Welcome to Elgi Equipments 3Q and FY25, 9 months earnings call hosted by Asian Market Securities. We are pleased to invite Mr. Jairam Varadaraj , Managing Director representing the company. I request Mr. Jairam to take us through the presentation, giving an overview of the financial performance, and then we shall begin the Q&A session. Over to you, sir. Thank you.
Thank you, Kamlesh. Good morning, everyone. Pleasure to be with you. I will spend the first few moments reconciling our performance relative to the past year, and then give you a general overview of the business, and then open it up for questions. So let me go straight into the EBITDA reconciliation for the third quarter of the current year. So it looks like it's a disappointing quarter, but I would like to explain this to you. There's been a large increase in fixed cost to the extent of 15%, and that's primarily one-time expenses. There was an increase in transport costs because of the Red Sea problems and all that, but they are beginning to taper off, so I don't expect that to be a continuing issue. We had some issues with warranty provisioning. It is also one-time. So most of the increases that we're talking about are one-time.
So that's one part of it. So I'm quite confident that going forward, we will be reasonably good. As far as the sales growth is concerned, we lost a bit of revenue because the GST portal went down in the last four, five days of December. So we lost a bit of revenue and the cutoff. We had the invoices ready, but we couldn't ship, and as a consequence, the revenue fell over to January. In addition to that, we had some sluggish performance in portables across the world, water well in India, as well as the portable business in Europe, Australia, and the U.S. Particularly in the U.S., we had a steep fall in the portable business in the third quarter compared to the third quarter of last year. So the growth in our fundamental businesses has been quite positive.
This is not any concern for me at this point in time. Moving forward, just as a sales highlight, we have grown in every region. I would say even North America because North America had the portable losses because of, and the portable business, it's an infrastructure issue. And overall, the markets are down by almost 40-45%. The industrial business in North America has done well. It's grown. And our distribution business, which had issues because of our ERP, we are well past that. It's behind us, and it's beginning to grow. All the regions have grown except Australia, where the markets are quite sluggish at the moment. Moving on. This is a snapshot. Our revenue has grown by 3%, whereas our PBT is lower for the reasons that I explained to you. Compressors continue to remain the largest.
The ratio between automotive and compressors remains almost the same. Similarly, India versus the rest of the world, the split in our compressor business remains almost the same. So if you look at the consolidated financials, the PAT is better than last year. I mean, sorry, slightly lower than last year. But year to date, we are still better than last year. And we hope, and we are very confident that we will have a very strong fourth quarter. Moving on, our cash position has been extremely strong this quarter, and it'll continue to grow. We have put some very strong controls over our working capital, primarily our inventory, which went a little out of control post the COVID, post the Red Sea issues. There was a lot of chaos. We couldn't get the right ratios of inventory planning. All that is now beginning to get reined in.
So we expect in the third quarter, I mean, the fourth quarter, the cash position would be even better than this. I would like to talk about two developments in the company which are pretty significant, and then we'll open up for questions. One is a revolutionary new technology that we have launched. We hope the products will start coming out to the market within the month in India and within the next six months globally. So this is a revolutionary technology, and I will try my best to explain it in as simple terms as possible. So if you look at a typical compressed air system, on the left-hand side, you see the compressor and the pressure vessel that acts as a buffer. And on the right-hand side, you see various user equipments that have different levels of demand. Just visualize, it's like an air conditioner.
When more people are in the room, the air conditioner comes on, and when the temperature starts dropping, the air conditioner cuts off. So it's very similar to compressed air. Various equipment will come on and off in terms of their demand for air compressors. So this is how it typically works. So what happens when you have a fixed-speed compressor, the demand will fluctuate like this. So the machine will cut in, cut out, cut in, and cut out. So this causes a lot of instability that has an impact on the energy efficiency of the compressor as well as the quality of the machine. So today, we supply a compressor with a variable frequency drive, which is like an inverter, the inverter ACs. But that also is not without its own instability. It does have instability because it speeds up and slows down.
But more importantly, it's 30% more expensive, and there are reliability issues on the electricals. So what have we done? Our technology is pretty simple, but very deep at a science level. We recirculate the air and recover. So what happens is the compressor works constantly at the same speed, but the demand, the flow to the customer or the end application varies depending upon what the actual demand is. So this is the real innovative part of it. And this is accomplished by having a system which has two valves and our own controller that controls these valves, where we recover excess air, which is not required, and recirculate it into the system. Thereby, we save a lot of energy, and the machine is stable. So the net result of that, right?
