Q2 24/25

Oct 25, 2024

Summary

H1 sales rose 35% and the order book exceeded INR 1,780 crore. Higher margins reflected favorable mix and exceptional projects, with normalization expected; FY25 growth guidance remains above 20%.

Ladies and gentlemen, good day, and welcome to the Kirloskar Pneumatic Company Limited Q2 FY 2025 earnings conference call hosted by Antique Stock Broking. As a reminder, all participant lines will remain 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 then zero on your touchtone telephone. Please note that this conference is being recorded. I will now hand the conference over to your host, Mr. Amit Shah from Antique Stock Broking. Please go ahead, sir. Yeah, thank you, Ryan. Good afternoon, everyone. On behalf of Antique Stock Broking Limited, I welcome you all to Q2 FY 2025 earnings conference call of Kirloskar Pneumatic Company Limited. To discuss the results, we have the senior management team of Kirloskar Pneumatic represented by Mr. K. S. Srinivasan, Managing Director of the company, and Mr. Ramesh Birajdar, Chief Financial Officer of the company. I will hand over the call to Mr. K. S. Srinivasan for his opening remarks, post which we can open the floor for Q&A. Over to you, sir. Yeah. Thanks, Amit. Good evening to all of you. Let me start by wishing you all in advance a very happy and joyous Diwali. May the festival of light bring us all peace, prosperity and progress. Before we start, let me ask my colleague, Jitendra Shah, Company Secretary, to read out the disclaimer, and then we will go into the call. Jitendra. Thank you, sir. First of all, wish you happy Diwali to all. The presentation uploaded on the website of the company and discussion on the financial results during the earnings call may contain statements relating to future business 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 very much. Thanks, Jitendra. Once again, good evening to all of you. Thanks for joining our call. We had a very good quarter, good on all fronts, order booking, sales, collection, and making the H1 an overall a good half year. Sales in H1 was at INR 706 crores as against INR 524 crores the previous year, a growth of 35%. Most of the growth came from domestic market. Export sales at INR 43 crores was better than the previous year's INR 38 crores, but it's nothing very significant. Order booking was strong and this leaves us with an order book of INR 1,780 crores as on October 1. This as compared to the INR 1,450 crores on October 1, 2023 is an increase of over 23%, and that bodes well for our next half year and going forward. The inquiry pipeline too is good and we expect to have a continuing growth. In H1, we had over 20 IP filings. This for us is a very important enabler to continue on our growth journey. The order intake for the newer products, Tezcatlipoca centrifugal compressors, Calana booster compressors, ARiA frugal engineered compressors, Jarilo biogas compressor, and Khione refrigeration compressors, all picked up and this bodes well for the continuing growth of the company. Building in-house manufacturing capabilities has been a part of our ongoing theme to build sustainable competitive advantage. Our Nashik plant is being further developed for this purpose, and we will continue to invest in this going forward. The company signed a share purchase agreement to acquire 55.26% stake in Systems and Components (India) Private Limited. Systems and Components are a reputed supplier of refrigeration packages to the pharma, chemical, food sector for over 30 years. They have over 700 successful installations across the country, and this acquisition would help us to access this fast-growing industry segment with our newer products. The net working capital of the company was at INR 325 crores. While this is higher than the net working capital we had as of March 31, it also reflects the enhanced activity levels across businesses, mainly on account of inventory. The usual challenges in terms of inspection, site readiness, et cetera, continue to plague predictable sales. But this is nothing which is different from our normal course of business. CapEx spending and CapEx commitment in H1 was INR 24 crores and INR 86 crores respectively. The free cash generation from the operations in H1 was INR 55 crores. Let's now look at the results product group wise. The air compressor business had pockets of heightened activity, particularly in the areas of construction and in the areas of pharma and metal. Consequently, portable compressors and the centrifugal compressors had a larger growth. This meant the new products like Kramas and Tezcatlipoca had enhanced traction. Sales of reciprocating compressor packages to various applications like the air separation plants, carbon dioxide plant, LPG plant, et cetera, continue to do well. The refrigeration compressor business. This segment saw heightened activity, particularly with major packages getting shipped to refinery, fertilizer, ammonia terminals, et cetera. There was also a strong demand of compressors going into cold chains, ice plant, dairy industry. Sale of CO2 refrigeration packages too picked up. The challenges that we had on receiving compressors from Europe on time abated a bit, and this hopefully would give us strong performance in the next two quarters as well. With continuing strong order inflow in this segment, we expect this segment to continue to grow even during the next years. Process gas compression systems. Execution of packages for the oil and gas projects in India was to plan. Sale of CNG packages and Calana booster packages picked up, and we expect this to stay strong even for the rest of the year. We started shipping the biogas packages with the new Jarilo range of compressors. With significant inquiry and order pipeline, we expect this space to materially contribute to the top line next year. Export sales are still coming in a trickle, and this is expected to remain muted even in the current year and maybe even in the first half of next year. Overall export for the year will be marginally over INR 100 crore as compared to the INR 69 crore of the previous year. Tie-up with PDC Machines Inc., U.S.A. in offering comprehensive compressors for hydrogen and other difficult-to-handle gases has helped us to win package orders for special applications. We expect significant order intake in this space in the next couple of quarters. The O&M service business continues to grow with the install base growing, and this will continue to add to our regular business. Outlook for H1 FY 2025. The industrial activity in India has slowed down a bit with three consecutive months of lower PMI. However, there are pockets of heightened activities, be it in natural gas space, food, dairy space, or on special projects. We continue to offer and finalize orders from these customers. The trust to enhance manufacturing in India as a part of the government job creation initiatives will ensure the capital goods sector continues