GMM Pfaudler Ltd

NSE:GMMPFAUDLR

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to the Q1 FY '24 Earnings Conference Call for GMM Pfaudler Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Priyanka Daga. Thank you, and over to you, ma'am.

[Priyanka Daga, executive]

Thank you, Dev. Good evening, ladies and gentlemen. A very warm welcome to all of you into the quarter 1 FY '24 Earnings Call of GMM Pfaudler Limited. The earnings presentation was uploaded on the stock exchanges today and is also available on our website. Hope all of you had a chance to go through it. From the management, we have with us our Managing Director, Mr. Tarak Patel, our CEO of International Business, Mr. Thomas Kehl; our CEO of India business, Mr. Aseem Joshi, our CFO of International Business; Mr. Alexander Poempner, our CFO of India business, Mr. Manish Poddar; and our Compliance Officer, Ms. Mittal Mehta. We will give you a brief overview of the performance of the company, after which we will get into the Q&A. Before we begin with the overview a brief disclaimer, the presentation which we have loaded on the stock exchange and also on our website, including all discussions that will happen now contains or may have certain forward-looking statements regarding our business prospects and profitability, which are subject to several risks and uncertainties. Actual results could materially differ from those in such forward-looking statements. I will now hand over the call to Mr. Patel to provide an overview of the performance. Over to you, Tarak.

[Tarak Patel, executive]

Thank you, Priyanka. Good evening, everybody. We are happy to announce a strong start to the year and remain on track to meet our FY '25 guidance. Our business today is much more diverse and resilient than ever before, and we cater to an increased number of geographies and a wider range of products in our portfolio. We will continue to leverage our spend, that is our market share, technology, the position as well as our global sales and service network to grow our business across regions. There is clearly a slowdown in the chemical industry. And because of this, our order intake remains subdued. However, our opportunity pipeline remains strong across all business platforms and geographies. And we expect some of this the decision-making, which has been quite delayed for a few months will come through in quarter 2. We have also seen good traction in our technologies and services business. However, our systems business is behind budget. Further, our new market segments that we have kind of now acquired through our acquisitions will also help us in the new market segment and will also help us in reducing our dependence on Chemical and Pharma segments in the long term. Our order backlog remained stable at INR 2,000 crores, which translates to about 8 months of visibility in the international business and about 6 months of the India business. In terms of financial performance, our consolidated revenue for the quarter grew by 23% to INR 912 crores with an EBITDA of INR 132 crores, which is 35% higher than last year. Our current quarter's improvement in profitability was driven by the international business, largely due to strong execution, pricing improvement as well as lower raw material and energy costs. Having said that, cost reduction measures continue across geographies. Operational excellence projects have been initiated at Mavag Switzerland and Mixel France. And on the manufacturing front, I'm also pleased to announce that we have completed our first the acid recovery project here in India. Our long-term strategy, growth strategy remains intact and as management, we are continuously working on growing revenues and margins. Looking at the current performance, we will most likely surpass the FY '25 revenue guidance of INR 3,700 crores, and we are on track to meet our EBITDA guidance of INR 630 crores. As FY '25 is not too far away, and many of you have asked about our growth plans beyond FY '25, what I can say as a general rule of thumb is that we as management are confident that we can achieve similar levels of growth going forward. As per our guidance document, which was from FY '22 to FY '25, we had planned to deliver about 15% CAGR growth in revenue and 25% CAGR growth in EBITDA. Beyond FY '25, we expect the growth to continue in the range of 13% to 15% and EBITDA growth in the range of 18% to 20%. The growth in revenue will come from newer geographies that we will now cater to. Our non-glass lines the portfolio is growing faster as our market share is lower in these products and our services business continues to grow across geographies. Our India business will grow faster than our international business. We expect the India business revenue to [Indiscernible]

[Operator]

[indiscernible]

[Tarak Patel, executive]

Sorry. Our India business will grow faster than our international business. We expect the India business revenue to increase at CAGR of 17% to 18% and the EBITDA to grow at a CAD of about 20%. I will now hand over the call to Manish, our CFO of the India business, and he will take you through the performance in more detail. Thank you.

[Manish Poddar, executive]

Thank you, Tarek. Good evening, everyone. Pleased to share our first quarter results for FY '24. As Tarek mentioned, our consolidated, our top line and EBIDTA grew by 20% and 35% respectively on a Y-o-Y basis. Our international business did perform very well with significant improvement in EBITDA margin, driven mainly by some execution, pricing improvements and lower raw material and energy costs. Also, our higher share of services has improved the margin. Our India business continued to perform well. However, there is a margin pressure due to increased competitive intensity and a general slowdown [indiscernible] extensive segment. We also had lower shipment in Q1, which is a usual trend for any year and a lower share of exports in this quarter also impacted margins. We have undertaken cost-saving initiatives and operational excellence programs across this organization, which should have a positive impact on margins going forward. Whether some of you have-- also some of people have inquired about the CapEx plan. I would like to [indiscernible] that could achieve FY ‘25 guidance. We do not need any enhancement CapEx other than the regular maintenance CapEx of around 2% to 3% of the [indiscernible].Beyond FY '25 to maintain growth trajectory, we would need enhancement CapEx, we would ensure that additions are value created with total CapEx to be about 3% to 5% of the total revenue including the maintenance figure. With this, back to you, Priyanka.

[Priyanka Daga, executive]

Thank you, Manish. Dev, you may now open the line for questions. Thank you.

[Operator]

Thank you very much. We will now begin with the question-and-answer session. [Operator Instructions] The first question is from the line of Venkatesh Balasubramaniam from Axis Capital.

[Venkatesh Balasubramaniam, analyst]

Yes. Is it possible to repeat your guidance beyond FY '25? Did I get this correctly, revenue growth of 13% to 15% and EBITDA growth of 18% to 20%?