If you look at a fixed-speed compressor, a compressor with VFD and what we call as our stabilizer, if you see it, there is absolutely flat operation. The reliability and the energy efficiency goes up pretty significantly. So this is an actual field condition where we had installed the machine. These were the kinds of hourly fluctuations that were happening before we installed our system. And this is the flat thing that happened after we installed it with this particular customer. So this is the testimonial from the customer, which is pretty dramatic. So the customer is saving close to INR 400,000, and this compressor itself will cost maybe about INR 750,000. So in two years, with just this device, the customer will get the money back on the entire compressor in two years' time.
And so this is quite a powerful technology that we have launched. The second one is we've been talking about the lower-tier, low-cost compressors coming from China and our plan to develop it. We have developed a range of machines, and in the next financial year, we will be launching them. They are far more reliable than the Chinese machines and extremely competitive from a cost point of view and far better in performance in terms of efficiency. So these two changes and shifts in product and technology are going to be a pretty significant game changer for us. So I wanted to share these two before we open up for questions. So thank you again for your patience. Thank you very much for being present. Now we can talk about any questions that you may have.
Sure. Thank you, Jairam sir. Participants, please use the raise hand option, or you may drop your question in the Q&A box. We'll wait for the queue to assemble for a couple of minutes, and then we'll probably take the first question. So first question we have is from the line of Mr. Harshit Patel. Harshit, you may unmute yourself and go ahead with your question.
Hi. Thank you very much for the opportunity. So my first question is on our U.S. and Europe markets. I think despite the macroeconomic challenges in Europe, we have still posted a very decent top-line growth over there. So what is enabling this? And second, are we on track to break even in both these geographies in FY26? I think Europe will break even for the first time in this new expansion plan, and we were supposed to again turn profitable in the North American market. So if you could update us on this, please.
So Harshit, thank you so much for the question. Yes, the economy in Europe has been challenging for a long time, but things are slowly, I think it hit the bottom and it's slowly coming back. That's one reason why we are growing. The second reason is we have created a lot more focus in our go-to-market. There are very deliberate actions being taken to identify very strong distributors. We have brought potential channel partners to our plant, showed them what we are capable of doing. So there have been overall deliberate steps that we are doing and we will continue to do to grow the business, grow our share in the business. So that's one part of what, that's the reason why we are growing. Yes, we are on track to break even this year. So I'm not very concerned about it.
It was a concern last year, but this year I'm not concerned about it. As far as North America is concerned, like I explained to you, all our businesses are doing well in terms of growth and profitability, except our portable business. Now, the portable business is very infrastructure-related. It's extremely cyclical. If you look at it two years ago, last year and the year before, we had some record revenues in our portable business. And as a consequence, both Rotair, which is a supplier for our portable business in the U.S., and the U.S. portable business did exceedingly well. Now, the market is down about 30%-40%. So correspondingly, our revenues have come down too. So barring that, I think all our businesses are doing well.
So sir, this portable business in North America, what percentage of our North American revenues it would be?
Portable business would be in a peak time, was close to about 20%, 15-20% of our revenue. Today, it is probably less than 10%.
Understood. But then, combining all three businesses, portables, distribution, as well as industrials in the U.S., we will still make some profits this year. Would that be right understanding?
No, we will probably just break even.
Okay. Understood. Sure. So my second question is, could you highlight how our market share has progressed in various categories in the domestic market in the last three to four years? So how in reciprocating screw, both oil-free as well as oil-lubricated and centrifugal. So which are the categories where we have gained over the competition, where we are stable? And if at all, we have ceded some ground in some of the categories. So if you could highlight on this aspect, that will be very helpful.
So I don't want to give very specific numbers, Harshit, but I can give you directionally something. As far as reciprocating is concerned, it is a very commoditized business. So we have not increased any share, nor have we lost anything. So we're just kind of holding our share in that business. But there is a huge number of unorganized players when we are really evaluating what our strategy should be to be able to get and be a significant player there. We are not ready yet. As far as the screw compressor market is concerned, if you take the bottom tier, which is really the very low-cost imports from China, if you exclude that, our market share has grown, yeah, this year. If you include that in the total market, our market share actually has grown, right?
Now, with the new product that we are bringing in, we will be able to enter the bottom of the pyramid, and we will be able to grow our share of the overall business. Oil-free, we continue to hold our share in India. Centrifugal, we are hardly a significant player.
I believe we had a tie-up with the Korean company and our machines were in the field testing. So any progress on that, by when we can expect launching our own machines in this area?
