Q3 24/25

Jan 28, 2025

Summary

Q3 sales rose 10% YoY, while delayed shipments weighed on quarterly execution. A record Q4, 20%+ FY25 growth and a ₹2,000 crore FY26 sales target are supported by a record order book, led by refrigeration demand.

Ladies and gentlemen, good day and welcome to the Kirloskar Pneumatic Company Limited Q3 FY 2025 earnings conference call. 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 Mr. Amit Shah. Thank you, and over to you. Thank you, Mike. Good evening, everyone. On behalf of Centrum Broking Limited, I welcome you all to 3Q FY 2025 post-results conference call of Kirloskar Pneumatic Company Limited. To discuss the results, we have the senior management team of the company represented by Mr. K. Srinivasan, Managing Director of the company, and Mr. Ramesh Birajdar, Chief Financial Officer of the company. I will request Mr. K. Srinivasan to give us the opening remarks, post which we can open the floor for Q&A. Over to you, sir. FY 2025. Much as we all like to live in happy, interesting times, may I hope that the year brings peace, progress, prosperity, and most importantly, predictability to everything that we do. Thank you all for joining the call today. I have with me Mr. Ramesh Birajdar, Chief Financial Officer, and Mr. Jitendra Shah, Company Secretary. Before proceeding with the business updates, I will ask Jitendra to read out the disclaimer statement, please. Jitendra. Thank you, sir. Good evening to all. The presentation uploaded on the website of the company and discussion on the financial results during the earnings call may contain statements relating to future business developments and economic performance that could constitute forward-looking statements. While these forward-looking statements represent the company's judgments and future expectations, a number of factors could cause actual developments and results to differ materially from expectations. The company undertakes no obligation to publicly revise any forward-looking statements to reflect future events or circumstances. Further, investors are requested to exercise their own judgments in assessing various risks associated with the company and also the effectiveness of the measures which taken by the company in tackling them as indicated during the discussions. Thank you all. Thanks, Jitendra. So now let me go to the material part of the discussion. Q3 historically is a sharp quarter with holidays and block closures that we have during Diwali. Added to this, we had this year's challenges coming from an unusually long period of slow project execution and commissioning. The impending change in the government in the U.S. brought in uncertainty, particularly in the energy space. Yet in all this, the continuing strong demand in key sectors of the Indian economy, food, dairy, pharma, mining, fertilizer and chemical, et cetera, kept us busy with continuing strong order inflow and execution. Sales in Q3 was at INR 340 crore as against INR 308 crore of the previous year, a growth of about 10%. Most of the growth came from domestic market. Export sales for the quarter was at INR 52 crore, same as that of the previous year. Order booking was strong and this leaves us an order book of INR 1,879 crore as on 1st January 2025. This, as compared to the INR 1,475 crore of 1st April 2024, is an increase of 27% compared to last year. This, in a way, is a good pipeline of orders in hand that will allow us to meet the planned growth for the current year as well as the year FY 2026. A notable feature in the order booking for Q3 has been the strong order intake for newer products like the Tezcatlipoca centrifugal compressors, Khione boosters, Aria compressors, QNA packages. The Jarilo for biogas has made its mark, but the industry itself is still to resolve the biogas generation challenges. We are continuing on our approach to build in-house manufacturing capabilities both at Nashik and at Saswad. The CAPEX execution in this regard will be on budget. We have done about INR 52 crore. We will do about INR 100 crore for the full year. The company completed the share purchase by acquiring 55.26% stake in M/S Systems & Components India Private Limited. We are consequently putting out our first consolidated financial results only with 25 days from this. The joint working between the two teams has started, and we expect to better address the process refrigeration market across key industries. The company also entered into an exclusive selling arrangement with UMPESL, a Voltas subsidiary, who are leaders in supplying machines to the textile industry, and this agreement would allow us to increase our sale of Tezcatlipoca centrifugal compressors and other compressors to the textile industry. The net working capital was at INR 297 crore, an increase of INR 12 crore over the beginning of the year. This is largely coming out of several major packages waiting to be shipped during Q4. We expect that the net working capital, which is now around 17%, will go down to about 15% of sales by 30 March 2025. The free cash generation from operations YTD is strong at INR 119 crore, and this supports the enhanced interim dividend announced. Let's now discuss the results by product lines for the quarter. The air compressor business was flat with low offtake from most segments coming out of a general slowing down of the economy. Except cement, pharma, carbon black, and mining, which all continue to do well. The silver lining has also been a stellar performance of the Tezcatlipoca centrifugal compressors. We have significant orders on hand, and we'll start investing to scale up production in the coming year. We expect this to help us in FY 2026. Refrigeration compressor and systems. The refrigeration compression segment continued to shine with strong order inflow from dairy, food processing, pharma, and packages from the chemical and fertilizer industry. The sale of Khione refrigeration package scaled up with strong order inflow. This we expect to continue even going forward. With the Systems & Components India Private Limited being in the family, our visibility and presence in the space will continue to go up even further, and we expect to have a better position in the refrigeration market going forward. Process gas compression systems. This space saw the most uncertainty coming from a myriad of reasons, gas availability, pricing, biogas generation challenges, oil price and source, project execution delays, deferment, et cetera. Yet in all this, we remain strong and rooted. We shipped out record number of Tezcatlipoca, albeit at a near zero margin, shipped gas packages to Indian customers and kept the over 1,000 filling stations serviced and running. We picked up CNG package orders for export, marking a shift from the traditional gas packages that we were all along shipping to the Middle East, MENA region. We believe there is a change in the MENA region landscape with more of CNG packages going forward. While we won orders and shipped a few biogas packages with the new Jarilo range of compressors, we see that this space will go through a period of quiet as the biogas generation challenge is yet to be satisfactorily resolved. Scaling up of demand and shipment of Jarilo will happen only after this is resolved. We continue to participate actively in the hydrogen space with a range of offerings, including the PDC diaphragm compressors. We are in the process of executing the first package, a