[Tarak Patel, executive]

Right. So again, Venkatesh, this is not guidance per se. It's a general rule of thumb. We've been asked this question that 2025 is pretty much going to happen in the foreseeable future? And what kind of plans do we have after that. So yes, like I rightly said, in terms of the consolidated revenue growth, it will be in the range of about 13% to 15% CAGR and the EBITDA growth will be in the range of 18% to 20%. I think if you compare it to the vision document that we gave out last August, it is at similar levels. Obviously, we have grown significantly in the last few years. And we know already with the work that has happened in terms of the glass line business, the restructuring that we've done in Europe. We expect this growth to continue in terms of revenue. But on the EBITDA number, we are a little bit more conservative because we've already seen significant improvement in the international business. And we probably feel that, that has kind of growth for the takeoff. The 20% growth rate CAGR in the EBITDA growth is still possible.

[Venkatesh Balasubramaniam, analyst]

So this is like your internal target that you said beyond FY '25, this is what you would like aspire to do.

[Tarak Patel, executive]

Yes. So as management, this is what we would expect of our shares. This is what we will aspire for, and this is what we will definitely work towards. Obviously, the market should be conducive, which we believe it will be. And I think it's important for people to understand that some of these things are long-term initiatives. We've planted the seed, but we do expect over the next few years that some of these initiatives that we are working on will start to take shape. And at the same time, we've also kind of said that listen glass lining is a very important part of the business. We already are the market leaders, have high market share. That business can only grow so much. So we need to focus on new areas, which we have been doing. And hopefully, now we have planned and you have seen the acquisitions that we made, especially in the space of the mixing where we believe we can add significant growth as well.

[Venkatesh Balasubramaniam, analyst]

Okay. Understood. The second question is on the standalone business margins, which were at around 14.4%. last year, margins were subdued because, I guess, you are sitting on an inventory of high cost steel. Now what we remember is in the fourth quarter result, it was mentioned that the high cost inventory of steel has been exhausted. And hence, first quarter onwards, you should see a margin improvement. But that has actually not played out. So haven't you -- I understand that revenue growth at around 12% on the stand-alone is slightly muted. So you could have had negative operating leverage, but didn't do you get any benefits of the, what do you call it, lower raw material costs because even your GP margin, that is your raw material margin has also contracted on a Y-o-Y basis from 50% to like 48% odd.

[Tarak Patel, executive]

Right. So I think a couple of things to kind of think about at an India margin level, and I'll add -- I'll let the team also add to this. But generally speaking, India usually has a slower Q1. Obviously, the Q4 is always the big month, the big quarter and then Q1 is a little bit subdued. Having said that, we could have had a little bit more shipment as well, which could have impacted the margin positively. And like Manish said, the ratio of exports in this quarter shipment was obviously lower than what we expect. Having said that, we are working on internal measures to improve margins. There is definitely some benefit that we will see in India because of lower steel price and energy costs. We were hoping to see them this quarter. But at the same time, do keep in mind that there is competitive intensity that has increased. There has been, over the last maybe 2 quarters or so, a lot more, I would say, the competitive activity where we have seen slight slowdown in terms of investments, especially in the chemical sector. So that has probably made the pricing strategy a little bit more aggressive. Having said that, we do believe that we are in a good position. We have had a good order intake in Q1, but we see that Q2 is slightly more encouraging as well. And we are being more aggressive. And as you know, we are the market leaders. We are the choice when it comes to glass and equipment, and that's really where we have the right [indiscernible] right? So having said that, we expect the Indian margin to kind of stabilize around the 15% to 16%. That's what we are hoping for this year, and that's what we can expect. And if there's further improvement in the market and there's further improvement in our the internal cost structure, maybe that will be slightly the higher number as well.

[Venkatesh Balasubramaniam, analyst]

Okay. Understood. Now a different question on your international business. The growth in your international business is quite surprisingly strong because we were all believing that you are -- the international business is basically a mature economy, you should be growing at maybe single digit at the end double digit, but growing at almost 18%, 20% kind of level what exactly is happening there? Is it because your offshore manufacturing to India, you have been able to offer better prices and you're actually gaining market share outside India. Is that something which is playing out? Or is it -- there is something else which is at play?

[Tarak Patel, executive]

Yes. So that's playing out, but I would not say it is significant in terms of the improvement. I think the improvements have been years in the making. I think we have put in place a lot of initiatives like I mentioned, especially in Germany, in Italy, in China, we built a service network across the world. We built our systems business as well. So all in all, I think it's multiple different things that are fired at the same time. In spite of the slowdown, even internationally, we've been able to have a very strong Q1. We have about 89 months of backlog. And on top of that, yes, we have been able to enter new markets, new geographies with product made in India. We've also started the stock and sales program, which obviously is something that we expect to kind of gain some traction over the last -- in the next few months. We also now look at supplying some of stainless steel and [indiscernible] components out of India. So we are working on that. That is a slow process. There's a lot of acceptance issues, there's a mindset issue that we have to work around. But all in all, we've had a very good start, very positive start, and we hope to build on that going forward. Maybe, Thomas, do you want to step in?

[Thomas Kehl, executive]

Yes, this is Thomas Kehl speaking. I think one thing to mention is that our overall strategy of going into non glass line application technology is playing out quite well. Remember, we made the acquisition last year with the company in Italy. A company for filtration localization separation [indiscernible]. We acquired and closed the deal with our company in France itself for the mixing industry, and we created the joint venture for our reclassing business in the U.S. So this is playing out and it's helping us increasing the order intake and diversifying our industries and it's largely really ramping up on the performance that we have demonstrated.