Strategically, launching our own machine is not a priority. We have other products like vacuum that we are focusing on. Once we get to the finish of the other priorities, we'll get there. In the meantime, we will continue to partner with Hanwha.
Understood. Perfect. Thank you very much, sir, for answering all my questions, and I'll get back in the.
Thank you, Harshit. Sir, next question. Next question is from the line of Mr. Chaitanya. Chaitanya, you may unmute yourself and go ahead with your question.
Hello. Thank you. Thank you, sir. Good morning. My question is on the. Am I audible?
Yeah, yeah. You are audible.
Yeah. Okay. So my question is on the after-sales market share. I think 15%, if my numbers are correct, 15%-20% of our business is from the after-sales business that we provide. So any indication on when are we expecting to increase that, if at all? And I think margin also on that front will be helpful.
So our after-market share in India is quite healthy. There is opportunity for maybe a couple of more percentage growth. So that we continue to do. Our after-market percentage outside of India is, as a percentage, very low. And that's normal because after-market, as a percentage of revenue grows only when your installed base becomes a certain size. And we are beginning to build that size, and we are growing the after-market year on year on year. But you will not see that 30%-35% till such time the installed base has become quite large.
So any indication on when that can happen, like three to five years down?
Sir, you can't predict it because you have to look at growth of market share of the product, right? And it'll continue to grow along with that.
Okay. Got it. Also, in the recent article I read that you guys are targeting to be one of the top three players in the world by the next 10 years. So what are your strategy in that terms that any particular product focus? As we all know, on the R&D front, Elgi is very high and very focused. But on that front also, if any roadmap sort of what are the thoughts in terms of increasing that market share?
Our strategy is on products and markets. We are focusing on lubricated pistons, lubricated screw, and oil-free screw as strategic focus for growing the business. And we are focusing on key geographies, which is Australia, Indonesia, Thailand, India, Europe, and the U.S. or North America. So these are the markets where we are strategically focusing. What we mean by that is disproportionately allocating our time and resources in these markets for these three product categories. So that's really our strategy.
So if you look at our investment in technology, what I just explained to you, both the product, both the technologies and both the technology as well as the product, it is pertaining to rotary screw compressors. So if you look at the markets that we are talking about and the products that we are talking about, they will constitute close to 60% of the overall opportunity worldwide, right? So that's a pretty significant opportunity, and we are focused on that.
Got it. Got it. Thanks. Also, is there any impact of the new tariff regime that's going on in the U.S.? If at all, are we in any kind exposed to that particular event that's going on?
Sorry, I didn't get your question.
The current U.S. administration, after coming of the Trump, there has been an increase in a tariff across the multiple industries. Are we as an industry or company, do we fall in that particular category in any way as of now?
Even during the earlier regime, Trump regime, when there were duties imposed, compressors were not in that category. So we don't expect it. So even if it comes, those are business challenges. Those are not going to be game changers.
Got it. Understood.
So we got to understand something. Even if 10% there is a tariff increase, our Rupee has depreciated by 10% as well, right?
90% increase.
So it's not just a one-sided kind of a thing. It's a larger multiple factors involved, yeah.
Okay. Got it. Got it. Thank you. Thank you so much for taking my question.
Thank you.
Thank you, Chaitanya. Next question we have is from the line of Ritvik. Hi, Ritvik. You may go ahead with your question.
Yeah. Hi. Good morning, sir.
Morning, Ritvik.
Yeah. So a few questions. So firstly, you mentioned one-off expenses in Q3, INR 4 crore and INR 18 crore. So safe to say that majority of this is non-recurring?
Yes, so I said transport is one area where there was a significant increase, primarily because we were catching up on some inventory shortfalls, and combined with that Red Sea-related increase in transport costs, but they are coming down, and with our cutting back on our inventory down to normal levels, our shipments also are going to be less, so I don't expect that to continue to recur. I told you warranty provisioning was done. That was accounting provisioning that had to be done, so that is there, and a few other things that are all one-time. Nothing that is of significance or repetitive.
Okay. Got it. Thank you. And the second question is on the stabilizer opportunity that you mentioned. Is there any product like this in the market, or this is an innovation by?
It's nothing. This is the first time. We've got a patent which is global, yeah?
Wow. Okay. So globally, there is no product like this?
No.
Okay. And you mentioned that there will be savings of 4 lakhs per annum. So that would be on the power cost, or the complete savings would be on the power cost?
This is purely power cost, but there are a whole host of other savings that are there. We have not really listed that out. But this is something that the customers actually experience.
Okay. And how many pilot testing you would have done for this so far?