to grow in an accelerated manner even during the rest of the year. At Kirloskar, the strong focus on in-house manufacturing, IP creation, and localized supply chain will help us not only in achieving the quickest response to customer needs, as well as to be more competitive based on our cost position. This will help us both in our top line growth and in margins. With strong order book to back, we expect to deliver on the planned double-digit growth for the year and progress on our aspirational target of INR 2,000 crore plus for the next year. Now I am going to request Ramesh Birajdar, CFO, to take us through the financial numbers. Ramesh, can you? Yeah. Thank you. Good evening, everyone. I trust you had the opportunity to review the results we promptly posted on the BSE and NSE website following the conclusion of the board meeting. Additionally, we have uploaded a presentation on the financial results on our company's website. However, for the benefit of those who may not have had the chance to review the results, let me now provide a summary of our Q2 and H1 performance for FY 2025. Sales of Q2 FY 2025 were higher compared to Q1 sales of current year as well as Q2 sales of FY 2024. Sales at INR 431 crore, it registered a growth of about 56% compared to Q1 of INR 275 crore and compared to Q2 FY 2024 sales of INR 282 crore. The H1 FY 2025 sales were higher at INR 706 crore compared to INR 524 crore in H1 FY 2024, so there was an increase by 35% in sales H1 year-on-year. Other income for Q2 FY 2025 was INR 6.17 crore, which higher than INR 4.15 crore in Q2 FY 2024, with other income for H1 FY 2025 remain same compared to H1 FY 2024. Material cost for Q2 FY 2025 was at 51% compared to 54.1% in the corresponding quarter of the previous year. For H1 FY 2025, material cost improved to 50.2% against 52.8% of H1 FY 2024. This is due to better product mix, package sales in Q2 FY 2025. The equal split between projects and the products orders continue to remain. Reduction in the material cost. We expect material cost to remain in this level. Employee related expenses remained consistent in Q2 for both years. During the year, deserving employees were granted generous increments and promotions aligned with the prevailing industry trend. As a result, H1 cost for FY 2025 stands at INR 87 crore compared to INR 86 crore in the corresponding period of FY 2024. In addition, ERE for Q2 FY 2024, that is last year, includes a one-time settlement cost impact of approximately INR 4 crore paid to resolve a pending labor dispute related to termination of 117 employees. There is no interest cost relating to any borrowing either for Q2 or H1 as the company is debt-free company. I would like to state that company has net cash and cash equivalent position of INR 252 crore as on 1st October 2024. During H1 FY 2025, the company incurred CapEx of approximately INR 24 crore and paid a dividend of INR 26 crore. Depreciation is lower than the previous year due to discontinuation of rotator business. Other expenses are mix of fixed and variable. There is no significant variation in the level of expenditure during the current quarter compared to previous quarter, except the power and fuel cost impacting due to the fuel adjustment charge by the State Electricity Board and increasing operation at Nashik for forging and fabrication business. The EBITDA increased to 22.8% in Q2, which is up from 15.6% in Q1 FY 2025. For H1 FY 2025, EBITDA also rose to 20% compared to 12.7% in H1 FY 2024. The PBT of INR 92 crore, that is 21%, for Q2 FY 2025, showed improvement over Q2 FY 2024 of PBT of INR 27 crore, which is 9.4%, and PBT of INR 128 crore for H1 was higher than PBT of INR 50 crore in H1 FY 2024 due to product mix and our continuous efforts to reduce cost of manufacturing. Consequently, there was a significant increase in profit after tax in both Q2 as well as H1 FY 2025, with PAT rising from INR 38 crore in H1 FY 2024 to INR 94 crore in H1 FY 2025. Company issued 68,200 equity shares in H1 under its employee stock option program, previous year, INR 40,200 equity shares. Consequently, paid-up share capital increased to INR 12.97 crore compared to INR 12.95 crore as at the beginning of the year. Basic EPS improved to INR 14.57 per share for H1 FY 2025 against INR 5.89 per share in H1 FY 2024. With over 94% of revenues coming from the compression segment, it remains the only reportable segment. The segment profitability in Q2 improved to 25.59% compared to 19.9% of Q1, and similarly, segment profitability for H1 FY 2025 also improved to 23.1% as against 17.3% of H1 FY 2024. Order booking during Q2 close to INR 890 crores, taking H1 order booking of INR 1,033 crores. As a result, the company has an order book of over INR 1,780 crore as on 1st October 2024. Previous year, INR 1,450 crore on 1st October 2023. Capital employed in the compression segment rose by INR 55 crore, reaching to INR 352 crore at the end of H1 FY 2025 compared to INR 297 crore at the start of the year. This is increased attributed to the expansion of the business activities in this segment. We have regrouped, rearranged the finances wherever it is necessary. Before I conclude, I would like to extend my warm greetings to all participants for the upcoming festive season of Diwali. Now, this forum is open for discussion with our esteemed investors. Over to Amit, please. Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. Our first question comes from the line of Mahesh Bendre from LIC Mutual Fund. Please go ahead. Hi, sir. Thank you so much for the opportunity. Sir, in the first half, the performance has been very strong. When we look at the H2, how do you see, given the current order book and strong order intake, is the growth momentum will remain in this kind of growth rate for the next two quarters? See, in the first six months, we have delivered a growth of about 35% over the previous year. You must also understand, H1 of last year was not a very great half year. The second half of last year was reasonably good. Keeping that in mind, we still feel that we will deliver, as we promised, 20% plus growth for the full year. And sir, in terms of order intake, what happened in last 6 months compared to that, do you think there will be some momentum in terms of booking order inflow? Like I said, there are several segments where there is definitely a slowdown. But having said it, we have not been so far impacted because the business that we do in areas that are very specific to our products are still doing well. So we don't expect any slowdown per se. We'll continue to grow as planned, which is what we have said as our estimation for next year as well. We'll continue to deliver double-digit growth, strong double-digit growth going forward. Sure. Thank you so much, sir. Thank you. The next question comes from the line of Mihir Manohar from Carnelian Asset Management. Please go ahead. Yeah. Hi. Thanks for giving the opportunity, and congratulations on great set