar
Yeah, sure. So I wanted to understand on the gross margin side. The gross margins have gone up by 300 basis points. So what has led to this improvement? I mean what kind of extent it is because of the product mix and how should we see the gross margins and EBITDA margins for next year? Because if normalization happens, then EBITDA margins will once again cool off. So that was the first thing.
The second thing on the bookings side. I mean, order booking of INR600 crores this quarter, a very strong performance over there. So just wanted to understand what has driven this order booking growth. You mentioned Calana and biogas. If you can quantify how much was biogas contribution and how much was the Calana range of compressors contribution this quarter and what was this number last quarter that will be helpful.
K Srinivasan
So I will answer the second part first and then request Ramesh to answer the first part in terms of margins. As far as the growth is concerned, our order booking has been pretty much secular, very much in the line with what we normally say of air compressors being about 20, refrigeration about 30, 35 and gas about 40. Except in this quarter and also a little bit in the last H1 itself, the growth in the refrigeration space has been far higher than what we normally get. We do expect that will moderate in the second half. So that is only a few quarters number. But overall, it has been pretty much in line with what we normally get. So that is as far as the sales is concerned.
Margins, I’ll request Ramesh to answer it.
Ramesh Birajdar
I hope, if you can remember that we are telling the people that we are very selective in choosing the orders, and while selecting the — choosing the orders, we are specific to any projects or packages where we specifically insist for the higher margins. And during the Q2, we executed the projects which are having higher margin and that higher margin is impacted for the Q2. And we are reasonably okay with the subsequent quarter two — quarter three and quarter four, which will be normalized quarters for the quarter three and quarter four. This is the exceptional margin we got in few packages and that is resulting in the higher margin in this quarter.
K Srinivasan
So there are two, three components in it, let me put it this way. There is a product mix. We are getting more equipment, so that’s a 50-50 this, say, H1. So that is one advantage. Second is, like Ramesh said, we had a series of good project orders with better margin that went through in this quarter. We expect the whole thing to normalize in the second half. It will not be 23, it will probably come back to a normal of 20-ish. So we don’t want to pour cold water on it, but I think we are in the right direction. There is help coming in that we do more manufacture in-house now. So there are multiple things that help us to increase margin. We only want to caution that this is something that all came in well. It may not hold for the next two quarters, at least not at the same level.
Mihir Manohar
Sure, sir. Sir, if you can — just on the margin side, if you can throw some light as to the new order booking which has happened. Is it at a higher gross margin [Speech Overlap]
K Srinivasan
I don’t want to get more granular than that in terms of order booking. We are booking a lot of good orders and with good margin. It is not in anybody’s interest to tell exactly where we are booking our bigger orders. Like I said, it is broadly in line with our normal split between air, refrigeration and gas compressors, except that the refrigeration compressor order booking has been far more than the normal. We also expect this to normalize in the next two quarters.
Mihir Manohar
Sure. And just lastly on the — I mean, order booking and margin side. I’m not asking for a specific number. About the INR600 crores of order booking, which has [Technical Issues] the budgeted gross margins behind that, are they higher than what you used to have as a budgeted gross margin, let’s say, two quarters [Technical Issues]
K Srinivasan
The margins, like we said, is a multiple — combination of many things. It’s not just only the price at which we book. As we manufacture more in-house, as we take out costs, as we get a better cost in our purchasing, as we get our volumes in place, the margins tend to improve. So the order booking is one part of it, which is really the market-given price. The margins, eventually, is the difference between what we get at the price and what we build as a cost in all our manufacturing activity and our operations. So there are two things playing here. We are working on one extensively. So that allows us even with a given price to make better margins.
Mihir Manohar
Sure, sir. I will come back in the queue. Thank you.
Operator
Thank you. The next question is from the line of Sanjaya Satapathy from Ampersand. Please go ahead.
Sanjaya Satapathy
Hi, sir. Congratulations on the fantastic results. You have more than [Technical Issues] for last year’s slowdown and back to that 20% [Technical Issues]
Operator
Sanjay, sorry to interrupt you there. Your audio is not clear.
Sanjaya Satapathy
Is it clear now.
K Srinivasan
Go ahead, Sanjaya.
Sanjaya Satapathy
Sir, my one [Technical Issues]
K Srinivasan
So Sanjay, I broadly understand what you’re asking. I said in the two quarters, there has been a relatively different split than we traditionally have. There has been more refrigeration-related compressors and compression packages and slightly lower on the gas side. But it is a one or two-quarter result. We expect it to normalize going forward. By and large, the split is not going to change. It will change within the range of that 5% that we talk about. Yes, there was some lesser packages on gas that went out, more packages on the refrigeration that went out, but that will all average out when you look at the full year.
