GMM Pfaudler Ltd

NSE:GMMPFAUDLR

Earnings Call Analysis

Stable Outlook Despite Slow Order Inflows

The company has a stable service revenue outlook, contributing 35-40% of total revenues, with plans to increase this proportion, especially from international business. Despite some recent sluggish order inflows, management retains its revenue and profitability guidance for the year, expecting to finish strongly with the potential backlog build-up and successful bids in the pipeline. Stand-alone business saw modest revenue growth at 4% and relatively stable EBITDA margins around 14-14.5%. Challenges in the Indian market are being countered by diversifying into other sectors and aggressive marketing. Raw material prices have settled, and high-cost inventories have been flushed out, indicating a positive direction for the company going forward.

Sustained Performance and Strategic Acquisitions Mark the Quarter

The company reported a strong quarterly performance with revenue and profitability on track with the Fiscal Year 2025 guidance. This growth was primarily driven by robust execution in international and Indian operations, with the international business achieving record profitability. The strategic diversification and a forward-looking focus on expanding market share are expected to bolster opportunity pipelines across business platforms. Corporate activity was highlighted by insider share transactions and the acquisition of a mixing company called MixPro, poised to enhance the company's product offering and market presence.

Financial Health and Operational Improvements Underpin Future Prospects

Year-to-date, the company has witnessed a 22% increase in revenue and a 27% increase in EBITDA, with a margin of 14.8%. A strong balance sheet has been a priority, marked by the significant reduction of long-term debt and interest costs. Working capital management, including receivables and inventory reductions, alongside prudent cash flow utilization, has positioned the company for effective capital allocation and potential debt prepayments.

Steady Progress and Commitment to Cost Structure Optimization

Despite slightly subdued order intake, management maintains a positive outlook for the year, confident in achieving the set targets. The company is prepared to navigate the challenging market environment over the next 6 to 9 months by focusing on internal cost efficiencies and taking advantage of market opportunities. There is a strategic emphasis on incremental growth and no changes in revenue or profitability guidance have been communicated.

Raw Material Prices Stabilize, Impacting Inventory Costs Positively

Raw material prices have begun to settle, and most of the high-cost inventory has been cleared out. Current inventory purchasing practices reflect market prices, signaling cost stability in future production.

Market Share Gains and Expansion in the Mixing Business Lead the Way

The Glass-Lined business, a historic core segment, has successfully maintained and potentially increased its global market share, which is particularly significant within the $1 billion market. Continued global expansion through strategic acquisitions has allowed the company to fortify its presence, especially in previously untapped European markets. The company's aspirations to rank among the top 5 mixing companies underline the strategic significance of the Mixing business within the global growth plan.

Financial Margins Remain Robust Across Business Segments

The company's business lines, including the Mixing segment, are projected to maintain or exceed profitability levels, with margins in the range of 15% to 20%. The strategic shift towards a balanced revenue stream from Glass-Lined and non-Glass Lined products, along with services and systems, is aimed at maintaining margin profiles and mitigating risk exposure in the Glass-Lined segment.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to GMM Pfaudler Limited Q2 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference call over to Ms. Priyanka Daga from GMM Pfaudler Limited, please. Thank you, and over to you, ma'am.

[Priyanka Daga, executive]

Thank you, Sagar. Good evening, ladies and gentlemen. A very warm welcome to all of you into the quarter 2 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, and CFO of India business, Mr. Manish Poddar; and our Compliance Officer, Ms. Mittal Mehta. We will give you a brief overview of performance of the company, after which we will get into the Q&A.

Before me begin with the overview a brief disclaimer, the presentation which we uploaded on the stock exchange and 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, Mr. Tarak.

[Tarak Patel, executive]

Thank you, Priyanka. Good evening, everybody. We are happy to report a strong performance this quarter with both revenue and profitability in line with our FY '25 guidance. Revenue growth was driven by strong execution across International and the India businesses. Profitability improvement in the International business driven by operational excellence and pricing improvement. A good point to note today is that the International business has recorded the highest ever profitability in this quarter.