of numbers. Sir, I wanted to understand on the gross margin side, when gross margins in the quarter have gone up by 300 basis points. If you can explain what has led to this improvement in gross margins? I mean, second, on the booking side and the order booking also this quarter- I am sorry to interrupt you, Mihir. Your audio is not coming in clear. Could you please lift- Yeah. Is it audible now? Yes, this is a bit better. Please go ahead. Sure. I wanted to understand on the gross margin side. The gross margins have gone up by 300 basis points. So what has led to this improvement? I mean, what kind of efficiencies because of the product mix, and how should we see the gross margins and EBITDA margins for next year? Because if normalization happens, then EBITDA margins will reverse again cool off. That was the first thing. The second thing on the booking side, I mean, order booking of INR 600 crores this quarter, a very strong performance over there. Just wanted to understand what has driven this order book growth. You mentioned the Calana and biogas. If you quantify, how much was biogas contribution and how much was the Calana range of compressor contribution this quarter, and what was this number last quarter that we did? I will answer the second part first and then request Ramesh to answer the first part in terms of margins. As far as the growth is concerned, our order booking has been pretty much secular, very much in the line with what we normally say of air compressors being about 20%, refrigeration about 30%-35%, and gas about 40%. Except in this quarter and also a little bit in the last H1 itself. The growth in the refrigeration space has been far higher than what we normally get. We do expect that will moderate in the second half. So that is only a few quarters number. But overall, it has been pretty much in line with what we normally get. So that is as far as the sales is concerned. Margins, I'll request Ramesh to answer it. I hope, if you can remember, that we are telling the people that we are very selective in choosing the orders. And while selecting and choosing the orders, we are specific to any projects or packages where we specifically insist for the higher margin. And during the Q2, we executed the projects which are having a higher margin, and that higher margin is impacted for the Q2. And we are reasonably okay with the subsequent quarter too, quarter three, and quarter four, which will be normalized quarter for the quarter three and quarter four. This is the exceptional margin we got in few packages, and that is resulting into the higher margin in this quarter. There are two, three components in it. Let me put it this way. There is a product mix. We are getting more equipment, so that's a 50/50, this H1. So that is one advantage. Second is, like Ramesh said, we had a series of good project orders with better margin that went through in this quarter. We expect the whole thing to normalize in the second half. It'll not be 23%. It'll probably come back to a normal of 20-ish. We don't want to pour cold water on it, but I think we are in the right direction. There is a help coming in that we do more manufacture in-house now. So there are multiple things that help us to increase margin. We only want to caution that this is something that all came in well. It may not hold for the next two quarters, at least not at the same level. Sure. Sir, if you can, just on the margin side, if you can go from line item to the new order booking which has happened. Is it just a higher gross Like I said, I don't want to get more granular than that in terms of order booking. We are booking a lot of good orders and with good margin. It is not in anybody's interest to tell exactly where we are booking our bigger orders. Like I said, it is broadly in line with our normal split between air, refrigeration, and gas compressors. Except that the refrigeration compressor order booking has been far more than the normal. We also expect this to normalize in the next two quarters. Sure. And just lastly, on the order booking and margin side. I'm not asking for a specific number, but the INR 600 crores of order booking which has happened. The budgeted gross margins behind that, are they higher than what you used to have as a budgeted gross margin, let's say, two quarters ago or three quarters ago? The margins, like we said, there is a combination of many things. It is not just only the price at which we book. As we manufacture more in-house, as we take out costs, as we get a better cost in our purchasing, as we get our volumes in place, the margins tend to improve. So the order booking is one part of it, which is really the market-given price. The margins eventually is the difference between what we get as a price and what we build as a cost in all our manufacturing activity and our operations. So there are two things playing here. We are working on one extensively, so that allows us, even with a given price, to make better margins. Sure. I will come back to that. Thank you. Thank you. The next question is from the line of Sanjay Satpathy from Ampersand. Please go ahead. Hi, sir. Congratulations on a fantastic set. You have more than made up for last year's slowdown and back to that 20% annual. Sanjay, sorry to interrupt you there. Your audio is not clear. Is it clear now? Go ahead, Sanjay. Yes. Just my one simple clarification is that, during the kind of difference in growth, is there change that has happened between gas and non-gas, that is air now? Sanjay, I broadly understand what you're asking. I said in the two quarters, there has been a relatively different split than we traditionally have. There has been more refrigeration-related compressors and compression packages, and slightly lower on the gas side. But it is a one or two quarter result. We expect it to normalize going forward. By and large, the split is not going to change. It'll change within the range of that 5% that we talk about. Yes, there was some lesser packages on gas that went out, more packages on the refrigeration that went out, but that'll all average out when you look at the full year. The last thing that I just wanted to clarify on this, that we know that you have a much bigger market share in gas and refrigerators, and that is where you have become more aggressive with your product. So over a period of time, should your market mix be shifting towards refrigeration? You see, the general story around gas, what we call as a gas compressor business, includes three buckets. There is a natural gas business. There it is largely the natural gas that is drilled out of India, which is roughly about 20, 23 billion cubic meters, sorry, 23 billion cubic meters. Then there is an imported component, which largely comes as LNG, which is roughly about 40 to 45 billion cubic meters. We see a role of more coming out of how LNG is going to be processed, so that too is our gas business. We don't see any slowdown on that. There is a new thing