Ladies and gentlemen, good day and welcome to Kirloskar Oil Engines Limited Q2 FY 2025 earnings conference call hosted by Antique Stock Broking. As a reminder, all participants' lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need any assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Shah from Antique Stock Broking. Thank you, and over to you, sir.
Yeah, thank you. Good afternoon, everyone. On behalf of Antique Stock Broking Limited, I welcome you all to Q2 FY 2025 post-earnings conference call of Kirloskar Oil Engines Limited. To discuss the results, we have the senior management team of the company, represented by Ms. Gauri Kirloskar, Managing Director of the company, Mr. Rahul Sahai, CEO B2B business, Mr. Aseem Srivastava, CEO B2C business, and Mr. Sachin Kejriwal, CFO of the company. I'll hand over the call to Ms. Gauri Kirloskar for her opening remarks, post which we can open the floor for Q&A. Over to you, ma'am.
Yeah, thank you, Amit. Good evening, everyone. I am Gauri Kirloskar, Managing Director of Kirloskar Oil Engines. Thank you all for joining today's call. I'm joined by Rahul Sahai, our B2B CEO, Aseem Srivastava, our B2C CEO, Sachin Kejriwal, our CFO, and Amit Gupta, CFO of Arka. We also have two new people on our team: Farah Irani, who has joined as our company secretary, and Samrat Gupta, who has joined as MD of Arka. As usual, I'll start with business updates, followed by a financial overview from Sachin, and then we'll open the floor for a Q&A session. Q2 has been steady, marking the first quarter after the full transition from CPCB II to CPCB IV+ . Standalone business net sales grew by 13% year-on-year. However, there was a quarter-on-quarter decline of 11%. Please note that the previous quarter, Q1 FY 2025, was influenced by pre-buy volumes.
We saw strong demand, especially from the infrastructure and construction sectors. In the B2B segment, all businesses except international grew year-on-year. Domestic demand is strong, while on the international side, we are continuing with our journey of building capability, channel, and the right partners. B2C segment declined by 13% due to a planned plant transition. We have completed the construction of our new manufacturing facility at Sanand in Gujarat, and we have consolidated five of our manufacturing locations at Ahmedabad into this single unit. On the margin front, EBITDA stood at INR 165 crore , reflecting a 14% margin, which is a 450 basis points increase compared to Q2 of the previous year. Net profit for KOEL standalone was INR 111 crore , a 90% increase year-on-year.
If we remove the effect of one-time provisions and reversals made from the provisions or reversals, sorry, made from the numbers, then the net profit for the quarter was INR 98 crore versus INR 66 crore in Q1 FY 2024, reflecting a 48% growth. Year-to-date sales for H1 FY 2025 stands at INR 2,518 crore, showing a 9% growth year-on-year. EBITDA margins are at 14%, and net profit is INR 246 crore, marking a 52% growth. Again, if we remove the effect of one-time provisions/reversals, net profit for H1 FY 2025 was at INR 215 crore versus INR 175 crore for H1 FY 2024. That is a 22% increase. Now, coming to business updates, as I mentioned, demand in the B2B segment remained strong. Standalone sales reached INR 1,059 crore, reflecting a 17% year-on-year growth. In the Power Generation segment, the real test lies in market reactions to the new emission norms.
This quarter, as predicted, saw slower demand as the market adjusts to the new pricing levels that come with the upgraded emission technology and correction due to the pre-buy sales that happened over the past couple of quarters. We're only one quarter in, so we'll be observing market trends over the next few quarters. We are confident our portfolio of products with leading emission and electronic technology incorporated will enable us to continue to be the dominant player in the markets we serve. The industrial segment grew approximately 8% year-on-year, driven by strong demand from our construction OEMs. Field trials for CEV BS V engines are progressing well, and customer feedback has been positive. We continue to see strong growth in defense and marine and the railway segments as we continue to drive execution of key projects with customers. The distribution and aftermarket business recorded a 10% year-on-year growth.
We are continuing to focus on enhancing our service channel and capabilities to enable stronger support for newer technology products. We are seeing increasing service penetration and expect this to continue as we closely monitor our distribution and service KPIs. The international business on the B2B side remains steady at INR 123 crore versus INR 125 crore, as strategic realignments in international channels are establishing their teams and facilities to enable long-term sustainable presence in these markets. We are seeing strong growth for our industrial and firefighting products. However, we are seeing some challenges on the Powergen side due to changing power scenarios in key markets like South Africa. We are advancing in our technology roadmap and alternate fuel tracks.
Our methanol gensets, which were recently showcased at the Methanol International Conference 2024. This was a proud moment for the entire team as we contribute to the nation's decarbonization journey. In the B2C segment, standalone sales were INR 125 crore , marking a 13% year-on-year decline. WMS sales dropped by 11% year-on-year, primarily from diesel segment due to softened demand from extended monsoons, the deferment of key institutional customer orders to Q3 FY 2025, and the production lag due to the plant transition in Q2 FY 2025. While B2C international business nearly doubled to INR 13 crore compared to last year, primarily driven by growth in agri-engine exports to Africa and the Americas region. FMS sales remained muted at INR 14 crore . Moving to the consolidated business updates, revenue from operations was INR 1,500 crore , showing a 15% year-on-year growth. LGM inaugurated its new plant on September 12th.
