Ladies and gentlemen, good day, and welcome to the Q1 FY23 conference call of GMM Pfaudler Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star and then zero on your touchtone phone. I now hand the conference over to Priyanka Daga. Thank you, and over to you, ma'am.
A very warm welcome to all of you into the quarter one FY 2023 earnings call of GMM Pfaudler Limited. The earnings presentation was uploaded on the stock exchange pages and also available on our website. Hope all of you had a chance to go through it. From the management, we have with us our Managing Director, Mr. Tarak Patel, our CEO of International Business, Mr. Thomas Kehl, our CEO of India Business, Mr. Aseem Joshi, our CFO of International Business, Mr. Alexander Pömpner, our CFO of India Business, Mr. Manish Kothari, and our Company Secretary and Compliance Officer, Ms. Mittal Mehta. We'll give you a brief overview of the performance of the company, after which we will get into the Q&A. Before we begin with the overview, a brief disclaimer.
The presentation that we have uploaded on the stock exchange page and on our website, including our call discussions that will happen now, contains or may have certain forward-looking statements concerning our business prospects and profitability, which are subject to certain risks and uncertainties, and the actual results could materially differ from those in such forward-looking statements. I would now hand over the call to Mr. Patel to provide you an overview of our performance. Over to you, sir.
Thank you, Priyanka. Good morning, everybody. Let me give you a brief overview of the quarter that we just completed. Overall, it's been a very strong quarter for us, both in terms of execution and also in terms of order intake. Both the international and the India business has performed quite strongly. The international business has performed exceedingly well, both in terms of revenue growth, but also in terms of a significantly higher order intake this quarter. This puts us in a very strong position in terms of order backlogs. We have the current order backlog in excess of about INR 2,100 crores, which obviously gives us good visibility for the next few quarters. Our order intake also has been quite nicely spread over our technologies, systems, and services business.
All in all our business lines are doing quite well. The investment activity in Europe and the USA is really heartening. We're seeing, you know, a resurgence of investment. We see plants and investments coming back to those shores, and that's driving the growth in the international business. In India as well, chemicals still continues to be the biggest sector for us. Going forward, we hope that pharmaceuticals will also pick up. Our synergies with the international business is also doing quite well. We've already met the budget in terms of value sourcing from India, and we hope that over the next few quarters, we can increase shipments from India to the rest of the world. Our stock and sales program also is gaining traction.
We have about 25 odd vessels that are being manufactured here in India and will be shipped to Germany in the next few weeks or so. We've also seen a major breakthrough in terms of our mixing business. Our mixing business was a small business, about INR 30 crore business a few years ago. We acquired a company in Pune called IMSD, and then became about INR 50 or 60 crore business. This year, we expect to double that business. We've seen a lot of activity in the fermentation space, so there's a lot of fermentation penicillin manufacturing that is coming in, Hyderabad and Vizag. The technology that we have in mixing has been quite helpful for us in securing large orders in this space as well.
Another good order that, you know, I'd like to talk about where we kind of showcase the strength of the group as a whole is a large systems order from China. This entire order will be manufactured here in India, but the process and the technology has come from Pfaudler US, and then obviously the local Chinese sales team have kind of worked together to win this $6 million order, which showcases really the strength of our group. Interseal India also is growing quite nicely. We've added four new clients to the Interseal list, and we expect a large order in Interseal in the region of 20-25 mechanical seals in the next few weeks. We are also currently working on a large asset recovery project.
Hopefully, again, in the next few days, we will have a breakthrough here, and that's something that we've been working on for quite some time. We expect nicely a bit of success there as well. In terms of commodity prices, we've seen a cool off of commodity prices. Metal prices have come down. Carbon steel and stainless steel both have significantly reduced. We should see that impact actually helping us, Q3 and Q4 onwards. That will be nice to see. However, energy costs will remain the concern for us. U.K., Germany, and India still have higher energy costs, especially gas prices have increased significantly, so that's something that we're trying to keep our eyes on. Lastly, we also acquired a small engineering company in Milan, Italy, Hydro Air.
Again, very process-driven technology driven company that will help us enter the adjacent markets as well as augment our capabilities in the space of engineering. This will be a nice addition to our group. Hopefully over the next few quarters and years, we will be able to bring this technology to our client base. With that, I think let's open it up to Q&A, and we would be happy to answer any questions that you may have. Thank you.
Thank you, Tarak. Mike, you can open the conference for questions.
Sure, ma'am. We will now begin the question answer session. Anyone who wishes to ask a question may press star and one on your touchtone telephone. Participants who wish to remove yourself from the question queue may press star and two. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. We have the first question from the line of Utsav Mehta from Edelweiss AMC. Please go ahead.
Hi, guys. Good afternoon. Thanks for taking my question. Two questions from my side, both on the India business. You know, the first one, we've noticed some improvement in gross margins in the international business. The India gross margins are probably at a multi-quarter low. If you could just explain if this is just purely to do with steel prices and should improve going ahead, or is there a mix change that we should know?
Yeah. Morning, Utsav. Good afternoon. This is Aseem Joshi. I'll take that question. Yes, Utsav, you're right. Our gross margins are lower than previous quarter. It's affected primarily by the higher steel prices, as we indicated during our last conversation. Tarak Patel did allude to the cooling off of steel prices, and we're seeing that benefit now in steel that we're buying currently. We are seeing that, you know, by the end of this quarter, that expensive steel would have been flushed out and the newer orders will be converted with steel that we're purchasing now. I think it's a transitional problem that we had anticipated, and it will correct itself by the end of this quarter.