We've done a few hundred machines and plus thousands of hours in our own factory.
Got it. And what would be the cost of this stabilizer?
I don't want to talk specifics, but let's say if the variable frequency drive is 100, this will be five.
Okay. And, sir, sorry, just a few questions on this. So, can we sell the Stabilizer to our existing installed base?
Yes. There are two versions of the Stabilizer. There is a light version and a heavy version. The heavy version has to be fitted from the factory, but we can give a kit for retrofitment. Whereas a light version can be fitted on the field as well. And the light version can be fitted even in competitor's machine.
So, sir, what kind of opportunity opens up? And what is?
Hello?
Hello. Yes, sir. Am I audible?
Hello?
Yeah. Am I audible, sir?
Ritvik?
Yeah. Sir, am I audible?
Kamlesh, can you hear me?
Jairam, sir, we can hear you. We can hear Ritvik as well.
Hello.
Go ahead, sir. We can hear you.
Yeah. Sir, I can hear you. Are you able to hear me?
Hello?
Hello. Kamlesh, sir, you can hear me?
Yeah, yeah. We can hear you. Yeah, yeah. Go ahead.
Yeah. Yeah. So when we are taking this product to the—
Can you hear me?
Jairam, sir, I think there is some problem with your audio.
I think you are not able to hear us.
Hello?
Hello. Can you hear me?
Yes, sir. We can hear you.
Yes, sir. Yes, sir.
Yeah. Tell me.
On this Stabilizer, when we are taking it to the customer, what kind of feedback are we getting in terms of installation, and what kind of conversions are we seeing?
No, no. We just launched the technology, Ritvik. We haven't got the product out on a regular basis. Like I said, within the next one month is when we'll be putting it into the field.
Okay. So what kind of market opportunity size this opens up? Because you mentioned 6, 7—
So right now, if you look at it, 25-30%, in India, I'm speaking, 25-30% of the compressors are VFD. The 65-70% of the customers want the advantages or the energy saving of a VFD, but they don't want to make that investment because they have to spend 30% more. Now, that entire 75% is a huge opportunity for us to present significant savings in energy cost, right? Where you recover the cost of the compressor itself, not just the investment in the device. The cost of the compressor itself, you get back in a couple of weeks. So that's huge, yeah?
Right. Right. This is interesting. Okay, sir, I have a few more questions. I'll get back in the queue. Thank you, sir.
Yeah. Sir, next question we have is from the line of Manish. Manish, you can unmute yourself and go ahead with your question. Manish?
Yeah. Yes. Very good morning, sir. Hope you're doing well.
I'm well. Thank you.
Yeah, sir. Couple of questions. First, on the low-end compressor which you were referring to, which probably is seeing a lot of competition or a lot of input from China. If you can just provide perspective as to what could be the size in terms of volume and the value, which probably is getting disrupted in terms of market opportunities?
So we believe that the total market size at the low end from the Chinese is about 6-7,000 machines a year in India, yeah? And the market, the value-wise, it's very difficult to make an estimate, but roughly, I would say it's about each machine is probably around 2.5-3 lakhs. So it's about 200 crore is the size of that market, right? We're not playing in that market, yeah? So for us to aspire to get 50-60 crore is not unrealistic, yeah? So that's only one part of the story. The other part of the story is there is a general shift globally for low-kW machines. What I'm talking about, these 6,000 machines that are coming into India are all low-kW. They are not the high-kW machines. They're all lower than 30-37 kW, and it's in that range.
But we are also seeing a global pattern of customers wanting to shift to lower-kW machines to cheaper machines, not really worried about energy efficiency. Now, these are all low-duty cycle applications where customers don't want to pay a premium. Now, this product that we have made is a global product. It is not just an India product. The certifications, the standards, this can be sold anywhere in the world. So we are building a much larger opportunity for the future.
So how cheap would it be, let's say, today if you would have a product and if there are inputs from China, how cheaper would it be? And in terms of performance-wise also, that also matters?
From a cost point of view, it's about 40-45% lower cost, and from a performance point of view, it's about 15% lower in specific efficiency.
Right. And in India, typically, where would this application, you did mention that low-duty cycle application, but typically, which industries or which market?
It cuts across all. It is not specific to certain industries. Let's say there is typically, if you look at it as spinning mill, which is large, 25,000, 30,000, 50,000 spindles, will look for an efficient machine. But let's say there is a spinning unit which has got 4,000 or 5,000 spindles, right? They are more capital stocked, and they're not worried about this additional cost of energy because their overall cost is low because it's only 5,000 spindles. So it's not just one industry, but it cuts across a characteristic segment across all industries, yeah?