that's coming up, which is the biogas projects. With our new Jarilo in place, we expect biogas to scale up, and that we know that is going to be an ongoing scale up that will happen. We probably are the only people who can offer complete package end-to-end, right from the low pressure and the high pressure. Then the third area of growth is going to be the hydrogen space, and there too, we have packages there available. So we don't see this split between the three businesses changing significantly going forward. There will be couple of quarters of up and down depending on large packages of one going and other not going. But by and large, we are quite confident that we will stay with this split, which allows us to be more predictable. It allows us to sort of make our business plan better, and we'll stay with this. Considering that your order book now is, I mean, so much higher, so your visibility has gone up, setting aside the quarterly volatility. Your audio is almost as good as my visibility. In any case, let me answer this. The visibility of having an order is one part, but the execution is largely dependent on these customers clearing the drawings, clearing the engineering, having the site ready, giving us clearance for dispatch, et cetera. So it is only half the story when you have the orders in place. At least it fixes our price and what we have to do. But the quarterly dispatches or the eventual sale has got multiple other variables, which is what I mentioned. The usual challenges of dispatches, site readiness, et cetera, would continue to be a part of our business challenge that we will handle. Thanks a lot, sir, I will not blame you if my poor audio quality is low. Thank you. I was only joking. I really could not hear some part of your question. Sure, no problem. Thank you. The next question comes from the line of Mayank Chaturvedi from HSBC. Please go ahead. Yeah. Thank you for the opportunity, sir, and congratulations on a phenomenal quarter. So on the margin side of things, you said one of the reasons is the in-house manufacturing that you're doing more and more. So if you can just add a bit more color to it as to what kind of increase have you seen on the in-house manufacturing, and are there more investments going in that, and what activities would it be regarding? That would be my first question. Okay. As far as manufacturing is concerned, what we have put out is that we are doing most of our fabrication, forging, et cetera, in-house. We are looking at doing several more things that we will share as we go forward and commission those operations in full scale. That is one big dimension. It allows us two things. First is, there is an element of cost saving, but more importantly, it allows us quicker execution of projects. If a project is put through in a shorter period, my other costs start coming down. That is another help that I get. So there are two things that is happening out there. I would like to put some numbers on it a little later when we come to a larger scale, but that is just a contributing thing. The two or three other reasons, as Ramesh explained, in getting better margins this quarter has been, one, orders with greater margins, which was actually booked well. Second is we got a better product mix. We had products, like I said, going more towards equipment and less towards projects. The third one is also an important factor, has been that the overall volume growth has allowed us to be more efficient. This is again coming from internal manufacture as well as other process. To give you a number on our CapEx, we are going to do about INR 100 crore in the next 12 months. That's the kind of CapEx we are committing for building up capabilities for both in-house manufacturing and packaging. Great, sir. Great. Just to end the loop on this, are you also witnessing any realization uptick for the equipment that you're selling? Will you repeat again, please? Are you witnessing any realization uptick on the equipment that you're selling, given that the market is strong in the pocket? Not really. We are not getting any better price from anything. Actually, on the contrary, there is a pressure to put down prices. Like I said, the PMI has gone down three months in a row. Of course, this month I hear it is up, which only means that there is more pressure on the purchasers to put down prices. So prices are not going up. Okay, great, sir. Just one other question from my end. We have been highlighting that the CGD compressors have been slow-moving. Clients have been slower to take deliveries, and now there is an APM allocation cut that has come up. So just wanted to get your thoughts on it. Would you see a rather slower rollout going forward, maybe on the mother compressors again? What are your thoughts? Yeah. There are several people who had asked for this question as well. My first answer is the natural gas production in India has been declining. So this 20% reduction in allocation of natural gas to the CGDs is something that was in the offing. We always expected this to happen. You must understand that the natural gas given to CGD, which accounts for roughly between 21 to 23 billion cubic meter, is only a third of the total gas requirement of the country. This has been allocations down by about 20%, but this is supplemented by an 18% increase in the same period of LNG imports, and that is two-thirds of the total gas consumption. So effectively, if you take away 20% of one-third and 18% of two-thirds, there has actually been a growth in the actual gas that has been consumed in the country. We have the gas. It does not matter to us whether it came out of an LNG route or a natural gas drilled in India. So the actual gas consumption in India has only gone up, and this does not include any other injection, be it biogas or hydrogen or whatever it is. So there is a growth in consumption. The split between what is internally produced and what is imported is changing adversely as far as India is concerned. Consequently, the price of natural gas that will be available to the user could probably go up by between INR 4 or INR 5, as I am told. But that will not make an impact in the supply of compression packages as far as we are concerned. We are far more flexible than anybody else, so we will actually see a benefit in these kind of switches because we are locally making, we are able to understand the technologies and modify things to suit whatever way the gas is generated. So it's all an advantage for us as a company. Not for the user. Probably you'll end up paying a little more, but that's a part of the economic activities of a country. Right. No, I think that makes a lot of sense. Probably there will be a switch between the mix between mother compressors and booster compressors. We'll be selling more of booster compressors now that the natural gas rollout will be declining. Is that understanding correct? Yes, and partly yes. But see, even LNG can be gasified and put in the same