[Venkatesh Balasubramaniam, analyst]

Tarak I had a question for you. You were supposed to buy another 1% of the company and this was supported to happen by somewhere around April or so -- now it is almost August, but that 1% per stake purchase which was supposed to happen at INR 1,700 price, that has actually not happened. So why is that -- why is there a delay in that particular thing happening?

[Tarak Patel, executive]

Good question, and I'm glad you asked it because I'm sure everybody else waiting in line will probably ask the same question that the only reason that has not happened is because of French FDI approvals. I am still 100% committed to do this trade at INR 1,700 for 1%. It will get done. And most likely, the timeline is sometime in September. I'm giving you the higher end of the timeline. If it happens before that, this will get done. There's no change in mindset. There's no change in agreement. This 1% will be bought by the Patel family at INR 1,700.

[Venkatesh Balasubramaniam, analyst]

Okay. One last one from my side. There is still a -- there will still be 13% of stake with the private equity fund, which they want to exit. Now what is the thought process behind that particular exit because the top price obviously is stuck at levels below the previous levels where they sold shares. Now are you open to say doing a sale below the INR 1,700 level? Or is it like you would want it to go to about INR 1,700 when that trade happens because it's become like a chicken and a kind of a problem. It's a catch-22 situation because there is that overhang of that block trade not happening, the stock is not going up. And because it is below INR 1,700, the block trade is not happening. So what exactly -- can you throw some light on that?

[Tarak Patel, executive]

So firstly, I really can't comment on stock price and stock movement. So I would not say anything on that front. On the second part of the question, obviously, let me start off by saying that DBAG, the private equity company, a responsible shareholder. They have supported us since 2014. They've been part of the journey. They made significant returns for themselves, obviously, but they have also really enjoyed working with and building this company from -- I was just retailing somebody yesterday not so long ago, we had INR 500 crores of revenue. Today, we are tracking to INR 500 crores of EBITDA, right? This has happened in a matter of, what, 5, 6, 7 years, right? So significant transformation and for an Indian company to have a global play like we do today, it's not something not to be proud of, right? So I think that from that perspective, everybody involved in the business over the last many years, it's proud of the performance. Having said that, there will be, at some point, a solution for this. We do understand there could be an overhang as well. And again, like I said, they will sell to the right investor, long-term marquee investor at the right time. And we will obviously try to do it or we will try and do it as soon as possible so that the overhang is created, then we can focus on business and move forward in life, right? So I think there's nothing more to say on this. And I think if there will be a best of all outcomes for everybody involved.

[Operator]

The next question is from the line of [indiscernible] from Birla Mutual Fund.

[Unknown Analyst]

Yes. So the question was on the order intake and the subsequent sort of flattish order book that we have. So this is the fifth straight quarter where you've seen it take sort of trend downward. So we started Q1 of last year with INR 980 crores and is now with INR 770 crores. So -- but also why we've maintained that the opportunity pipeline remains strong. So if you can throw some light on whether conversions are now taking longer or competitive intensity so high that we are losing market share. Can you talk about that? And then I'll follow up with some other questions.

[Tarak Patel, executive]

So if you see our numbers and compare them with any other company who is also giving numbers in the public space. You will see not only have we grown market share this quarter, but we will continue to probably grow market share. So I don't think that's happening at all. We are being aggressive in the market. There is pricing pressure. But like I mentioned to you, we have a clear idea in terms of what we want to do. And the idea across not only the India business for the indirect business as well is that the order intake has to increase. And we believe the company is working towards that. Having said that, we did make one more point comparing this quarter with some INR 900-odd crores of, I think Q1 last year maybe. I think the only thing we caveat to that point was the quarter before that, it was about INR 400-odd crores, right? So the average should be around INR 800 to INR 900, in my opinion, that's something that we should aim for. I think that maybe this quarter, you will see some improvement there as well. There has been good order intake here, especially in the blackline business here in India. We do expect some big orders to materialize as well in the systems business. The services continue to do well. And maybe I have the Aseem and Thomas also quickly jump in and tell you specifically what's happening in their regions.

[Aseem Joshi, executive]

Jonas. So I think Tarak covered most of it. But look, in India, we recognize there is a slowdown in the chemicals industry. So for us, it's a matter of ensuring that the act do exist in chemicals we capitalize on, which we are doing. And then double our efforts in the sort of segments outside of chemical and pharma. There, I'm happy to report we've been able to do pretty well in the first quarter in our heavy engineering business and mixing business. We've seen some good wins come through, and I expect those will continue. So based on this, the sort of the approach we have taken, which is to diversify, we feel confident that we'll be on track to meet our guidance numbers as Tarak said earlier.

[Thomas Kehl, executive]

I think I can second that probably in the international business. Yes, we have seen in the chemical industry, a little bit cooling down the last 2, 3 years abnormally high in the hot market on the quotations going out there and the decision-making process are at a normal rate now. They have been very far in the last 2 years. Therefore, the order intake comes in slower, our potential out there in quotations and the projects being open are still high. We are not losing more than in the past or our market share is stable, and we probably even increase it over time. And again, we have matured our strategy that we ask for work for diversification and some of the business segments are even above our expectations. One is our [indiscernible] business, this [indiscernible] lining, in the [indiscernible] driven by the semiconductor industry. Our overall service business international is ahead of budget and order intake providing extremely good mix for margin improvement and sustaining. And in summary, yes, we still believe in making up to our guidance.

