Ladies and gentlemen, good day and welcome to the Q4 FY 2022 earnings conference call of GMM Pfaudler Limited. As a reminder, all participant lines will be in 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 then zero on your touch-tone phone. Please note that this conference is being recorded. Now on the conference over to Ms. Priyanka Daga from GMM Pfaudler. Thank you and over to you, ma'am.
Thank you, Steven. Good evening, ladies and gentlemen. A very warm welcome to all of you into the quarter 4 FY22 earnings call of GMM Pfaudler Limited. The earnings presentation was uploaded on the stock exchanges, and it's also available on our website. Hope all of you had a chance to go through it. From the management we have with us our Managing Director, Mr. Tarak Patel, our CEO of India Business, Mr. Aseem Joshi, our CFO of India Business, Mr. Manish Poddar, our CFO of International Business, Mr. Alexander Poempner, 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 which we have uploaded on the stock exchanges as well as on our website today, including our call discussion that is happening now, contains or may have certain forward-looking statements concerning our business prospects and profitability, which are subject to several risks and uncertainties, and the actual results could materially differ from those in such forward-looking statements. I will now hand over the call to Mr. Patel to provide an overview of the performance. Over to you, Tarak.
Thank you, Priyanka. Good evening, everybody. I think I would like to start off by giving you a perspective for the performance of this financial year. I think we have seen a significant improvement in revenues across both the India and international business. We are now a INR 2,541 crore company. Not so long ago, before the acquisition, we were about a INR 600 crore company, so significant change in size and scale. The international business has performed exceedingly well. A company that started at about $175 million clocked a revenue in excess of $230 million, which is just fantastic in terms of execution. Across the board, across international business and India business, execution has been fantastic and the revenue numbers, they speak for themselves.
On the profit front, yes, we've had a bit of impact on profitability. This is due to obviously the commodity price increases. Metal prices have increased significantly. In some European countries, namely Germany and U.K., we've had an impact due to energy costs. We are already seeing cooling off of metal prices and hopefully if this continues, you will see a positive impact on profitability in the coming quarters. In terms of order backlog, we begin this financial year with a 30% higher backlog than previous year, which is a very strong and healthy backlog for us. In most of our sites across the world, we have about 6-8 months of backlog. In some, even more than that. We have good visibility for the coming year.
The focus for the coming year is obviously to look at internal cost controls, to look at ways of increasing profitability and maintaining a similar level of execution, for the next few quarters as well. From a CapEx standpoint, a couple of interesting developments. Our Hyderabad furnace is now up and running. We got the final commissioning a few days ago, so that will add capacity to cater to the Hyderabad and Vizag area. Our Brazilian furnace came online a few months ago and will help us cater to the U.S. market. The new furnace in the U.S. is also under the commissioning and will come on board shortly. Lastly, we have ordered a new furnace for Gujarat, which should come online sometime in September.
We'll also add a lot of capacity both for India and for supplying internationally as well. Our Vatva facility is now fully ramped up. We have about 200 people employed there. It's running at full capacity. We expect Vatva to have a good impact on overall growth story here in India. In terms of the industries that we cater to, chemicals still continues to be the driver for us here in India. Agrochemical and specialty chemical continue to invest. The China Plus One story is playing out quite nicely, and we expect investments to continue. With the cooling off of metal prices, we believe that some of the projects that were on hold will now be reinstated and new business will be coming in.
Having a strong opportunity pipeline, there are many large projects that are going to be ordered in the next few months, and we see the next few quarters to be very strong from an order intake standpoint. There's also a bit of revival in the pharmaceutical industry. There is the PLI scheme, which is creating new capacity in Hyderabad and Vizag. A lot of the Hyderabad-based pharma companies are looking at setting up fermentation plants, and that will also lead to business for us in the medium term. That's where we have some technology on fermentation. These large fermentation vessels will require agitators, which obviously GMM Pfaudler can supply. Across the world as well, the investments continue, backlog remains high, and new orders are coming in.
However, as I said, the only concern is the commodity prices and energy costs. If they start to kind of go downwards, you'll see that impact profitability in a positive manner. Besides that, I also would like to inform you that we have added a new independent director, Mr. Prakash Apte, who is currently the chairperson of the Kotak Mahindra Bank. He will join our board, and he will replace our chairman after our chairman retires after the AGM in August. A very good addition to our board. He brings in a lot of knowledge and experience. From a government standpoint, having worked with Kotak Mahindra Bank, I'm sure he'll bring a lot of experience to the table as well. With that, I would like to hand over the call to Manish.
Manish will take you through the quarter and the financial numbers for the year, and then we can open it up for Q&A. Thank you very much.
Thank you, Tarak. Good evening, all. Let's move to the consolidated results for the quarter. Consolidated results, we were on a revenue front just shy of INR 700 crore with a 9% growth over quarter three. EBITDA margins stood at 10.2%. Cost pressure continued for the quarter as well on account of metal and energy. However, on business outlook perspective, we have a strong backlog of INR 1,932 crore, which is 40% higher than last year, which reflects a strong business outlook for the future. Moving on to the full year for consolidated results.
We closed a revenue of INR 2,541 crores with an EBITDA of INR 330 crores at 13% margin. Here it's important to mention that during this quarter, we had a INR 17 crore of deferred tax assets being charged off to the PNL. This is related to the previous years, and this is a non-cash item and helps us in cleaning up the balance sheet. However, in cleaning up, this deferred tax asset had to be charged to the PNL, and therefore, you see a higher tax charge for this quarter to that extent. Moving on to the cash flow statement for the full year. We generated 270 crores of cash from business. Out of that, INR 99 crores was reinvested back into the business on account of working capital and CapEx.