Therefore, it's fair to say with the increased execution run rate and improvement of gross margins, the current EBITDA margin should revert to 20% or closer to those levels as you go ahead.
Eventually, yes, we do need to flush out this more expensive steel. Yeah, ultimately, we do expect to get back to what our normal run rate should be on margin.
I think one more point here, Utsav, just to kind of jump in, is also there's a slight change in product mix. Heavy engineering, by its nature, is not as profitable as our glass-lined proprietary products business. So as the chunk of that pie of that business increases, you will see a little bit of impact there. Again, our focus is also trying to improve that business, trying to improve the margins in that business, you know, obviously through, let's say, export business, change in MoCs and things like that. Yes, as a general case, the product mix will also have a slight impact on profitability.
Is there a higher mix of HE this quarter?
There is about.
Higher?
A base of HE. Yes, there is.
Higher? Definitely.
Yeah.
Okay, great. My second question again on the India business is that, look, we've seen a very healthy order inflow this quarter. If you look at the order book year-on-year, it's up only 3% because obviously our execution run rates are sort of very high. You know, if we have to do around INR 250-300 crores of revenue each quarter to grow for next year, you will have to clock in INR 300-350 crores of order inflow. Do you think that's, given the current environment, that's doable? And is it maintainable, 300+ crores of order inflow each quarter?
Yeah. I'll comment on you know this quarter's orders first. We've employed a strategy of being very selective in orders to make sure that they are accretive for our business. You know, if you may recall from last quarter, you know, we had actually lower orders than expected in our blast furnace business because we had held capacity open for you know orders that we really wanted and those converted in this quarter. Similarly in this quarter, you know, from the heavy engineering side, we've not picked up a lot of orders because again, we can see a few good orders coming, and we've held our capacity open for that one. We'll always continue to be selective in the orders that we take. We feel comfortable that we can.
There's enough orders in the market for us to meet our business projections for the year.
Yeah. Just to add a few points on that, there is definitely a very strong opportunity pipeline. Like I mentioned to you, here in India, the chemical sector is doing quite well. We have large investments lined up, which should materialize in the next few months. Overall, we're quite confident that we can meet the run rate, and we have enough of visibility to make sure that we continue to grow the India business at a certain rate.
Okay. Last question from my side. Could you just help us with the gross debt, net debt number, gross debt and net debt number at the end of the quarter?
Hi, Utsav. Gross debt we were at $70 million at a consolidated level, and the cash we had was something like $38 million. $32 million is the net debt.
Sorry, can you repeat the cash number, please?
$38 million.
INR 38 million. Okay, great. Thank you so much. I'll get back.
There's also a change in the pension liability because of the increased interest rate. If you remember when we acquired the Pfaudler Group, the pension liability was in the range of about $70 million. Today, it's come down to about $35 million, all because of the interest rate increases. That's also a nice positive thing that we've seen this quarter.
It's down. Sorry, I can only see the crore number, so it is around INR 490 crores at the end of, I think, last quarter, if I'm not mistaken, INR 400-odd crores. How much is it now?
$38 million. Pension liability stands today at $38 million.
Okay, great. Thank you so much for your time, guys. I'll get back in the queue.
Hi.
Mr. Ankur Sawhney, you may go ahead with your question.
Yeah. Hi. Am I audible?
Yes.
Yeah. Hi. Congratulations firstly on a great set of numbers and also reporting a strong order inflows. My first question is pertaining to the glass-lined segment. If you could help us give the glass-lined segment order inflow growth that you had in the current quarter, because what we had been observing is, although the overall order book was growing, this piece was not keeping up to the pace because the other segments were having a faster growth. If you could just help us give some more color on the glass-lined specifically.
Glass-lined business has done well across geographies. There were large orders that we won here in India. In China, we've also kind of hit 60% of our budget for the year already in glass-lined orders. Also in Europe is where we've seen a strong order intake in the glass-lined business. I don't have the exact number. Priyanka is checking this number, and she'll probably come back to you. There has been a good growth in glass-lined order intake this quarter.
Yeah, just to complement that, the standalone order intake has been something like INR 300 crores. Like Aseem mentioned, that we have been conservative with regard to the HE, so that's a high number.
Glass-lined, in this quarter we had around INR 292 crores of order intake.
In India.
In India.
Okay. Out of INR 300 crores of inflows, INR 290 was pertaining to glass line, is what you're saying?
190.
190.
190.
190. Okay. Got it. All right. Second question was pertaining to the PPA impact number which we disclosed. I think this quarter we have not separately disclosed that, if you could just help us with that.
Sandeep, if you recall, on the EBITDA, the PPA impact was only in Q4 of FY 2021 and Q1 of FY 2022. Thereafter, everything was, the entire PPA was in the depreciation amortization line, and that number has now, been closed into something like INR 5.5 crore per quarter. That is the number that you'll see consistently throughout. Because it's now, not a changing number every quarter and all that, so then that's life as normal. That's therefore not being disclosed separately. If you refer to our presentation in Q4 of FY 2021, we had given a detailed table of how this will pan out over, various years.
Right. No, that number used to be around INR 7 crore, so just wanted to get it in that number. That's INR 5 and a half crore is what you're saying?
INR 5.5 crores.
That's 5.5.
5.2.
Per quarter.
Got it.
Per quarter. You can assume 5.5.
Again, Sandeep, that's a non-cash item, as you would imagine under depreciation amortization line.