Okay. Okay. Sir, on our new product, on the Stabilizer, what could be, say, if existing machine, existing compressors need to get retrofitted, and so what could be time involved and potential cost incurred for, and what would be the downtime? So is it worth for someone who's operating on a daily basis to properly take this retrofitment and do it? That was the first question. And what would be the potentially market opportunity you see for you in the next three to four years?
So in terms of retrofitting in the field, it's only a few hours. It won't take more than that, yeah? I'm talking about retrofitting the heavy version, which means there is a big significant removal of our air end and fitment of a new air end, right? So that's a few hours of work, so it's not a big downtime. The retrofitting of the light version will be probably less than an hour, right? So that's from a downtime point of view. From a cost point of view, it depends on the size of the machine, right? Smaller the machine, lesser the cost. Larger the machine, more the cost. So I don't have one number to give you that says this will be the cost. So if it's a 22 kW, it'll be different. 45 kW will be different.
But the point here that you need to understand is for a new machine, compared to a VFD, if VFD costs 100 more, this will cost 5 more, yeah? For a new application. This logic applies for all kWs. But for retrofit, you can't apply the same logic because we are removing a big part of one part of the compressor and fitting another one, yeah? And as far as the opportunity is concerned, like I said, if you take a total market size of 30,000 or 35,000 compressors in India, only 25% are VFD, right? So close to 22-23,000 machines are running without VFD because the customer doesn't want to pay that money for the additional money, which is 30% of the cost of the compressor.
Now, what we are going to give is a fraction of the cost, but the same functionality, not only the same functionality, but a reliability factor, which is night and day difference, yeah? So there's a huge value proposition for the customer.
Sir, on that expense, sorry, I probably missed that earlier. This four crore was pertaining to freight one-time and 18 crore was for warranty. Am I right?
No, no. I didn't say 4 crore. It is transport is about INR 5 crore, and warranty is about INR 2 crore, yeah?
Oh, okay.
Then there is a whole host of small, small things like building, repair, and maintenance, which are all, it is a timing issue, right? It's not something that is going to get repeated.
You did mention in your initial remarks, just last question.
Before we, yeah, last question.
Sure. I'll come back. Yeah. How much sales we would have missed, sir, because of downtime of the GST portal?
We lost approximately INR 150 million, 15 crore.
Okay. Okay. Thank you, sir. I'll come back in a bit.
Thank you, Manish. Next question we have is from the line of Mr. Bhavin Vithlani. Bhavin, you may unmute yourself and go ahead with your question.
Good morning, Jay.
Hi, Bhavin. How are you?
I'm very well. Thank you. Hope all well at your end.
All good. Thank you.
This question is more on the India market. We were just adding the revenues of all the India players and Elgi's India revenue. We saw from 2019 to now, it's gone up from about INR 6,000 crore to INR 11,000 crore. This includes services. What I want to understand is some of the market internals, how are you seeing the share of oil-free move up? Within that, how has Elgi moved up in terms of market share for the oil-free? How has the centrifugal moved up? Within that, how has Elgi moved up in centrifugal? Because I think the Chinese is something where, as your company graduates, I think that's something you'll have to leave it. The focus has to be in the higher margin products like oil-free, centrifugal, etc.
So just want to get the perspective a little bit on the higher level on the market size and how has Elgi been able to capture incremental market on a slightly longer last five-year basis?
Let me take it category-wise. If you look at oil lubricated screw, let me start there. Oil lubricated screw compressors, there are two segments: the premium segment, and then there is the discount segment where the Chinese are playing. Now, if you take the combined market share, we have lost market, but primarily because of the low end. In the premium segment, we have held our market share, but in this year, we have grown it, right? We hope that we are confident that we will continue to grow it in the coming years, not only because of our new technologies that I talked about, the Stabilizer, but also because of our enhanced go-to-market presence and strategy. That's on the lubricated stuff. Now, in the lubricated stuff, we believe we have a lot of depth and expertise of compressors.
So we can't just say, "Oh, the Chinese are coming in with cheap machines, and therefore we should vacate that space." We need to use our technology and our capability to come up with a product which at a quality level is at an Elgi standard, but from a price point of view to a customer's expectation from a Chinese machine, performance also to Elgi standard. Now, it took us about a year and a half to engineer that solution. Now, when we engineer it, we have the ability and the right to win in the segment. So we're not going to vacate that and run away, yeah? So that's on the lubricated screw. On the oil-free, in the last five years, the market has grown. Our share of the market has grown. Absolutely, it has grown.