Sanjaya Satapathy
And the last thing that I just wanted to clarify on this, that we know that you have a much bigger market share in gas [Technical Issues] and that is where you have become more aggressive with your products. So over a period of time, should your market [Technical Issues] mix be shifting towards [Technical Issues].
K Srinivasan
You see, the general story around gas, what we call as a gas compressor business, includes three buckets. There is a natural gas business. There it is largely the natural gas that is drilled out of India, which is roughly about 20 billion, 23 billion metric tons — cubic meters, sorry, 23 billion cubic meters. Then there is an imported component which largely comes as LNG, which is roughly about 40 billion to 45 billion cubic meters. We see a role of more coming out of how LNG is going to be processed. So that too is our gas business. So we don’t see any slowdown in that. There is a new thing that’s coming up, which is the biogas projects. With our new Jarilo in place, we expect biogas to scale up and that we know that is going to be an ongoing scale-up that will happen and we probably are the only people who can offer complete package end-to-end, right from the low pressure and the high pressure. Then the third area of growth is going to be the hydrogen space. And there too, we have packages there available.
So we don’t see this split between the three businesses changing significantly going forward. There would be couple of quarters of up-and-down depending on large packages of one going and other not going. But by and large, we are quite confident that we will stay with this split. This allows us to be more predictable. It allows us to sort of make our business plan better and we’ll stay with this.
Sanjaya Satapathy
And assuming that the order book now is, I mean, so much higher, so your visibility also has gone up, setting aside the quarterly volatility.
K Srinivasan
Your audio is almost as good as my visibility. In any case, let me answer this. The visibility of having an order is one part, but the execution is largely dependent on these customers clearing the drawings, clearing the engineering, having the site ready, giving our clearance for dispatch, etc. So it’s only half the story when you have the orders in place. At least it fixes our price and what we have to do. But the quarterly dispatches or the eventual sale has got multiple other variables, which is what I mentioned. The usual challenges of dispatches, site readiness, etc. would continue to be a part of our business challenge that we’ll handle.
Sanjaya Satapathy
Thanks a lot, sir. I’ll not pain with my poor audio quality anymore. Thank you.
K Srinivasan
I was only joking. I really couldn’t hear some part of your questions.
Operator
Thank you. The next question comes from the line of Mayank Chaturvedi from HSBC. Please go ahead.
Mayank Chaturvedi
Yeah. Hi. Thank you for the opportunity, sir, and congratulations on a phenomenal quarter. Sir, on the margin side of things, you’ve said one of the reasons is the in-house manufacturing that you’re doing more and more. So if you can just add a bit more color to it as to what kind of increase have you seen on the in-house manufacturing? And are there more investments going in, in that, and what activities would it be regarding? So that would be my first question.
K Srinivasan
Okay. As far as manufacturing is concerned, what we have put out is that we are doing most of our fabrication, forging, etc., in-house. We are looking at doing several more things that we will share as we go forward and commission those operations in full scale. But that is one big dimension. It allows us two things. First is, there is an element of cost saving, but more importantly, it allows us quicker execution of projects. If a project is put through in a shorter period, my other costs start coming down. So that is another help that I get. So there are two things that is happening out there. And I would like to put some numbers on it a little later when we come to a larger scale, but that is just a contributing thing.
The two or three other reasons, as Ramesh explained in getting better margins this quarter has been, one, orders with greater margins, which was actually booked well. Second is we got a better product mix. We have products, like I said, going more towards equipment and less towards projects. And the third one is also an important factor has been that the overall volume growth has allowed us to be more efficient. This is again coming from internal manufacture, as well as other process. To give you a number on our capex, we are going to do about INR100 crore in the next 12 months. That’s the kind of capex we are committing for building up capabilities for both in-house manufacturing and packaging.
Mayank Chaturvedi
Great, sir, great. Just to end the loop on this, are you also witnessing any realization uptick for the equipment that you’re selling?
Ramesh Birajdar
Will you repeat again, please?
Mayank Chaturvedi
Are you witnessing any realization uptick on the equipments that you’re selling given that the market is strong in the [Speech Overlap]
K Srinivasan
Not really. We are not getting any better price from anything. Actually, on the contrary, there is a pressure to put down prices. Like I said, the PMI has gone down three months in a row. Of course, this month I hear it is up, but — which only means that there is more pressure on the purchasers to put down prices. So prices are not going up.