combination of KPCL and PDC Machines compressors for a special project in Southern India, and this we will complete in the first quarter of FY 2026. Exports is expected to cross INR 100 crore this year, and a lot of it will be driven by the new CNG package orders that we are shipping out to the MENA region. Outlook for Q4 and FY 2025. There is uncertainty and a halting progress in several sectors coming from an array of reasons, weakening rupee, oil price, gas availability, uncertainty around several green initiatives, et cetera. However, we see all this benefiting us in multiple ways. Being, in most cases, the only domestic producer end-to-end, the strong order inflow in a way reflects a better conversion ratio coming from our competitiveness. We expect to deliver a strong Q4 based on major packages under execution and continue to go strongly in FY 2026. The continuing trust to enhance our competitiveness and capabilities, both in our R&D effort and the in-house manufacture will only buttress our position further. The various CAPEX projects that we have undertaken and plan to take up further in FY 2026 will help us maintaining our growth momentum. At KPCL, one of our strength has been our strong engineering capabilities coming from the near 200 odd engineers who work across the country. We are now working to enhance this by adding new capabilities in deep tech bordering on AI and robotics. We expect this to further enhance our offerings to our customers and allow us to accelerate our growth trajectory, achieving our first target of being a INR 2,000 crore company next year. I'll now request Ramesh, our CFO, to take you through the financial numbers. Thank you, sir. Good evening, and thank you for joining the call. I hope you have had the opportunity to view the results recently released on the BSE and NSE websites after the conclusion of the board meeting. Furthermore, we have uploaded the presentation spotlighting the trends observed in the Q3 results on the company's website. To assist those who may not have had the opportunity to view the results, allow me to share a summary of Q3 FY 2025 outcomes. Sales for the Q3 FY 2025 were INR 340.03 crore against INR 308.53 crore of Q3 FY 2024. Sales for the Q3 also showed a growth by 10% over the previous year, Q3 FY 2024. Other income for nine months improved 23% to INR 16.54 crore compared to INR 13.47 crore in the previous year. Total income YTD ended December 2024 was at INR 1,062.51 crore compared to INR 846.13 crore in the previous year. The raw material to sales ratio for Q3 remains nearly unchanged compared to Q3 FY 2024. In the percentage term, 51.80% in Q3 FY 2025 against 51.90% in Q3 FY 2024. However, YTD percentage of raw material to sales has improved by 1.7% in nine months of FY 2025 due to product mix, better selection of the orders, and execution of the large packages in Q2. Staff cost, that is employer-related expenses, stands at INR 44 crore in Q3 FY 2025, that is 12.90% of the total income, against INR 40 crore in Q3 FY 2024, that is 12.80% of the total income. Increase in staff costs due to the salary correction in the form of increments, initiation of the operations at the forging plant in the Nashik, and hiring of additional manpower FY 2025 to achieve the growth of the company. Company has maintained the status as a debt-free company, and I would like to state that company has a net cash position of INR 296 crore as on 1st January 2025. Lower depreciation is in nine months of FY 2025 compared to nine months of FY 2024 is due to impairment of road roller assets in FY 2024 and reduction in depreciation of leased assets, which are fully depreciated now. Other expenses are a mix of fixed and variable costs and are at INR 202.80 crore in nine months of FY 2025 against INR 159.31 crore in previous year. Increase in these expenses are mainly the surge in execution of the packages, enhanced level of service business, and expanding activities in our Nashik plant. Year-to-date performance for the first nine months of the current year shows an improvement in the EBITDA margin, reaching 18.6% of the total income, to INR 198 crore compared to 14.7% of total income to INR 124.26 crore in the previous year. In the ongoing fiscal year, YTD PBT has reached to INR 175.91 crore, constituting 16.66% of total income against 11.5% to INR 124.26 crore in FY 2024. Net profit after tax for the initial nine months of the current fiscal year is INR 130.41 crore, that is 12.3% of total income. In comparison to previous year, INR 97.70 crore, that is 8.6% of the total income. Company issued 93,600 equity shares during the period ending on December 31st, 2024, under its employee stock option scheme, while 120,800 equity shares issued in the previous year during the same period. As a result, the paid-up share capital increased to INR 12.97 crore compared to INR 12.95 crore at the beginning of the year. Year to date, earnings per share in the current year has shown a growth by 78%, reaching INR 12 per share, while INR 11.30 per share was earning in the previous year, FY 2024. In line with our dividend policy, the board of directors has approved an interim dividend of 175% on the face value of INR 2 per share. That is INR 3.50 per share while in the last year, INR 2.50 per share for the same period. With about 94% of revenue coming from the compression segment, it remains only reportable segment. The segment earned a profit of 12.80% in the current quarter while higher than the previous year which was at 18.9%. The compression segment is consistently sustaining the profitability in the range of 18%-20%. As of January 1st, 2025, company holds an order book of over INR 1,879 crore, marking a 27% growth compared to the INR 1,470 crore at the beginning of the year. This represents the highest order book recorded in the first nine months of any financial year. The segment assets experienced a INR 59 crore surge compared to previous year. This is primarily increase in the inventory and in order to arrive at a capital employed for the segment current liabilities were reduced accordingly. As you may know that the company recently acquired Systems & Components India Private Limited, a company situated at Village Padga near Murbad in Maharashtra. Following this acquisition, company has published its consolidated income statement for the first time, reflecting the financial performance of both entities. Comparable details for the consolidated business will be provided after completion of a full reporting cycle of one year. Now, this forum is open for questions from investors. Thank you. Yeah. We will now begin the question answer session. Participants who wish to ask a question may press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use answers while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have the first question on line of Mihir Manohar from Carnelian Asset Management. Please go ahead. Yeah. Hi, thanks for giving the opportunity. Sir, currently wanted to understand the outlook which was said for this quarter. When you consider the order booking and the order book which was there last quarter, and it has been a good order booking which has happened also in the last six months. But the order revenue recognition for this quarter was low. Was there any client-specific challenge or package-specific challenge where you have prepared those package, but it is yet to take off? Some color around that will be