pipeline, and the same pipeline, it still have gas. It doesn't matter it didn't come from a natural well, but came out of an LNG from a port, and then it is gasified and put in the pipeline. So in a way, the split between mother and daughter station is not going to be a big change because of this. The change is happening primarily because the CGDs are not investing on the pipeline fast enough. So that is the reason why you have more of Calana sales. For us, Calana, though we get a volume, we are not very happy with it because it doesn't make us money, or at least like what we would like to make. Right. As far as I understand, Calana is one-third the price of a mother compressor, right? That's right. All right. Okay. Great, sir. Thank you for answering all my questions. Happy Diwali to you and your team. Thank you. Thank you. The next question is from the line of Kunal Sheth with B&K Securities. Please go ahead. Yeah. Hi, sir. Thank you for the opportunity. My question on CBG has been answered. I just wanted to get some sense on CBG compressors. What would be the size of the market, any sense, that you can give? The PNGRB report is available, which has said clearly we will have 18,000 installations till 2027, 2028. Now it will probably go up to even 2030, which means that many new stations have to come on an average, about 2,000 plus a year. This will continue for at least another four or five years. It would be a mix of mother and daughter stations, and that has not changed at all. That will remain. Sir, I was referring to the compressed biogas compressors, CBG. Okay. On the CBG side, the announced intention is 5,000 stations in the next five years. Again, like I said, 5,000 will come next five years, may take longer than five years. The initial set of large installations with lot of fanfare have all not lived up to the technical expectations. Most of the challenge is coming from the bio source and the generation of biogas. The quantums are not in line. The compression is not an issue. Compressions are working. We are in a good wicket there. It's all going to take a little time. CBG, unlike other things, is dependent on biosource, and that's not a very stable thing. That is going to go through a challenge. It's not going to be very easy. We expect it to scale up next year, but this 5,000 will definitely take more than the announced five-year time. Okay. Sir, any sense that for how much, what is the price of a compressor typically that would be required in a typical CBG plant? See, the CBG plants come from 5 TPD, 10 TPD, 25 TPD, tons per day. Our packages, we have anything starting from INR 65 to 80 lakhs, going up to INR 2.5 crore. It depends on what is the volume, what are the kind of biosource, how are they going to collect it, how are they going to clean it? Is it going to be wet scrubbing? Is it go through a PSA? There's a whole lot of science behind it, and we have a solution for everything. As long as somebody can produce a biogas, we'll compress it and give to you. Awesome. Sir, then last question. You did mention that the margins is a factor of product mix and therefore will cool off in the second half. But sir, any sense on what are we targeting for the full year in terms of margin? Should it be much higher than last year? Last year, we ended up with about 15.6% EBITDA margin. Should this year be around 17%, 18%, or higher? You can expect a little bit of 20% plus on 15% in that range. But our segment margin, what we indicated earlier also, it is between the range of 19%-20%, 21%. EBIT margin that you are talking about? Operating margin for the compression segment, which is in the range of 19%-21%. Operating. This is the EBITDA you are talking about, sir? No, operating one. Yeah. For us, EBITDA and this thing is very small. Yeah. Go ahead. Hello? Hello. Yes. Yes, sir. So you were referring to, I think, EBIT margin, right? That was 20- EBIT and EBITDA is almost same for in our case, because there is no interest cost. Okay. So this number we are targeting about 20-21% for the full year? Yeah. Like I said, there is a company EBITDA margin, there is a- Segment segment margin. Generally, we said that the company's margin will directionally go towards 18%. We stay with it. The segment margin, we said it will be 20-ish. It will probably be higher than that marginally, around that. Sure. Got it. We want to be a little careful with margin till it sort of settles down. As you see that we had a good quarter, and we want to ensure that we are able to hold on to some of this. We are also mindful of the slowing down of the activity in some segments, and we have to have the ability to flex prices and pick up orders as need be. Sure. Got it, sir. Festivities to the Kirloskar Pneumatic team, sir. Thank you. Thank you, Kunal, and best wishes to all at B&K. Thank you. The next question is from the line of Sahil Rohit Sanghi from Monarch Networth Capital. Please go ahead. Yeah. Good evening. Thank you for the opportunity and congratulations on a very excellent set of numbers. My first question was just to understand what kind of market share do we right now have in the biogas compressors? I mean, what kind of competition do we have? I understand you told me that we have the largest range of compressors, probably everything under the possible demand. So, how much of the demand that you told could be possibly falling under Kirloskar Pneumatic? I mean, how much can we cater to? Okay. This is a question that is tough to answer in one session, but I'll give you a rough answer. We have three segments. We have the air compressor business, where our market share is as low as 5%-7%. We have the refrigeration compressor business, where our market share in the ammonia reciprocating compressor business, which is for cold chain and ice plant, is anywhere between 70%-85%. We have the package business where we make large refrigeration package with hydrocarbon refrigerants, where our market share could be 80% plus. Depends. If you lose one package, then it is 80%. If you win everything, then we go to 100%. So it's only about 6-12 packages a year. Then we have the gas compression business. There we have large packages. There again, our market share would be above 50%, 55%. But if you then look at the distribution business, which is really the mother compressors, daughter compressors, et cetera, our market share would be about 35%, 40%. It's a duopoly, but we are about 40%, 45% each, and the rest is all with smaller companies. So that's broadly our split. This is only the market that we currently address. There is a huge market in each of them which are completely met by imports. Many of our launches are targeting to address this market, which is currently served by imports. That's the way we're looking at it. And sir, my question was more to figure out the market share we have in the biogas compressor segment. Would you have that number separately? I mean- No. Biogas is a very nascent industry. There will be no real installed numbers and available. So there are a lot of people saying they won a few orders, partly installed, partly not done, et cetera. So there is no market share per se at the moment. Okay. But the whole order can be coming up to roughly INR 68 billion. That is the market opportunity? The biogas business, like I said, there is a government intention to have 5,000 biogas compression stations. 