Five existing manufacturing units were consolidated into a single state-of-the-art facility at GIDC Sanand. We believe that cost efficiencies from economy of scale and a sharper focus on other LGM operations will drive greater growth in the LGM business in the medium term. In financial services, Arka's revenue grew 54% year-on-year to INR 195 crore. As of September 30th, 2024, assets under management stood at INR 6,284 crore. In summary, this concludes the quarterly update. We are now nearing the end of our 2X-3Y journey, and I assure you that the team is working tirelessly to meet our performance milestones. This journey has been full of valuable lessons, and with our accumulated experience, we are now setting our sights on the long-term to be $2 Billion vision I had mentioned in the last call. Thank you for your continued support and trust in the team. We're fully prepared for the journey ahead.
With these key business updates, I now hand over the call to Sachin for a quick financial overview.
Good evening, everyone. Thanks, Gauri, for the update. I will give a quick update of the financial performance for standalone and consolidated business. The results and the presentations for today's call have already been uploaded on the exchange and our website. Q2 top line registered a year-on-year growth of 13%. There was an 11% degrowth quarter-on-quarter. Also, please note this is now the ninth quarter in a row that we have crossed INR 1,000 crores in revenue from operations. Coming to the financial performance, for the purpose of maintaining consistency with the last year's numbers presented in the analyst presentation, we would like to give you a fair picture of business as usual. At the same time, the statutory results that we can see will reflect all the accounting provision reversals. Now, I will start with the Q2 FY 2025 standalone performance first.
So net sales at INR 1,184 crores for Q2 FY 2025 versus INR 1,047 crores for Q2 FY 2024, which is a 13% year-on-year increase. EBITDA at INR 148 crores for Q2 FY 2025 versus INR 109 crores for Q2 FY 2024, which is a 35% increase year-on-year. EBITDA margin at 12% for Q2 FY 2025 versus 10% for Q2 FY 2024. Net profit stood at INR 98 crores for Q2 FY 2025 versus INR 66 crores for Q2 FY 2024, which is a 48% increase year-on-year. Cash and cash equivalents of INR 213 crores versus INR 112 crores of Q2 FY 2024. Please note the cash equivalent is net of debt, includes treasury investments, and excludes unclaimed dividends. Also, the above numbers are excluding recovery against the provisions we had made last year for a specific customer. If we look at the reported numbers, including this recovery, EBITDA margin for the current quarter is 14%.
Now, here is the further breakdown of the standalone sales for the quarter. The B2B sales were at INR 1,059 crores. That is a 17% growth year-on-year. Within B2B, Powergen was at INR 481 crores, which was a 34% increase year-on-year. Industrial at INR 253 crores. That is an 8% increase year-on-year. Distribution and aftermarket was at INR 202 crores, which is a 10% increase year-on-year. And international business of B2B was at INR 123 crores, which is a 2% decline year-on-year. The B2C sales were at INR 125 crores, registering a 13% decline year-on-year. Within B2C, WMS was at INR 98 crores. That is an 11% decline year-on-year. International business of B2C was INR 13 crores. That is a 110% increase year-on-year. And FMS business at INR 14 crores witnessed a 49% decline year-on-year.
The working capital as of quarter-end at 30th September has seen an increase of INR 69 crores as we are gearing up for future demand in CPCB IV+ regime. However, we continue to have a healthy net cash position, which is in excess of INR 200 crores. Now, looking at the consolidated performance for the quarter, revenue from operations at INR 1, 500 crores for Q2 FY 2025 versus INR 1,305 crores for Q2 FY 2024, which is a 15% increase year-on-year. Net profit at INR 106 crores for Q2 FY 2025 versus INR 86 crores for Q2 FY 2024, which is a 23% increase year-on-year. Again, the numbers I discussed here are excluding the exceptional items and amount of recovery against the provision we had made last year for a specific customer. If we exclude the exceptional item and recovery, the reported net profit for the current quarter is INR 125 crores.
Let us have a look at consolidated segment performance now. B2B segment revenue for the quarter was at INR 1,075 crores, which is a 17% growth year-on-year. The segment profit was at INR 134 crores, reflecting approximately a 77% increase year-on-year. B2C segment revenue for the quarter was at INR 230 crores, which is a 12% degrowth year-on-year. The segment registered a loss before interest and tax of approximately INR 6 crores. Financial services segment revenue for the quarter is at INR 195 crores, reflecting a 54% year-on-year growth. The segment PBT, excluding exceptional income, was at INR 31 crores. That is a 22% increase year-on-year. In conclusion, we delivered a steady performance in Q2 despite significant changes in the B2B segment. Looking forward, we intend to closely monitor the B2B market, especially concerning emission norms, while maintaining our focus on the industrial market as we prepare for the upcoming BS V engine update.