helpful. You mentioned that Q4 should see better. Is it that one should see a better Q4 for compensating that because of? Yeah. The audio has not been very clear, but I broadly understood your question. See, a couple of large packages in refrigeration as well as in process gas that will go out in January itself will compensate. I think we have been telling several times that our business still tends to be a little lumpy. Consequently, it is poor to judge our results quarter on quarter. We have this challenge that some quarters everything goes well, some quarters a couple of packages do not get shipped for various reasons, site not being ready, payment has not come, whatever, and they go in the next quarter. This sort of, in a way, distorts the numbers. We will have a record Q4, and I think we will stay to what we committed, saying that we will have an over 20% plus growth for the full year. I don't want to give a better number than that. It will be definitely well above 20%. Sure. Second question was on the other expenses side. When I see other expenses, I mean, here of 27% on a year-over-year basis, close to INR 71 crores of other expenses versus INR 55, INR 56 crores on a year-over-year basis. I mean, what is it that other expenses have gone up? I understand it's a flat on a quarter-over-quarter basis. Because I know that is something which has resulted into the compression segment margins correcting by 200-220 basis points. So, I mean, what has resulted in these other expenses going up? This is, in the Q2, we have executed the large packages, and that is the cost we incurred. Apart from this, we have these subcontracting charges in the year because of the large package execution, and also we are executing the O&M business, where they're increasing the top line as well as at the same time they're incurring the subcontracting charges for the O&M business. I think like we maintain and operate about 1,000 compression packages of CNG stations across India, and they are managed through third-party contractors who are actually providing labor to man and run them. So as the scale goes up, that will continue to go up. Okay, sure. Last question was on the Systems & Components side. What is the thought process of acquiring this? Is it for facility? Is it for customer? How to develop synergies going ahead for this? Okay. Systems & Components is a company that supplies refrigeration packages. We call it cooling systems for chemical pharma industry, primarily. We do not make package systems for this industry. We make our KC series compressors and sell them as a bare shaft compressor. The OEs buy them and make packages. Systems were once upon a time, they are a very old company. They have been around for more than 40 odd years. They too had bought KC series compressors and done packaging. Of late in the last 20, 25 years, they have been using compressors imported from China and other places to make packages instead for this industry segment. Acquiring that would allow us to access, one, alternate sources of compressors to get an idea of competitiveness. Also to address this market, which is currently not being operated by us at all. With our Khione range of compressors, this will be another good outlet for us to reach out packages using Khione for the pharma and the chemical industry. Sure. Understood. Yes, that is it from my side. Thank you. Thank you. We have the next question on line of Sanjay S. from Ampacine. Please go ahead. Hello. Yes, Sanjay, go ahead. Hello. Yes, sir. Yeah. These are a couple of things. I just want to know about your order book pipeline. I understand that your order book is vastly up on a year-on-year basis. Compared to the first 6 months, this was a bit of a flatness. All the macro things that you have talked about. Can you just give us a sense of how order book will look like? See, the flatness has not been in the order booking. It has been in the sales execution. That, in a way, also reflects in the kind of inventory. I know you had a chance to look at our numbers. You will see our inventory has gone up significantly, which means there is a lot of our packages are waiting shipment. These sales will get evened out after the Q4 numbers come out when the execution gets completed. We do not have any stage billing of any of our packages. We do not do it like a project. We sell them as packages. Everything is built, tested, and shipped out of the factory, and invoiced in one go. There is no stage completion kind of a thing. This business will remain a little lumpy. These would be exceptional quarters when a couple of things go and a couple of things don't go. We had the second quarter when a lot of the packages went. Third quarter, we had hardly any major package going. Fourth quarter will be a whole lot of packages going out. You will see that on a year basis, we would even out this. Understood. My question was regarding the pipeline of order book. Are you seeing that strength in booking new order again in current quarter? I understood that execution was at least two in Q3 and that will get compensated in Q4, but I am just trying to see the demand side also, and if you can give us some sense on that. Yeah. Like we keep saying, we operate in large areas. One is the air compressor, second is the refrigeration compression systems, and the third is the gas compression systems. In the air compression systems, the general industry definitely has not been spending as much on CAPEX as earlier. But there have been niches which have been doing exceptionally well, and that is where we have had a good order book. On the second, as far as the refrigeration business is concerned, it is doing exceptionally well. If you look at all the CAPEX spends that have been happening in India, they are primarily into food processing, dairy, chemical. They are all sectors doing well. Our refrigeration side order flow is exceptionally good. It is far, far higher than anything that we have ever had before. The third segment is we look at it on the process gas side. The Process Gas Systems side is seeing the maximum amount of difficulties coming from a multiple set of reasons. One is the gas availability and price. There is an on-and-off talk between various institutions and bodies saying will they promote natural gas, will they promote more of LNG, and a whole lot of other things, which has slowed down the number of CNG stations that have been commissioned. People are doing with boosters. We do pick some booster orders, but not too many of them because that doesn't make money. The Process Gas Systems side is definitely not doing as well as we normally expect it to. Added to that, the biogas is definitely not seeing the kind of traction that was being expected. The other finalization on hydrogen is also definitely not happening at the pace that is expected. Overall, I would say our general order intake in Q3 was good, and we expect actually this to continue in Q4. So we have not seen any kind of a massive slowdown or anything. Our order intake continues to be robust. That's why we keep saying we are quite confident of doing 20% plus for next year as well. Understood. Sir, thanks a lot for clarifying this. Last question that I just want to understand from you, that you are doing these CAPEX, and you also said that one of your key new product where you are seeing strong demand, you will be further expanding capacity. Can you just tell us how much really the