Right. Third question is on the high gas prices in Europe, particularly. Just want to understand the genesis of the strong inflows that we are seeing in our international subsidiaries. What is driving this? Is it more driven by the competition facing challenges due to high gas prices and we are scoring because of the Indian factory over here, or because the demand scenario itself looks quite positive and robust going forward. What is exactly, if you could give some more color on this?
I think it's a combination of multiple things. Obviously, our offering now to the customer, we are much more flexible with what we can offer. You know, we have different facilities across the world where we can kind of bring in the right product to meet exactly what the customer wants. We also have, like you said, you know, technology leadership as well as, and recognition across. I think all in all, I think Pfaudler kind of is always the first choice. If we can kind of come somewhere in the ballpark of what the customer is looking from a price standpoint, I think we usually get the right of first refusal.
From that standpoint, and having new facilities in China, in Germany, you know, having those ramping up nicely as well, using India as a low-cost source, components as well as complete vessels, that gives us a bit of an edge. But again, you know, having said that, we do believe that the investments that we are seeing in Europe is kind of driven by local manufacturing, local businesses being created in these geographies. It's, you know, heartening to see that. Most companies, the countries are now looking at building these capacities in-house so that they don't have to, you know, kind of depend on India, China for many of their products. That's driving a lot of the investments in Europe and in the U.S.
Sure. Thank you. One last question, if I can squeeze in, is just if you can share the, GLE-wise, where we stand in terms of capacity and what is the utilization levels?
Yeah. GLE-wise, on the India biz, at an India level, we have some numbers. We are still rolling out the global GLE program, so I can't give you a number for global GLE, but the India numbers after being the same as last year. Now the new furnace has come into Hyderabad. That just came into Hyderabad a few months ago. We'll add to that, and then obviously we have the bigger furnace coming into the Dharamsi facility sometime in September, October. That will also increase. We'll try and share with you the revised new data maybe in the next month or so.
All right. Thank you so much for taking this question.
Thanks, Sawhney.
Thank you. We have the next question from the line of Harshil Sethia from AUM Fund Advisors. Please go ahead.
Sir, can you just throw some light on our new acquisition and how is it gonna help us in modeling the whole entire business or are we planning to bring the technology in India?
Yes. This acquisition is really we are acquiring basically technology, process know-how, and engineering capability. It's an asset-light model. They don't have any manufacturing. They have 15 employees and everything is outsourced. Their experience and knowledge in membrane technology is something that is a welcome addition to the group. We already have engineering teams that run our asset recovery business both in the U.S. and in Germany, so this would be a very complementary kind of addition to those group of people as well. One of the problems that this company faced in countries like India and China was that they didn't have local manufacturing and hence they were, you know, basically priced out. Now having local manufacturing in China and India with GMM facility here in Dharamsi and then with our factory in China will obviously give them an edge.
The opportunity pipeline in this business, in this engineering company also is quite strong, so we expect to kind of grow this business. They've also entered into nice new markets where they kind of provide customers with green technology in you know plant-based protein. They do work on the EV side as well. All in all, it'll kind of extend our product portfolio, will also help us enter into new markets. You know, like we said, we're always looking to add good technology, new technology, and that's something that we will bring to the table with this acquisition.
Okay. Secondly, it would be very helpful if you could, you know, quantify us the whole market size. What kind of growth rate is the market growing at? You know, are we just a very small company in a big pond or, you know, just to get a sense of the whole business.
In this acquisition-related business?
Yes, the acquisition.
Yeah. Again, it's a small company. You know, there are the competitors here in India and China localized, but again, here it's a technology play, right? A lot of these skid-mounted units and processes that these guys sell are really kind of made specifically for clients, right? You work with clients over a few months, you do trials, you do tests, and then you come out and then you kind of make and manufacture a complete system. Again, it's you know, kind of moving up the value chain where you're gonna give process guarantees, you're gonna give you know, a kind of value add and not just sell equipment. There are specific clients who will come to you who need specific issues resolved, and that's where we kind of target.
Yes, doubling or tripling this business over the next 3-5 years should not be very difficult.
Okay, sir, thirdly, I had this question. In the last quarter, you had mentioned that you'll give some sense on the guidance for the next 4-5 years and our vision, I guess.
Yes. We are planning something, an investor day sometime in September. More details will be shared in the next few weeks. Yes, we haven't forgotten that promise, and we will come back with some new numbers and, you know, a new plan in terms of what and where we wanna be.
Okay, sir. Thank you.
Thank you. Participants who wish to ask a question may press star and one on your touchtone telephone. Participants who wish to ask a question may press star and one on your touchtone telephone. We have the next question from the line of Sanjay Shah from KSA Shares & Securities. Please go ahead.
Yeah. Good afternoon, Tarak bhai, and congratulations to you and your team for excellent set of numbers, and especially in this challenging time.
Thank you.
My question was regarding our order which we received was on the side of that fermentation application. Sir, can you elaborate on that? Does the technology is with us, and what size opportunity we see in their, that segment? Because I suppose this is a new order what we have received.
Yes, Sanjay Shah. The idea here is obviously there is this entire push and PLI scheme that is driving local manufacturing. Penicillin is something that we've usually always imported from China, and the government has been kind of proactive to start and have companies manufacture the penicillin here in India. There are three large plants that are coming up, one in the north and two in the south of India. Major investments in this, in this, the technology. In terms of order size, we got orders in excess of about INR 50 crore, just for the agitation, for the fermentation part of it. It is a major breakthrough for us, and we do have technology because these are very large reactors.