As we approach the final phase of our 2X-3Y journey, we are cautiously navigating the new emission norms market with a strategic emphasis on key areas like high horsepower gen set market and international business expansion. Now, we will open the forum for Q&A sessions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch-tone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have the first question from the line of Jason from IDBI Capital. Please go ahead.
Yeah, thanks for taking my question. Yeah, congrats on a good set of numbers, and thanks for taking my question. My first question is actually relating to just wanting to understand that, of course, we are trying to go higher up the value chain in terms of the high horsepower segment. So just wanted to know, in terms of the res`ponse from the Optiprime series, how is it, and how is the demand outlook tracking for the Optiprime series?
Yeah, hi. This is Rahul. So what we've seen is that there is a significant interest from a lot of our customers, and we have gained traction. So, for example, there are several high horsepower order book or orders that we do have at this point. And we will continue to push and work on the Optiprime from a market communication standpoint. But the value proposition is very clear, and we do see a very clear space for it.
Sure. Sure. And also, just wanted to understand now with the upcoming BS V norms in January 2025, how is the pre-buying coming along for the industrial segment, especially for the construction equipment vehicle segment? And also, I just wanted to know, in terms of realization growth as compared to the previous emission norm, what kind of realization growth can we look at for those engines? And post that, will margins be in a similar range of 11%-12% for us?
Right. So I wouldn't expect a very significant pre-buy because ultimately, the engines go into equipment, and we work very closely with our OEMs, and I wouldn't expect, because the margin profile may vary from node to node, but I wouldn't expect the margins to change drastically because we do have enough players and competitive forces in each node, so our margin profile will remain somewhat similar.
Okay. Sure. Sure. Thanks for that. I just wanted to understand from a long-term perspective. Also, finally, I just wanted to ask you that for Arka Fincap, what is your strategy going ahead? I mean, of course, I see there is good growth coming in for Arka as well. But do we look at having sort of the separate entity going down the line, somewhere down the line?
Sorry, could you just repeat the last part of your question on somewhere down the line? I didn't catch that.
What I meant is, ma'am, actually, for Arka Fincap, just wanted to know that I know we are seeing good growth coming there, but just wanted to know that from a long-term perspective, are we looking to hive off into a separate entity and keep the genset entity separate? Just wanted to understand from a strategy perspective.
Yeah, sure. So yeah, let me answer your question, and then I can request if Samrat has anything to add, although he's just joined and has been in the job for about 10 days. But from our perspective as a parent of Arka, what I would say is that we will continuously monitor the granularity of the book, the spread of the risk, and the return on equity that we're getting from the business. But from the view of this being patient capital, there are many ways and means for the business to continue to also raise capital as the requirement is there, as the book grows. And this is something that we will help the business with. So when you look at the path for the NBFC, there are certain stepping stones that it will have to take to get to a certain level in size.
And then we can look at logical steps at that time. But it's not something that I will be able to comment on in terms of hiving off or not.
Okay. Thanks. Those were all my questions.
Samrat, anything you would want to add in terms of some of the maybe plans that we have in terms of the business?
Yeah. Hi. Good afternoon to you. I just wanted to say that I just want to supplement and complement what Gauri said, that as far as Arka is concerned, it's growing at a nice pace. I just joined 10, 15 days back, and the reputation and integrity of the promoters are impeccable. And we have a very good team from a risk management and credit assessment perspective. Now, I am sure that a group like Kirloskar, they believe in patient capital, and they believe in investing in industrial organizations which survive the test of time beyond five years, 10 years, or perhaps much more than that, given the background of KOEL.
My mandate is to ensure that I take advantage of the amazing team that we have and look at current things which we need to perhaps get as far as direction is concerned, more towards building granularity of the book, diversification of the book, and also looking at a digital distribution system which is aided by technology and which is also aided by a strong branch infrastructure and collection infrastructure that helps to spread the risk and I'm sure there has to be a threshold rate of returns which we need to deliver to ensure the continuity of support from KOEL. At the same time, the ecosystem of KOEL is very large. The Kirloskar Group is very large.
As I try to understand the group, because it's more than 83 years KOEL exists, there are more than 4,000 points of presence where such distribution that is complementary for Arka, and we can build it around that. Our objective is to build a small-ticket secured retail book because currently, we have a large emphasis on the wholesale book, and while we do all of that, we also have to ensure responsibly we build our customer experiences for convenience and value so that the brand India and what Kirloskar stands for, India, we can also deliver as Arka over a period of time. We are working on a business plan. We are working on all of that.
That will take us a little time, but we will do that responsibly, without any exuberance, without any uselessness, only to keep in mind that how we develop India into that kind of an entrepreneurial culture and that supports the entire building of the nation. And that's what Kirloskar stands for. And once we have that, I'm sure we will get it signed up by our parent company and see to it that we have a long-term and even a short-term execution to that. Thank you.