5,000 could be anywhere up to INR 5,000 crores. If you are going to put a crore for a station, that could be the market in the next 5 to 8 years. Got it, sir. Secondly, sir, in the last conference call, you said that there are some order bookings expected for the hydrogen compressors used in electrolyzers. So what kind of uptick have you seen on that front? We have not received so far an order for a hydrogen compression package. We expect to finalize something during Q3. Got it. Thank you so much, sir. Happy Diwali in advance, and all the best. Thank you. Thank you. The next question is from the line of Ankur Kumar from Alpha Capital. Please go ahead. Hello, sir. Thank you for taking my question, and congrats for a very good set of numbers. Sir, in terms of execution, if I look at Q2 tends to be lower than Q3, and then Q4 is the best quarter. So given our strong INR 1,780 crore of order book, we expect similar trend as in Q3 would be better than Q2, and then Q4 will be the best? I am going to be careful here. See, we expect generally Q3 to be a shorter quarter because we have these Diwali closures, holiday season, et cetera. But overall, generally, we have a lot of dispatches which does not go in Q2, goes in Q3, et cetera. So this time, I expect Q3 to be as good as Q2, around that. That is my expectation. And Q4, as usual, will be a great quarter. Got it. So in terms of this INR 1,780 crore, can we expect like INR 1,000 crore in second half? That is giving something which I do not know. We hope to have somewhere. See, we have potentially orders which are good, but generally, so far, we have not done one half of INR 1,000 crores. Let's see where we get to. Got it. Sir, in terms of gross margins, it's like one match is around 50%, while last year was around 46% odd. Historically also, we have been like this, only 45%-46% types of gross margins. Given you talked about improved product mix, in terms of this order book, what is expected gross margin, and would you like to comment on that, please? Considering the current level of the cost reduction, what we are doing, expanding the activity in the Nashik plant, and we are expecting the orders, which is what we expect the margins as per the expectations. We see that similar type of margin will continue in the coming years also. Got it. In terms of our guidance was INR 2,000 crore, and at that time, 18% margin. Given one edge has been such strong, can we expect this 18 to go to higher to, say, 20, or we expect this to be at 18 only? I think we covered the margin part in the first, saying that the segment margin will go 20%-21%. That is the compression segment. The company margin would be in the range 18%-20%. Give it one more quarter, then we will be more clearer on it. But directionally, we will get there. Got it, sir. Thank you and all the best. Thank you. The next question is from the line of Chandrakant Kanakia, an individual investor. Please go ahead. Good evening, sir. You have grown by 56% in sales. Can you break it down in air compression, refrigeration, and the gas part? We would not like to do that, Chandrakant. See, we have done by and large, good growth in all the three. I wouldn't like to give you an exact split between the three. Like I said, for the first six months, the growth in the refrigeration part has been more than the normal thing. But other than that, see, if you get more granular than that, then you actually are giving, let's say, unnecessary focus on business targets for competition. Okay, sir. Thank you. That was the only question from my side. Thank you. The next question is from the line of Shriram Kapoor from PL Capital. Please go ahead. Hi. Thanks for the opportunity, and congrats on a great set of numbers. I want to focus a little bit on your gas compressor business. So just to understand, and you might have addressed this in previous quarters, but I'm just looking for a bit more clarity. But you had mentioned that you have a 50/50 sort of split between gas compressors and gas compression systems, if I'm not mistaken. And you mentioned that the segments that you cater to are the natural gas produced domestically, the LNG imports. You've got biogas, hydrogen. I just want to understand, how much of your business caters to your typical upstream, midstream, downstream industries and the refineries and oil drilling for various applications like gas injection systems and gas transportation. How much of your business is actually catered to that, and if you could quantify how that opportunity is growing with all this kind of refinery and petrochemical CapEx coming up in India over the next few years, how you are positioned to capture that opportunity? Yeah. So it's a good question that you ask, and let me clarify. The gas business, like we said, is about 40%-45% of our turnover. In the gas business, half of it comes from the compression systems, which is the upstream, midstream, and downstream. The other half comes from the gas distribution, which is really the mother station, daughter station, and the AMC, the spares distribution and running these packages, which are almost installed. There's over 1,000 of our packages across the country, and they have to be operated and maintained by us. So that's about the other half. The package business of compression systems, this is a long cycle thing. We finalize orders. It takes about generally a year to finalize. It takes about a year to execute it. So there is a fairly long visibility on it. We are doing a lot of work in this space. A lot of orders are being finalized. Like I said, the market split, I did answer in one of the earlier questions. If you win all the package orders that year, then we'll be about almost all, then we're about 80%-85%. Otherwise, we are about 45%-50% of the total order that is put out. Why do we lose? Why do we win? We win where it is just a package that is being ordered. Many times we lose because the order is placed through an EPC contract. It goes into some of these smaller companies who pick the entire thing as an EPC contract. They, in turn, try and then get the compression packages. In this case, they have a choice to go and buy compression packages from, let's say, what we think are not the standard sources. They have some advantages in these things. Those are times when we lose these packages. Otherwise, when it is just a package, we tend to win them. So the order, let's say the market share, like I said, could be anywhere between 50%-80% in this segment. Does that answer your question? Yeah. And sir, you had mentioned earlier that this