capacity expansions have been planned, and where really are they going, and what do they do to your productivity and your margin outlook? Yeah. So we have so far shared that we have invested in the fabrication area and the forging area. There are quite a few other areas that we will announce as soon as the plants are commissioned. So there are quite a few areas where we are investing. These would be to enhance our in-house manufacturing capability. In-house manufacturing capability does two things to us. One, it allows you to reduce your RM cost to sales. Two, it allows you to speed up execution and make you more competitive in the market. So we will continue to enhance our investment in these areas. Also, these capacities are not the traditional investment somebody would see outside in a fabrication plant or a forging plant or the new ones that we are putting up. They are all done with a very specific uniqueness about them. Either they are driven by circularity or they are driven by zero carbon emission, a whole lot of other things, which actually gives us a competitive advantage in the manufacture in-house. This would help us in two ways, speed up deliveries as well as improve our competitiveness. The question you asked is capacity utilization. I would say a lot of this is make by kind of a thing. It increases our capability. It also allows you to do better turnaround of products or orders. We do it quicker, so we can do more. Generally, our capacity utilization would be between 60%-75% in most areas. We still have headroom for the growth that we have planned for next year. Understood. Great. Thanks a lot, sir, and all the very best. Thank you. Thanks. Thank you. We have the next question from the line of Amit from PL Capital. Please go ahead. Hi, sir. Thanks for taking my question. My first question is on the Process Gas side, where you highlighted that there is a different kind of challenges which you are facing currently. Wanted to understand your view, the kind of growth which you are expecting, 20% this year and 20% next year. Is it a right understanding that largely, despite the slowdown in gas, are we expecting major growth in air and the refrigeration systems only? Some color on when the gas market for you is going to come back. The Process Gas growth in this year as well as next year, we do not expect it to go to 20%. We expect it to be sub 20%. Even that is going to be, to an extent, driven by the CNG packages which we are now exporting, and they seem to have surprisingly good traction. We are doing more of it, and that into MENA region, and that is good news for us. The big growth, like I mentioned, is really coming out of the refrigeration as well as hopefully from the air side going forward with Tezcatlipoca picking up. These two would, in a way, compensate whatever little fall that we will have from the 20% target on the Process Gas. Do we think this will be irreversible change? Not really, because there are a couple of big, let us say, investment areas that the government and others have committed for biogas, hydrogen, et cetera. These are all not really scaling up at the pace and at the expected level. Consequently, this is all affecting the overall Process Gas segment for us. We expect that there will be a lag. It will not be a complete washout. There is a lag. It will take probably a year more than we expect, but they will come back. We are quite positive about it. We have our products in place. We have fairly good installation for people to refer to, and we believe that it will come back. Maybe we will have a year when the percentage that we always keep saying 40%-45% for Process Gas may go down to the lower level of 40-ish, and the refrigeration, which we talk of 30%-35%, may go to nearing 40%. Right. Are we exploring more geographies for CNG gas packages? I would say cautiously, no, for the moment. We are busy with what we have, and I think we will go first, this year, we will stay with the area that we have opened up and use the traction that we are getting from the areas where we have established. We will not go out and do new things in the market. Right. My next question is on the MOU, the partnership for the Tezcatlipoca. Are the Voltas subsidiary going to act as a distributor, and what is the business potential for Tezcatlipoca through that partnership? See, the textile machinery business is actually significantly run through this company. This is a Voltas subsidiary. They have been representing very large companies other than us as well in the textile industry. They have two models. One is they stock and sell like a standard compressor for a screw compressor. They also would be an agent kind of a thing, where they would book the orders and we would execute directly, particularly when the large Tezcatlipoca is there. So the model would be both. One is they acquire business for us, second is they will hold inventory and sell for us. They will do both. The opportunity size, we believe, is about INR 100 crore in the next 2-3 years. Right. Possible to share what was the contribution of Tezcatlipoca in Q3 or first nine months? First nine months, I can tell you, we roughly did about INR 30 crores. Less than INR 30 crores. Order booking would be double that and the sale about INR 30 crores or even less. Sure. My last question, if you allow, in refrigeration compressors, the kind of growth which you have been explaining, is it broadly coming from the same industries which you highlighted, food process, chemicals? With respect to competition, is it the market which is growing and their demand side opportunities that are expanding, or are we also gaining market share, or are we substituting any imports which were coming in India? Could you, possible for you to highlight? Yeah. The three reasons, let me put it like this. The biggest growth comes from the food, dairy, pharma industry as well, the refrigeration industry is concerned. The big packages are all going towards fertilizer, chemicals. As you all know, urea imports is likely to be, let's say, discouraged or stopped by end of 2025. Consequently, several ammonia terminals are coming up, are being installed on both sides of India. Consequently, whenever there's an ammonia terminal, there's a huge amount of refrigeration systems, and we end up doing most of them. There is a lot of activity in this. The big thing, why we do win more is that almost all the refrigeration compressors today are imported. We are the only one who make all of them in India. Like I keep saying, even if the activity level in many cases goes down, our win rates go up because being a local manufacturer, we have tremendous advantage in terms of execution, upkeep, cost of the projects, et cetera. That's a big advantage, and it will only get enhanced as we start doing more and more work in-house. Sure. Thank you so much, sir. All the best. Thank you. Thank you. We have the next person in line now, Sweta Jain from ANS Wealth. Please go ahead. Hi, sir. Am I audible? Yes, please. Okay. Sir, I just have two questions. This Voltas JV that we have done, just wanted to understand if you could help us understand in terms of the revenue potential. What kind of revenue potential are we looking at this from this tie-up? And second thing, in terms of the order book, what is the execution timeline for this order book, sir? Okay. On the first question, let me clarify, I think I did not do in the first time. This agreement