Sure. Thanks for that. And just one last question, if I may squeeze in. For this Optiprime series, of course, we are chasing the data centers and that segment. Have we acquired the necessary certification from CPCB and EPA? Is that done, or is that process still continuing?
That's done, and we are executing our orders in data centers already.
Okay. Sure. Thanks. Those were all my questions.
Thank you very much. We have the next question from the line of Mihir Manohar from Carnelian Asset Management. Please go ahead.
Yeah. Hi. Thanks for giving the opportunity. Congratulations on a good set of numbers. As I said, I really wanted to understand the Powergen side. I think this quarter will be Powergen revenues at 34%-35% growth. Now, if I consider the realization we just moved, which is also in the similar range of 30%, so I think does it mean that the volume growth during the quarter was muted and some color on that will be very helpful? The second question was on the pricing front. I mean, there is roughly I think now close to one year that the CPCB IV engines are getting the place. So how is the pricing panning out for us for CPCB IV engines? I mean, let's say over the last six months, is it holding up, or are we giving some discounts over there? I just wanted to understand that.
Sure. So this is Rahul. See, if you look at the last two quarters, there was a lot of transition happening. Last quarter was the first quarter where we formally moved into the CPCB IV era. Now, if you look at the quarter, the Powergen volume overall for the industry dipped by almost 12%-15%. And out of that, we've been strong in our market share. So I haven't seen any significant dips. So as far as that is concerned, we've strengthened our position in certain nodes. For example, if you look at our high horsepower nodes, we've strengthened some for example, look at 750 kVA or 1,000 kVA. We've strengthened our positions there. So overall, if you look at the market, the market overall declined in volume, and we saw that impact as well. We don't have significant volumes in 2,000 kVA and upwards.
So of course, we have our Optiprime, and that's the path that we are now taking. But overall, we've been fairly strong. And if you look at CPCB IV pricing, at least as of now, we see the pricing hold, but the market is constantly evolving, and we are watchful of that.
Sure. Sure. In terms of data center, is it 1,500 kVA, which is provided I mean, becoming a product at that particular space? And it depends on some color over here as to what could be the revenue for data centers in one hyperscale data center. That would be helpful.
So it's a lot of different products. 1,500 kVA, we have our 1010 kVA, and we also have our 1,000 kVA Optiprime. So we're seeing traction slowly. And we don't really track or report data center segments separately, so I won't be able to give that number. But we are seeing more traction than what we've done before.
Sure. Sure. And just my last question was on the Kirloskar project, on the electrification method, which was asked just to get some color over here. Where is the method standing exactly?
So the legal matters are all subject to this. So I won't be able to comment on that on the Kirloskar Oil Engines earnings call.
Sure. Yeah. That's a comment.
Thank you very much. We have the next question from Palak from MIV Investment Management. Please go ahead.
Hi. So my question is that first, are we still confident of achieving our standalone revenue guidance? And considering the scenario of Powergen segments, secondly, if yes, we are confident, then what are the levers or the factors which are giving us the confidence?
So first, and Rahul may supplement what I say, but first, I want to state that our aspiration, it's an aspirational target, and that's what it always was. And if you look at the historical growth before we set this target, compared to the growth that the company has achieved in the last two years, I think that is what we were trying to change in terms of the momentum, in terms of the opportunity that we have in front of us. So that's just my comment on the last two years. Of course, now we have two quarters to go. The target is certainly something that we're still gunning for, and we will continue to gun for and strive to achieve. All of our teams are excited about the target. It has excited them thus far, and I think that it's certainly within reach.
So that's where I would leave it. And if Rahul has anything to add, Rahul, please go ahead.
Yeah. I mean, I absolutely am completely aligned. It was an ambition that we stated, and we are going after that ambition. And we've seen significant growth and success over the last two and a half, three years. And we'll continue to aspire for that ambition.
And secondly, do we anticipate any changes in H2 in Powergen segment? What is the volume growth that you are expecting? And in terms of pricing, will we be able to maintain the pricing since the other competitors are also catching up with the technology? And similar case in terms of margin?
So we are watching over how the market evolves because it might be premature to comment on some of those points right now. But we're keeping a close eye. And because as more and more players enter the CPCB IV market, it would be interesting to see how the market dynamics evolve over a period of time. But we can't comment on more than that at this point.
Okay. Understood. Thank you.
Thank you very much. We have the next question from Teena Virmani from Motilal Oswal. Please go ahead.
Hi everyone. Congrats for a decent set of numbers. My question is related to the competitive intensity in key nodes of Powergen for KOEL. So just wanted to understand, are smaller players or even the bigger players trying to get into the market share of KOEL? Have you seen any such kind of thing happening in Q1 and even in, sorry, in Q2 of FY 2025? Because some of the players have priced their product in such a way that it is much lower than the market rate. So just wanted to understand and take your views on the thing.