Order intake, however, remains a bit subdued in technologies and systems due to a general weakness in the chemical sector. Services remains on track. However, our strategy of diversification and entering new industry segment has led to a strong opportunity pipeline across all business platforms. And we continue to focus our efforts on strengthening our market share in the next few quarters. Having said that, our order backlog stands at about INR 1,705 crores, which translates to about 6 months of order visibility in India and about 7 to 8 months in the International business.

Our order intake for the month of October has been quite strong, and it's around between the INR 250 crores to INR 270 crore mark. So October has been a good month in terms of order intake.

Some of the other salient points about this quarter, we also had a global strategy meet in Munich where 30 of our senior professionals from across geographies participated. This is in line with building a long-term strategic plan. And hopefully, by the end of this calendar -- by the end of the financial year, we should be able to host an Investor Day to update investors in terms of our long-term vision.

We also opened up two new service centers, one in Brazil and one in Italy. These -- both these service centers are for the Mechanical Seal -- Interseal business and will add to improved services in these regions.

In terms of financial performance, our consolidated revenue for the quarter grew by 20% to INR 937 crores with an EBITDA of INR 142 crores, which translates to about 15% EBITDA margin, which is about 20% higher than last year.

Our current quarter, like I mentioned, the improvement in profitability was mainly driven by the International business, largely due to the strong execution and pricing improvements. We are also continuing to look at internal cost efficiencies, and this is something that we will keep our eyes on. And this is something that over the next few quarters will be quite important in terms of improving and maintaining profitability.

In terms of corporate updates, DBAG Fund VI has sold 13.6% out of which 9.9% was bought by ChrysCapital. 1% still remains with DBAG, which obviously the Patel family has promised to acquire.

Now that all the approvals have been received, the French approval actually came only yesterday. We plan to complete this transaction in the next week or so, probably around November 20. This transaction will happen at INR 1,700 per share, which was agreed at the time of the last sell-down. Our DBAG's Nominee Director, Mr. Malte Woweries and Harsh Gupta have both resigned since then. And today, our current Board has 6 directors, out of which 4 are independent. Lastly, I'm also happy to inform you that we signed an agreement to purchase 100% stake in MixPro.

This is a mixing company based in Ontario or Canada for a consideration of about $7 million. The transaction is expected to complete by November 31. And like I've said in the past few quarterly updates, that mixing is an important business for us. We have a strategy in place. We are building on that strategy. And Mixing will continue to be a growth driver, both in terms of revenue and profitability.

I will now hand over the call to Manish Poddar, our CFO of the India business, and he will take your through the financial performance of the company. Thank you.

[Manish Poddar, executive]

Thank you, Tarak. Good evening all. So YTD, our revenue was at INR 1,850 crores, up 22% and EBITDA is at INR 274 crores, up 27% at an EBITDA margin of 14.8% for H1. So as an organization -- going on the balance sheet primarily, as an organization, we continue to focus on making the balance sheet stronger. With that in theme, we have reduced our long-term debt by INR 673 crores in H1, which includes the INR 29 crores of prepayment. In H2, we have a planned repayment of INR 51 crores, but we think we should be able to prepay some more debt, along with some debt during H2. And so therefore, overall, in this financial year, we should be reducing our long-term debt by something like INR 140 crores plus/minus.

Our interest costs have also reduced in H1 by approximately 20 basis points primarily in India. And now at consolidated, guided an interest rate of 7.5% and 8.1% share in India. This reflects the confidence of our lenders in the business. And as a result, we continue to enjoy AA- rating at the peak of our debt versus when we were debt free. Also on the other avenues, we continue to identify noncritical, noncore balance sheet items and we will try to get it a bit more leaner and all that. So therefore, you see a small item on the asset sale for sale for this year as well.

Moving on to -- if you refer to Slide #9 on the working capital. Our receivables are in the control at 48 days. Inventories have also reduced in the past 6 months by INR 70 crores. However, if you see the customer advances, that has reduced from INR 406 crores to INR 370 crores. So that's a combination, and that's a biggest item for us as an area of improvement for us. That reduction is primarily on account of two reasons. One our backlog has reduced versus March versus September. So that's one comp. And as a percentage to sale -- customer advances as a percentage to backlog was 19% in March, has reduced to 16% in September. So these two factors have led to this reduction in the customer advances.