Thereafter, 122 crores was repaid on account of debt, lease, interest, and dividend payouts. The balance, 48 crores, was added to the cash on hand. Moving on to the consolidated balance sheet. Our balance sheet continues to gain strength, net debt to EBITDA is at 0.5, net debt to equity stands at 0.3. What's also heartening to note is pension liabilities have gone down from $60 million to $50 million. As the interest rates rise, the present value of the future payments go down as per the actual valuation, so this helps us in reducing the pension liability as well. Moving on to the profitability metrics. EPS continues to grow to INR 91.4 per share.
ROE and ROCE also show now in a healthy zone, ROCE being at 22% and ROE being 25%+. This obviously proves that the Pfaudler acquisition has been value creative for the shareholder. On integration, Tarak already mentioned a few things about it, so we can go to the income statement for quarter four. This was the last quarter where we showed this breakup in slide number 15 between what the business has performed, what the accounting adjustments have been, and summing up to the reported numbers. The only significant item is on the column C, taxes. INR 17 crore is something that we spoke about already.
In the interest of time, rest of the slides we may skip, and we may just go directly to the last slide, which is slide number 15 on account of working capital. On the working capital on the left side, you see the consolidated numbers. Inventory has risen from INR 530 crore to INR 670 crore. Obviously, because of metal price hedging, we have to buy more material. What's heartening to see is customer advances have also risen from INR 288 crore to INR 222 crore. Therefore, the net funding at a group level remains almost stagnant from INR 242 crore to INR 247 crore. The inventory days also, net, have reduced on a consolidated basis, although the backlogs have risen from INR 1,500 crore to INR 1,900 crore.
Trade receivables have been managed well, they're static at 51 days. Payables also have been extended from 40-56 days, and it's primarily on account of India. As we move on to standalone numbers, you see, inventories have risen in India from INR 130 crores to INR 231 crores. You can appreciate that India business is primarily on account of technology and service systems and new services components. We had to make sure that the backlogs are higher. We had to make sure that the inventories are in our hand to avoid any metal price increases. Therefore, the inventory days have increased from 32-61 days for the financial year March 2022.
However, that piece we have tried to reduce on the working capital side by receivables reducing from 64 to 54 days and payables increasing from 53 to 71 days. By doing these two pieces, we have tried to maintain the cash conversion cycle. With this, we can open this call for the Q&A. Priyanka, over to you.
Steven, maybe we can open the call for Q&A, and we'll be happy to answer any questions that we have with us.
Thank you very, very much. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Jaiveer Shekhawat from Ambit Capital. Please go ahead.
Sure. Firstly, in terms of the strategic plan that we are awaiting, could you please throw some light on the avenues for the growth for revenue as well as improving your profitability as well as your revised guidance for the consolidated entity as well?
Right. We are currently working on our new equity story as well as our future outlook. We are currently in the process of getting this done. Due to the uncertainty in the global market, it is taking a bit longer. However, for the next year, I would say that, you know, obviously the international business grew at 20%+. I don't think that's gonna continue. The idea for the international business next year is really focused on profitability. The India business obviously will continue to grow. We have two new factories here, one in Hyderabad and one in Vadodara, which will definitely add significant revenue and growth here in India.
From a timing standpoint, we are now looking at August to have a capital market day and come out with a new three-year equity story slash kind of a guidance document. I think that is when we'll be more comfortable to give you some kind of guidance.
Sure. Also we understand that the employee expenses for your international operations, they stand at roughly 30% of the revenue. Wanted to understand what kind of revenue growth, say ramp, revenue ramp-up are we looking at so that that percentage of employee expenses as percentage of revenue comes down to more manageable levels for the international operations?
Right. I think currently the focus in international business is improving profitability through internal kind of initiatives. I think many of them will like, for example, let's say operational excellence. The two new factories, Germany and China, are now running at full capacity, so there'll be better absorption definitely over there. We are also looking to penetrate new markets through India-made value-sourced equipment getting fully made Indian equipment into some European countries like Spain and Russia and the U.S. You know, we also look at Germany buys a lot of components from India. All of these will help us increase revenue. Just to give you a number in terms of revenue growth, I think it will be too early. I would say, you know, the working businesses grow in the range of 5% to about 7%.
This year has been an exceptional year. You know, you will see some growth there, but I'm not very comfortable to give you a definite number right now. Maybe in August I'll be in a much better position to do that.
Sure. Any update in terms of how much more investments will you have to make in manpower over there in order to grow your international operations? Or have you-
No. There is no plans of adding people anywhere. Just to add here, not a single employee has left the Pfaudler Group since the acquisition. We are not adding any people. We are just maybe one firm is in Brazil to cater to the U.S. market because Brazil acts as a low-cost source for the Americas. In Americas, we are refurbishing an equipment. There's no real major CapEx going on. If anything, we would even look to rationalizing some manufacturing capabilities. Right now we have three facilities in Europe, maybe one too many, so we could look there as maybe a way of rationalizing our manufacturing.
As more and more stuff moves to India, we can use India to do the heavy lifting, and then the final assembly, the testing, the finishing can be done in the European or the American facilities.
Sure. Thank you a lot.
Thank you.
Thank you. The next question is from the line of Harshil Shethia from AUM Fund Advisors. Please go ahead.