that we have with the Voltas subsidiary is a selling arrangement. This is not a joint venture. UMPESL- Okay Kirloskar Pneumatic have entered into an exclusive sales agreement which will allow them to market our compressors primarily to the textile industry and to stock and sell them for specific areas, largely only for the textile industry. Okay The revenue target for our product, we expect that they will do about INR 100 crore in the next two or three years. Okay. How would the sharing arrangement be between us and them? We would be giving them a commission for sales, and how would that happen, sir? Yeah. If they stock and sell, they get to make the final price. If they are procuring order for us, then they get a commission or a markup. These are exclusive agreements, so they are, let's say, private agreements, and we would like to keep it that way. Okay. Sir, on the order books execution timelines? Yeah, on the order book, we generally say that most of the standard products or the standard lines of business, we call them as equipment, they go out in about 16 weeks on an average. The large packages tend to take anywhere between 8-12 months. So if you look at this INR 18.7 odd crores of order booking, most of them would go out by end of next year. There would also be about INR 400 odd crore that may go to the first quarter or even second quarter of the year after. We also continuously keep booking those short equipment orders that will get booked and executed within the same four quarters. So this gives you a rough indication. If you have a INR 14.5 crores of order bank, the next year sales should be at least that plus 20% or so. That's how we always look at it. Okay. Thank you, sir. Thank you. Thank you. We have the next question from the line of Ruchita Kadge from Iwell. Please go ahead. Hello, sir. Good evening. Sir, my question was mostly on the Process Gas Systems side. With this increase, basically, the profitability of these CGD companies is coming down because of the lesser allocation given to them. Do you think that their CAPEX is getting impacted because of it? Good evening, and what you said is 100% correct. That's what we said in the beginning in the opening comments. The gas availability to the CGD companies, the domestic gas availability, has been reduced. Consequently, they are forced to buy more and more of the imported gas. As you would all see, there has been a tremendous growth, over 22% by value, growth of LNG imports into India. Consequently, their final price that they put out on the CNG has gone up, which means the attractiveness of CNG for conversion or for people to use it in the place of diesel also diminishes. This industry is going through a bit of a change. Consequently, the people are no longer investing, or I wouldn't say no longer, are investing, are less keen to invest on pipeline and the mother stations. Most of the people are trying to cover up for the time being, using daughter stations or the boosters, as we call it, or Jarilo in our brand, and that is why we're selling more and more of Jarilos now. Is it profitable for us? No. It hardly breaks even. Why are we doing it? We want to be present. We are the only large company doing, and the customer wants us to be available. But if you look at the total number of CNG stations that have been installed in the company, you can see it in the PNGRB's website. They talk of 7,259 CNG stations established. I don't know how many are really running. Out of that, more than 5,000 of them, or at least about 5,000 of them would be boosters, the Jarilos. We don't put all Jarilos there. This would be equivalent to that. About 2,500 would be the mother stations, which is where we have a significant share of the market. We are interested in doing more mother stations. We are not interested in the other part. The mother station is profitable for us, sir? Mother station is profitable for everybody, provided gas is available and the people have invested in the pipeline. Got it. But right now, we are not seeing much of mother stations. We are seeing most of the booster stations being installed. There are a few mother stations where pipelines are available. If you look at the distribution of CNG stations across India, the largest number of stations are in Gujarat, Uttar Pradesh, followed by other states. Maharashtra is maybe third or fourth. There is a concentration where gas pipelines were historically being created. The rest of the places are all covered by the boosters. This is something where we said, we called out saying that look, process gas is going through a pivot, and we are mindful of it, and we said that in this business, consequently, our 20% growth is not going to happen for the next year. It is not going to happen this year either. But the other segments are picking up very well, and that will eventually give us through this 20% plus growth. Okay. Sir, currently out of our order book, earlier processed gas used to be around 45%, correct me if I am wrong. Currently, how much is processed gas as a percentage of your order book? Like I said, process gas used to, we always target 40% to 45%. It would be in the lower end, 40% or even slightly below 40%. Okay. Refrigeration would be in a higher range currently? Correct. They said 30% to 35%. It would probably be going up to almost 40%. Sir, on the air compressor side, we are saying that we can grow at around 20%. Which are the areas where we think that the growth would come from or a specific industry? We said in the air compressor business, the sectors that are doing very well are cement, carbon black, graphite, mining, metal, pharma. All of them are doing well. Textiles. All of them are doing very well. Okay. You think majority of it should come from there? Yeah. Got it. We are a very small player in this. We can actually grow much better because we will take market share as well as tech capital focus is concerned. Otherwise, people will have to import it. Ours is the only India-made product, and we have a huge competitive advantage in this. Just one last question. Ms. Ranjitha, I request you to kindly come back in the queue for follow-up questions. Sure. Not a problem. Thank you. We have the next question from the line of Prolan Nandu from Metalwise. Please go ahead. Yeah. Hi, Srini Ji. So two questions, one on the top line, and another on margin. Starting with top line. So you sound very confident on the 20% growth this year, next year and achieving your target of INR 2,000 crore sales. But what we have seen in a typical capital goods industry is that some of these delays are actually destruction of orders, right? Because you have to make the most of these cycles rather than, it is not like a delay and next year also it will come. So how confident are we given the fact that, let us say, one and a half year back, one of our key driver was CNG. Now that seems to be no longer there. So is there enough room for us to grow x of the market as well and can you share some data on market share as to how aggressively or strongly are we gaining market share? So, just want to pick your brain on the top line and our INR 2,000 crore target. Okay. First let me say why are we confident of this 20% plus growth not only for this year, next year, and probably even going further from there. I'll explain a couple of things. One is, yes, if you go and look at the capital goods sector, and you look at every company that's marked out as