[Tarak Patel, executive]

And let me just add something here Jonas, as well. I mean obviously, as management, we are conservative with the market generally. We obviously want to kind of make sure that we have our initiatives in place in case the market were to continue to slow down. But from what we've been hearing, what we've been speaking with owners managing directors, promoter of chemical companies even though there is some short-term pain, I think we all believe that we've already seen the bottom, right? Things are very cooling off from -- in terms of the commodities as well. So now you will see maybe an uptick in terms of investment and demand picking up, right? So hopefully, it's not too long before we see some kind of turnaround. And like I said, a few large orders coming in, in the systems business will definitely change the kind of outlook for us very, very quickly. But having said that, we all are working hard, quite we committed to take in as much orders as possible, and we will be on that until we are comfortable. So I think from that perspective, I think this year is something that we are quite confident that we can hit the numbers. And I think from an order perspective as well, we will manage to do so.

[Unknown Analyst]

Understood. And appreciate the management's efforts to be sort of more feet on ground on evolving air market scenario? My second question was farmers mentioned that midstream –

[Tarak Patel, executive]

Can I, sorry, interrupt you for a second, your line is not very clear. Do you mind logging back on and then coming back because you're breaking up and it's not very clear. So if you don't mind logging back in and just coming in, we'll be happy to answer your questions as well.

[Unknown Analyst]

Is this better?

[Tarak Patel, executive]

Yes, much better. Yes, go ahead.

[Unknown Analyst]

So Thomas did mention that there was some good traction on the non-T&E side. So if you can highlight what has been the growth in the non-T&E business this quarter. And we've seen a very good margin traction on the international subsidiary side, which is effectively your consolidated minus stand-alone what would you attribute that to? Is it a sales mix, which has been more in terms of non-GLE if you can just sort of help us tie that?

[Tarak Patel, executive]

So maybe Alex can take that. Alex, the question was that what has driven the improvement in margins internationally is the product mix is a kind of a specific region? And the first question was traction on the non-GLE.

[Alexander Pompner, executive]

Let me start, Alex here. So I would like to definitely mention through 2 aspects. First, the mix that you already mentioned. The service business is really strong. And the service business is by far the highest margin business in the international business. And secondly, please remember we were asked 9 months ago last year always regarding the high energy costs, raw material costs in euro. And you did not really see a negative impact on the international markets. However, we, of course, increased the prices. And now we have the benefit in -- especially also the glass line business that we have with reduced energy and raw material costs, we are now having invoiced orders which we sold for the higher prices. So we achieved the price increase and now benefit on top of this from a lower cost structure.

[Tarak Patel, executive]

Okay. And in terms of other specific regions or any other subsidiary businesses that have done extremely well over this quarter, I think that was what we [indiscernible].

[Alexander Pompner, executive]

Okay. The other question, what Thomas already mentioned that the [indiscernible] business is really a strong unit now. It's linked to the semiconductor business in the U.S., where you're probably aware of, it's a push. It's an additional investment into this market. So as long as really outperforming our expectations and also causes a significant uplift in margins. But also, as already mentioned, is in the European entities, we see a margin improvement in Germany, in Italy. As said, we have good priced orders shipped out of the door with a significant improved cost structure versus last year. So it's gradually everywhere where we see improvement.

[Unknown Analyst]

So how much is GLE sales versus what the sales grow between GLE and Non-GLE consolidated level for us this quarter?

[Alexander Pompner, executive]

At a consol level, I don't probably have the numbers off hand, but that's something maybe Manish will reach out to you after any provider in case you don't mind Jonas.

[Unknown Analyst]

Sure. And my last question was to Manish. So the interest expense that's clocking about INR 20 crores a quarter for the last 3 quarters. You can break that up between the impact of the pension liability if any and the normal interest and bank charges costs was at a INR 300 crore gross per level INR 20 crore a quarter sort of looks like. So I'm sure there's the pension liability rates, I think that if you can help us give us the breakup on that.

[Manish Poddar, executive]

So Jonas, pension liability are impacted in OCI, not in the finance cost. So that line is different altogether. So that was financial cost does not include any impact positive or negative on account of pension assets. Broadly, we have got at [indiscernible] all level even in [indiscernible] broadly an also a 7.8% interest on. So you can say broadly to INR 62 crores, INR 64 crores in for this year. Trade is all on account of bank charges. And in related to foreign expenses are including case of some product citation. And of course, we did mention of that INR 800 crores of debt, we do have something like close to INR 300 crores of cash as well to meet the [indiscernible].

[Unknown Analyst]

So that is the point. So a INR 20 crore run rate on a quarterly basis would add up to about INR 80 crores while you were guiding for more like a INR 60 crore, INR 65 crore interest expense of that doesn't seem to add up. And also, if you have a INR 300 crore cash balance, that should also throw up some bit of other income, which is in a way, very insignificant quarterly run rate, except for Q4, that sort of spiked. So maybe I can take that offline, but yes, this is something I want to leave you guys with

[Tarak Patel, executive]

Sure. That's a good point. As we look at that, I think Manish close to a number of 65 the gap between 80 and 65. So that's something maybe you can take offline.

[Manish Poddar, executive]

Yes, that's primarily on the some bank charges and the Forex just to put the takeoff there.

[Tarak Patel, executive]

And give I hope you have got the March 23 balance sheet, which will obviously have much more detail than we can discuss. And maybe Manish to also just give them some idea in terms of repayment and when our debt levels will come down to [indiscernible] so like we did at INR 430 crores of EBITDA last year. The growth 30 crores of EBITDA next year. Broadly, the only the 4 years of loss, we can say it probably will be at INR 1,600 crores of EBITDA -- maybe at 50%, we should be having free cash flow coming out to something like close to INR 800 crores because something like INR 300 crores into out the funding for the taxes. Some 250 crores will go out on the interest rate payments and another INR 250 crores broadly on this working capital on the [indiscernible] out, it closes what remains. So probably that's where the cash flow generation is there. So we should see a feel maybe in 24 months from now from a debt perspective. Of course, what the book it will just to the board, what to decide, we whether they want to pay dividends or whatever you want to see demand for [indiscernible].