Hi, sir. Sir, I just had a question. Looking at the international business, our order intake has drastically dropped for the quarter. What might be the reason for it? Are we seeing that the demand environment is, you know, very cautious in these times? Or what is happening? Can you just elaborate?
No, there are a certain kind of few items which obviously has impacted international profitability. One is an impact of higher energy costs in the range of about EUR 300,000, which is maybe 0.5% impact on profitability. On top of that, we've had a large order for Russia in the range of about $700,000, which we had provided for because, you know, obviously due to the war we were not able to ship. And there's another provisioning for a one-time expense for an M&A. We are planning to sell one of our group companies in the portfolio. So that has also been provided for. So about basically 1.5% impact on profitability of the international business just coming from these one-off items.
Are the new orders which are currently being taken at higher margins?
Yeah. We've been very picky and choosy. We've changed our strategy over the last few quarters. We've kind of held our nerve and decided to kind of wait it out and, I'm happy to kind of report that we have been able to really win really good margin business, especially here in India for the glass lining business. Internationally, we've always managed to get a premium, and we've always been quite clear in terms of what orders we would take. I think the quality of our backlog has definitely improved in terms of margins. Hopefully, if the metal prices support our costs going down, you know, then you will see a double impact, probably one on pricing front and one on the lower input cost front, which will then obviously positively impact the profitability.
Okay. Sir, earlier when we had acquired Pfaudler Inc., we had, you know, a four-year plan, and we had guided for 14% EBITDA margins. Can we say that, you know, it can be achieved in FY 2023 itself with our focus now on profitability rather than from revenue growth?
We always try to improve profitability, but as we wait till August, everything will become quite clear. As a group, we have, you know, we definitely see a lot of possibilities both in terms of gr```owing revenue through new markets, in the profitability improvement through some of the initiatives that we are working on, like lower cost sourcing, like cost optimization. We are really working hard to make sure that we come back to a good level of profitability. That's something that we will definitely come back to you maybe in August and give you some kind of guidance in terms of what the next year will look like.
Okay. Sir, I had a few questions on the India business also. Is our Vadodara facility now up and running at full utilization levels or still in the ramp-up phase?
This is Aseem Joshi. Yes, the Vadodara facility is fully up and running now as of Q4. We have a heavy backlog available. We do expect a lot more product to be shipped out of Vadodara in this financial year.
Okay. At full utilization levels, what kind of revenues can that contribute to the overall India business?
It really depends on the product mix, the material, the construction, et cetera. Ultimately this can be about INR 400 crore or so. It really comes down to what products are being made and particularly what material and construction is being used. Roughly that's what the range that one can think of.
At its full capacity in coming year.
Yeah.
You said INR 150 crore, right?
No, no. INR 400 crores is what the plant capacity is. Last year we closed the heavy engineering business, I think about INR 120 crores.
140.
Oh, sorry, INR 140 crore. You will see a significant improvement this year because as you just heard, we are now the factory is fully ramped up and would add significant revenue for that business.
Sir, on the last part of the question, you know, our order intake for Q3 was INR 696 crore for the international business, which has dropped to almost half at around INR 343 crore. What might be the reason for that, sir?
This is a combination of reasons, but I think overall it was basically to make sure that we book good profit good margin orders because we had a strong backlog, so the strategy was obviously to go after very lucrative business. In Q1 this year, we've already had a record April month, both in India and internationally, and we're pretty much now back to the similar levels of order backlog. I think we're okay from that standpoint.
Thank you. The next question is from the line of Amar Mourya from AlfAccurate Advisors . Please go ahead.
Yeah. Am I audible, sir?
Yes, go ahead.
Sir, couple of questions from my side. Like, you know, what would be now the current facility of GLE in India at this point of time? And what would be the utilization level in this quarter?
The current capacity before the new furnaces will come in, this is now counting the new furnace in Hyderabad that just came online a few days ago and the new furnace in Gujarat, would have been around the 3,000 EU per year range. About 2,400, 500 in Gujarat and about 1,000 or in Hyderabad. The 3,000 would be the total, the capacity. Aseem, you wanna jump in?
No, I think that's about the total capacity.
Yeah, with the new furnaces coming in, we will at that point also need to update the capacity because the new furnace in Gujarat is a large furnace and will add a good amount of capacity. The Hyderabad one also will add capacity, so we might need to come back with a new number on the total GLE capacity here in India.
Okay. What would be the utilization in the current quarter?
I would say full capacity. I think both the plants were running at full capacity. When I say full capacity, obviously the glass lining furnaces run 24/7 in three shifts. Fabrication runs for two shifts. I think we are pretty much at full capacity. In Hyderabad, we've also made some changes to the flow and stuff, which tries to kind of bring in operational efficiency. There will be some improvements possible. Generally, we are running at 99% utilization.
Okay. India now, sir, since the metal prices and the glass lining, everything has gone up. Like, you know, earlier you used to guide, like, you know, the per unit realization for the GLE in India would be around INR 20 lakh. It would be around. What would be the average realization now?
Actually, I think the 20 lakh number is on the higher side. What we had, I think, our normal one EU, which is about 6,300 liters, is about INR 16-17 lakhs odd. That's what the current price range is. It would have increased since then, but the EU size might have also increased. I don't have that data on the top of my head, but knowing that we increased prices over the last few months, I would think that those prices would definitely have increased.