bearish, a very bearish kind of a thing, we are mindful of it. While the overall manufacturing growth was about 9.6% last year, this year it is being marked out at about 5.4%. For the capital goods sector, it would almost be zero or negative. We are mindful of what's happening. What is the confidence that comes from? We have also realized that there is a pivot even in our own distribution. That's why I said our Process Gas Systems, we have marked it down a little bit, 5% down, and we have marked up our refrigeration 5% plus. We're quite confident of getting these numbers. Also where is it coming from? One, it is not that we are waiting for the market growth to give us growth. We actually are taking market share. We're becoming more competitive, and we are replacing a lot of import-driven businesses. Compressors still are very largely imported. There are moves to make them in India, but still it is a work in progress. Our cycle of business is two parts. One, there is large CAPEX-driven big packages. The other one is not so much CAPEX-driven. That is more efficiency-driven. You buy an air compressor for a cement plant. It's almost like a process consumable. You probably do it every three or four years, and it keeps happening to even keep the plant running. Same is true in mining. A lot of our sale is not the traditional CAPEX cycle where it happens once in 8, 10 years. It is an operative expense that happens every two years or so. It's a maintenance kind of a business. You have to have it to keep the plant running. In the cement or mining area, the compressors go out in every maybe three, four, five years at the most. They keep replacing them, and they have to be done. Same is true with textile. Textile, you keep adding new compressors because the old ones can only run up to a point in time. I think there is a certain level of renewal process that keeps the business running. There is still CAPEX being spent, and there our win rates are much higher, and it'll only get better as we become even more competitive. Also, what we didn't talk too much about in this, and I was actually waiting to talk more about it at the end of the year, is our huge R&D effort and the new products and new IP that have been backing a new product that's coming out. We talked of a few. There are quite a few other surprises in the market that you will see as they come out. We are reasonably confident that we'll have a good year-end and going forward, continue the trend of delivering 20% plus growth for quite some time to come. Two things. One, when everything is going well, we doing well, that's pretty normal. I think the real challenge comes when things are not going to be all that great. Then comes customers having to make special choices to do things that are locally available, more efficient, and then we tend to win better. I think we are quite confident, and I think the best proof would be to see us in April. Sure, sir. All the very best for that. Very heartening to hear this. Second question would be on margin. One of the pivots that you mentioned was this more pushing the pedal on the refrigeration side and slightly lower on the gas side, right? See, another way to also look at your business is that there is a combination of products that you sell, packages that you sell, and then also the projects that you go ahead and undertake. Going ahead, let's say in the next couple of years, and together with some of these CAPEX that you are doing to bring down the raw material as a percentage of sales and in-house things. One is that the top line pivot in terms of mix, would it be margin accretive from your long-term guidance of 18%, or would it be margin dilutive? Also, when would some of these efforts on backward integration start to we can see them on the margin? Also, would there be some margin takers because of some of the investment that you are making on the O&M side? I will answer this. If you see our investor presentation slide, and the margin for FY 2022 to FY 2025 going from 15% to 21.8%. We are consistently putting our efforts to improve the margins. One, the reason is, we are selecting the orders. Because the ample business is available, but at the same time, we are taking care for the top line as well as for the bottom line. Apart from this, we are developing the product that is in-house manufacturing capability in the Nashik as well as in the Saswad, which will give the reduction in the manufacturing cost. That manufacturing cost will push our top line because our commitment to the investors to maintain this margin between 18%-20%, it will continue. With this vertical integration or the backward integration, we will maintain the margins a little bit more than that, but at the same time, we will push the sales and we will achieve the top line. Let me add to what Ramesh said. You asked a question in terms of mix. Yeah. The process gas business is still available, not that it is dried up. Like I said, if you start doing more and more of booster business, and we said booster doesn't make much margin, almost makes nothing. Consequently, it will be margin dilutive. That is the reason we said, let's not have too much of a growth aspiration stuck around process gas in the current phase of growth. We would rather do more of the refrigeration where we are able to choose a business which is still margin accretive. So overall, there is a bit of a modeling that we do to ensure that the company's margin stays above 18%. The compression segment definitely above 18%, it is above 20%, and the company's margin going towards 18% plus, and that is a little bit of a modeling. We still have to look at, we can probably do a little more business if we lose margin, and then that is what we would not like to do. That is what Ramesh is explaining to you. Sure. Can I push one more question, if that's fine? Yeah, go ahead. Yeah. Yeah. So just on the gap between compressor margin and company margin. I assume that there's no longer a drag of RoadRailer, but what is happening there, sir? Any chance or any interest to offload that business? The RoadRailer business has been closed, and it is being still held at about roughly about INR 9 crores as asset for held for sale. Now, we have been trying to put it through various processes of selling, and today's rate, people would offer a scrap rate kind of a thing. I really don't have the heart to sell it as a scrap. I can still recover that money, but I think I would rather get some respect for that product. Tremendous amount of effort has gone in, and I think we will probably get rid of that in the next quarters. But that's no longer a drag in our account. We're just holding it at cost. Okay. This gap should narrow, right? Between the compressor margins and the overall company level margin. Is that fair? If at all, what would be the drag for, in case if going forward, there would be a drag? There would not be a drag per se, but you see, the overall margin of the company would include at the EBIT level. Operating EBIT, there would be no drag, but if it is as a full company without the operating EBIT, then all our investments, et cetera, they may not give you an 18%-19% return. We still hold almost about INR 300 crores of cash. We hold investments in businesses, et cetera, right? Yeah. There is no business which is dragging, right? Apart from the- No. There is no business drag. There is only a corporate cost that will not go. That is not in the