Now moving on to the cash flow. If we see on Slide #10, the INR 251 crores of cash generation primarily has got consumed within the business for this H1. The biggest item of that is the working capital. And the working capital, there were two reasons. One was the customer advances as we just listed. And the other reason was helping the PUC increase in Mavag for something like INR 50 crores for the half year. And as you know, Mavag, we have been running an operational excellence program and has been manufacturing bolt-on and this PUC reduces. We should be able to liquidate a lot of testing in H2.

With that, I'll just pass the call back to Priyanka.

[Priyanka Daga, executive]

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

[Operator]

[Operator Instructions] The first question is from the line of Sanjay Shah from KSA Securities Private Limited.

[Sanjay Shah, analyst]

Sir, first of all, wish you all a Happy Diwali and a great year ahead. Sir, my question was regarding the order intake, which is drifting towards the service side, which you have mentioned in the presentation also. So Tarak sir, can you highlight upon the services side in detail to make us understand what is this? And how do you see that panning ahead, the other business too?

[Tarak Patel, executive]

Sanjay bhai, thank you so much, and Happy Diwali to you as well. Just to understand the business, we break our businesses into three main verticals: technologies, which include glass line and nonglass-lined equipment. We have a systems business, which is basically any of our equipment around which we build complete systems, automation, et cetera, built into it. And then we have a services business, which is basically service mandates that we have internationally and in India. We have spare parts, we have reglass, we have pipe and fitting. So these are things that are used to service our equipment.

And as a company today at a consolidated level, about 35% to 40% of our revenues comes from services. One important aspect to consider is the backlog that is currently available of INR 1700-odd crores, does not have a lot of service component because these are obviously part moving. Over the next few months and quarters, you will see service revenue kind of be something that comes -- it's quite stable. It will continue to happen and it will continue to be shipped out. This is not really long-term backlog that gets added on to the backlog. So over the next few months and quarters, you will see that the service business will continue to add to the backlog.

The other difference in terms of the International business and the India business, the International business obviously has a much larger component of services. India is currently around the 9% to 10% mark. We have planned to improve that and bring that up to double digit. So that's something that we are working on. Services, like you know, is very profitable and something that we have a lot of focus on and creating service centers, leasing service centers in the right geographies and making sure that services is something that we can be proactive about.

Our future growth, our strategic intent really is to not only stop at servicing our own equipment, but we should also be able to service other equipment as well in the chemical or pharmaceuticals plants. So as management, we believe that service is going to continue to grow. It is very profitable, and we want to make sure that our service offering increases over time. Having said that, services, again, is something that gets kind of related to CapEx. So when CapEx increases, services may decrease a little bit. When CapEx slows down, people want to take better care of the equipment and make sure that they have much more uptime and hence their spend on services will increase. That's the general overview on services. Happy to answer any other questions that you may have.

[Operator]

The next question is from the line of [ Shalin Choksy ] from Axis Capital.

[Shalin Choksy, analyst]

Firstly, congratulations on a good set of numbers. I had a few questions. Firstly, on the order inflows, which we know have been relatively weaker. Does this translate into any change in revenue or EBITDA guidance? And what sort of visibility on the Domestic and International business the current order backlog provides?

[Tarak Patel, executive]

So in terms of this year's outlook, I don't think anything changes. I think we are in a very strong position to finish the year as planned. As management, we are also very aligned in terms of what our strategic direction is in terms of order intake. We know that we've had a couple of quarters of slightly lower intake than what we would have liked. But having seen a strong October, we believe that over the next few months, quarters, we will be able to build a backlog. There have been some large projects that we have won, and we still expect to win as well. These are projects that got pushed out just because of the slowdown in the chemical industry. We expect some of these projects to now materialize in November and in December.