Okay. Sir, now this glass-lined, specifically for India, I mean, this quarter the revenue has de-grown, but you are indicating now from here on as the new capacities are there and you can expect a good order book in this particular year. I mean, what should we expect? Like, you know, what kind of a growth in a GLE standalone business could be in the next year?
I think, I don't think we've de-grown in the glass-lined. I think glass-lined year-over-year we are actually 20%.
I'm talking about the quarter.
Again, you know, sometimes there are questions of shipments that were sent out and, you know, maybe some, the customers didn't lift. Generally, our glass-lined business now with the new capacity coming in, we should be growing at a double-digit, early-teens kind of number. Again, with the market share that we have, which is currently in excess of 50%, a significant improvement in market share will come at a cost, right? We don't really want to go after the low end of the market. We want to kind of stabilize our market share, but really go and take the high-value orders.
If we had excess capacity, I would rather use this to either export, so sell to the Pfaudler Group, which obviously is much more lucrative. Two, really focus on the services and spare part business. Again, it's not a very large component. We expect that business to grow over the next few years because the number of equipment that we keep supplying to the Indian market will continue to grow. Our installed base has increased to maybe now close to, you know, 10-30,000 reactors in India. They all are aging. Hopefully that will be another lever of improving profitability. All in all, the focus is definitely to kind of pick and choose the right business, going forward.
I'd just like to add to one thing that Tarak said. The premise of the question was about de-growth quarter-over-quarter. I just checked. We actually have grown just a little bit. From Q3 to Q4, we've actually grown in our glass-lined business as well.
Thank you. Before we take the next question, a reminder to the participants, anyone who wishes to ask a question may press star and one at this time. The next question is from the line of Ashish Kabra from Fairdeal Traders. Please go ahead. Ashish Kabra, your line is on talk mode. Please proceed with your question.
Yes, Tarak, two small questions. One is, what will be your margin guidance for FY 2023 and like, can you share some revenue guidance also? Not for the next year, but for like FY 2024 or FY 2025.
The guidance for next year, again, like I said, the focus is definitely on improving profitability. I think currently the India business is around 17%-18% EBITDA margin. I would like to believe that we would be maintaining somethin``g along the same lines, maybe improving it slightly. The international business is currently around 9%-10%. I think we'll see some improvement there as well. If we are then supported on top of that with metal prices going down quite a bit, that will just further add to the improvement as well. Obviously, keep in mind that there's definitely a lag between the time the prices come down to the actual time when we use these materials. There will be a short lag of maybe a quarter or a few months.
Otherwise, I think that in these kinds of challenging environment, I think, the focus should be more on internal cost measures. Look inwards and see where are the areas that we can really kind of be very much more efficient. Otherwise I think that these levels that we currently are enjoying, obviously both India and international, should be quite easy to maintain, if not improve upon.
Okay. Tarak, any revenue guidance, like if you can give for FY 2023 or 2024?
In terms of revenue guidance?
Yeah, yeah.
Yeah. Maybe just wait till August. Everything will be quite clear. We've been working on it. You know, obviously we had a plan in place, but, you know, the challenging times have kind of impacted obviously a little bit in terms of the outlook. We'll have something for you very shortly.
Okay. Thank you. Thank you.
Thank you.
Thank you. The next question is from the line of Jason Soans from Ashika Stock Broking. Please go ahead.
One question I just want to ask, you know, in terms of this, that, you know, when you look at pharma and chemical CapEx, you know, a lot of pharma chemical CapEx, clearly the trend has been shifting from the high-cost destinations, which are U.S. and Europe, to the East. Countries like China, India benefiting from this demand shift, especially due to low cost and various other advantages. Now I just wanted to understand. Of course, a lot of volatility all over the world, and clearly there is a marked shift here. What I understand is there is a China Plus One strategy, China Plus One shift for sure. There is also another shift which is seen in a lot of this high-end work.
Countries have kind of realized that it's not wise to depend upon, you know, a certain country X, Y. Basically, you do all the high-end work, be it pharma, chemical, CapEx or whatever, but keep it to yourself, you know, in, it's sort of a protectionist measure. Are you seeing this trend being developed all over the world? If this trend does develop, it will really benefit Pfaudler as in your acquisition as well, you know, and your value sourcing and other strategies. Do you see this kind of strategy being played out, this trend being played out with China Plus One plus home country, you know, that kind of, trend being played out over the world? Do you see this trend taking shape?
Yeah. I tend to agree with you. There's definitely two major trends happening. The India trend in investments and having a kind of a de-risking of China is definitely happening. You can clearly see that with the kind of, you know, work that is going on for companies like SRF, PI Industries, Tech Mahindra. A lot of product is moving from China to India, and that's a very small percentage. Even if another 5% or 10% were to move to India, that would be a massive amount and would require a massive amount of CapEx, right? That's definitely a trend that we have seen. We also know that the Indian consumption of specialty chemicals, agrochemicals will also keep increasing. That's something that will continue to be a strong driver.
Many of the chemical companies have recently kind of, you know, got listed in capital markets. Those guys will also continue the need to add capacity to obviously maintain their growth momentum. All these things you will definitely see investment in the chemical, you know, sector here in India. The thing about chemicals is that their reactions are also much more critical. The need for higher quality, bigger sizes also increases. That's where we really have a very strong control. That would be definitely something that we would really want to go after.
Mm-hmm.