Mayank Chaturvedi
Okay. Great, sir. And just one other question from my end. We were — we have been highlighting that the CGD compressors have been slow-moving, clients have been slower to take deliveries and now there is an APM allocation cut that has come up. So just wanted to get your thoughts on it. Would you see a rather slower rollout going forward maybe on the mother compressors again? What are your thoughts?
K Srinivasan
Yeah. So there are several people who had asked for this question as well. So my first answer is the natural gas production in India has been declining. And so, this 20% reduction in allocation of natural gas to the CGDs is something that was in the offering. We always expected this to happen. But if you look at the — and so you must understand that the natural gas given to CGD, which accounts for roughly between 21 billion to 23 billion cubic meter is only a third of the total gas requirement of the country. And this has been — allocation is down by about 20%, but this is supplemented by an 18% increase in the same period of LNG imports and that is two-thirds of the total gas consumption. So effectively, if you take away 20% of one-third and 18% of two-thirds, there has actually been a growth in the actual gas that has been consumed in the country. We handle gas. It doesn’t matter to us whether it came out of an LNG route or a natural gas drilled in India.
So the actual gas consumption in India has only gone up and this doesn’t include any other injection, be it biogas or hydrogen or whatever it is. So there is a growth in consumption. The split between what is internally produced and what is imported is changing adversely as far as India is concerned. Consequently, the price of natural gas that will be available to the user would probably go up by between INR4 to INR5 as I’m told. But that will not make an impact in the supply of compression packages as far as we are concerned. And we are far more flexible than anybody else. So we will actually see a benefit in these kind of switches because we are locally making, we are able to understand the technologies and modify things to suit whatever way the capital is generated. So it’s all an advantage for us as a company, not for the user, probably lender paying a little more, but that’s a part of the economic activities of a country.
Mayank Chaturvedi
Right. No, I think that makes a lot of sense. Probably there will be a switch between the mix, between mother compressors and booster compressors. We will be selling more of booster compressors now that the natural gas rollout will be declining. Is that understanding correct?
K Srinivasan
Yes. Partly yes. But, see, even LNG can be gasified and put in the same pipeline. And the same pipeline, it will still have gas, it doesn’t matter, it didn’t come from a natural well, but came out of an LNG from a port and then it is gasified and put in the pipeline. So in a way, the split between a mother and daughter station is not going to be a big change because of this. The change is happening primarily because the CGDs are not investing on the pipeline fast enough. So that is the reason why you have more of Calana sales. And for us, Calanas, though we get a volume, we are not very happy with it because it doesn’t make us money, or at least like what we would like to make.
Mayank Chaturvedi
Right. As far as I understand, Calana is one-third the price of a mother compressor, right?
K Srinivasan
That’s right.
Mayank Chaturvedi
Alright. Okay. Great, sir. Thank you for answering all my questions. Happy Diwali to you and your team.
K Srinivasan
Thank you.
Operator
Thank you. The next question is from the line of Kunal Sheth with B&K Securities. Please go ahead.
Kunal Sheth
Yeah, hi, sir. Thank you for the opportunity. My sir, question on CVG has been answered. I just wanted to get some sense on the CBG compressor, sir, what would be the size of the market, any sense that you can give?
K Srinivasan
The PNRGB report is available, which has said clearly we’ll have 18,000 installations till 2027, ’28, now it will probably go up to even ’30, which means that many new stations have to come on an average about 2,000 plus a year. This will continue for at least another four, five years. It would be a mix of mother and daughter stations and that has not changed at all. That will remain.
Kunal Sheth
Sir, I was referring to the compressed biogas compressor, CBG.
K Srinivasan
Okay. On the CBG side, the announced intention is 5,000 stations in the next five years. Again, like I said, 5,000 will come next five years, may take longer than five years. The initial set of large installations with lot of fanfare have all not lived up to the technical expectation. Most of the challenge is coming from the biosource and the generation of biogas. The quantums are not in line. The compression is not an issue. Compressions are working. We are in a good wicket there. So it’s all going to take a little time. See, CBG, unlike other things, is dependent on biosource, and that’s not a very stable thing. So that is going to go through a challenge. So it’s not going to be very easy. We expect it to scale up next year, but this 5,000 will definitely take more than the announced five-year time.
Kunal Sheth
Okay. Sure. But sir, any sense that per — how much — what is the price of a compressor typically that would be required in a typical CBG plant?
K Srinivasan
See, the CBG plants come from 5 TPD, 10 TPD, 25 tons per — TPD is tons per day. Our packages, we have anything starting from INR65 lakh to INR80 lakhs, going up to INR2.5 crores. So it depends on what is the volume, what are the kind of biosource, how are they going to collect it, how are they going to clean it. Is it going to be wet scrubbing, is it going through a pen cell [Phonetic]. So there are a whole lot of science behind it. And we have a solution for everything. As long as somebody can produce a biogas, we’ll compress it and give it to you.