segment. Otherwise, there is no business drag left in the system. All right, Srini Ji. Thanks a lot for answering the question, and all the very best. Thank you. Thank you. We have the next question from the line of Sahil Sanghvi from Monarch Networth Capital. Please go ahead. Yeah. Hi, thank you for the opportunity. Largely my questions are answered. Just want to understand the proportion of compressors related to hydrogen and biogas. Would that be very small in our order book right now, or is it meaningful? We have orders, which is not very big, but there are orders for biogas and the projects are not happening. The orders have been placed and they have been still sort of, I wouldn't say put on hold, but they're sort of deferring it because the gas generation is not happening to plan. This is a global story out there. I think in India, I think 80 biogas plants are set to have been commissioned. Only 40 of them are really in any kind of operation. Even most of them are not generating biogas at the planned level. So there is a bit of a reluctance for new projects to take it forward. I think it's an evolving process. Only then will the clearances come for commissioning compressors. Our purchasing is not so big. We're not worried about that. It's about a few INR crores. It's not hundreds of INR crores, so that's quite okay with us. On the hydrogen, we have only one order that we are executing. That also is not really 100% hydrogen. But that's an order that we have that we'll get it out of our system by first quarter. Otherwise, none of the orders are finalized yet. But there is something like about 600-700 INR crores worth of quotation out there for hydrogen compression packages. Massive amount of quotations are out there, various stages of discussion. Sir, that you'll close probably in the next year, is it? I really don't know because the numbers what we're talking of are disproportionately large for people to digest this level of hydrogen. So let's see where it goes. And we would have a good share in the hydrogen side, right? Because we are doing a good portfolio mix product portfolio-wise, and we are doing a lot of products. So as the packages get finalized, we will end up doing a lot of work in hydrogen space because we have the PDC tie-up and the rest of compressors are made in-house by us. So the package together is a very proven competitive package, and people would be happy to take a proven competitive package in a space, particularly where everything else is a little bit unknown. So they would prefer at least this to be a known thing. We have huge opportunities, but like I said, this has to move from excitement to execution. Got it, sir. Thank you so much. All the best, sir. Thank you. We have the next question to the line of Navan Shah from Alpha Credit Advisors. Please go ahead. Yeah, thanks for the opportunity, sir. My question is on the order inflow side. If I look at the 9-month FY 2025 numbers, I think we ended up with INR 1,400 crore kind of the order flow till date, which is only 20% year-over-year growth. Based on your commentary, I think we are seeing a green shoot in the refrigeration segment and the other two are still going into the challenging times. Based on the, let's say if we can earn roughly INR 1,800 crore-INR 1,900 crore kind of the order flows this year. On that basis, do you foresee alone refrigeration segment can give you 20% order inflow growth for FY 2026? I do not have the 100% all the numbers that you said in my register. I won't be able to confirm that. All I can tell you is next year, FY 2026, our ability to execute about INR 2,000 crore of sales is covered by the orders that we're getting in. That is the confidence that we keep saying that we will deliver 20-plus percent growth. Right. That's correct. On the revenue side, I think we can do 20% growth, but in terms of the order flows, based on the current pipeline, then based on the current trajectory, do you foresee this 20% order inflow growth can also come in FY 2026? I believe so. This year we will. See, as of today, the order book is about INR 1,879 crore. We will probably end the year around the same number because we are going to have a massive execution in Q4. There are also quite a few orders to be finalized. If you are going to start the next year at around anywhere between INR 1,800 crore plus, I think for us to book another 20% on that should not be a difficulty. Okay. I think you mentioned that there is some increase in the working capital, and that is mainly because of the delayed shipment. Can you share the number? How much was the delay from Q3 to Q4? I gave you the working capital that we are holding now is INR 297 crore. We are planning a big Q4. I cannot give you an exact number, but we said it will definitely keep our overall sale for the year well above 20%. You will see a significant reduction in the net working capital. I will have to be careful because a lot of what is in inventory would also get converted to, let us say, debtors receivable. Most of them, we also want the customers to pay before they lifted. We will do both. We will see how much it gets reduced. Basically, I just wanted to understand this INR 340 odd crore top-line number for Q3. Is it fair to assume that if that order would have been dispatched in the third quarter, our revenue would have been similar to the second quarter, INR 430 odd crore? At least it should have been nearer to INR 400. Okay. Understood. You should always understand, historically, for every company in India, Q3 is smaller than Q2 because the number of working days and the activity in Q3 is significantly lower. There are block closures for Diwali. There were holiday seasons. So for almost all manufacturing companies, Q3 is a smaller quarter compared to Q2. Understood, sir. In terms of gross margin, given that in the overall order backlog, I think the ref business has gone up in terms of the overall contribution. So how is the gross margin of ref versus air and gas? See, we have been always saying that we don't segregate and tell you the margin between businesses. We do a little bit of modeling. Each business, by and large, gives about the same 18% plus. It is within this segment, if you do more of a booster, then the margins of PGS in that quarter will fall. If you do more of packages in some of these businesses, the margins go up. It's a bit of a modeling. You must, for all your projections, you must take it that each segment, that is refrigeration, air conditioning, and process gas, all delivers about 18% plus. Understood. This unallocable expenditure of roughly 50, 60 odd crore annually, is there any chance of, can it go down to maybe one year down the line or two year down the line? Because our earlier guidance was to reduce unallocable, if I'm not wrong. That was like 50, 60 odd crore annually. That is happening since last many. Is there a chance of deduction? The corporate expense, right? Unallocable. Unallocable expenditure, 55 to 60 odd crore. We are trying to control that and further trying to reduce that. But as on date, it is difficult to answer your question. You must take it that corporates have an overall corporate expense, corporate office, corporate headquarters, everything. We control it, but it will not go to zero. Then I will not have a job. No, that is correct. Yeah. Thank you, sir. That is all from my side. Thank you. We have the next question from the line of Nishant Gupta from