So I'm very confident that our presence compared to five years ago, we have a much more stronger presence and a growing presence in that segment. Centrifugal, like I explained, we are representing Hanwha, and there are challenges on delivery. There are challenges on pricing. To the extent that we are able to meet the customer's requirement on pricing and delivery, we are able to play in some way. So strategically, we are not there in that market. Besides that, compared to the rest, the oil-free and the oil lubricated screw, that's a relatively small market. So we'll get there, but one step at a time.
Sorry. I just have a follow-up. I think we had the product-related challenges earlier on the water well, which we have now been able to mitigate. So I mean, along with that, we just want to understand how has Elgi's market share moved up? Because in our view, it has moved up. We want to understand whether we are correct or not because of the gaps in the water well and in the oil-free segments that you have bridged, the market share, let's say, five years ago versus today, and how do you see it going forward?
In water well, see, water well is a cyclical business. Right now, last year was a phenomenal year. This year is a down year, right? Now, our share of the market continues to grow, but the size of the business goes up and down depending on the cyclicality of that segment. Net, if I have to average out what is our share of the market, it's somewhere around 40%, right? We think that's where our share of the market is. Is there an opportunity to grow that? Yes. But it's going to, in terms of the impact on our business, it's going to be incremental because the overall market has shrunk at the moment. Oil-free, like I explained to you, Bhavin, it's a growing market. As long as it continues to grow, we will grow. And we have some exciting products there as well.
It's too early to talk about it. Once we have that, then our ability to win more also goes up, yeah?
Just last question. Given the way we have seen the budget and the overall, when you talk to your customer side, on a three-year basis, if you were to hazard a guess on the growth in the domestic market, what would that be?
I will talk about steady state as well as the non-steady state. On a steady state basis, we should be able to, in the current circumstances, current market conditions, anywhere between 9-10% growth is possible. With the introduction of our stabilizer technology and the low-end product, I think adding another 3-4 percentage points to that growth is not unrealistic.
Yeah. Yeah. Thank you so much, Jay. Thank you so much for taking my questions.
Yeah.
Next question we have is from the line of Mr. Vipul Kumar Shah. Vipul, you may unmute yourself and go ahead with your question. Vipul? I think there's some technical error at Vipul.
Hello.
Next question we have is from the line of Mr. Amit Anwani. Amit, you may please go ahead with your question.
Hi, sir. Am I audible?
Yes.
Yes, sir. Thanks for taking my question. My first question is on the low-end product which you highlighted, and you said both the products incrementally can bring 3%-4% extra growth. Wanted to understand this low-end Chinese product, are we going to cater to the US market? Is there any Chinese import low-end there? And are we not going to face any competition? Because I understand, I think Kirloskar also talked about a kind of low-end product. Correct me if I'm wrong. Is there a comparison between these two products and which specific markets we are first going to target?
So our first target is the Indian market because that's really where we are seeing a significant presence or influx of the Chinese machines. So that will be our focus. But the product is ready to be sold in most of the 50-cycle markets. As far as the 60-cycle, which is the US, right now, we don't see as much of that behavior in the US market as we are seeing, let's say, in Australia, in Southeast Asia, and probably in some markets in Europe, right? So we'll take a measured progression, but India will be our first focus.
Sure. Second, on Europe, you highlighted we're expecting a turnaround. Any further investment required there? If you could highlight us with respect to kind of manpower distribution or any other aspect where we'll be doing more CapEx in Europe, and what could be the peak revenue we are targeting from Europe in the next two to three years? Yeah.
So we're not. See, Europe was an incubation that started six years ago. We invested upfront, and we declared that we are going to. We have completed all that. So we have gained traction in the market. Now it's a time to produce profits, right? And we will begin to see that from the next financial year onwards. In terms of growth, I would say low double-digit is what is possible. But with these new products that we have, we could realistically expect a lot more.
Sure. Thanks for taking my questions. Thanks.
Next question, we'll have it from the line of Manish. Manish, you may unmute yourself and go ahead with your question.
Yeah. Thank you so much, sir. Continuing on the Europe operations, and probably when I'm looking at last year's annual report, so the subsidiary level at Belgium was probably a loss of nearly INR 50 crore. So when we are talking of breakevens, are we probably looking at EBITDA-level breakeven or PAT level breakeven? And do you expect that PAT level losses to come down? And similar observations were for even our US operations where if you probably look at all the two, three entities, we had reported PAT loss. So just if you can clarify on both aspects.