Kunal Sheth
Sure, sir. Sir, then one last question, you did mention that the margins is a factor of product mix and therefore will cool off in the second half. But sir, any sense on what will — what are we targeting for the full year in terms of margins? Should it be much higher than last year? Last year we ended up with about 15.3% EBITDA margin. So should this year be around 17%, 18% or higher?
Ramesh Birajdar
You can expect a little bit of 20%-plus — around 15%, in that range. But our segment margin, what we indicated earlier also, it is between in the range of 19% to 20%, 21%.
Kunal Sheth
EBIT margin that you’re talking about?
Ramesh Birajdar
Operating margin for the compression segment, which is in the range of 19% to 21%.
Kunal Sheth
Operating? This is the EBITDA you are talking about, sir?
Ramesh Birajdar
No, no, operating. Yeah.
K Srinivasan
See, for us EBITDA [Speech Overlap] very small, yeah. Go ahead.
Kunal Sheth
Hello?
Jitendra Shah
Hello. Yeah.
Kunal Sheth
Yes, sir. Sir, you are referring to I think EBIT margin, right, that was 25% [Speech Overlap]
Ramesh Birajdar
EBIT and EBITDA is almost same in our case because it is low interest cost.
Kunal Sheth
Okay, okay. So this number we are targeting about 20%, 21% for the full year?
Ramesh Birajdar
Yeah.
K Srinivasan
So like you said, there is a company EBITDA margin, there is a segment margin. Generally, we said that the company’s margin will directionally go towards 18%. We stay with it. The segment margin, we said it will be 20-ish, it will probably be higher than that marginally. Around that.
Kunal Sheth
Sure. Got it, sir.
K Srinivasan
We want to be a little careful with margin till it sort of settles down. As you see that we had a good quarter and we want to ensure that we are able to hold on to some of this. We are also mindful of the slowing down of the activity in some segments and we have to have the ability to flex prices and pick up orders if need be.
Kunal Sheth
Sure. Got it, sir. And festive greetings to the Kirloskar Pneumatic team, sir. Thank you.
K Srinivasan
Thank you, Kunal, and best wishes to all at B&K.
Operator
Thank you. The next question is from the line of Sahil Rohit Sanghvi from Monarch Networth Capital. Please go ahead.
Sahil Rohit Sanghvi
Yeah. Good evening, guys. Thanks for the opportunity and congratulations on a very excellent set of numbers. My first question was just to understand what kind of market share do we right now have in the biogas compressors. I mean, what kind of competition do we have? I understand you told me that we have the largest range of compressors, probably everything under the possible demand. So, I mean, how much of the demand that you told could be possibly falling under Pneumatic? I mean, how much can we cater?
K Srinivasan
Okay. This is a question that is tough to answer in one session, but I’ll give you a rough and seg answer. We have three segments. We have the air compressor business where our market share is as low as 5% to 7%. We have the refrigeration compressor business where our market share in the ammonia reciprocating compressor business, which is for cold chain and ice plants is anywhere between 70% to 85%. We have the package business where we make large refrigeration package with hydrocarbon refrigerants, where our market share could be 80%-plus. It depends. If you lose one package, then it is 80. If you lose — we win everything, then we go to 100. So it’s only about 6 to 12 packages a year.
Then we have the gas compression business. There we have large packages, there again our market share would be about 50% 55%. But if you then look at the distribution business, which is really the mother compressors, daughter compresors, etc., our market share would be about 35%, 40%. So it’s a duopoly, but we are about 40 each — 40, 45 each and the rest is all the smaller companies. So that’s broadly our split. And this is only the market that we currently address. There is a huge market in each of them, which are completely met by imports. And many of our launches are targeting to address this market which is currently served by imports. That’s the way we’re looking at it.
Sahil Rohit Sanghvi
And sir, I mean, my question was more of — to figure out the market share we have in the biogas compressor segment. I mean, would that — would you have that number separately? I mean [Speech Overlap]
K Srinivasan
No, no. Biogas is a very, very nascent industry. There would be no real installed numbers available. So there are a lot of people saying there have won or few orders, partly installed, partly not done, etc. So there is no market share per se at the moment.
Sahil Rohit Sanghvi
Okay. But the whole order can be sum up to — it can be something up to roughly INR58 billion. That is the opportunity, the market opportunity?