So from that perspective, I think this year is completely sorted. We are at mark, as you would have known, also in terms of both revenue and profitably we are perfectly on plan. Our focus now really is changing to next year. As management, we are aware, and we are ready for the fight. We are aggressive in the market. At the same time, we're also looking very, very strongly at our internal cost structure. Is there opportunities within the company to rationalize manufacturing footprint? Is there opportunity to reduce stock? All those things are being worked on.

But all in all, I think the next 6 to 9 months could be slightly slower than expected, but I believe that the chemical industry will come back strongly. Pharma has already seen a bit of pickup, and I believe that we are in a strong footing to kind of take advantage of that. So no change in revenue or property guidance. And I think for this year, I think we are quite strong, and we expect to complete the year just like what we started.

[Shalin Choksy, analyst]

Okay. And my other question was on the stand-alone business, where revenue growth has been pretty slow at about 4% and EBITDA margins have been flattish sequentially. Firstly, what slowed down the revenue growth in the stand-alone business? And you earlier indicated that we can do about 15% to 16% EBITDA margin in the stand-alone business. How is that tracking? Because to achieve that, it means we'll have to do about 17% in H2.

[Manish Poddar, executive]

So I think, Shalin, yes, on an EBITDA margin, we have been tracking at something between 14%, 14.5%. And as Tarak mentioned, next 6 to 9 months look not all that super exciting. So second part of this year, probably we should be in this range only for rest of the year in terms of numbers. On -- for the top line?

[Tarak Patel, executive]

Yes, Shalin, I'll just add. So your line wasn't very clear, but I understood you were asking about top line growth in India in the stand-alone business, right? So look, I think we all recognize that the market in India has been fairly challenging for the last 6 to 9 months, especially in the Chemical and Pharmaceutical segments. What we have done is we have been a lot more aggressive in the market in these segments and also focused on our exposure -- or increasing our exposure in other segments. So for example, Oil and Gas, Minerals and Mining and a few others. With our Mixing business, with our [ ecology ] and some things like that.

So while the growth has not been as high as it seems to be in the past, we believe, one is, our core industrial segment returned to growth. Combined with our increased focus on other segments, I think we're pretty confident that we'll get back to our traditional growth rate. And therefore, also there are margin profiles back to where we normally are.

[Shalin Choksy, analyst]

Sure. That's useful. And if I may, just another question if you could provide some color on how the raw material prices are tracking now and whether any high cost inventory that still remains with us? That's all.

[Manish Poddar, executive]

Yes, raw materials now have thankfully cooled down. They're not back to where they were before the spike, but there's sort of the up and down that we've seen and is steady. Most of the high cost inventory is now flushed out, and we're buying inventory at market and using it.

[Operator]

The next question is from the line of Koushik Mohan from Ashika Institutional Equities.

[Koushik Mohan, analyst]

Sir, congratulations for the numbers, and Happy Diwali. Sir, my major question is coming on the glass-lined side because our market share, like if we talk about the entire TAM for this entire business is somewhere around $1 billion, that is assumed to be INR 8,000 crores or let's assume like INR 8,300 crores. So -- and because currently, we are in a run rate of revenue somewhere around INR 3,178 crores, which is we closed in the last year, and also by saying that last 2 quarters, we are also very near to INR 2,000 crores, so that comes to INR 1,900 crores.

So what will be the -- because of this reason, we are entering into MixPro that is $3 billion market. I understand that INR 25,000 crores market share is there -- market is there. We are getting into that. But how about this, only the GMM Pfaudler core business that is Glass Line? What are we looking out here? Are we going to take the market share of De Dietrich, which is the market leader in the world?

[Aseem Joshi, executive]

Yes. So this is Aseem, I'll start off and then perhaps Thomas or Tarak might want to add. Look, Glass-Lined business is, as you rightly mentioned, our core business, and we're definitely focused on maintaining our share there. While our share varies across different regions of the world, roughly speaking, we're at 40% to 50% market share globally. You did mention correctly that the market globally is about $1 billion. But obviously, as the cycle in this -- the CapEx cycle in the Chemical-Pharmaceuticals segment has slowed down for the temporary period, back market also slows down a little bit, right?