From an international standpoint, I completely agree with you. What we've seen over the last maybe 18 months is there's definitely been this kind of nationalistic drive where countries who are over dependent on India and China are building local redundancies. You know, they were dependent on, you know, life-saving medicine like antibiotics and paracetamol from India and China. During the pandemic, obviously overnight everything stopped, right? I think that kind of revival is being seen. We've seen this clearly in Europe. You know, one of our subsidiaries in Mavag has nearly a two-year backlog, which we've never seen in our life. There's something that is driving this, and this drive is really being created by new capacity being created in Europe. Similarly in the U.S., we have had a large order from the U.S. for latex manufacturing.
Again, something that they were dependent on Malaysia for, but they want to create capacity within their own geographies as well. I think these two trends will continue and obviously bodes well for GMM Pfaudler India, but also for the international business.
Sure. Thank you, sir. Another question I had is, you know, in terms of manufacturing process, obviously you're at the forefront in GLE equipment. We just wanted to know in sort of the core DNA, is there a difference between the manufacturing process? Different, for example, just if I have to take a local context, HLE Glascoat is there with the second in market share. Is there a major difference between the manufacturing process? I understand Pfaudler has Glasteel, which is patented and trademarked. Just wanted to understand, is there any significant difference in terms of a manufacturing process or a technological difference between these two? If you could elaborate.
Manufacturing really is the same process that they would follow. They might have different firing cycles for the different glasses, but really where the technology comes in is in two areas. One is the quality of welding that you do, because glass lining by its nature, the welding is not good enough, will kind of chip off and will be damaged quite quickly. Welding becomes very important. Two is the formula of the glass itself, right? This is a formula glass that has been developed over the last maybe 100 years, has kept going through improvements. Pfaudler GmbH works with the local universities and tests, and we are actually currently working on a new glass, which we hope to launch maybe in the next few quarters. ESG compliant glass, which is heavy metal free, good for the environment. That's something that we're working on.
Glass is basically the technology that differentiates our equipment from somebody else's, and that will directly correlate to the life of the reactor. The life use of the reactor. The better the glass formula, the better the glass quality, the longer the reactor will last.
I'll just add here. I mean, at a macro level, the process is similar, right? A good way to think of it is in terms of an analogy, perhaps with car making. Is a Toyota the same as a Kia? Is it the same as a Ford? Clearly they all are building cars, but the product you get at the end of the day is very different. Similar in glass-lined vessels, you know, ours last longer, provide greater performance, and therefore are the preferred choice amongst our customers.
Sure. Just wanted to also if you could elaborate, it just gets talked about less. You have clearly had a brand strategy and a realignment, you know, and a global plan as well. I can clearly see that. Could you talk about more of such initiatives such as, you know, Mixion, Interseal, EQUILLOY, which gets talked about less actually in con calls or other aspects. If you could just throw some light on Interseal, Mixion, EQUILLOY, what plans do you have for, you know, taking these sub-segments forward?
Yeah, that's a good question, and we only talk about glass lining because you only ask us about glass lining. It's not by choice that we would like to speak about glass lining, but that's obviously a big chunk of our business and people understand that, so that's where the most of the questions comes from. We recently completed our rebranding exercise, so we now have a unified global brand. We have a common website within the group. Everybody will move to a gmmpfaudler.com website. There's key alignment. Aseem, myself, and Manish were in Germany last week. We had a factory visit to the glass lining facility in Bad Nauheim. We went and saw our lab process equipment in Normag. Like you mentioned, we went and met the people at Interseal.
Interseal, the dry9000 is a very, very high technology mechanical seal that does really well. When Pfaudler bought this company a few years ago, it was revenue of $3 million. Today, it's $10 million of revenue. In three years, in one and a half years, it's grown like 3 times. Very profitable. They have developed a mechanical seal that we call H5000 for the India market, specifically fully made here in the Indian market. We've launched that already. We expect those sales here in India to improve. The good part about mechanical seal is it also gives, you know, a lot of aftermarket business. The service and components and spare parts of mechanical seal is also very lucrative. We now plan to launch this H5000 seal in the Chinese market.
We've decided on hiring a res``ource there dedicated for this mechanical seal. Again, this market could be as big as $10-$15 million in the first three years, right? Huge amount of potential there. Then, like you said, we have Mixion agitation, where we kind of are mainly an India-based player, where we sell about 70-odd crores of agitators. We are in the process of now working with fermentation. We received a very large order from a Hyderabad-based company for agitation for fermenters. This is for penicillin plants that they are putting up. That could be a great area for growth as well. Then EQUILLOY is our heavy engineering business. Again, I spoke about this earlier, that our Vatva facility will be fully catering to that.
Normag is also a nice, interesting business. Obviously, it's something that is growing. We expect that business to double in size in the next two to three years as well. That is really lab process equipment. The kind of all glass equipment that go into any of the pilot plants. All in all, we have a nice portfolio of products. They are kind of interconnected. They go to the same customer, so cross-selling becomes quite easy for us. The idea eventually is to kind of build on this portfolio, add more complementary products, so we can kind of have a wider basket of products that we can go and sell to the customer.
Interesting. You know, this last quarter has been very volatile, you know, in terms of world markets, you take any aspect, it's been quite volatile in terms of the Russia-Ukraine war, et cetera, and a lot of other factors. Just wanted your sense on the end market demand, domestic and export both, and any major impact of this Russia-Ukraine on European demand, especially?
No. I don't think there's been any impact of the Ukraine crisis on the demand in Europe. What's happened is energy costs have gone up in Germany and in the UK. Generally, otherwise, the business environment is quite strong. Alex is here. Maybe Alex, you wanna add a word on what the economic situation is like in Europe?