So our breakeven is at an EBITDA level, Manish. Now, the only reason why we have a PAT level loss in Europe is because of the interest cost that was there. Today, with tighter controls over our working capital, we expect progressive reduction, on one hand, cash generation, and on the other hand, progressive reduction in our working capital. Net, net, the capital employed will start coming down, and therefore, the interest is going to come down as well.
The same thing with the U.S., right? If you look at it, we have a huge portable inventory because we expected the market to continue, but it just kind of nosedived all of a sudden. We have that inventory that was shipped from Rotair. All that is getting tightened now. We have capital employed because of that, for which we're paying interest. The U.S. interest rates are pretty high compared to Europe. All this will come down.
Okay. This only factor, which is probably, but sir, that amount doesn't seem to be quite large in terms of the interest outgo. If I probably look at your consolidated interest outflow, which probably nine months is just INR 22 crore, and where is the PAT loss?
Manish, consolidated, we are earning interest in India. Please remember that. We have surplus cash in India, and we are earning interest in the treasury operation.
But that is anyways reflected in other income, sir, which is INR 41 crore in nine months, and interest expense is INR 22 crore. So I'm just, maybe if you can clarify that interest expense is net of the income or?
I need to get back to you. I don't have those numbers in front of me. You can take it offline and explain.
Because even in the first nine months of the current year, probably we see that at EBITDA level, there is probably a slight decline in the margins for our international operations on a rough-cut calculations. But probably at PAT level, it is very marginal profit. So just wanted to get your perspective as to how should we look at it?
We'll take that offline, and we can give you the details, Manish.
Thank you, sir. Thank you so much. Thank you so much.
Participants, if there are any other questions, you may please use your raise hand option.
There was one person, Sunil, who had raised his hand, but I don't know whether he has disappeared.
Yes, sir, so I couldn't see his hand up again, and that's the reason I had to.
Okay, and Vipul, of course, continues to have his hands up.
Can I ask one or two more questions, sir?
Sure.
One second, Manish. We'll just check with Vipul in case if his line is audible. Otherwise, we'll allow you to ask. Vipul, do you have a question to ask to Mr. Jairam? You may unmute yourself and go ahead with the question. I don't think so. Vipul is around, sir, but Sunil happens to have come in. Hi, Sunil. You may unmute yourself and go ahead with the question. Thanks.
Can't hear you, Sunil.
Hi, Sunil.
Is this any better?
No.
I'll come back. Thank you.
We have a question from Uttam Kumar. Uttam, you may please unmute yourself and go ahead with the question.
Yeah. Am I audible?
Yes.
Yeah. Good morning, sir. Thank you for taking my question. Sir, firstly, on the domestic market, just want to get further understanding with regards to, are we seeing any challenges from any particular sectors? Is there any kind of slowdown in infra side or all these sectors doing well? Just be more clear on that.
So the Indian market definitely is exhibiting signs of slowing down. There is no doubt about that. But it's not something that I would get worried about. It's not like a significant, but there are signs of customers delaying decisions. The number of inquiries coming in, the rate of it has come down. So these are signs that things are slowing down a bit. And you can see it. The automotive sector in most parts is beginning to slow down. Some of the infrastructure, like cement and all that, are slowing down. So it's part of the game. I mean, it'll come and go.
All right. Sir, second thing with continuation to that is, are we seeing a more aggressive kind of a move by the competitors in the domestic market? And also, could you just throw some understanding on pricing? Have you taken any price increases or have you lowered down lately? Yeah.
We have not increased our prices, Uttam. We have kept our prices constant. Competition continues to be as intense as before. There is no. I wouldn't say there is any specific resurgence or surge in competitive intensity. We are all aggressive and fighting, which makes it interesting in the market, but I would not call out anything that is concerning.
All right. Sir, and final question is with regards to, I think in one Q of the financial year, I think we were talking about the go-to strategy in the domestic market. And we had also brought in some consultants to do it. So any update on that? How things are progressing? Has that enabled to gain some market share? Yes, sir.
Like I said in one of my commentary that we are looking at growing our share of the market. We've already grown a little bit this year, and we'll continue to see that process giving us that growth in the next year as well. That's the result of our go-to-market initiative that we have done.
All right. Sir, just a bookkeeping question on the CapEx spend. So how much have you spent for the nine months, and what is the CapEx cadence for the next financial year?
Let me see if I have those numbers in front of me. I don't think I have the numbers, but we have probably spent around, from a cash point of view, maybe about 60 odd crore.