So we are very confident that we are, if not protecting, actually, we believe we have gained share in the last 6 months because we've been a lot more aggressive in ensuring that we capture the orders that are out there. And we're confident certainly all the major project orders have come to GMM Pfaudler. As far as MixPro is concerned, of course, of the Mixing business broadly is concerned, that's a separate segment. We've always had a Mixing business. We believe it's a good business, and therefore, we are expanding in it. But it's an independent, separate business that gives us a little more diversification and breadth of exposure.

[Tarak Patel, executive]

From an International point of view, the market share also is quite high in all the regions that we serve. In major regions, we have a good position there. And our strategy always has been to maintain this market share. However, during the last 2, 3 years, we have been able to increase market share, especially in Europe where we have been able to cater to some of the regions that we haven't been able to get a foothold in like South Western Europe, Eastern Europe, and this was due to the Epic program where we import vessels from India, Made in India, finishing them up in our sites in Europe and shipping to the customer. This was incremental business for us and, thus, we have gained market share the last few years. And our goal is still to maintain that.

[Manish Poddar, executive]

Okay. And just to add on the Mixing business more strategically rather than what our plan is. So as you know, we've always had a Mixing business in India. It's close to about what $20-odd million. That was the starting point. We then acquired a company in France called Mixel around $12 million to $15 million of revenue, also having a facility in China. So we are now present in India, in Europe and in China. Recently, we completed the acquisition of MixPro, which is in Canada. So now we have access to North America and South America, right?

As part of the global strategy, we wanted to be a global player when it came to Mixing, which is now completed. We've also looked at resources and organization permitting. We have also kind of -- we are in the process of bringing in company to run the Mixing business and that's something that we really have dedicated focus on the business with a clear strategy, go-to-market strategy, which is something that again makes a lot of difference for the customer. It's a technology play, which has reduced batch time. It has improved power consumption. It has reduced cost, right?

So many more companies are looking at Mixing now. People are talking to us about Mixing in a more technical manner to us. So this is definitely an area that we want to focus on. And like Aseem mentioned, Mixing goes across many different industries, right? So metals and minerals, water treatment, plane, it goes into food and beverage, it goes into cosmetic. So the list is really, really long.

Obviously, the number of play in all the areas, but we're going to pick and choose areas where we have a strong footing. And our idea is to be in the top 5 mixing companies in the world. I mean, obviously, it's not going to happen overnight. But I think the progress that we've made so far, both with the acquisition and both with the resources that we've added. I think over the next few years, you will see the Mixing business really kind of grow at a much faster pace than our Glass-Lined business.

The other thing just to kind of close out this question is that even though Glass Line is what we are known for, Glass Line as we've got maybe 2 or 3 years ago, accounted to nearly 70% of our revenue. Our idea as management is to build that down to 50%, right? 50% should be Glass-Lined and the rest of the 50% should come from non-Glass Lined and services and systems.

So that is really the goal to mitigate the risk and the exposure that we have in Glass Line. We have kind of built a portfolio of non-glass lined products, right? And these products are growing much faster, have a much bigger market that we can cater to. The TAMs are much bigger. And hence, we believe that this is going to be the kind of structural change in the business over the next maybe 2 or 3 years. We will always be the market leader in Glass Line, but the share of Glass Line within our total revenue will probably come down to close to 50%.

[Koushik Mohan, analyst]

So that means that our entire revenue of Glass Line is currently around -- if I assume on the broader terms, in the last year, we have closed around INR 3,178 crores. If I assume even we'll do this year INR 3,000 crores, that means that in next coming 5 years, we have another 50% market coming from only from mixed line. That means our entire sales will somewhere around -- look like around INR 6,000 crores. Then what will be our margins? Which line of margins will be taken? Because currently, if we look at margins, the Glass Line India business is doing great than the Pfaudler business that we have it. How about Mixing? In Mixing this, what kind of margins that we'll do? If possible, can you give all the 3 segments which I'm talking about their EBITDA level margins, if you have some guidance?