K Srinivasan
The biogas business, like I said, there is a government intention to have 5,000 biogas compression stations. 5,000 could be anywhere up to INR5,000 crores. If you’re going to put a crore for a station, that could be the market in the next five to eight years.
Sahil Rohit Sanghvi
Got it, sir. Sir, secondly, sir, in the last con call, you said that there were some order bookings expected for the hydrogen compressors used in electrolyzers. So what kind of a pickup have you seen on that front?
K Srinivasan
We have not received so far an order for a hydrogen compression package. We expect to finalize something during Q3.
Sahil Rohit Sanghvi
Got it, sir. Got it. Thank you so much, sir. Happy Diwali in advance and all the best.
K Srinivasan
Thank you.
Operator
Thank you. The next question is from the line of Ankur Kumar from Alpha Capital. Please go ahead.
Ankur Kumar
Hello, sir. Thank you for taking my question and congrats for a very good set of numbers. Sir, in terms of execution, if I look at, Q2 tends to be lower than Q3 and then Q4 is the best quarter. So given our strong INR1,780 crore of order book, we expect similar trend, as in Q3 would be better than Q2 and then Q4 will be the best?
K Srinivasan
I’m going to be careful here. See, we expect generally Q3 to be a shorter quarter because we have these Diwali closures, holiday season, etc. But overall, generally, we have a lot of dispatches which doesn’t go in Q2, goes in Q3, etc. So this time, I expect Q3 to be as good as Q2, around that. That’s my expectation. And Q4 as usual will be a great quarter.
Ankur Kumar
Got it, sir. So in terms of this INR1,780 crore, can we expect like INR1,000 crores in second half?
K Srinivasan
That is giving something which I don’t know. We hope to have somewhere — see, we have potentially orders which are good, but generally, so far we have not done one half of INR1,000 crores. So let’s see where we get to.
Ankur Kumar
Got it, sir. And sir, in terms of gross margins, it’s like — one it is like around 50%, while last year was around 46-odd percent and historically also we have been like this only, 45%, 46% types of gross margins. So given you talked about improved product mix, so in terms of this order book, what is the expected gross margin, would you like to comment on that, please?
Ramesh Birajdar
Considering the current level of the cost reduction what we are doing, expanding the activity in the Nasik plant, and we are expecting the orders, which is what we expect the margins as per the expectations, but we see that similar type of margin will continue in the coming years also.
Ankur Kumar
Got it, sir. So in terms of — our guidance was INR2,000 crores and then at that time 18% margin. So even 1H has been such strong, can we expect this 18% to go to higher to say 20% or we expect this to be at 18% only [Speech Overlap].
K Srinivasan
So I think we covered the margin part in the first, saying that the segment margin will go 20% to 21%, that is the compression segment. The company margin would be in the range 18 to 20%. Give it one more quarter, then we’ll be more clearer on it. But directionally, we’ll get there.
Ankur Kumar
Got it, sir. Thank you and all the best.
Operator
Thank you. The next question is from the line of Chandrakanth Kanakia [Phonetic), an Individual Investor. Please go ahead.
Chandrakanth Kanakia
Yeah, good evening, sir.
K Srinivasan
Good evening.
Chandrakanth Kanakia
You have grown by 56% in sales. Can you break it down in air compression, refrigeration and the gas part?
K Srinivasan
We would not like to do that, Chandrakanth. See, this is a — we have done, by and large, good growth in all the three. I wouldn’t like to give you an exact split between the three. Like I said, for the first six months, the growth in the refrigeration part has been more than the normal thing. But other than that, see, if you get more granular than that, then you actually are giving, let’s say, unnecessary focus on business targets for competition.
Chandrakanth Kanakia
Okay, sir. Thank you. That was the only questions from my side.
Operator
Thank you. The next question is from the line of Shirom Kapur from PL Capital. Please go ahead.
Shirom Kapur
Hi, thanks for the opportunity and congrats on a great set of numbers. I wanted to focus a little bit on your gas compressor business. So just to understand — and you might have addressed this in previous quarters, but I’m just looking for a bit more clarity, but you had mentioned that your 50-50 sort of split between compressors — gas compressors and gas compression systems, if I’m not mistaken. And you on this call mentioned that the segments that you cater to are the natural gas produced domestically, the LNG imports, you’ve got biogas, hydrogen. I just want to understand, do you also cater to — how much of your business caters to your typical upstream, midstream, downstream industries and the refineries and oil drilling for various applications, like gas injection systems and gas transportation? How much of your businesses actually cater to that and what kind of — if you could quantify how that opportunity is growing with all this kind of refinery and petrochemical capex coming up in India over the next few years, how you are positioned to capture that opportunity?