They go up to about 300,000 cubic meters, so very, very large agitators. You know, obviously, with the technology that we have in mixing, we were the preferred choice when it came to this. That's a nice breakthrough for us. Now we are also looking at using this technology to maybe enter the international market, where we can also give fermentation technology to other clients as well.
Does that throw us a huge opportunity on this vertical or it's limited?
There is definitely an opportunity. As I said, if more people in India start manufacturing and you know, fermentation becomes a big opportunity for us, definitely we will be the preferred supplier here. There's not too many other manufacturers in India who can kind of deal with fermentation technology. The other two or three players are international, and obviously being Indian and local, we have a cost advantage. Yes, if this was something that were to grow, then yes, it would directly relate into a new business opportunity for us.
That's great. My second question was regarding our order, which we received from China, Chinese market around INR 50 crores. That was just to understand, what's the USP or what's the rationale of the Chinese people giving order to GMM and where we use the U.S.'s technology and engineering from India. What is that that they have to come to India for such an order?
Yeah. Let me take this. You know, this is basically a quite specialized product. It's a wiped film evaporator. You know, normally they would have to take it from our American source that they were getting from Pfaudler. Clearly this is a situation where the customer needed a cost competitive product. We were able to really hit the sweet spot of what they needed because our sales team, local sales team really understood what the requirements were. The process know-how came from our U.S. team. A lot of the engineering work and of course the manufacturing work will happen in India.
This is an example where we were able to really benefit from the strength of one, you know, sort of, one team kind of approach across the three locations, to convince the client that, yes, this company can meet its requirements, from a technology, from a cost, and from a delivery standpoint. I think it's a good example of how we can work together to meet customer requirements wherever they are.
Does this order carry what you call performance guarantee?
No. These are equipment that we are supplying, and we were in competition with a European competitor, and then obviously having the flexibility of localizing manufacturing that gave us an advantage. In terms of, you know, the application itself, this is something that we've done quite often, but there's no process guarantees associated with it.
Thank you, sir. Thank you very much and good luck to you, sir.
Thank you.
Thank you. We have the next question from the line of Renjit Sivaram from Mahindra Manulife Mutual Fund. Restricting the question to two questions per participant, please.
Yes, sir. Congrats on good set of numbers. Sir, just wanted to check with you the local CNG gas prices and the availability issue. Are they completely sorted out now? From here on, do we see an incremental increase in the gross margins or the standalone margins from here on?
Renjit, hi. Thanks. Supply of gas is not a concern. The pricing is a concern, and that's hitting us by approximately 1%, you know, in this quarter. Yes, as the prices cool off back to normal prices of last year Q1, that should be a straightforward improvement in the EBITDA, as and when it happens. Yeah. But also, just from an understanding standpoint, we do have a combination of gas furnaces as well as electric furnaces. The way that we kind of look at the gas price increase is we kind of balance the production between gas and electric as much as possible. But if gas prices were to reduce over the next few quarters, that will positively impact our profitability.
Sir, there is some thoughts and in some places they are kind of substituting gas with a low-cost propane or something, which is low cost. Such kind of alternative is impossible for us over?
No, I don't think for us there's a chance of replacing the gas with any other kind of gas. Plus our consumptions are quite high as well. No. To convert the gas furnaces to electric also is not possible. We will have to continue with gas.
How is the overall outlook in Europe? I think this was asked before also, like we hear that the economy is not doing much, and they are also impacted by this gas availability and also the plants are at subdued utilization. Do you see a slowdown in order intake going forward because of this current international market?
To be honest with you, I can't say that we are seeing a slowdown right now. The opportunity pipelines across the group are quite strong. No, we are not seeing anything specific that is pointing towards a trend. Like you said, obviously there are issues in Europe, you know, obviously with the Ukraine war, inflationary pressures, and things like that. Will it have an impact? I can't really say right now, but right now as in terms of order intake and opportunity, we are not seeing a slowdown. No. As furnaces outside are all electric furnaces, they're not gas furnaces.
Okay. Sure, sir. Thanks and all the best.
Thank you.
Thank you.
Thank you.
We have the next question from the line of Rahul Agarwal from L&T Mutual Fund. Please go ahead.
Yeah, thanks for your work team. First of all, congratulations on a great set of numbers. Just I wanted to understand more in terms of the breakup between, let's say, price and volume in what your revenue and order book growth has been. If you could give some sense on that.
Just to give you an overview, I think we've seen both. There has been a strong focus on improving pricing across the group, especially here in India, and we've been working towards that. There's also been volume growth as well across geographies. Like I said, strong execution has been the cornerstone of this quarter's performance, especially in Europe, China, U.S. and India. Those are the areas where we have seen strong execution. In terms of the exact breakup, I don't think I have the number with me right now, but that could be something like approximately 10% broadly speaking, because these are across segments, so this is just a broad number, and the balance is volume.
Just the order inflow that we have got this quarter, would it be fair to assume that these are the new commodity prices that we have after the fall, or these would be still at the old ones?
No. These quarter orders will be executed in the next maybe six months or so. Obviously we will use the cheaper materials for these orders. Yeah.
Your booking this order would have been at a higher commodity price compared to what you will execute. Is that the case?
Yes. Our pricing has not changed downwards. We still maintain our pricing and we, you know, as the price leader, we try and obviously drive pricing strategy across geographies. From a pricing standpoint, we maintain pricing and yes, if there's a benefit coming from lower material costs, you will see that improvement happening from Q3 onwards.