Indervera Global Capital. Please go ahead. Hi. Thank you for the opportunity. Sir, one question on the CapEx side. This year you have provided the guidance. Going forward, what can be a normalized level of CapEx that will be incurred? See, we have been saying that our CapEx to sales ratio is between 1:3 to 1:4. We can even go to 1:5 in some cases. But you can take in an average 1:4. We are planning a growth, let us say, at 20%. Our CapEx will be around INR 100 crore at least for the next year, and it will even go up further from there. Got it. Sir, on the net working capital, since you mentioned at the beginning that it will normalize towards the end to 15% of the sales. Going forward, since the refrigeration will pick up more, will this percentage change up or down or this is something which can be considered as a normalized? So 15% for an Indian company operating a mix of equipment and packages is a reasonably good net working capital. We can and we have a target internally to work to say how we go down to 12 and then to single digits. These are a lot of things that has to happen where structurally we must become more equipment-driven. Today, almost my entire sale is built to order, billed directly to customers. There is very little that goes to an intermediary in between. So I manufacture and I directly sell. I do not have anybody in between. There is no secondary happening. All this means that I carry everything. I carry my inventory, I carry my finish. I do not have finished good, but I have a good service in process, or then I give it to the customer, it is a receivable. There is a bit of a challenge in the current structure. Anything which has to go significantly lower than 15 would then have to be structurally a modified business where we have more equipment, less packages, et cetera. It is an intent, but we will work on it on a longish term basis. It cannot happen overnight. Got it, sir. Just one small final question. On the AMC bit, what is the, like the percentage contribution from the O&M, the AMC, the recurring bit which you get? Generally we say services account for about 15% of our total sales. This includes spares and the AMC combined. Because most of our AMC includes labor and spares combined. So we generally say spares and service combined is about 15% of our sales. And this also makes about the same contribution as the regular business, about 18%. Got it. Just one clarification, sir. In the order book, you do not mention the service and the spare, you do not club that, right? That is separate that you will be getting, right, on whatever projects you deliver. INR 1,879 includes O&M. Oh, it includes O&M. Okay. Fair. Thank you, sir. Thank you. Thank you. We have the next question on the line of Amit from PL Capital. Please go ahead. Hi, sir. Thanks for the opportunity again. My question is on the imports. You highlighted that most of our products are also kind of substitute to imports and in-house locally made. I wanted to understand across three segments, air compressors and refrigeration and gas. On industry wide, what should be the import consumption in India? What is our market where we are getting revenue purely because of the import substitutes? Any color on this would be very helpful. This is almost an impossible question to answer, Amit, because what is imported in each of the segments is very difficult for us to say. They come as compressors, they come as a part of an equipment, they come in multiple forms. I think it would be a very difficult guess. What is that we do as a business? We have already shared with you. Why are we getting more orders in some spaces? We believe because the others, even if it is, let us say, a company, a compressor company located in India, he would be probably importing the air ends, probably importing quite a few things that eventually go into the compressor. When he sells in India, though he builds it in INR in India, it is almost an imported equipment, just labeling done here. How do I say that? I would say that our business is visible. We believe we are winning more because in the market we become more competitive because we are making it here, whereas others are dependent to have a significant part of their value chain coming from outside. It may not be the entire compressor package. It could be the air end, it could be whatever. That actually is the difference. I think it is a complex question for me to give you a straight number answer for this. Yeah. But broadly, in overall compressor market, what should be the import or any color if you have any understanding on Chinese import or any other import on the brand standard? What I can give you is Chinese air end import for the air compressor business is roughly about 30,000 compressors a year. Sure. Thank you, sir. Almost all the big names in compressors, they import their air ends. They import it from either their parent in Europe or they import from China, wherever they get it from. Even the parent would probably have most of it made in China anyway. I think a lot of the parents, whoever, big compressor companies who sell in India, most of them import air ends. We are completely in-house in that. 100%. Thank you so much. We already said that the big packages, where is API compliant, we do have partners. We use their compressors, but that is a few numbers. You are talking of 15 numbers or 30 numbers. Right. Lastly, if I can chip in on the Tezcatlipoca air compressor. The competition intensity is already there. There are established players like Atlas, Ingersoll, Elgi. Are we planning to take the market share or some I understand that the product launch has been going pretty well for you. But any sense on competition there once you enter that market or already getting some sense? The Tezcatlipoca, what we have launched is, at the moment, we have three sizes that have been launched, and around that there are several other models. And in that range, what we have launched doesn't cover the entire model. We would probably be by far the most efficient, most competitive, and the best in class in India for an Indian customer. The names that you mentioned, all of them import either the entire compressor or definitely the air end. They have really, let's say, if you have dumb marketing guys, maybe in 5 years they would all find it difficult to sell any. If we are reasonably good, we should be able to make it difficult for others to sell even in one of these. That's great. All the best. Thank you. Thank you. Thank you. That was the last question. I would now like to hand it over to the management for closing comments. Yeah. So first of all, thank you all for taking this late call. I know there were other more interesting opportunities before, so we had to take the 5:00 slot. Thank you all for attending the call. Like I said in the beginning, the key word that we want to have as a driver for us is predictability. We want to have our numbers even more predictable going forward. We have challenges that we mention always, saying the quarterly numbers do not judge us by a quarter, good or bad. We had a good quarter in Q2. We did not have a good quarter in Q3. We hope to get back with a strong number in Q4. Going forward, let's work more strongly to deliver more predictable numbers quarter on quarter. We are quite confident that we will keep doing it. We are in a good business, and we will see you all happy next quarter. Thank you. Thank you. Thank you.