[Operator]

[operator Instructions] The next question is from the line of Mudit Bhandari from IIFL Securities.

[Unknown Analyst]

On? Yes. Go ahead. Just one question from my side. You mentioned in the opening remarks that there were a slowdown in chemical sector in the industry. So firstly, whether it was on the domestic part or international part? And secondly, what are the specific -- whether there is a particular thing that has happened led to the slowdown? And what are the things that we should look in future to see if it is gaining? Any other particular event or any other thing? That's all from my side.

[Tarak Patel, executive]

Okay. So I think first and foremost, I think it's important for Petco to realize. And yes, the chemicals segment is a cyclical segment, there is going to be cycles. We have obviously build in a cycle for the last maybe 4 to 5 years that has been on the uptick that has been kind of improving every year. This is obviously something that had not happened many than in the past, but it the last 5 years have been very, very strong in terms of chemical investment, both internationally and in India. But again, do keep in mind the chemical business, both hydro chemical and specialty chemicals is cyclical in nature, right? And that's one of the things that as management, we do realize and hence, we want to have diversification, that means 1 of the year or 2 years centers would slow down, we have something else that will make up for the shortfall. Today, the slowdown is generally across the industry, both in India and internationally. The reason for the slowdown are I mean, at least from what I have read seemed to be overstocking for this. I mean these guys have all got the specialty agrochemicals, we talk them for many years. We are coming out of pandemic, they didn't have line of sight. And now they have overstocking that's happened in Europe and the U.S. So until those get kind of sold off new ordering cycle won't start, which also has led to Indian companies who are stocking inventory to dispose of the inventory at much lower prices, which is obviously impacting margins. The first thing that has also happened is that China, over the last couple of months, last quarter, has also done chemicals in the global market at a much lower pipeline. So again, that has caused weakness in demand. And then lastly, I guess, on the positive side, at least on the commodity side perspective, we see some kind of stabilization now. So I think the bottom has been hit might be the same for maybe a few weeks month or something. But I think in the near term, we should see some kind of revival.

[Operator]

The next question is from the line of Jasmine Surana from VT Capital.

[Unknown Analyst]

So I had a few questions. First one was on the raw materials to last fall and frankly and some moments ago. So you did mention that raw materials the same mining for you. I want to do on the gas prices, the sale prices in the retail carbon prices currently.

[Tarak Patel, executive]

Sure. Let me then take it up into international and India businesses, maybe international side, steel prices and gas prices. You can give your comments and where you see that panning out.

[Thomas Kehl, executive]

Steel prices have come back down to the levels that we have seen in the core, so the first quarter of last year, but it came down now and we are enjoying a little bit of windfall here where we have acquired orders at a higher [indiscernible] calculation, we now pay a little bit there for this opportunity, and it's not really impacting negatively our business right now. The gas price development in Germany or overall the energy price prices directly did not impact us because in Europe or in Germany, we are not using gas or firing up our open conformance electrical power. The rate power energy prices were peaking in the first quarter last year but the actions that have been taken by the government and are taking now shape in a positive way. The energy level prices are below -- significantly below the first quarter of last year, they are more or less back to the time before the crisis. So the negative impact has been absorbed. And in addition, we were able to put that through in our pricing to our customers and kept the margins at the level where we want it to.

[Aseem Joshi, executive]

Yes. And as far as India is concerned, I will address steel and power. So still similar to the international business steel is down as well, although not down to what it was, say, in late '21 or '22. So it's come down and stabilized. So at least we're not seeing the volatility anymore, but it's not down to where it lies to be a couple of years back. Energy is down as well and stable as well. So in both those areas, we're pretty commendable that we have good line of sight into what those costs will be –

[Unknown Analyst]

Another question was on the stock in sales [indiscernible]. I wanted to understand that we entered in graphs, whether we're getting any new revenues or any higher in the stock and sales programming, over you from your side on how the business is done this quarter?

[Manish Poddar, executive]

Yes. So I think important to say on profit sale, we've seen some good traction. There's been, what, 24 vessels that were ordered out of which we've already sold 8. I was in actually in Germany last week we [indiscernible] in the German factory. So that program is ongoing. It's a new program for us. We obviously building stock based on our analysis of what kind of equipment will be required. There will be some trial and error here. But I think overall, the strategy makes sense -- client today in Europe when we had a breakdown, we'll have to wait 8, 9 months to get a new equipment. If we have something available that can be given away to wave in maybe 4 weeks' time, that's a huge benefit, right? And I think any customer in the right mind or to have a factory up and running versus 8 months of downtime. So as a concept, I think this really makes a lot of sense. We have to keep some traction. Can I say it's 100% of success, not yet. But over the next few years, I do believe that this can become an important cornerstone of our strategy.

[Unknown Analyst]

My last question is on the services and the Systems segment. So we tied on the order intake will be in more share on services as compared to the system. So should we see this as a runoff where Modified components are having a repair replacement value? Or do we see this trend of higher services and systems to stabilize going forward?

[Tarak Patel, executive]

Yes. So I think a couple of things to keep in mind here. One is that we as management and as a company, have been focusing more of resources and money to our services business. We have over the last maybe year or so, made an acquisition in the U.S. where we bought out a small competitor in the southern area of the U.S., where we will start doing services like relining and re-lapping. We just opened up last week, our new service center in Brazil. We also have a new service in in Houston. We are now working on a new service center in Switzerland and in China, in India, where we continue to want to build and add more service capabilities. We also tether an organization that there's an opportunity, especially in India and China, where our service revenues are so small compared to the rest of the world to really grow that part of our business. And we will push to make services maybe a 15%, 20% of our total revenues in India and in China. Also keep in mind that India and China have a very large installed base, nearly 40,000, 50,000 reactors that we supplied over the last 10 or years now, equipment are aging. So at some point, these equipment will come in for servicing for replacement and so on and so forth, right? And then lastly, keep in mind also that the mindset of customers is changing what was accessible maybe 5, 7 years ago in terms of quality and services is not acceptable now. There's too many kind of rules regulation, regular audits, approvals required. So people are changing and they will try and buy services and spare parts from the original equipment manufacturer. So hopefully, that means that our services business will continue to grow. We, as management, believe in this strategy, 100% that we want this to be a big part of our total business, and that is what we are aiming for.