Perfect, sir. Perfect. Just if you could just share some more the insight into the pipeline that you mentioned, as in terms of maybe the numbers that you're seeing or any qualitative understanding on it.
I mean, just to give you a broad idea, across the group, including the new acquisition that we've done, we all are seeing an all-time kind of backlog plus also a very strong opportunity pipeline. In India as well, you know, we're seeing large chemical investments coming up. You know, companies like PI Industries, SRF, Deepak Nitrite, Divi's Laboratories, and many other companies are now planning large investments which should materialize in the next few weeks to months. We don't see a real slowdown here. There's also good opportunities for us, like I mentioned in my opening in asset recovery. Hopefully by the end of the day or early next week, we should have some good successes here.
We're working on a large, very large, project here on asset recovery and would be a major breakthrough for us. All in all, the pipeline remains quite strong. You know, if you then look at the China Plus One strategy, if some of the production were to move to India, that will only further kind of improve that opportunity pipeline as well. Across the globe, across geographies, we're not seeing a slowdown in terms of opportunities. Investments are becoming back into pharma and chemical and obviously the new markets that we now also cater to, like I said, fermentation, paint, you know, food and beverage. There's also now new markets like, green technology in, the lithium extraction and in, you know, bioplastics and plant-based protein.
You know, all in all, things look quite positive for us.
Great. That's very helpful. Thanks a lot, and all the best.
Thank you.
Thank you. We have the next question from the line of Jaiveer Shekhawat from Ambit Capital. Please go ahead.
Hi, team. To start, firstly, in terms of your order intake, could you specify that, could it be that some of the orders that were supposed to come in fourth quarter came in during this quarter and hence, the high, say that 40% is high that we are seeing for the international business on a YOY basis? Or do you believe you can build on top of the 1Q order intake levels in subsequent quarters?
You know, there's always an issue with backlog, but like I said, the orders are quite well spread. You know, in most cases, we have a strong pipeline. You know, just to give you an example, our Swiss subsidiary has now nearly, you know, 16-18 months backlog as it stands, right? I think the current backlog is close to CHF 40 million, right?
Obviously, you know, you won't see that kind of new orders coming at the same pace because they already have a very, very strong backlog. For glass-lined and other businesses, I mean, where we have a kind of a smaller backlog, especially here in India, where it's about 4-5 months only, that's where we can really kind of ramp up because customers do look for quicker deliveries in glass-lined, and that's something that we always want it to be in that 4-6 month range, where we can really quickly turn it around and supply to the customer as soon as possible. In general, from as it stands, I also know that, you know, Q2 has been pretty good in terms of order intake, so we're not seeing a real slowdown.
I think this will continue at least for the next few months, at least.
Got it. Secondly, on the acquisition, while you've highlighted as to how the acquisition augments your engineering capabilities and the agencies that it opens up, how does Hydro Air benefit from GMM's technologies or capabilities? Could you specify that as well?
Sure. Hydro Air, obviously, they were owned by a small private equity company, and obviously, when we spoke to the gentleman there a few days ago, you know, he was kind of happy that somebody is now talking to him about his product and technology and not really about numbers, right? Strategically, they are very happy to be part of the Pfaudler group. It opens up brand-new markets for them, brand-new geographies. The customers that he caters to are the same customers that we go to sell our glass-lined. Our glass-lined guys, our mixing guys, our asset recovery guys can all go and kind of sell these products. He immediately gets a global reach that he, you know, being a small Italian company, he could not really kind of cater to the world, right?
Now the US opens up, India opens up, China opens up for him. Having low-cost manufacturing in China and in India will also give him a local presence. Maybe, you know, bringing in the materials from Europe was kind of price prohibitive. Now having local manufacturing available, that would give him an added edge as well. We also have Thomas Kehl here on the line. Thomas, maybe you wanna add something on the acquisition and how does Hydro feel about being part of the Pfaudler group?
Yeah. I think Tarak summarized it very well. It's a small engineering group. They are very keen on their process know-how, and their edge is that they develop together with customers' processes through pilot lines and pilot facilities and pilot testing, and usually once the pilot facility testing is successful, the order is around the corner. With the global reach now, we can go far beyond where they have been. Also with the financing structure, financing down payment, they can take larger orders much faster. Since the engineering capabilities they have are very similar to the systems engineering capabilities that we have in Europe, we can cross-fertilize and create additional resources short-term, if we have to, for larger orders.
We believe, and also the managing director of this company believes that with this global reach now, being part of the GMM Pfaudler family, doubling the business, even tripling the business in the next few years should not be a huge issue. We believe strongly in their success. It's a good team. They're very loyal. They want to stay. They want to be part of us. They are excited. We are excited. The technology is quite sustainable. Another case that we see is opportunities in green technologies, bioplastics. They are working on a project in California right now that is of great interest. At the same time, our research group in the US has been started working on bioplastics technologies and processes as well.
We're looking into future technologies that are new to us and some of the customers as well. It's going very good.
That's helpful. Lastly, are you looking for more tuck-in acquisitions like these? How is the landscape in Europe currently? Are you finding those opportunities?
Yeah. There are multiple opportunities in the pipeline. You know, again, our thought process is something similar to what we did with Interseal. Small companies we would like to buy, and then obviously grow the business, double or triple the business, like we did with Interseal. When we bought it was about a $2 million business. Today, it's about a $10 million business. Now becoming a global business with the India launch as well, growing that business quite nicely. Yes, there are opportunities. You know, we obviously as the Pfaudler Group is now a global company, quite well-known.