Sure. So hi, Teena. This is Rahul. If you look at the last quarter, what you will see is that, or at least what we've seen is that it's more of the established players where OEM by OEM there's certain variation. We haven't really seen a lot of "small players" come in because there is a lot of investment in technology as far as emissions are concerned in the CPCB IV+ era. So we haven't seen too many of smaller players come in, but there are OEM-wide market movements within the Powergen space. And it is generally by people who are well-established. I haven't seen any smaller player come and take market share in CPCB IV.
So in terms of the ranges, let's say the low kVA nodes or maybe the mid kVA nodes up to 400 kVA, 500 kVA, have you seen competition from players like Ashok Leyland or Greaves Cotton or maybe Mahindra Powerol?
Oh, yeah. I mean, you would have, but I would call them fairly well-established.
Yeah. Right, and relatively smaller as compared to KOEL.
Yeah. Yeah. No, for sure. I understand what you're saying. So yeah, we have seen competition come in. And so for example, Mahindra has been a long-standing player, especially on the lower end of the market. They've always been strong with their presence in telecom. So we've seen some of that happen, but at this point, it would be wise to look at one or two more quarters and then be able to come to any conclusion.
Okay. So in terms of demand side, do you see that demand in the month of October and so far in the month of November? Has demand remained strong despite these price hikes?
What we've seen in the last quarter is that demand fell. Overall, industry demand fell by almost 12%-15%. And we expect that to bounce back though. So as we look at the next few quarters, we do see demand picking up again. The last quarter was the first quarter of this transition. And I think we should see more of the order board building up and the demand picking up as we move into this quarter. So we are quite optimistic about that.
Okay. My last question is on exports. How do you see the second half panning out in terms of growth for the exports?
Yeah. So second half, we're expecting that to be better than what we did in the first half. Some of the challenges that we've seen on the international business, South Africa was an important market for us as far as Power Generation is concerned. And because of the power situation improving drastically in South Africa, we're seeing a lower offtake there. And as a result, what you're seeing is our Powergen business internationally has seen a hit. But on the industrial side, we've still been pretty strong. So if you look at our international business in H1, our volumes grew by, or last quarter, our volumes have grown substantially. As we look at the next, or H2, we're expecting that to be better than H1 as far as revenues are concerned.
Okay. Any traction, which is expected for CPCB IV+ products for exports in the near term, maybe in the next one to two quarters, or it is still some time away for CPCB IV+ to get accepted in the international markets?
So each region has its own emission standard. So while the product may not exactly be a CPCB IV product, but you're right, each region has its own emissions, and the technology would, and the platforms would remain similar. So what we're seeing is that most of the markets where we currently do international business in, they don't have a very high level of emissionization at this moment. So if you look at, say, the Middle East, or if you look at some of the African countries, so CPCB IV or having this technology of being able to get down to this level of emissions, that definitely helps us. But if we have to target more advanced markets, then we will have to have our products ready with those certifications.
And for instance, what we're doing on, for example, in the U.S., we have a few nodes that are EPA certified, and we are looking to grow that business. So we'll follow that strategy.
You got it. You got it, sir. Thank you. I'll come back and see for more questions.
Sure.
Thank you very much. Participants, if you wish to ask a question, you may press star and one at this time. We have a question from Bharat Sheth from Quest Investment Advisors. Go ahead, please.
Hi Rahul. I mean, taking forward to these are the insights for international data center, there is a huge opportunity. So now, exactly are we doing on that front, or are we working, and when do we likely to see that kind of a certification, which you are talking replied to previous participant?
Right. Right. Hi, sir. How are you? So international data centers are something that we're definitely focusing on. It is a slightly longer-term process because the process involves multiple consultant engagement, and there are already fairly well-entrenched competition there. Having said that, our first focus is the domestic market because that's closer to home, and we see a significant opportunity there. So before we go international on the data center side, we're focusing on the domestic market as far as data centers are concerned. And we do see a strong opportunity to do that. In parallel, we are building out our distribution globally. And in case there are data center opportunities, we are absolutely going all out to execute that.
My second question is that if we look at, I mean, India, a lot of, I mean, players global international. So we are looking at India as a global hub for sourcing diesel engine. So in that play, how do we like to play? Because once they start sourcing it, from there become also more competitive. So what is our game plan, I mean, for this, as well as can we emerge as one of the engine suppliers?
So you're right. A lot of global companies are sourcing very heavily from India. The advantage that we have is that our entrenchment with our suppliers is very strong. In fact, even today, in spite of moving to the level of emissions that we have, our imported content remains between 12% to about 12%. So our imported content is very low. So our level of indigenization as far as our platforms are concerned is extremely high. So even if there is competition, building competence for sourcing from India, that's absolutely fine. We don't see that as a cause of concern. We have had people who reached out to us for things like resourcing or sourcing some of their platforms from us, and we're engaged in different conversations there. But there's nothing significant to report at this point.
So when do we expect that there will be, I mean, some kind of, and to say maybe down the line three years, Kirloskar emerges as a large engine supplier?