[Operator]

The next question is from the line of Amar from AlfAccurate.

[Unknown Analyst]

So sir, I wanted to understand, like beyond ‘25, like we are confident about 15% kind of a CAGR for international business and 17% kind of a CAGR-India business. But then if I see your near-term guidance, we are pretty conservative even in '25 about our revenue growth. So are we seeing some serious kind of a slowdown in overall business environment.

[Tarak Patel, executive]

No. So when we gave the guidance of FY '25, this was last year in August, so there was no specific slowdown. It is still a significant growth that we have planned for, both in terms of revenue and margins. Obviously, it's obviously, maybe at management, we might be a little bit more conservative than others, but we do see that the strategy for us to obviously be conservative in how we perform the expectations, right? And I think we did that already during our last guidance period when we actually met the guidance number 1 year before what we had promised, right? So obviously, that time, the outlook in the industry were really booming. Today, there is a bit of a slowdown. And that's why as management sometimes we build the numbers more convertibly because there is something that obviously go in our hands. And there could be maybe 6 months, 8 months of volatility, which obviously will impact growth for that specific year. But having said that, the outlook on the longer term, the next up to 2025 and then 3 years -- 3 to 4 years after that, we do believe that, overall, we can maintain these growth rates, right? And again, just to clarify again, I'm not sure what numbers you said, but when I told you my numbers again, after FY '25, 13% to 15% growth in terms of revenue, CAGR growth in terms of revenue and about 18% to 20% growth in terms of EBITDA margins. At the consol level, right? And like I said, I think the India business will grow faster, and we expect the India business to maybe grow at 17%, 18% or so. And then we will get CAGR to be 20%.

[Amar Maurya, analyst]

And international 15%, you're saying 13%, 14%?

[Tarak Patel, executive]

No, 13%, 15% consol numbers is consolidate.

[Amar Maurya, analyst]

Okay, okay. And secondly, sir, in terms of your -- order intake. Like if I see order intake even an order book as well as order intake has been muted like in this quarter, and we are sounding for kind of muted kind of environment even in the chemical as well as in the, I mean, overall customer level. So just wanted to understand like is that the deal closure is becoming delayed or there are deals which are becoming like canceling or people are delaying their expenditures.

[Manish Poddar, executive]

Yes. Look, it's -- we see a lot of -- the funnel is strong. So there's a lot of stuff that we are in discussion with customers about. But it is taking longer offering the decisions are being pushed out by a quarter or two -- that's what we're seeing primarily in -- for the glass line will be mechanical space. Calculation is not so much, maybe you have been on [indiscernible] one big project was canceled with mean, this year, but everything else is either pushed out or finalized and they move -- I mean they have 2 time like maybe a month or 2 later. I think the international business has been pretty much the same for you Thomas.

[Thomas Kehl, executive]

Its very much the same as the same chemicals or the process of making decisions is a net slow down. So we are waiting for the projects we decided, but no projects are taking out or taking debt. We have some cancellations. So the funnel is strong and a good field with a good project. And we are not losing projects more than we did in the past. So the market share is not decreasing, it's rather stable or slightly increasing anyway.

[Operator]

The next question is from the line of [indiscernible] from RW Investment Advisors.

[Unknown Analyst]

I have a couple of questions. My first question, on the last few weeks, a couple of German specialty chemical companies have been cutting down their forecast for the year, sighting high energy price and weak demand. So has there been any delay in -- especially the Europe region, I mean in the ongoing quarter.

[Tarak Patel, executive]

Yes. So I think the question was, Thomas. We've seen a lot of European and especially German chemical companies cutting guidance and things like that. Is that impacting business for you specifically in Germany, I think that was the question.

[Thomas Kehl, executive]

Again, our chemical industry is slowing down a little bit. We see that midterm, long term, we don't see any major impact on that. A couple of changes in some of the big chemical industries like the BASF making announcement moving towards China with some of the products, those are products that not necessarily being cater company and our products. So the impact that we see is not really foreseeable.

[Unknown Analyst]

Sure, sure. Sir, my second question would be, what would be the effective tax rate for the year -- since you had mentioned in the previous call that it could be in the range of 26% to [indiscernible] for the this quarter. We saw that to be a little elevated. Are you still sticking to that? range over year?

[Aseem Joshi, executive]

Overall on the year, there's no change in tax guiding, but yes, quarterly persuasion, depending on the[indiscernible] impact, they continue to happen to the so many [indiscernible]. Overall, we take to maintain that rate.

[Unknown Analyst]

Sir, and my last question is regarding Mavag -- is it possible to give the domestic market share of this technology?

[Tarak Patel, executive]

Sorry, did you say Mavag?

[Unknown Analyst]

Yes.