Many of these small companies who have good technology actually look up to Pfaudler, and they wanna be part of the group and have that kind of a global reach and be part of a, kind of a global company as well. We get a lot of opportunities. We get a lot of inquiries all the time. Again, we need to kind of pick and choose the ones that really complement well our, the portfolio and really add technology to our, the portfolio as well, right? Yes, that's something that's always ongoing, and that's something that we've always said would be the cornerstone of our growth strategy, would be M&A opportunities, and that's something that we'll continue to look at all the time.
Got it. Thanks, gentlemen.
Thank you.
Thank you. Participants are requested to kindly restrict your questions to two per participant. We have the next question from the line of Rohit from Progressive. Please go ahead.
Hi, Tarak. Two questions or probably two parts to that. GMM was probably the only company listed in the heavy engineering kind of business, which was quarterly dividend paying. This time around you have skipped the dividend. So anything that you would like to share the reason for that? And what will be the dividend distribution policy going forward?
We had disclosed this actually last quarter, that we said we are gonna switch to twice a year, the dividend policy, after we decided to give the bonus shares. Manish, you wanna just quickly jump in? Sure. If you recall, we have been paying INR 5 per year, and last year we finished with INR 6. Now, if you divide this into two and post the bonus, then it practically turns out to be INR 2 per share, and then you end up doing it in 4 quarters. That becomes too small a number and operationally becomes really, you know, from an effort standpoint, from a cost standpoint, too much of an exercise, and then of course from a recipient standpoint, very minuscule numbers.
We wanted to just consolidate it into a half yearly basis.
Okay. In the consolidated numbers, what is this INR 284 million of the other income which is there? If you can share that.
The other income is primarily on the revaluation gain, the FX revaluation gain of the euro loan that we have at Pfaudler International there. Because the euro has depreciated over a period of time now last quarter, so therefore you have a gain there.
In terms of the recently acquired operation for Hydro Air or Hydro Air Research Italia, they've been outsourcing. Who were their clients, if you can share that? Who exactly were they outsourcing their production or the assembly points from?
They have multiple vendors, and it kind of depends on the specific project. Like the membranes they buy from membrane manufacturers and they outsource it to local manufacturing companies in and around Milan. No specific names that come to mind. Generally it's an outsourced model that they've been using, and they've been quite successful with it.
Okay. Any thoughts on reducing or have you reduced the pledge position which was around 32.6% or so?
Sorry, we didn't get that. Can you please repeat the question?
We had a pledge position of around 32.68%. Have you reduced that or any thoughts on reducing that?
The pledge I think that you're talking about is not really a pledge. It's a lien on the DBAG shares that DBAG held in GMM Pfaudler. They need permission from the bank before they sell those shares. That's been something that has been part of the rollover debt package that came to us. The Indian promoters have no shares that have been pledged.
Okay, that's it. Thank you.
Thank you.
Thank you. We have the next question from the line of Rahul Jain from Anand Rathi. Please go ahead.
Hi, sir. Good afternoon. Thank you for the opportunity. Sir, can you comment on performance of Mavag in Q1 specifically, and how was the demand environment there?
Mavag has a backlog of close to CHF 40 million. The performance and output has obviously been quite good, like the rest of Europe and the US. They did face a little bit of margin pressure due to the higher material costs, but that should also stabilize in the next few quarters. They have a very strong visibility, both in terms of execution, but also in terms of the other backlog that they have. All in all, they had a strong performance as well.
Sure, sir. Sir, can you give the break-up of international order book, like between, PFI and others, what you used to give?
I don't have those numbers with me. Again, just to give you an overall view, I think the order book stands quite well balanced between the three large geographies that we cater to. The Americas, Europe, and Asia Pacific, where if you can include India and China in that. I think 1/3, 1/3, and 1/3. It's quite evenly spread. Again, like I mentioned earlier on, it's well spread between our technology businesses, our service businesses as well as our systems businesses. It's quite well balanced, and there's not one specific region that has kind of outperformed the other.
Sure. Sir, one more question about the FX revaluation gain. How much was it?
The pension?
Sir, FX revaluation gain, which was reflected in other income.
Yes, yes.
How much was it?
The FX revaluation gain or mark, specifically I do not have that number offhand. I'll just give me a few minutes, I'll come back to you on that.
Sure, sure. That's it from my side. Thank you.
Thanks.
Thank you. We have the next question from the line of Akshay Kothari from Envision Capital. Please go ahead.
Yeah, thanks for the opportunity. Sir, do we see any improvement in working capital cycle going forward?
Akshay, I think we'll not be able to further improve from the current levels simply because while you see the metal prices going up and all that, and maybe in two, three quarters that will happen, but then by then the group's trajectory would have, you know, asked for more working capital from that perspective. Therefore net-net I think if you could maintain the overall working capital cycle, that should be fine. In most cases, as we've been disclosing in our half-yearly numbers, the inventories, you know, we have a lot of advance from customers as well so as to mitigate the working capital crunch.
Okay. Sir, you did mention about the new businesses, and you elaborated on a fermentation part. Could you please elaborate on paints, bioplastics, food and beverages as well, how are we seeing opportunity over there?
Sure. Yeah, on paint, certainly we're seeing a fair bit of demand both for our mixing business and also for some of our reactor vessels. We've won a few orders in mixing, in particular, from some of the newer facilities that paint manufacturers in India are putting up. We see this as a good growth vertical for businesses like mixing. Bioplastics is still nascent for us. We're doing some exploration there. I won't be able to comment a lot more on bioplastics right now. With the new acquisition of HARI, I think there's a potential to expand our footprint in that space as well.