No, no. I fully echo what he just said. Energy cost has definitely is a key impact on us. Otherwise we are fine and it's our Russian business is so far also comparatively small.
We didn't have too much exposure in Russia. Russia was a market that we would have liked to kind of enter into, so that obviously is pushed back. Generally, I think the business environment continues to be quite positive. I mean, obviously, if the war were to end and things start returning to normal, that would be definitely a better situation. Otherwise, I don't feel that it's really something that's impacting business in the long term.
Thank you. The next question is from the line of Nandakishore Divate from Maximus Securities. Please go ahead.
Hello. The year is over, and I think very much congratulations are in place. Congratulations, Tarak, your Indian team, as well as your overseas team. I think you've done a fantastic job. I normally don't go through a quarter-by-quarter performance. I only look at it from years. From where it became, I think we have come to a tremendous position.
Thank you.
Congratulations on that. I have just one clarification, though. I didn't see it covered. Maybe you will cover them elsewhere. That is not pertaining to this company. Can you take us through the rationale of the bonus?
Yeah. The bonus, I've been getting this question for the last five years since I took over as MD. Every year during the AGM or at some of the investor calls, I always get when the next bonus will be. I think the idea behind the bonus really, and this is something that we were getting requests from investors, fund houses, that they would like to be part and participate in our growth story. However, the availability and the liquidity of the shares was something that was holding them back. Hopefully, this bonus issue will kind of help us increase liquidity. It's a tax-efficient solution for the shareholder who currently holds GMM Pfaudler shares. The idea really is to kind of increase and improve liquidity.
Also, you know, after completing the acquisition, you know, there were obviously questions around Indian companies buying international businesses, and many of them you know, do so well. I think today, after one year of fully integrating both businesses, I can proudly say that we've done a fantastic job, both in terms of revenue. I see the motivation, the experience within the group. I was there, just meeting people. Everybody's excited to be part of this company now. They finally have an owner that understands the business, to continue investing in the business. So I think that we are now in a situation where you will see benefits accruing over time. It's a good time to also reward shareholders who stood by the company for these many years.
You know, after one year of the integration now fully complete and back to business as usual, we thought that it would be a nice time to reward our shareholders as well.
Very good. In fact, that's the perfect answer that I was looking for. Had it been anything else, it may have been a little disappointing. Really, I would like to repeat, it's a fantastic performance under challenging conditions. What your team undertook was a daunting task. I think we'll come back with it and take a bow too. Thank you very much.
Thank you.
Thank you. Before we take the next question, a reminder to the participants, please limit your questions to two per participant. Should you have any follow-up, you may be requested to rejoin the queue. The next question is from the line of Siddharth, an individual investor. Please go ahead.
Hi. Congratulations on the result. I just wanted to know the rationale behind the Edlon divestiture, given that, I mean, based on what little I've read, at least it seems like quite a synergistic business, which is also profitable.
Right. Edlon is a product that, you know, is not core to our main business, has a different customer base. That's why as part of our portfolio, you know, we will be adding companies. I think it's only wise to also remove something that's not really adding too much value. Even though the company does a revenue of around $12 million and about $2 million of EBITDA, for the next level of that company's growth, we would have to invest another $2-$3 million into that business, which we really are not sure if we would like to do. And, you know, Edlon has quite a good brand globally.
If we could get a good valuation for it, I think it's better to kind of divest Edlon and use the proceeds to kind of add new companies to the portfolio that kind of fit in much better with the complementary aspects of our business.
Sure. Thank you.
Thank you. The next question is from the line of Rohit Ohri from Progressive Shares. Please go ahead.
Hi, Tarak. Continuing with the question for Edlon, what sort of approximate valuation do you think you'll get from sale of this segment?
We don't know yet as the process is onwards, but I think as a book value.
About INR 100 crore.
About INR 100 crore is good for it.
Yeah, I think so.
Book value is about INR 100 crores. We don't know. We haven't got bids yet, but, depending on the demand, you know, we always would like to buy cheap and sell expensive, so hopefully we can get a good value for it.
Okay. There's another property that you intend to sell in Mumbai. Can you take us through that? What was the area and what is the square meters of that property?
Okay. I think square meters I would not know. It's our old office building. We actually moved from Lower Parel to Wadala office. We have a much bigger office, and that office currently is not being used to full capacity. We would rather use the funds for better cash management, and that was an own office that we owned. It is a prime real estate on the top floor of Vios Tower, so there will be high demand for it. That was one thought behind it. The other was a residential apartment that the company owned. I think that also in a building that has become considerably older, so it's a good time to kind of divest that as well and then use the proceeds for business purposes.
The approximate value of these two properties would be?
I don't know offhand, but when we bought the office, the office was around five floors or something like that for about 6,000 sq ft, if I remember correctly, something around that time. It was very early on. We bought it really in early 2000s before Lower Parel was even Lower Parel.
You get a good value with Lower Parel. Yeah. Okay. You touched upon, you know, parking the proceeds in some new business. What sort of business are you looking at? Will it be going towards the green chemistry kind of a business or something that you'd like to share?
We are always looking out for good companies. The M&A market in Europe is hot right now. I think a lot of people look at Pfaudler now being a global company to piggyback on Pfaudler to really give them the global reach. We get a lot of, you know, requests, and a lot of memos, CIMs and memorandums, executive memorandums to kind of look at. We really want to get into businesses that are very similar and cater to the same kind of customer base that we're currently catering to. Like you rightly said, we would love to get into something on a technology process, green chemistry, automation, digitization.