When you say large engines, you mean like high horsepower?
Yeah. High horsepower for international market.
Okay. So what we are already doing, see, we're already shipping out our K4300 platform, which is a 1500 kVA we have started . We've commenced shipping that even to international markets. Our 2000 kVA, one of the first few orders got executed in Dubai. So some of that high horsepower work for international markets has already begun. What we are doing is focusing first on the domestic market with these products. And we are seeing demand locally as well. I mean, so that we are constantly evaluating, and we are taking a call on which products to ship well because along with the sale, there is a requirement of establishing an appropriate service infrastructure as well.
Okay. Thank you, and all the best.
Thank you. Thank you.
Thank you very much. We have a question from the line of Manish Goyal from Thinkwise Wealth Management. Go ahead, please.
Yeah. Thank you so much. I have a question on our B2C business where we have consolidated LGM's plants into a single location. So maybe if you can just provide some perspective, like what is the CapEx we have done, and are there any more CapEx lined up? And in terms of benefits, what benefits can we see near-term to medium-term, both on the revenue growth front as well as margin improvement front? That's the first question. And my second question is also pertaining to Powergen exports, like for developed markets, we have been seeding our higher range, especially in the U.S. with the subsidiary and recent acquisition of a front-end distribution. So where are we in terms of getting the certification, and what norms we are looking, and when do we really expect the volumes to peak? Thank you.
Thank you for your question. So Aseem, are you there? Will you be able to take the first question?
Yeah. You can hear me, no?
Yes.
Yeah. So thanks for that question. So if you see, we have done a CapEx of INR 140 crores for the new facility in Sanand. Now, this facility is state-of-the-art and with 30% extra capacity than the five small plants that we had earlier. In terms of synergy, we believe that we'll be able to actually save cost, also improve delivery time. And for international business, this facility will be a boon for us because many OEMs and also customers from Europe and also from Italy, when they visit this facility, we feel they will be able to opt for the facility for new orders.
Would we be able to quantify in terms of what is the margin improvement? Because probably no doubt this quarter, last Q1, we saw a decent improvement in the margins of B2C business. And this quarter, again, it's probably negative. But in what time frame can we see sustainable double-digit margins? Because the competition has double-digit margins in this business. So yeah.
Yeah. So if you see, in Q1, we actually had, in LGM, at least, we had close to double-digit margins. Even in the WMS pump business, we had double-digit margins. Now, this Q2 result has come down because of this plant transition. So as we were shifting man material and also the assets to the new plant, we had some challenges, and there was less production, which led to some sales loss. And that's the reason the results are what they are. We are still ramping up production, where there was some delay. Now, in November, we are at around 60% of the nameplate capacity, and by December, this will stabilize. So our aspiration is to go to double-digit EBITDA for B2C business. And we are confident that we'll be there very soon.
Yeah. I think there was a second half of that question on our Powergen exports. So if you're talking of, you spoke about our high horsepower strategy for the U.S. So at this point, we are actually evaluating that. So we are on the drawing board there, which are the right platforms to take to the American market. At this point, I won't be able to give out more than that. But we are looking at high horsepower in the U.S. We are evaluating our options at this point.
Sure. Thank you so much.
Thank you very much. We have next question from Hardik, an individual investor. Please go ahead.
Yeah. Hi. Am I audible?
Yes, sir. Please go ahead.
Yeah. Good evening. Thank you for the opportunity to ask a question. I would like to extend my congratulations to Mr. Vimal Bhandari for impressive growth of loan book to INR 6,000 crores with commendable GNPA of 100.5%. As Mr. Gupta steps in, MD, having led Tata Motors Finance with a book size of INR 31,000 crores and facing high single-digit GNPAs, could you please share how his previous experience will influence the strategic decision of Arka, especially now as the industry is seeing challenges in unsecured credit as well as MFI segment? Insights into maintaining our asset quality would be helpful.
Yeah. Hi. Thank you. Thank you for the question, Hardik. And I wanted to tell you that I just joined, and this is not a captive outfit at all. And it is indeed great. Vimal has built a great book, which is largely predicated upon loan against property and wholesale debt. And the asset quality is amazing. But issues like this, that we are NBFC, and our ratings and our cost of borrowing are much inferior compared to banks. And in wholesale debt, the spreads are not that high, or even loan against property, the spreads are not that high. Given that we don't have any captive focus, my objective is to build granularity of the retail book. And that too, in secured businesses, like places which are relating to small ticket loan against property, places which are fully secured, that is my objective.
As far as Tata Motors Finance is concerned, the book, which was not dependent on any captive business, that book had a GNPA of much less than 3%, ROA of much higher than 4%-4.5%. And that we built over a period of seven years to about INR 15,000 crores, INR 17,000 crores, which was fully retailed on the basis of distribution and collection and analytics and technology. I hope to work hard with the existing team, where we balance the wholesale book, we balance the retail growth and the investments, and ensure that the right kind of ROA metrics is followed out here.