Just to add to that, Asian Paints obviously is setting up new manufacturing facilities, so we got large orders from them. Grasim is planning investment into paints. That's also driving new order intake in the mixing segment from them as well.
Yeah. That's it from my side. Thanks a lot.
Thank you. We have the next question from the line of Jiten Parmar from Aurum Capital. Please go ahead.
Yeah. Two questions. I think the first one is answered regarding the other income of INR 28 crores. If you can just throw more light on it, whether this is something which is one time. Second question is basically what are the margin for the business outside India?
Yeah. On the other income, the INR 28 crore that you're talking about is primarily on account of the Euro loans that we have. It's something like, I think $2.6-$2.7 million dollar gain, something like INR 20-23 crore rupees that we have in this quarter. Primarily, this is an MTM gain, a revaluation of a liability, and that's the related gain that we have. Sorry, what was the second question?
Yeah. Second, the other question was on the margins for business outside India.
Yeah. The margin, there has been a margin improvement in the international business compared to previous quarter, and we hope to maintain margins both in India and the international business. We are focusing internally on our cost structure. We're looking at being more efficient and trying to control whatever we can in-house, so that we can maintain margins. Eventually, when metal prices are gonna cool off, if energy costs come down, then obviously that will see a nice bump up to the margin profile as well.
Okay. What I get is that you will try to maintain these margins. Can you give a number? Is it quantifiable? How much is the margin for the business outside India?
The business outside India is currently at a 10%, 10.5% margin, and India is at about a 15 odd percent margin, 16%-17% margin here in India.
Okay. Okay. That's all. Thank you so much.
Thank you.
Thank you. Participants are requested to kindly restrict your questions to one question per participant. We have the next question from the line of Saurabh Shah from AUM Advisors. Please go ahead.
Hi, Tarak. How are you?
Hi.
Tarak Patel, question on, you know, the integration plan when we acquired Pfaudler. You know, there were some short-term targets, and I think there are some longer term targets, you know, in two years, et cetera. I just heard that you expect to retain margins at this level. I want to check with you know, are there any longer-term integration kind of processes still underway? Or you think most of them have been finished in terms of, you know, either moving production to some extent in India or reducing outsourcing? You know, this is outside that, you know, gas price bump up and other things that might happen. Just from the integration plan, you know, where do you see yourself for the next one or two years?
Saurabh Shah, from an integration standpoint, our major project that we had is now completed, and we've kind of made synergies and integration kind of part and the parcel of our daily, you know, work. It's not something that we kind of really focus on, but yes, it's still important part of growing our business, both from a revenue standpoint and also from a profitability standpoint as well, right? There are multiple things that are in the works that are continuing to kind of gain traction and the momentum. Like I mentioned very early on, we had the budget of inbound sourcing from Europe, and we've already crossed, I mean, the entire year's budget was already crossed in the first quarter, right?
The opportunity pipeline for India-made value sourced equipment is at an all-time high, and we hopefully will convert some of these to, you know, hard orders in the next few months. All in all, India sourcing is continuing quite well. On top of that, as I mentioned early on, we are doing a stock and sale program. Pfaudler Germany is gonna actually stock Indian-made vessels in Germany. When the customer needs something quickly overnight, they can turn it around and obviously sell it to them very, very quickly. That's something that we are working on as well. On top of that, we also have components being sourced from India, nozzles and other the metal parts. It gives Pfaudler two advantages.
One is obviously a price advantage, but the other thing is also it creates a second vendor for them, right? So that's something that's ongoing. On top of that, there are multiple other kind of synergies that we are working on, like, you know, trying to move engineering to India as well, kind of creating low-cost kind of back offices here to help and support some of the teams in Europe and in the US. You know, obviously from a synergy standpoint, we've also, like, launched our new brand, profile. We have now a single website in place. We now have a global e-shop program as well. I mean, getting the company together, you know, trying to have everybody under the same kind of platform, also creates, I guess, good synergies within the group.
That sounds great. Thanks. Just one additional point. On the sales side, are we doing anything, you know, with this new acquisition, et cetera? It does sound like we have a much wider product, you know, kind of basket. So are you investing in creating, especially in the US or elsewhere, you know, larger sales efforts? If you could just give us a sense of what you plan to do in the next 12 months, that would be great.
I think our sales network is already quite strong, both in terms of having our own sales team, but also agents and as well as reps. We have a pretty extensive network. We obviously keep looking at certain areas where we are not well represented. Like Southeast Asia was one example where we've added people as well. In India, we kind of add people. You're right. I think for some of these new age technologies, we might need to bring in expertise from outside the industry who can really go and kind of sell these technologies to new industries that we don't normally cater to. I think from that standpoint, yes, we will need to add people who know these industries quite well, like for example, bioplastics or plant-based proteins or green technologies.
For some of these other, kind of processes, we might have to bring in external help as well.
I actually can confirm that we are opening some new positions created in Europe as well as in the United States as well as in China, where we are now working with advisors and consultants to fill those positions. The skill set that we are requesting from the new sales people are bringing in some new insights in the markets that we are going to serve. We are already in the mode of increasing our sales force and sales power.
Okay. Thank you.
Thank you. We have the next question from the line of Harshit Kothari, who is an individual investor. Please go ahead.