[Tarak Patel, executive]

So I think -- so Mavga generally kind of participate in a business that we call filtration and drying. This is where anywhere where you separate a solid from a liquid and then you dry it, right? So in this space, there are multiple different technologies that we have, and Mavag is a branding that has all new technologies. So in terms of market share, it'd be very difficult to say. I think one of the 2 things that I can definitely make clear for you is there is a big market here in India for a product called filter die of ANFD where there's a lot of competitive intensity, there's 4 or 5 different players, and it's kind of very competitive, right? So that's not where we participate. We do some stuff in ANFD but only for very critical applications. Where we do focus in India is one we supply components and parts to our trade subsidiary. So 80% of that manufacturing that happens in Brazil happens actually in India. And then we also focus on specific drying equipment like VCD, vertical phone dryers, we do spherical dryers and other such equipment, right? So the idea, as a company is always to move towards highly technical technology advantage that you have, where you solve a customer problem, either you're helping him with used batch time or have an improved heat transfer of power consumption. So anytime you can make a difference for the customer, that's when we really move up in terms of value, and that's what the focus is on. We try and exit any business areas where there's too much competitive intensity and customers don't value technology.

[Operator]

[Operator Instructions] We take the next question from the line of Sham Maheshwari from Aditya Birla Mutual Fund.

[Unknown Analyst]

So just wanted to understand the outlook on a Chinese entity. Looking at the annual report, the Chinese entity has been a significant contributor of growth for the last couple of years in the International segment. But with things now slowing down in China, what is the outlook that you are seeing there?

[Tarak Patel, executive]

Yes, I'll start and maybe Thomas can jump in. So again, our Chinese facility, our new facility, getting it up to speed and ramping it up for some time. We started to move from the old package to new package during COVID we lost some time, but definitely happy to report the momentum is there. The factory is completely now up and running, and it has performed very well. In fact, the largest vessel ever produced within our group, all the years of history that we have actually was produced by the Chinese facility only last month, 140,000 meter cube and 3 of them, I believe, right? So incredible improvement for the Chinese facility and their order backlog also remains quite strong. But again, like you rightly said, there is definitely a slowdown in China. And again, the intensity there is going to kind of increase over time, maybe for the short term. And then as the market turns maybe then decrease, right? But all in all, I think we're in a strong position. Keep in mind, our China business is very strong -- very small, about $20 million of equipment that goes into China from the Chinese factory. So it's not a huge number. And I think China for that kind of market size, we have a very large market. The whole Chinese market could be about close to $1 billion, out of which, let's say, our addressable market is about $200-odd million, which would still mean that there's a lot of potential for growth. And I'll just hand it over to Thomas now maybe he'll give you an update on China as well.

[Thomas Kehl, executive]

Yes. I think that summarizes quite well the-- of the new plan that is up and running and having momentum. The quality levels are at the level that we expected and planned for. I think the capability for the China plant are well set for the future with the new process that we have implemented a new operations activities that we have implemented where we are highly competitive in the segment that we are playing. We have a lot of projects going in the funnel that are not yet decided and again, more or less the same story. So the slowdown can gosh there. However, the plant is quite pleasing because we have a strong backlog with good margins. And China is performing quite well. And we believe that this blip in the demand in China is going to be over soon. It is just the bottom has been reached already, and [indiscernible] come back on order intake.

[Unknown Analyst]

Understood. And my second question was on the line of services. So what are the steps that we are taking in order to increase this share of services in our overall revenues? Because, let's say, even if the outlook is a little muted on the glass lining side, if you can get some analytic side of revenue from services, that will be very helpful. So what are some of the steps that you are taking to share.

[Tarak Patel, executive]

Yes. So as a starting point, keep in mind, a very important relationship between new CapEx and services. When you see the CapEx cycle slow down, you will see the spend on services go up, right? So that's always something that has happened. It usually means that I'm not buying new equipment, I will make sure that the equipment that I had at actually runs well and doesn't break down, right? So you see that relationship, obviously. So if the CapEx prices were to slow around a little bit, you will see the services revenue increase. Like I mentioned before, there's multiple things we've done in both international as well as the India business and maybe Thomas and Aseem could add a little bit more in terms of what specific actions have we taken to grow our services business.

[Thomas Kehl, executive]

Any specific actions that we have taken and started the journey a couple of years ago, we increased the number of service technicians, engineers on the ground from a little bit over 20 to 40 in 2017. And today, we are a little bit over 60 sales technology engineers in the field. We have increased the number of service centers over time significantly. We started off with less than 6. Now we have 12 and going to redo 14 and 16 service centers with our M&A strategy, bringing new technology [indiscernible] technologies, all those technologies always provide service opportunities as well, meaning that our area of service product is becoming bigger and therefore believe that we have a good chance to win more service is an increase the share at high margins and contribute to the overall performance quite significantly.

[Aseem Joshi, executive]

Yes. And I'll add for India, look, in India, we're just starting off on the services journey. It's been a very small portion of our business. Thankfully, we have the international business template to follow as far as structuring is organization is concerned. So we've done a lot of things that they've already done, which is, first, we carved out a separate organization that's focused on service, which did not exist in the past. We've also worked with the factories to ensure that we have enough stock of parts, [indiscernible] parts that are required for our customers. And there's a lot of analytics one can do about your installed base and figure out how to go after your installed-base and service offering. So we are now engaged on that versus [indiscernible]. All in all, we're quite pleased with how that's coming along, and we expect to continue that journey for the next probably 2 to 3 years and bring up the service share of our revenue in India.

[Tarak Patel, executive]

And just to add to what both these gentlemen said, in terms of service personnel today, we are by far the biggest number of people, both internationally and India. So that gives us a significant advantage. The [indiscernible] management team here today is also to try to look at if there is other equipment within a chemical or a pharmaceutical plant that we could also cater to -- so why stop only equipment may or manufactured by us. Why can we not also service other equipment. So that's the next step. And over time, we will look at that and see if that is something very possible as well.

[Operator]

The next question is from the line of Rohit Ohri from Progressive Shares.