Given that there is no captive business and there is no demand creation, rather it's a value creation for the capital that has been invested from KOEL, I'm quite confident that with the existing team and the experience which we had had to build a secure retail book generating lots of threshold ROAs, is what the journey would be. It's early days, and I'm learning from everybody, and I'm sure I'll learn from you to see how to make this company very successful on the basis of the metrics, which makes all the stakeholders happy and also their expectations aligned. Thank you.
Thanks. Thanks for all the best, sir.
Thank you very much. We have a question from Srinidhi from HSBC. Please go ahead.
Yeah. Hi. Am I audible?
Yes.
Okay. Yeah. Hi. Thank you for the opportunity and congratulations on a good set of numbers. So just a couple of questions on Powergen business. May I ask how has been the volume growth for the first half for the company? And if you also have a similar number for the industry, this is for the first half.
If you look at our volume growth in H1, our volume growth has been about, I would say, 12%-14% in terms of pure volume. I won't be able to comment specifically on Powergen, but I can speak overall. What was the other part of your question?
So this 12%-14% is overall company-level volume, or it was very specific to Powergen segment?
No, no, no. So we don't give to that. That information is internal. I can't comment on the specific power gain numbers, but I can speak overall.
Right, and just a 10%-15% decline, that was very specific to the Q2 quarter, right? And that was industry volume, you mean, right?
Industry volume. Yeah.
Okay. And that was largely due to what do you attribute this decline? Is it something which is generally the extended monsoon, government CapEx being low, or it's a lot to do with the inventory in the channel?
So I think that there are two forces there. One is, if you look at overall economic activity in the last quarter, that has also declined. So if you look at the GST collection, there is a dip there. The second is, it was the first quarter of 100% CPCB IV. And with the CPCB IV significant scope enhancement and corresponding price increase, a lot of key orders or a lot of procurement decisions were delayed because even the large corporate customers are waiting in case there's any change in pricing. So it was a combination of two things.
That's true. And a related question, would you say the channel inventory for the industry as well as for the company, how do you see it versus normalized levels for the Powergen business?
So see, unlike the automotive market, where channel inventories are at an all-time high and there's a significant overall glut as far as the demand is concerned, we're not seeing as much of that. So we are adequately stocked in the channel, and beyond a particular point, we actually don't want our GOEM working capital to be impacted, so we're not seeing anything drastically different from what we were expecting.
Understood. And so last one, if I may, how much of the Powergen demand for the company actually comes from the residential real estate end market?
We don't give out a specific number, but if you look at residential or real estate developers, that's a big part of our business, especially in Power Generation. That's a segment of importance as well.
Are you seeing incremental inquiries with a lot of this real estate market doing well generally? Are you seeing that inquiry levels in that end market quite strong for you?
We're seeing an uptick. What is exciting or interesting is we're seeing a lot of inquiry levels upwards of 1,500 kVA in that market.
Okay. Yeah. Yeah. Thank you for answering my question, and all the very best.
Thank you very much. We have a question from Manish Goyal from Thinkwise Wealth Managers. Please go ahead.
Yeah. Thank you so much. A couple of questions. One on the balance sheet. We see a very high level of capital work in progress of INR 225 odd crores as well as nearly INR 40 crores-INR 50 crores of intangibles work in progress. So what is it pertaining to? What is this CapEx meant for? And my second question is on the industrial business, on the domestic warranty spares, this quarter why the growth is low? Basically, it's a single-digit growth. And sequentially, it has declined by 21% from INR 320 crore to INR 253 crore. So just want to know what could be the reason where the growth rates have been tapering off, and how do we see it going forward? And what kind of recovery can we see in the quarter three? And just want to clarify here that the BS V norms will be implemented from 1st January 2025.
Sorry, the dealers are restricted to sell after 1st June, or how is it, the norm, the way we saw for CPCB IV? And my third question is on the share of high horsepower revenues in Powergen. And what do we categorize as high horsepower from what nodes we categorize? Thank you.
I would request if you can ask one question at a time because it's getting complicated to answer. Can you ask first question, and then I'll respond one step at a time?
My first question was high capital work in progress of nearly INR 225 crore in balance sheet. And additionally, intangibles also work in progress of, I believe, INR 40 crore-INR 45 crore. So what is it pertaining to where such large CapEx are still outstanding, and they are not capitalized?
Yeah. So these are the CapEx which are in progress, and these are very much essential for the growth of the company. And these CapEx are in the nature of sustenance CapEx and the new product development. And this will get capitalized as soon as the projects mature.
What is it pertaining to? Is it for capacity expansion or what?
Yeah. It's for the capacity expansion and the new product development. So as you are aware, that BS V will be coming up from 1st of January. So some CapEx are pertaining to that, and a few are pertaining to the capacity enhancement.
Okay. My second question was on the industrial revenue. It saw a single-digit growth in YOY, and it declined 21% sequentially. So if you can throw perspective, why the growth rate seems to have tapered off, and how do we see it going forward?
The industrial business has not declined YOY.