market could be around product numbers running INR 2,000 to INR 4,000 crores a year. Is that specifically for the upstream, midstream, and downstream? Precisely. Market for gas systems can be anywhere in a good year when a lot of orders get finalized, could be a few thousand crores. INR 1,200 to INR 2,000 crores. It depends on what all would be a part of the package. If you take EPCs, it is even bigger. Our compression package alone could be anywhere in this range, about INR 2,000 crores. Okay. That is very helpful and helps clear things up. I am now focusing a little bit on the CNG packages. In your previous call, you mentioned that the overall opportunity for setting up the CNG infrastructure till 2030, where about 12,000 stations are about to be set up, and that could be split two-thirds in booster stations, one-third in mother stations. You gave sort of a rough estimate. The total opportunity size could be INR 18,000 crores, if I am not mistaken. That is the number that was thrown out. I just want to get some clarity on that, because we are talking about INR 1.5 crores per mother station, and then about the-- that math does not seem to add up of it coming up to INR 18,000 crore opportunity. If you could clarify that. Are these 12,000 additional stations from what we have now, or is it expected to be 12,000 total stations by the end of 2030? Just to understand. The total stations. If you go to PNGRB's website, it's available in public domain. Petroleum and Natural Gas Regulatory Board, they have said they have installed roughly about 6,000 stations. They have said there will be another 12,000 stations coming up, so the total becomes 18,000 stations. This 12,000 they said about a year and a half back, I believe at least about 1,000 odd have since come up. Generally, they have not said which out of it will be mother stations, which out of it is booster. Mother stations are approximately INR 1.2 crores to INR 1.4 crores plus. The daughter stations are about INR 40 lakhs. It could be anywhere between INR 35 lakhs to INR 45 lakhs. That is the kind of split that we have. Nobody says what exactly will be mother station, what exactly numbers will be on daughter station. We'll have to put some estimates. This is the new installation. There is a running installation that also have to have an O&M coming on it. When you take these numbers, you'll have to say that there is an ongoing operating and maintenance cost that's coming on each of them. That's like an annuity business. Then there are new stations. When you add up all that, you will see that the numbers match. INR 18,000 crores will be a fair estimate of the opportunity size available in this, just to clarify, right? The next five years plus. We don't know whether they'll do it in five years, whether they'll do it in eight years. Like I always keep saying in all my calls, the numbers we say that we'll achieve, we'll achieve. It's only the timescale that changes. It could be one or two years more than what is expected, or three years more. Sure, of course. Of this, you mentioned that at least in the mother station packages, Kirloskar Pneumatic has a higher market share, could be around 40%-odd. But the daughter stations, there's higher competition. So you're less likely to capture 40% of that market, right? Or is that- You're very much correct. Mother station is, it's not a duopoly, but it's at least a 40% for both of us. The daughter stations are a lot of small local players, and they come and go. So we are also not keen to be a big player in that. Daughter station is an interim step as a technology. We are in it because the users want us to be. It is not a very lucrative business. It is a lot of service for a small value of business. So we will be there, but we are not pushing to become a 40% shareholder. We don't want it. Okay, sure. That's very helpful. Thank you so much for clarifying this, and I'll join back in the queue. Thank you so much. Thank you. Thank you. The next question comes from the line of Mihir Manohar from Carnelian Asset Management. Please go ahead. Yeah, hi sir. Thanks for giving the spot. Sir, I wanted to understand the market size from a commercial point for- From next year We just can't hear you. We just can't hear you. Your voice is breaking. Is it audible now? Bits and pieces, yes. Yeah, sure. I wanted to understand the biogas side. How important or how commercially important will biogas be for FY 2026? Whatever we can understand around that. Biogas. See, biogas is an interesting area. It is not something that is going to be earth-shaking. It's not a big part of our business at the moment. It's one of the areas that can become interesting going forward. We expect to, if there is a INR 5,000 crore opportunity in 3 to 5 years, we would like to be a dominant player in that. Sure. Is the movement happening enough so that some packages could come around next year? See, we will get orders. We are getting orders. We will get more orders. Like I said, the challenge is not so far in the compression side. The challenge is in getting the bio source on a stable way and to generate biogas in a predictable, stable way. That is a challenge all the installers are battling with. So they have to first resolve that before it becomes an extremely viable business where more investments can come in. Sure. Just a second question was on this, I think the generator side of other compressor business for- The questions are just not clear at all. The audio is so bad, I can't even hear you. Yeah, is it audible now? Bits and pieces, yes. Sure. I think I will come back into it. Thank you. The next question comes from the line of Ashna Manaktala from HDFC AMC. Please go ahead. Yeah. Hi, good evening, sir. Just one question from my side. You mentioned there is some bit of slowdown in certain segments. So what sub-segments would that be? And I am assuming that is not CGD because that slowdown has already been factored into it. See, the slowdown in manufacturing primarily comes of auto components side. There are slowdown in other segments as well. But it doesn't affect us as much as it affects others because our market share in the air compressor business, which is where bulk of this action would be, is not a big one. So for us, it is less important. Second area of slowdown has been in exports. Several geographies have been affected. Again, export is not a big part of our business. Consequently, that slowdown doesn't impact us. Yes, we had plugged in a lot of opportunities for growth in West Asia, North Africa, et cetera, related to the oil and gas sector. Clearly, there's a slowdown in that sector as well. No big orders are getting finalized as fast as we expect, and that slowdown is also being factored in. We've been saying that, look, these are all areas which are interesting, big, but is definitely slowing down, and we will have to wait to encash on these orders. Understood. That helps. You also mentioned that you're also launching some