[Tarak Patel, executive]

Yes. So I think just a couple of points here. One, I mean, you went through the numbers by part, and I'm not sure if I agree with all the numbers. I will just kind of give you an overview. Glass Line margins, yes, are quite strong, have been quite strong. But even our non-Glass Lined businesses today are generating similar levels of profitability, right?

So none of the business lines that we've added are going to be detrimental to margin. They've got to add and improve the margin profile. Our Mixing business maybe in some cases is already higher than Glass Line, right? So there is definitely technology set that we're doing in mixing and systems where we are getting probably better margins than we are in Glass Line. Again, the only business that we have today within the group that probably is slightly lower than Glass Line is the Heavy Engineering business. But again, there, we have a clear strategy of picking and choosing the right metallurgy export versus domestic and making sure that our margin profile is close to maybe 12% to 15% there, right?

But the rest of the product line that we have anything that goes into chemical process should generate 15% to 20% margin profile, if not more. Services and systems, obviously, will give you a lot more. And then our Interseal business, again, has a very high margin profile. So I think that's the general overview. We don't expect significant change in margin profile just because we are reducing the Glass Line share. We are replacing that or we are adding new businesses that are also kind of margin accretive rather than diluted.

[Koushik Mohan, analyst]

Sir, my repeated question on this, but a little bit clarity. In the Glass Line business, India business currently is somewhere around 16% plus. So can we maintain these margins in India business? And in non-India business, that is International business, somewhere around 12%. In mixed line, what kind of percentage is that?

[Tarak Patel, executive]

In Mixing?

[Koushik Mohan, analyst]

In India business, what is our EBITDA margin? In non-India business, that is International business Glass Line, what is our margin? In Mixed line, what will be...

[Tarak Patel, executive]

Those are the right numbers in terms of general guidelines. I think India margins can improve a little bit with operational efficiencies and things like that. If the market dynamics were to change and the market demand were to increase and automatically prices were to increase and, hence, our margins would go up. Internationally also, you can see the Glass Line margins will remain stable.

And I think clearly at least a mixed line. I'm not sure what that meant. So the Mixing business is between the 15% to 20% margin profile currently. The idea is obviously to grow that margin and improve that margin as we consolidate. As we have a clear strategy, as we have a clear go-to-market strategy, we want to improve margins business.

[Operator]

The next question is from the line of Mr. Pramod Dangi from Unifi Investment Management LLP.

[Pramod Dangi, analyst]

Congratulations for good growth momentum. Just two questions. One is you said that Pharma started seeing some momentum building up in India. But Chemical is still sluggish. So on the -- while our order book is still low, do we see any kind of announcement for the new CapEx building up in the Pharma or the Chemical where you can see that the customers are now planning for the new CapEx?

[Tarak Patel, executive]

Yes. So I think just 2 points here. One is I don't think our order book is low. I think we are comfortable. The problem is that the market was super-hot. So our order book, obviously, a few quarters will go incredible, it was much higher, but it's not the general tendency to have such a high order book. So I think that's something to just keep in mind. We are still at a very comfortable position, maybe not at the highest level that we were, but that market was definitely inflated and super-hot, right?

Keeping that in mind, like I said, we are at a comfortable level. And that we believe that this order book can continue to grow because some of the opportunities that we are working on, which are delayed, will only kind of materialize in the coming quarters. And I think we should be in a good position there.

Coming back to your question about Pharmaceutical investment specifically, and I'll let Thomas answer for the International business.

In India, we do believe that things are kind of improving. We have been seeing some traction on the ground, especially in Hyderabad. We are seeing some high stuff happening in Gujarat and in Mumbai as well. Pharma is coming back. I think the real play for Pharma is going to be in the next financial year. The FY '25 is where Pharma will invest. I think some of them have already started building capacity to cater to the demand in FY '25. Some of the bigger guys, like DB has already announced Unit 3. They've already placed the first round of orders. Laurus is expanding. [indiscernible] is expanding. We have expansion in MSM as well. So those guys are expanding. We have Cipla and Sun Pharma looking at small expansion. [indiscernible] small expansion. So we have -- there is definitely more momentum in pharmaceuticals.