K Srinivasan
Yeah. So it’s a good question that you asked and let me clarify. The gas business, like we said, is about 40% to 45% of our turnover. And in the gas business, half of it comes from the compression systems, which is the upstream, midstream and downstream. The other half comes from the gas distribution, which is really the mother station, daughter station and the AMC, the spares, distribution and running these packages, which is almost installed. There’s over 1,000 of our packages across the country and they have to be operated and maintained by us. So that’s about the other half.
Now, the package business of compression systems, this is a long-cycle thing. We finalize orders. It takes about generally a year to finalize, it takes about a year to execute it. So there is a fairly long visibility on it. We are doing a lot of work in this space. A lot of orders are being finalized. Like I said, the market split, I did answer one of the earlier questions, if you win all the package orders that year, then we’ll be about — almost all, then we’re about 80%, 85%. Otherwise, we’re about 45%, 50% of the total orders that is put out. Why do we lose? Why do we win? We win where it is just a package that is being ordered. Many times we lose because the order is placed through an EPC contract. It goes into some of these smaller companies who pick the entire thing as an EPC contract, they in turn try and then get the compression packages. In this case, they have a choice to go and buy compression packages from, let’s say, what we think are not the standard sources. They have some advantages in these things. Those are times when we lose these packages. Otherwise, when it is just a package, we tend to win them. So the order — let’s say, the market share, like I said, could be anywhere between 50% to 80% in this segment. Does it answer your question?
Shirom Kapur
Yeah. And sir, you had mentioned earlier that this market could be around — your product numbers hitting INR2,000 crore to INR4,000 crores a year. Is that specifically for the upstream, midstream and downstream?
K Srinivasan
Exactly. Market for gas systems can be anywhere — in a good year when a lot of orders get finalized, could be a few thousand crores — INR1,200 crores to INR2,000 crores. It depends on what all would be a part of the package. If you take EPCs, it’s even bigger. Our compression package alone could be anywhere in this range, about INR2,000 crore.
Shirom Kapur
Okay. No, that’s very helpful and helps square things up. And now focusing a little bit on the CNG packages. So in your previous call, you mentioned that the overall opportunity for setting up the CNG infrastructure till 2030, where about 12,000 stations are about to be set up, and that could be split two-thirds in booster stations, one-third in mother stations. You gave sort of a rough estimate. And the total opportunity size could be INR18,000 crores, if I’m not mistaken, that’s what the number that was thrown out. I just want to get some clarity on that, because if we’re talking about INR1 crores, INR1.5 crores per mother station and there’s about — that math doesn’t seem to add up of it coming up to INR18,000 crore opportunity. So if you could clarify that. And also, are these 12,000 additional stations from what we have now, or is it expected to be 12,000 total stations by the end of 2030? Just to understand the opportunity [Speech Overlap]
K Srinivasan
The total stations — see, if you go to PNRGB’s website, it’s available in public domain. Petroleum and Natural Gas Regulatory Board, they have said they have installed roughly about 6,000 stations. They have said there will be another 12,000 stations coming up. So the total becomes 18,000 stations. This 12,000, they said about a year and a half back. I believe at least about 1,000 orders have since come up. Now generally, they have not said which out of it will be mother stations, which out of it is booster. Mother stations are approximately INR1.2 crores to INR1.4 crores-plus-plus. The daughter stations are about INR40 lakhs. It could be anywhere between INR35 lakhs to INR45 lakhs. So that is the kind of split that we have. Nobody says what exactly will be mother station, what exactly numbers will be on daughter stations. So we’ll have to put some estimates.
This is the new installation. There is a running installation that also have to have an O&M funding on it. So when you take these numbers, you’ll have to say that there is an ongoing operating and maintenance cost that’s coming on each of them. That’s like an annuity business. And then there are new stations. So when you add up all that, you will see that the numbers match.
Shirom Kapur
So INR18,000 crores would be a fair estimate of the opportunity size available in this — just to clarify, right, [Speech Overlap]
K Srinivasan
In the next five years-plus, we don’t know whether they’ll do it in five years, whether they’ll do it in eight years. I always keep saying in all my calls, the numbers we say that we’ll achieve, we’ll achieve. It’s only the time scale that changes. It could be one or two years more than what is expected or three years more.