Those are the kind of things that, see, as a company, we have a very strong base, and we have a very strong brand name, but I think we need to kind of bring in new tech, new age technology to kind of really, you know, add value. Aseem, you wanna just jump in and-
Yeah, I guess I'll just say, you know, we've seen
Always done a very disciplined process around the targets we go after, and we continue to do so. You will see our track record is pretty strong around the portfolio of companies that we have, and I think you can expect the same, if not more, during in years to come.
Thank you. The next question is from the line of Harshil Shethia from AUM Fund Advisors. Please go ahead.
Hi, sir. Sir, I just wanna ask, is our furnaces in Germany all gas-based or?
No, they are electric furnaces in Germany and in the U.K.
Okay. No, that's it from my side. Thank you.
Thank you. The next question is from the line of Ashish Kabra from Fairdeal Traders. Please go ahead.
Ashish, we can't hear you.
Yes. Tarak, can you hear me now?
Yeah.
Yeah. One small question from my side. In the presentation you had actually mentioned that you are looking to increase the wallet from our U.K. business. Like, what kind of synergies are you seeing till now? Like, how is it panning out?
I don't think we said it specifically with our U..K business. It's a general statement for all our businesses, where we have opportunities to kind of earn the potential to sell Indian-made equipment. There are customers in certain geographies in Europe, some parts of South America, East, Southeast Asia, that are value buyers, and it would definitely make more sense either building the entire vessel here in India, or also looking at maybe a hybrid solution where we build most of the vessels here and some components from the other geographies. Low cost sourcing from India will obviously pick up steam. In the first year of this program, this year, the budget was already crossed by about 300%. We've already done exceedingly well in terms of this program.
We also now planning a stocking sales, a program where we will stock equipment in Europe, for the European market that will be sold by our German entity. All these things are progressing quite well. The idea behind that is to really kind of come and get business that usually would not come into Pfaudler.
Okay. Thank you. Thank you.
Thank you. The next question is from the line of Jason Soans from Ashika Stock Broking. Please go ahead.
Yeah. Thanks for taking the question again. You highlighted some one-offs. Actually, I kind of missed on that. Could you, if you could just repeat that.
On what, sorry?
You had mentioned the one-offs in the quarter in the initial part of the call, but I missed that part.
In the international businesses, we had an Edlon sale. There is EUR 300,000 provision for that. There is a power cost increase in the range of $300,000 between Germany and the U.K. as well. There is EUR 700,000 provision made for an order which was manufactured, but we were not able to ship to Russia. These are obviously one-off and won't be recurring except for the power cost. If it continues to go up, then that will continue. Otherwise the other two are definitely one-off.
Okay. $300,000 power cost increase and $700,000 provision for the Russian order.
Yeah. Another INR 300 thousand for the add-on sale.
And another-
For the associated with the add-on sale. All in all, about EUR 1.4 million, which probably impacts profitability at the international business by about 1.5%.
Okay. The total amount comes to how much did you mention?
INR 1.4 million.
EUR 1.4 million.
Yeah.
INR 1.4 million.
Yeah.
Sure. Okay. Just wanted some view from you know, from yourself on the Pharma City development in Hyderabad. I remember a long time back you used to speak about when, you know, you were acquiring the DDPS facility especially. You said that, you know, you could address a lot of demand coming from the Pharma City in Hyderabad. Just wanted to, you know, your take on it, you know, what are the current developments and how is it shaping up?
That's a very interesting question and a very timely question because as we speak, the CEO of Pfaudler International is with K.T. Rama Rao in Davos, meeting him and asking him to give us allocation for land in Pharma City. That's going on as we speak, and maybe there'll be a tweet or something from the Telangana ministry later today. The Pfaudler CEO was invited, and the government of Telangana wanted to discuss with us our plans and expansion plans in Hyderabad. Our current plant is in Nacharam, which has been earmarked for an IT development.
Eventually five years down the line, we have to leave that site, and we are now working with the government there locally to give us land allocation within Pharma City, so we can then cater directly to the new, pharma, plants that will come up in that area. In terms of timing, this is something that we've spoken about for quite some time. I don't have a real clear idea in terms of the land allocation I believe is complete. I think over the next few quarters, once things start stabilizing after the pandemic, I think that got pushed back a little bit. I think people will start moving to Pharma City sooner than later.
Next question is from the line of Rohit Ohri from Progressive Shares. Please go ahead.
Hi. The question for Pharma City is already asked. I just wanted to ask that, in terms of the green chemistry, are you thinking of moving towards hydrogen?
No. I think we were looking at green diesel technologies. There were some other technologies, specifically in the U.S., that the U.S. teams are working on. We are really kind of open-minded when it comes into green technology. If there's something that we could even do in the EV space, I think recycling of batteries is becoming quite, you know, important. I think some of these sulfuric acids, which goes into these batteries require, glass-lined equipment as well. Something that we can build around the glass line, having at heart the glass line would be definitely an area. Maybe there could be new avenues and new, maybe, chemistries which can open up as well. It is something that we are working on.
As soon as we have some more information on this, we will definitely let you know.
Would you like to share anything on the new developments for acid recovery asset?