And maybe Thomas, internationally, you would like to say something about the Pharma business or the Pharma sector.

[Thomas Kehl, executive]

Yes. The Pharma sector is still ongoing so in the Americas as well as in Europe. In America, our order intake is driven by Pharma. Our Project is quite strong still. We also have increased basically our service above expectations in the Americas. Europe, we have to say that the Pharma industry is still investing and debottlenecking. So what we are seeing is an intact market there. However, we see the overheated mode is somewhat over. Things are back to normal. Decision times are taking a bit longer or back to normal times.

And this is a quite good news where we see some significant decrease at this point is in China, and China Pharmaceutical as well as Chemical market are very, very slow right now. The capacity seems to be at a high level at this point. But both Pharmaceutical and Chemical is quite large in China, as you know, from a global point of view, and those investments will come back. And when they come back, usually they come back strong.

[Pramod Dangi, analyst]

Okay, okay, great. And secondly, on our store and sales strategy where we are supposed to supply around 28, 30 vectors to the Germany or the European facility. How is that stepping up? What kind of the taxes we are seeing over there? In terms of the customer offtake, if you can give some update on that?

[Thomas Kehl, executive]

Yes. Thanks because I understand that I think the question about the stock and sales program that we have initiated and started, so there is still huge success. It's ongoing. It's still going. We are replenishing our stock the second or third time as we speak. Shipments are on the way to Europe. And usually, the vessels that we have on stock in sales don't remain longer than 2 to 3 months on stock before they go. And this is something that our customers appreciate that is opportunity in an emergency case to get fast supply. And for that reason, it's a success story.

[Pramod Dangi, analyst]

So is it helping to gain some market share or to service, they provide more in a limited time? How are they helping overall profitability side as well as getting the momentum of the client?

[Tarak Patel, executive]

Sorry, we cannot hear you. Sorry, your line is not very clear.

[Pramod Dangi, analyst]

Is it better now?

[Tarak Patel, executive]

Can you come back once because it's not clear and difficult for us to understand the question. Do you mind just logging back on and getting in the queue, Pramod?

[Pramod Dangi, analyst]

Sure.

[Operator]

The next question is from the line of Omkar Kamtekar from Bonanza Portfolio.

[Omkar Kamtekar, analyst]

First of all, with respect to the execution. So our order intake has been slow, that's not issue from my perspective, but the order backlog has fallen approximately INR 300 crores on a quarter-on-quarter basis. So we can say effectively on a positive side, the execution has improved and we have done approximately INR 900 crores of revenue. Every quarter, there has been a good -- a fair bit of increase, especially in the last 3 quarters on a quarter-on-quarter basis. So can we say that the execution is starting to ramp up and this execution level can sustain or maybe even improve for H2 and ahead?

[Tarak Patel, executive]

Yes. The problem is that I think too much improvement in execution means that you eat into your backlog much faster, like you rightly said. But execution both in India, especially in International business, has been quite strong. Like many of you will know, we have 3 new facilities in Germany, in Italy and in China, which obviously are executing. The momentum is there. These factories were started maybe 2.5, 3 years ago, and it took us some time to ramp up. That's why we are seeing a significant improvement in revenue.

You might remember that when we acquired for the business, International was about 175 million. Today, we are close to 250 million, 300-odd million, right? So significant improvement in Germany that's only come from -- I mean come from two main areas. One is operational excellence, so improvement in execution; and two, our pricing improvement, right?

So we used to have -- when we were moving factories, changing on the whole factory, in the new factory, a lot of delays in delivery. But today, customers are very confident. They're very comfortable that when GMM Pfaudler says that they are going to deliver in 8 months, it will come in 8 months, right? So that's the benefit. We need to definitely continue with execution, and that's what we are working on. There could be opportunity to rationalize a little bit of manufacturing that we have and that's something that we are looking at as well. But otherwise, I think execution will continue. We need to focus on bringing in orders, which we all are quite, quite aligned.