Shirom Kapur
Sure, of course. And of this, you mentioned that at least in the mother station packages, Kirloskar Pneumatic has a higher market share, could be around 40%-odd, but the daughter stations there’s about a — there’s higher competition. So you’re less likely to capture 40% of that market, right? Or is that [Speech Overlap]
K Srinivasan
You’re very much correct. Mother station is — it’s not a duopoly, but it’s — at least a 40% for both of us. The daughter stations, there are a lot of small local players and they come and go. So we are also not keen to be a big player in that. Daughter station is an interim step as a technology. We are in it because the users want us to be. It is not a very lucrative business. It is a lot of service for a small value of business. So we will be there, but we are not pushing to become 40% shareholder. We don’t want it.
Shirom Kapur
Okay, sure. That’s very helpful. Thank you so much for clarifying this. And I’ll join back in the queue. Thank you so much.
K Srinivasan
Thank you.
Operator
Thank you. The next question comes from the line of Mihir Manohar from Carnelian Asset Management. Please go ahead.
Mihir Manohar
Yeah, hi, sir. Thanks for taking the follow-up. Sir, I wanted to understand the market size and [Technical Issues] on the commercial side for next year, FY ’25 [Technical Issues].
K Srinivasan
We can’t hear you. We just can’t hear you.
Mihir Manohar
Is it audible now?
K Srinivasan
Bits and pieces, yes.
Mihir Manohar
Yes, sure. So I wanted to understand on the biogas side. I mean, how important or how commercially important will biogas be for FY ’26? Wanted to get an understanding around that.
K Srinivasan
See, biogas is an interesting area. It is not something that is going to be earth-shaking. It’s not a big part of our business at the moment. It’s one of the areas that can become interesting going forward. We expect to — if there is a INR5,000 crore opportunity in three to five years, we would like to be a dominant player in that.
Mihir Manohar
Sure, sure. So I mean, is the movement happening enough so that some packages could come around next year?
K Srinivasan
See, we will get orders, we are getting orders, we will get more orders. Like I said, the challenge is not so far in the compression side. The challenge is in getting the biosource on a stable way and to generate biogas in a predictable, stable way. That’s a challenge all the installers are battling with. So they have to first resolve that before it becomes an extremely viable business where more investments can come in.
Mihir Manohar
Sure, sure. Just a second question was on this — I think engineering side of [Technical Issues]
K Srinivasan
Your questions are just not clear at all. Your audio is so bad, I can’t even hear you.
Mihir Manohar
Yeah. Is it audible now?
K Srinivasan
Bits and pieces, yes.
Mihir Manohar
Sure. I think I will come back in the queue.
Operator
Thank you. The next question comes from the line of Aashna Manaktala from HDFC AMC. Please go ahead.
Aashna Manaktala
Yeah, hi. Good evening, sir. Just one question from my side. You mentioned there is — you’re seeing a bit of slowdown in certain segments. So what segments would that be? And I’m assuming that is not CGD because that slowdown has already been factored in, right?
K Srinivasan
See, the slowdown in manufacturing primarily comes off auto, auto component side. There are slowdown in other segments as well. But it doesn’t affect us as much as it affects others because our market share in the air compressor business, which is where bulk of this action would be is not a big one. So for us, it is less important. Second area of slowdown has been in exports. Several geographies have been affected. Again, export is not a big part of our business. Consequently, that slowdown doesn’t impact us. Yes, we had plugged in a lot of opportunities for growth in West Asia, North Africa, etc. related to the oil and gas sector. Clearly, there is a slowdown in that sector as well. No big orders are getting finalized as fast as we expect and that slowdown has also been factored in. We’ve been saying that, look, these are all areas which are interesting, big but is definitely slowing down and we will have to wait to encash on these orders.
Aashna Manaktala
Understood. That helps. And you also mentioned that you’re also launching some new products which are targeting imports. So what product segment would that be?
K Srinivasan
This is across the board. [Indecipherable] Tezcatlipoca is a centrifugal compressor, which comes under the air compressor business. It goes after imports of compressors in this area. If you look at the Khione and there are several around it coming up, these are all compressors which target imports in the refrigeration space. The Jarilo is a compressor that targets imports that would otherwise be required for the biogas and other spaces. So there are clear products which have been identified and put in place targeting imports. Aria is an air compressor which targets cheap, low-end Chinese imports. So there are quite a few products. A lot of our products that have been launched are import substitutes.
Aashna Manaktala
Okay, understood. Thank you for your time.
K Srinivasan
Thank you.
Operator
Thank you. The next question is from the line of Rohit [Phonetic] from Progressive Shares. Please go ahead.
Rohit
Hi, sir. I like the way you spell out KPCL in the annual report as knowledge management, people, process, customer care, and lasting partnerships. Sir, I have two questions. The first one being you did mention about the IPs being at 20 this quarter and last quarter it was around 15. So if you can just take us through that which sub-segment are you focusing on and how quickly or how slow will these products be launched in the market?