new products which are targeting imports. So what products segment would that be? This is across the board. Tezcatlipoca is a centrifugal compressor, which comes under the air compressor business. It goes after imports of compressors in this area. If you look at the Khione and there are several around it coming up, these are all compressors which target imports in the refrigeration space. The Jarilo is a compressor that targets imports that would otherwise be required for the biogas and other spaces. So there are clear products which have been identified and put in place targeting imports. ARiA is an air compressor which targets cheap, low-end Chinese imports. So there are quite a few products. A lot of our products that have been launched are import substitutes. Okay, understood. Thank you for your time, sir. Thank you. Thank you. The next question is from the line of Rohit from Progressive Shares. Please go ahead. Hi, sir. I like the way you spell out KPCL in the annual report as Knowledge, Management, People, Process, Customer Care, and Lasting Partnerships. Sir, I have two questions. The first one being, you did mention about the IPs being at 20 this quarter, and last quarter it was around 50. If you can just take us through that, which sub-segment are you focusing on, and how quickly or how slow will these products be launched in the market? Yeah. Just to clarify, the H1 IPs are about 20, which means this quarter we actually had only about five odd filings compared to the first quarter. Okay. Overall, we said 20. We will hopefully do about, let me see, at least 40. IPs are something that only can be reported after it happens. Okay. When we look at IPs, we look at three things as IPs. It need not be only a product patent, it could be a design registration, it could be a special trademark registration, et cetera. We also measure, which is not really in public domain, is we also measure the number of peer-approved publications in international magazines of repute, et cetera. We have a lot of criteria that we have set up. It is there in our presentations. You can take a look at it. We talk in terms of how we build a chain of processes which will develop competitiveness both in terms of products, process, and our offerings to the customer and market. Quite a few activities go around it. Around it is what we put out as a measure. We put out the IPs that are being filed during a quarter or a half year. Okay. Out of these, approximately how many new products can come out from our umbrella? Okay. The products have, let's say, whatever we have announced in public domain, Tezcatlipoca is new. I am talking of what is new in the terms of what has been launched and scaled up in the last 2-3 years. Calana, ARiA, Jarilo, Khione, Kramas. There are quite a few of them that have been launched and have been scaling up. These are the ones all come out of internal development, our own IP. True. But are you looking at catalog products from this basket, or is it going to be something out-of-the-box, kind of innovative development from KPCL? Okay. Here, you will have to look at. The last breakthrough in compressor or the screw compressor was done 30 years back. Most of what IPs we create would all be improvements, extensions, not a fundamental change. We are not going to make something which is break. We are not coming from the science side of development. If you look at the R&D, the R is still a very small part, D is the bigger part. These are all improvements, developments, and uniqueness of existing general products, but are better, superior than them in multiple ways. It could either be a frugal engineering, which allows us a cost competitiveness. It will either be a performance-related thing, which allows it to perform 10%-15% better, or it will have several unique features which allow us to do one or two more things compared to anybody else, et cetera. They are not something that, let's say, it is a completely different kind of a product itself. Okay. My second and last question is related to SCIL, Systems and Components India. I know you're doing some due diligence and probably working on some closing adjustments over there, but if you can just take us through the synergies or maybe the diversification or soft diversification in industrial refrigerations and- Okay what exactly. I'll answer that. Systems and Components is a company that we have just completed a shareholders' agreement today and announced. The actual share transfer will happen as soon as the shares are dematted, et cetera, which is a part of the new requirement even for private companies, that transfers can happen only after the shares are in the demat format. So that's being done. We will run this business as an independent subsidiary. The reason, it'll give three advantages. One, for Systems and Components, it'll allow better management, and obviously, we will try and bring in new possibilities for the company. For KPCL, it allows us, one, access to a very fast-growing segment. See, like we said, in the refrigeration space, we largely cater to the hydrocarbon packages, or we go to the reciprocating packages for the cold chains, ice plants, et cetera. This allows us to access the pharma, chemical, and dairy industry in a more significant manner. We also have the possibility to use, through Systems and Components, some of the compressors that we're designing and developing new, and these would also can be packaged and sold through their network. So this is an advantage that we see. It's a very small company as we speak. We will have to build it up and use its cost base to scale up. Would you like to share anything on the land that is available at Padgao or maybe scope for greenfield or maybe brownfield expansion that can happen? We have significant land with KPCL at Nashik, Saswad, and other places, so land is not the reason for acquiring Systems and Components. They will have the land for their own growth, and that will be there. Would you be focusing on improving the margin profiles, which SCIL currently has, or maybe on the saving cost or maybe the execution speed up? A very small company, like I said, first would be to grow the company in terms of scale and size. Everything else will come along with it. Okay, sir. That makes sense. Thank you for answering my question. Thanks a lot. Thank you. Thank you. Ladies and gentlemen, that was the last question, and it concludes the question and answer session. I now hand the conference over to the management for closing comments. Once again, thank you all. Thanks for taking time to listen to our call. As we close for a week before Diwali, I wish you all well. May the year bring us all far more predictability. I know it's a BANI world, but let's have far more predictability, far more progress and success as we go forward. Thank you all very much. Thank you. On behalf of Antique Stock Broking, that concludes this conference. Thank you for joining us. You may now disconnect your lines.