Thank you, sir, and congratulations. Two quick questions. One is on interest cost, and second one is on green solutions.
Interest cost, Manish, tell me. Maybe he wants to know what is our average interest cost for the debt that we have.
Interest cost in India is just under 7%, and interest cost overseas is approximately 5.5%.
Coming to green technology, one of the things that this company that we just acquired does is, you know, kind of promote green technologies from very specific processes. Meat industry, starch industry, they kind of reduce the amount of water that's being used and create a much more efficient process. This, you know, this could be one area that we could kind of sell this product into and give the customers a kind of a better process and a more efficient process to work with than their current processes. From an ESG standpoint as well, this would be quite nice story where you're actually conserving water and creating new efficiencies as well.
Thank you. We have the next question from the line of Siddharth, an individual investor. Please go ahead.
Hi. Congratulations on a strong set of numbers to the company. I want to know if it will be possible for you to give me a number, regarding the new acquisition, the market size that you foresee for the company and what it could be adding to the India company?
The current size of that business is about EUR 8 million, EUR 7 million-EUR 8 million. The market, obviously, is large across the world, so I can't put a real number to it. We believe that this business could double in the short term, and that's what our focus is. On the back of having a much larger sales network as well as having a little bit more financial clarity will give this company the ability to take in more orders and grow their business.
Okay, sir. Thank you. Just a follow-up to that, have you received any sort of interest regarding other industries from, say, ethanol and biofuel in India or anything else from, maybe other geographies?
India specifically, we know we get a lot of inquiries for many different applications. This company that we acquired has already supplied plants to India to customers like Aurobindo and quite a few more as well. They already have a presence in India, so we can start building on that already, you know, the strong foundation that they have and go and kind of talk to the, you know, some more clients in the pharmaceutical area where they have a very strong presence as well.
All right, sir. Thank you. One last quick question, if possible.
This is the operator here. Would you kindly come back in the queue for follow-up questions?
Okay, sir. Thank you.
We have the next question from the line of Jason Gonsalves from Ashika Stock Broking. Please go ahead.
Thanks for taking my question. You did mention in your initial remarks, you know, investments are coming back to U.S. and Europe, and we did speak about that last time as well in terms of the aftermath of the COVID crisis. A lot of these developed economies are, you know, hiring processes, you know, especially the hiring critical work. I just wanted to know, just want your comments on the sustainability of this trend. Obviously, it will benefit us in a lot of ways, you know, that we have the network all over now. Just wanted your comments on how do you see the investments, you know, happening more in the developed economies?
Yeah. Coming to your first point that our after-sales business has picked up, it was much lower during the COVID times because our people were not allowed to go and people were not allowing engineers and service people to come into factory. Now that since it's opened up will obviously create a whole kind of new revenue stream which was earlier not there. That's definitely a positive. You'll already see that in our services business. The chunk of services business has increased already, so that's definitely a positive sign. Like I mentioned to you earlier, it's you know, the situation in spite of the you know, the global economic environment still remains very strong for chemical and pharmaceutical companies both in India and in Europe.
Our ability to cater to these businesses and industries now has put us in a very strong position. You know, even making headway into some of the low-cost markets like Spain or Eastern Europe or even Singapore for that matter, or some parts of South America, we've had major breakthroughs since we acquired the Pfaudler group because obviously now we have a much wider range of products that we can offer, plus a different cost structure. If there was a client that could not kind of or would not buy a German-made equipment now has access to an Indian-made equipment or a hybrid version. There's multiple different offerings that we can play with and that puts us into a very strong position as well.
Sure, sir. I was asking more from a perspective of.
This is the operator. I would request you to kindly rejoin the queue for follow-up questions.
Yeah, sure. Okay.
Thank you. We have the next question from the line of Denzel Rodriguez, an individual investor. Please go ahead.
Hello. Am I audible?
Yes, Denzel. Go ahead.
Good afternoon. I have a couple of generic questions. Can you please share your views on continuous flow reactor technologies? Can the reactors be scaled up for large scale industry use? Your contribution to it and the opportunity size? Also, have you seen any increase in inquiries for your glass-lined flow reactors?
Good question, and not that generic, actually. Continuous flow reactors are being talked about definitely more now. Again, replacing batch reactors with continuous flow reactors is something that will take a lot of time. However, we already have technology available within our network of continuous flow reactors. We recently had a seminar here in Bombay where we were kind of showcasing our capabilities in continuous flow reactors. We also have a new company that one of our group companies has acquired in the UK that does specific work on continuous flow reaction and filtration as well. That's something that we will continue to build on. It's a nice technology. There are a few small Indian companies who are already talking about it. Is it really being converted to orders?
You know, I can't say that it has been, but for the future, I think it's definitely an area that we should focus on and try to build some technology in that area. Aseem, you wanna add something?
Just to add. You know, I think, GMM Pfaudler we're monitoring this trend very closely because there's inherent advantages to continuous flow reaction over batch. And we actually have, we're ready with the product, right? We have a glass-lined continuous flow reactor, first of its kind in the world that we offer for sale. In fact, we have already sold one unit. As and when this trend picks up, you know, we are ready to serve the market when that comes.
Thank you. Due to paucity of time, we will not be able to take further questions. I now hand it over to the management for closing comments.
Thank you everybody for this conference call. We'll talk to you again next quarter. In the meantime, if you have any further questions, please feel free to reach out to our IR team and we'll be happy to answer those questions as well. Thank you for your time. Good afternoon.
Thank you. On behalf of GMM Pfaudler, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.