No. I'm saying it just saw single-digit growth, where we have been seeing in recent past very strong growth and if you probably look at Q1 numbers, it was INR 320 crores revenue, and this quarter, it is just INR 253 crores revenue. So how much is it probably because I believe tractors have improved sequentially, and you did comment that construction industry sales to infra and constructions are doing well. So I presume industrial engines play a fairly strong role over there, so just wanted to clarify.
Sure, so if you look at Q1, the industrial business is a function of the demand that we or the forecast that we get from our OEMs. So if I look at the industrial business overall, we are actually on track, and it is progressing as per our plan. There isn't a significant issue there.
If I look at versus H1 of last year, there is significant growth that we have seen. So if you compare H1 of this year versus last year, there is significant growth of 23%. So the quarter-on-quarter movement will keep happening, and that is not something that we are extremely worried about.
How do you see the pre-buying in quarter three? And if you can clarify that, can the dealers sell after Q1?
So if you look at CEV BS V, I mean, that's the transition that we're talking about. We actually sell the engines to our OEMs, which is why we wouldn't expect the pre-buy to be as high as the way it works in Power Generation because the OEMs are also limited by the amount of stocking they can do of the overall equipment. So there will be pre-buy.
It won't be as significant as what we experience on the Power Generation side.
And last question was on the share of HHP revenues in Powergen and what we ideally qualify as HHP.
Internally, we say anything which is greater than 750 kVA is HHP. So that's our internal definition. Now, if you look at historically, so maybe three years ago, this was in less than 4% of the entire portfolio was HHP. That percentage number would be over 15%-20% by now.
Okay. Thank you, sir.
Thank you very much. We have a question from Sourabh Arya from Oaklane Capital Management. Please go ahead.
Yeah. Hi. Am I audible?
Yes, sir.
Yeah. We can hear you. Yeah. Hi.
Yeah. Hi, Gauri and team. Congrats on decent numbers. The first question I have is on, again, B2C side. Obviously, in the last few quarters, it improved from 1% margin to 8% margin. And I know there are obviously this plant-related stuff which impacted this margin. But what does it mean? It's again a reset to negative, and then there will be a gradual journey towards 8%-10%, or we expect this was kind of a one-off issue, and things would be back to 8%-10% very quickly in the next few months.
Yeah. Thanks. Srivastav here. So see, last time when the margins were low, there were a lot of basic issues that all got sorted out, and it took a lot of time. But this time, the issues are basically related to less production. We couldn't produce, and that's the reason we couldn't save. Now, as we have started producing in the new facility where we faced problems in terms of ramp-up, we are confident that we will be able to come back to normal margins by Q4.
By Q4. Okay. That's helpful. Second is, so at standalone company level, there is a reasonable improvement in gross profit margins of the company. Can you explain, maybe Rahul or Sachin, they can explain a bit why this improvement is there, and is it sustainable?
This is Rahul. See, if you look at standalone business, it's largely driven by the B2B business. If you look at our overall improvement on the EBITDA, which is driven largely by our focus on our aftermarket, our HHP growth, as well as our continuous endeavor to drive exports, the three key levers continue to positively impact our margins. This is why at a standalone level, you see that improvement.
So this gross profit margin will sustain? This will move towards 36%.
So we will continue to strive for improvement. I don't think I can comment on beyond that.
Sure. And maybe very lastly on the export side. So at the start of the year, we had, I mean, to say, pretty strong expectations for the export business, while from Q1 to Q2, it has decelerated. Obviously, you commented that in H2, things will be better. But still, at a full-year level, what should be the expectation from exports? And I understand this South Africa issue, maybe South Africa power situation improving is there, but that would actually continue even going ahead from here on. So maybe that would not be a one-off issue. That is something which is here to stay.
So you're correct. And there are multiple cycles that we're exposed to. So as we become more global, more and more of such situations will happen. So South Africa was an important market for us, and we're seeing this drastic decline in demand. But we also have other plans. So we have our GOEM that we've appointed in the Middle East. There is work that we are doing in the backend to ramp that capability up. So overall, in the international business, it's not where we wanted it to be. We expected more. But having said that, we continue to be optimistic because there is a lot of work that we've done in the backend.
Why I am actually a little bit maybe I would want to ask more is because H2 of last year was very, very strong on exports. So would it be, I mean, to fail to expect growth on those numbers, or it would be very challenging? So H1 versus H2 might look good this year, but on a yearly basis, actually, that might be still not good enough to give any growth.
We are very committed to growing beyond last year.
Perfect. That is very helpful. Thank you. Thank you very much. All the best.
Thank you. Thank you.
Thank you very much. Ladies and gentlemen, we will take that as our last question for today. I now hand the conference over to management for closing comments.
Yeah. Thank you very much, everyone, for joining the call today and for all of your questions. And thank you very much for your support to the team. See you next time.
On behalf of Antique Stock Broking, that concludes this conference call. Thank you for joining us. You may now disconnect your lines.