Acid recovery, there's an ongoing project, one in India and one internationally. I think there was a recent order that we got from China as well in acid recovery. I think acid recovery is something that we hope will grow in the next few years. Maybe, to be honest with you, it's not as grown as fast in India as I would have liked, but we are not stopping there. We are continuing our focus. We are going and meeting people, and there are some strong opportunities in the pipeline. Hopefully, it will materialize into orders in the next few quarters.
Thank you. In order to ensure that the management is able to address questions from all participants, please limit your questions to one per participant. For any follow-up, may we request you to rejoin the queue. The next question is from the line of Santosh Kumar Jha from Optimized IT System. Please go ahead.
Yeah, thank you, sir. Good afternoon, sir.
We hear you.
Hi. Yeah. First of all, very congratulations for the company's growth, earnings, and better performance. Sir, I have a little question about the stock split. Are there any plans for the next quarter for stock split?
No, no plans right now. You know, we could have split the stock this time as well, but then that would be the last split that we could have done because we're already at INR 2 and the lowest you can go to INR 1. Maybe we keep it for later, when the time is right. Right now there are no plans for a stock split. I think the bonus itself will create liquidity, which we wanted to create. The purpose has been solved, and I don't think we need to look at the stock split for at least the next few years.
Okay. Thank you, sir.
Thank you. The next question is from the line of Siddharth, an individual investor. Please go ahead.
Hi. In terms of technology and automation, I just want to know if you have already invested in or plan on investing in any asset lifecycle management software or systems.
Sorry, technology, digitalization, automation, have we invested, what are our plans? Maybe you can take that, Siddharth.
Yeah, I'll take that. Clearly, digitalization, Industry 4.0, et cetera, is happening all around us. As a general consensus, we want to make sure we invest in the right solutions that are relevant for our business. We have thus far built up a basis, a baseline of systems in our factories, in our operations in sales, HR, IT, et cetera, upon which we can then take further and use the data that comes on the system to drive decisions. You know, over the last couple of years and really going into this year and probably the next, that foundation will be strengthened. We've already started efforts to make sure things like our Salesforce systems are used consistently across the corporation.
Really the power of Salesforce is used not just as a repository of sales leads, but actually to make smarter decisions. Tarak talked earlier about taking, you know, figuring out which orders we really want to prioritize. We extensively use analytics to make such kind of decisions. In our factories, we are using digital systems for project management, project tracking and control so that we have much better visibility on how orders are progressing and building when our products will come out of the factory. Then last bit I'll touch on is on the product itself. You know, a glass-lined vessel traditionally has not been a smart vessel. It's been a piece of equipment with a lot of technology in glass.
Now we are also further enhancing our capacity to sensorize these vessels. We have a portfolio of probes that we currently sell in Germany. We are working to enhance that portfolio, whereby a customer can get a lot more detailed information about process parameters for the systems we sell to them. We're pretty excited about the potential that offers. This is a priority for us. We make sure that we invest where it makes sense, and it's a judicious combination of investment in systems and digitalization across three areas, our products, our factory processes, as well as our process and support functions also.
Thank you. Ladies and gentlemen, due to time constraint, we take one last question from the line of Jason Soans from Ashika Stock Broking. Please go ahead.
Yes, sir. Thanks. This is my last question. Just wanted to ask, well, this PPA impact on the depreciation, we had, you know, accounted. We had guided for INR 6 million non-cash impact, of course. Now this INR 15 crore impact on deferred taxes, just wanted some clarification on that because that wasn't expected. If you could just show some color. I mean, I understand it is non-cash, but if some color can be provided. The 67 million was pretty much part of the P&L, but this was the INR 15 million has come out. You know, the deferred tax that's basically incremented upon.
Right, Jason. What has happened is, once you get into any acquisition, you get 12 months. After that, you need to review your opening balance sheet and get into what you know are the assets and liabilities that you want to revisit. As part of that exercise, there was a deferred tax asset which is completely different from PPA.
Okay.
There was a deferred tax asset which is existing in the balance sheet, which we wanted to write it off because that is an asset which is not yielding any value in the future period for us. Therefore, we had to take a you know, write-off in the P&L. To that extent, our tax to PBT ratio got deteriorated to that extent. This is again, as you rightly mentioned, this is a non-cash item. Only the deferred tax asset goes down and the you know, the profitability to that extent goes down as well relatively. PPA, whereas, was an opening balance sheet. We were to acquire the business. You have the asset allocation from the new management, and that's what we explained, I think, last quarter Q4.
That's a completely different number from there.
Thank you. We will take one more question from the line of Virel Sanghvi, an individual investor. Please go ahead.
Hi, Tarak. Can you hear me?
Yes, I hear you. How are you?
Yeah, I'm all well. Thank you. You talked about the requirement of good demand seen from the pharma industry. Do you see any good impetus also from the agro industry as well, which is going right?
Yeah. I think also from an agrochemical standpoint, there are large projects in discussion right now. People like UPL, PI Industries, Grasim are not really for agro but more for specialty chem. Aarti Industries are all making many investments as well. Across the board we are seeing a strong demand for chemicals. Agrochemicals obviously will also pick up. It may be driven by specialty chem, but even companies like Dhanuka, for example, are really investing in agrochemicals as well.
Okay. Yeah. Thank you so much.
Thank you. I now hand the conference over to Miss Priyanka Daga for closing comments. Over to you, ma'am.
Thank you, Kevin. Thank you everybody for joining us. Look forward to speaking to you during our next investor meeting. Thank you once again and good night.
Thank you. Ladies and gentlemen, on behalf of GMM Pfaudler Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.