For the nine months, sir?
Our new projects, yeah, nine months. Our new projects, we have budgeted about 250, so the new buildings. That will happen, part of it in the fourth quarter and then into the next year.
Great, sir. Thank you so much.
Next question we'll take from the line of Mr. Prathamesh. Prathamesh, you may please go ahead with the question. Unmute yourself and go ahead with the question. Prathamesh?
Let's go. Let's go.
Problem is, yeah. Sunil, you may unmute yourself and go ahead with the question.
Thanks. I hope this is better now, sir. Can you hear me?
It's better now.
Okay. Sir, on this new product, right, the patent that we filed, so if you can give us a sense of how tight it is in terms of protection against competition coming in and trying to offer something similar in some pockets or in some markets?
That's a tough question to answer, Sunil. When we make a patent, we make it as watertight as possible, as wide as possible, and as deep as possible. But there is always an opportunity for somebody to challenge it, and then we need to figure out, go to a court of law, and try and find out. But the most important thing is, one is the patent. The other is how effectively you're able to make it understand the why of the technology. It is not about just having some valves and some software algorithm, but it is more at the level of science that you have to understand to get the result, right? So that science part is not necessarily revealed in the patent, right? So those are some of the scientific pieces that we retain to ourselves.
So I'm reasonably confident that we have a pretty strong proof.
So if I understand this as a layman, what you're saying is that although the concept might seem simple, that you just add a stabilizer to a compressor, but the engineering behind it and the price at which you deliver is something which not everybody could replicate, irrespective of the patent.
Absolutely. Absolutely.
Great. Great. This is very heartening to see these products. They're all the very best. Thank you.
Thank you.
Sir, in the interest of time, we'll take one last question from Prathamesh.
Yeah.
Prathamesh, you may just unmute yourself and go ahead with the question. Prathamesh, you have the permission to unmute yourself and go ahead. Please unmute.
I think he's posted the question on the chat. So it says, "Need to understand about exports as we understand, except for Rotair, all other subsidiaries manufactured in India and distributed the rest of the world. However, the standalone exports and related party sales do not match. So want to understand the accounting procedure followed for the same." So Prathamesh, yes, the industrial machines are all made in India. So when we do sales from the standalone exports, it has two components: sales to independent distributors. Like, for instance, some distributors in Southeast Asia, some distributors in Latin America, some distributors in Africa, some distributors in the Middle East, they buy directly from us. So that is also booked as exports from the standalone. And the standalone books also has exports to our subsidiaries, which are related parties. So they will never match, right?
And it will fluctuate because when it is a matter of inventory management between the subsidiaries. So when the inventory starts going down, the revenues are coming down, the standalone revenues to subsidiaries. And we are in the middle of controlling that inventory. Therefore, there will be a reduction.
I think that is what we have right now, sir. Uttam, would you want to give a vote of thanks before we end this call?
Yeah. Before that, just one question. If you can provide some more insight about our tie-up with that Italian firm for vacuum products, how has been the progress and when we see that commercialization?
So thanks for bringing that up, Kamlesh. So we have completed the technology transfer. Our team has visited, brought it in. The indigenization has started. So from April, May onwards, we will have completely Indian-made products into the market. So that's on the product side. On the organization side, we have assembled the sales and service team. They're already in contact with customers. We have already started gaining one-off orders in the market. So we expect to see next year as a full year by which we'll be able to come back and report our performance on vacuum.
Any revenue targets, sir?
Not yet, Kamlesh. Not yet. Our metrics right now are to look at distributor appointment and OEM connects. Yeah.
This will be more India-specific, right, sir?
Sorry?
More India-specific markets we are trying?
Yes. It will be India, India-like markets, neighboring. That's it.
Right. Great. Okay. That's it from our side, sir. Any closing comment you want to make?
Thank you very much. I think Manish has got a question again.
Hello.
Okay. Thank you very much, Kamlesh. Sorry?
Yeah.
Yes, sir. Just probably I'll take two questions, sir. One is on the-
Manish, we might have to end this call because we have already crossed our time limit. You can take it offline with the team and Mr. Jairam.
Yeah. Sure. I agree. Thank you.
Thank you very much, Kamlesh, and Asian Market Securities for organizing it. Thank you for your continued support on that. Thank everyone for your time and your insightful questions. I look forward to speaking with you during the investor analyst meet in February this month and also our call sometime in May for our fourth quarter and annual results. Thank you very much, and I look forward to it.
Thank you. Thank you. Thank you so much, sir. Thank you, all the participants.
You.