[Rohit Ohri, analyst]

2 or 3 questions. The first one being related to the services and the systems that we're talking about. In terms of the large system orders, which we had done in China, somewhere around INR 50 crores, INR 52-odd crores and acid recovery orders of some INR 22 crores, INR 23-odd crores. Do we have any more of these orders? And are clients approaching us for these kind of big orders in future?

[Tarak Patel, executive]

So there are 3 acid recovery plants that are under the commissioning now. There's one in China, there's one in South Korea, and there's one in India. These are the 3 that we are working on. We just commissioned our first acid recovery plant here in India. We had actually committed or the agreement that we said that we have to give them 80% concentration, and we actually crossed that it now giving the client 81.6% compensation, right? So our first plant is up and running -- gives us a great example of what we can do is the track record that we see here in India. And hopefully, over time, we can build on that excess and add more businesses. So yes, we have multiple opportunities again that we're working on. And over time, some of these will kind of hopefully convert into actual orders.

[Rohit Ohri, analyst]

So when we talk about the pie for services systems, do you think the pie will shift more towards systems? Or is it going to be only on the services that you're going to focus?

[Tarak Patel, executive]

So currently, I think 60-odd percent of our revenues comes from glass line equipment, I think, over time, and I'm not seeing a time frame right now, but in ID situation, 1/3, 1/3, 1/3 would be an ID because all these businesses have their own sets of pros and cons. Glass is what we're known for. So we still need to focus on that and maintain market share. Systems is obviously a much more, say, volatile business. You could get biking big orders in 1 month and then not have something for 6 months, right? So every business has its own nuance. We have to work around that. Over time, we just want to stabilize the business. We want to make sure that we have a good amount of order intake there always be ups and downs. But by this strategy of diabetic ligation, we kind of mitigate some of the debt associated it, right? So I think it's really a working progress. We really don't have a specific number in terms of what the ratio should be, but we definitely want [indiscernible] and services to be a much bigger part of the pie than they currently are.

[Rohit Ohri, analyst]

You're looking at setting up a dedicated engineering center somewhere in India, which will probably cater the global business needs. Can you share some more insights on that, some numbers on that? And how much do you intend to spend on that, which geography are you looking at?

[Tarak Patel, executive]

Good question. I mean, it's part 7 o'clock now, so you [indiscernible]. So I think there's the concept of bringing engineering documentation, the calculation kind of resources to India is ongoing. It is something that's going to be a game changer in the first year or 2, I don't think so. But over time, as an organization, we are very much clear that we will have to do this. We will have to move a lot of the heavy lifting to India. I don't think we should really think of this as a short-term kind of a place. It's going to be more long term. It's not going to be a legal mover in terms of improving margins, significant margins today. But yes, 3 years, 5 years, down the line it could definitely will be. Also keep in mind the mindset issues. When we moved up from Europe or the U.S. to India, there's always that difficulty. It will take a bit of time. But I think as management, we are quite clear that we have to do this, and we are working on it.

[Operator]

The next question is from the line of Amrish an Individual Investor.

[Unknown Analyst]

Congratulations started for the fabulous results. I have 2 questions for Manish. One is if you look at the profit before tax for June last year, it was around 83.4% versus June this year, it is around 85.3%, so that's roughly around 3% increase. But the current tax charge has increased from INR 22 crores to INR 36 crores. So if you can share some insights in terms of why the 70% increase in the current tax has happened? And my second and last question is that if you look at the other expense line in the P&L, that's the third largest spend in the P&L after employee payouts and cost of raw material consumed. If you can share some insights on the top 2 or top 3 items, which comprise of this other expense. And one suggestion, probably you may want to think of calling it out separately in the P&L, one of the top 2 or 3 items in other expense on the face of the P&L rather than probably merging it as one line item.

[Manish Poddar, executive]

Sure. So Amrish, the first question on the tax part. So there were some tax -- deferred tax adjustment in the international business because of which -- and that has been happening for the 6 quarters. That is how it has been happening in our international business because of so many geographies we are on. So over a period of time, over a full year period, it was appropriate to more like-to-like comparison, and that is where the effective tax rate in the early question of some [indiscernible]. That's part one. Part two, on the other expenses, I think this is more like a format but point if you can -- let's see, exclude if we can accommodate to see more lines into this would be -- but this all is huge your rebate and maintenance, you are consumables, your factory, travel, legal professional all the businesses in the world [indiscernible]. But we really -- we can look at that and we see with any other line items that are significant could just understand [indiscernible].

[Operator]

Thank you very much. That was the last question in queue. I would now like to hand the conference back to the management team for closing comments.

[Tarak Patel, executive]

Yes. So thank you, everybody. I just have one more kind of point to speak about. I was hoping that somebody would ask me about the M&A activity that we are planning. I have spoken about our mixing business. As you know, very clearly, we have a very large mixing business in India today. INR 150 crores worth of mixing probably the #1 mixing company here in India called Mixion. We recently acquired have core Mixel in France. It's about $12 -$ 13 million company and has a facility also in China. So now we have Mixion in India, Mixel in France and in China. And the last piece of the puzzle is actually having something in North America. We have -- I have spoken about this earlier as well that we'd like to reiterate that we are now in advanced stages of this acquisition. It's not a very large acquisition that will be perfect for us to complete the global footprint. And then like I had mentioned in the past, we would launch a global brand and really aim to grow this business significantly over the next 3 to 5 years. So hopefully, in the next maybe few months, we should have some kind of decision on this acquisition. And at that point in time, we'll come back and speak to you more about it and what it means from a growth perspective as well as what we are trying to create. Having said that, thank you very much for your time, and we look forward to interacting with you again in the future. Thank you very much, and have a good evening.

[Operator]

Thank you very much. On behalf of GMM Pfaudler Limited, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.