K Srinivasan
Yeah. So just to clarify, the H1 IPs are about 20, which means this quarter we actually had only about five-odd filings compared to the first quarter. Okay. So overall, we said 20, we’ll hopefully do about — let me see, at least 40s. IPs are something that only can be reported after it happens. Okay. So when we look at IPs, we look at three things as IPs. It need not be only a product patent, it could be a design registration, it could be a special trademark registration, etc. We also measure which is not really in public domain is, we also measure the number of peer-approved publications in international magazines of repute, etc. So we have a lot of criteria that we have set up. It’s there in our presentations, you can take a look at it. We talk in terms of how we build a chain of processes which will develop competitiveness, both in terms of products, process, and our offerings to the customer end market. Quite a few activities go around it. Around this is what we put out as a measure, we put out the IPs that have been filed during a quarter or a half year.
Rohit
Okay. So out of these, approximately how many new products can come out from our umbrella?
K Srinivasan
Okay. So the products have — let’s say, whatever we have announced in public domain, Tezcatlipoca is new. I’m talking of what is new in the terms of what has been launched and scaled up in the last two to three years. Calana, Aria, Jarilo, Khione, KRAMIS. So there are quite a few of them that have been launched and have been scaling up. So these are the ones all come out of internal development, our own IP.
Rohit
True. But these are — are you looking at catalog products from these — this basket or is it going to be something out of the box kind of innovative development from KPCL?
K Srinivasan
Okay. So here you will have to look at — we will — the last breakthrough in compressor was the screw compressor that was done 30 years back. Most of what IPs we create would all be improvements, extensions, not a fundamental change. We’re not going to make something which is — we’re not coming from the sign side of development. So if you look at the R&D, the R is still a very small part, D is the bigger part. So these are all improvements, developments and uniqueness of existing general products, but are better, superior than them in multiple ways. It could either be approval engineering, which allows us a cost competitiveness. It will either be a performance-related thing, which allows it to perform 10% to 15% better, or it will have several unique features which allow us to do one or two more things compared to anybody else, etc. They are not something that, let’s say, it is a completely different kind of a product itself.
Rohit
Okay. Sir, my second and last question is related to SCIL, System Controls India. I know you’re doing some due diligence and probably working on some closing adjustments over there. But if you can just take us through the synergies or maybe the diversification or soft diversification in industrial refrigeration and what exactly —
K Srinivasan
Okay. I’ll answer that. Systems and Components is a company that we have just completed a shareholders agreement today and announced. The actual share transfer will happen as soon as the shares are demated etc., which is a part of the new requirement even for private companies that transfers can happen only after the shares are in the demat format. So that’s being done. So we will run this business as an independent subsidiary. The reason — it will give three advantages. One, for Systems and Components, it will allow better management and obviously, we will try and bring in new possibilities for the company. For KPCL, it allows us, one, access to a very fast-growing segment. See, like we said in the refrigeration space, we largely cater to the hydrocarbon packages, or we go to the reciprocating packages for the coal chains, ice plants, etc. This allows us to access the pharma, chemical and dairy industry in a more significant manner.
We also have the possibility to use, through Systems and Components, some of the compressors that we are designing and developing new. And these would also — can be packaged and sold through their network. So this is an advantage that we see. It’s a very small company as we speak. We will have to build it up and use its cost base to scale up.
Rohit
Sir, would you like to share anything on the land that is available at Padgao [Phonetic], or maybe scope for greenfield or maybe brownfield expansion that can happen, because I understand [Speech Overlap]
K Srinivasan
So we can land with KPCL at Nashik, Saswad and other places. So land is not the reason for acquiring Systems and Components. So they will have the land for their own growth and that will be there.
Rohit
So would we be focusing on improving the margin profiles which SCIL currently has, or maybe on this saving cost or maybe the execution speed-up, what was [Speech Overlap]
K Srinivasan
A very small company, like I said. First would be to grow the company in terms of scale and size. Everything else will come along with it.
Rohit
Okay, sir. That makes sense, sir. Thank you for answering my question. Thanks a lot.
K Srinivasan
Thank you.
Operator
Thank you. Ladies and gentlemen, that was the last question and it concludes the question-and-answer session. I now hand the conference over to the management for closing comments.
K Srinivasan
So once again, thank you all. Thanks for taking time to listen to our call. And as we close for a week before Diwali, I wish you all well. May the year bring us all far more predictability. I know it’s a BANI world, but let’s have far more predictability, far more progress and success as we go forward. Thank you all very much.
Ramesh Birajdar
Thank you.
Operator
[Operator Closing Remarks]