I think August intake has been quite strong in October. We hope that November and December are also quite strong and we are back at a decent level. And like I said, our business is not only dependent today on Glass Line. We're not only dependent on Chemical and Pharma. We have other businesses that cater to other industries itself. So in Heavy Engineering, for example, last month, we got an INR 75 crore order.

We are currently working on a few other large projects, INR 50-60-odd crores. The two of them were to materialize immediately, we are now at the INR 2,000 crore backlog mark again. Nothing change very quickly. And I believe that India will turn around much faster than the International business. India currently has a smaller backlog, so India needs to kind of turn around faster.

In the International business, like I mentioned, 20% also come from spare parts and services. That's always ongoing. So that's not part of the backlog, and that will add to the backlog every month. So that's the general overview in terms of backlog and in terms of the execution capabilities as well.

[Omkar Kamtekar, analyst]

And with respect to the guidance, so the guidance has remained relatively unchanged because of the current run rate. We might just about fall maybe by 1% or 2% short of the FY '24 estimate that was during Q1. And we should be in line with the FY '25 guidance? Just to confirm.

[Tarak Patel, executive]

Yes. So as management, we are clear on the FY '25 guidance. And I think in the past, as management, what we've kind of given out in terms of guidance, we have delivered on and our primary goal and everything when we wake up, we make sure that we are working towards achieving that goal. I don't see a reason why we should not be able to meet that goal. We might have to look at certain deviations of strategy, certain changes in our strategy, a little bit more aggressive on pricing. But I think we all are in the same page when it comes to that. We need to meet these numbers. And we will work towards meeting these numbers and making sure that we deliver on the guidance.

[Omkar Kamtekar, analyst]

Okay. And just a view on the Mixing business. So the MixPro acquisition that we have done, although it is on -- it is a small scale vertical now, but how do you see that scaling up? And what percentage of the total revenue that it might go, say, maybe FY '25 or FY '26? What is the guideway or pathway for that?

[Tarak Patel, executive]

When you add up our Mixing business, and both Aseem and Thomas will jump in with their views as well. Today, India is around $20 million. Mixing is around $15 million just for the numbers, $35 million, and let's say, which closed another $7 or $8 million, right? So we had $41 million, $42 million mark as well, which puts us into kind of already in one of the bigger or the, I mean, top 5 kinds of companies in the world.

Our focus is to build that business into at least a $100 million business, double it in the near term, in 3- to 5-year period. And we believe that there are more acquisition opportunities here as well. So that's something that we will always look at pursuing when something comes up. But even organically now that we have these 3 facilities, we have PPR, we have access to new markets, we will then use our global sales network and our ability to kind of combine the 3 Mixing platform into one and offer the same product to existing multiple customers across multiple regions, right?

So Mixing is something that should grow quite fast. We've seen significant improvement in the Mixing business here in India. And we believe that internationally also over the next few quarters, you will see Mixing becoming stronger and stronger. Thomas or Aseem, do you want to say something here?

[Thomas Kehl, executive]

Yes. Thank you much. I think Mixing business, again, the market space is significantly bigger than the Glass Line market base. This is one of the reasons why we have chosen their technology, the technology that we understand that was very adjacent to what we already do. And at the same time, it opens us market opportunities, market segment that we haven't been serving with our current products so far. Therefore, the close opportunities are certainly there.

We are making ourselves a stronger company with Mixing offering that. And organizationally, we are working right now diligently setting up in our organization. And when you call the Mixing division with a leading person coming from this industry, they experience or joining us beginning calendar year, next year and putting all those things together. And we are working on several acquisitions after 2 weeks around Mixing, as we speak, and we have further potential to grow.

[Aseem Joshi, executive]

I'll just add. I think Tarak and Thomas has covered most of the strategy things. I'll give you a couple of examples of how Mixing makes a difference, right? So in India, recently, we've had some nice wins in new segments. So for example, in lithium processing, the specific agitators required, which we are working on. In biorefining, in gold beneficiation process as well with supplying our agitators. So these are new areas from our traditional Chemical and Pharmaceutical space. And it gives us the ability to really cover segments that we have traditionally marked covered. We have selected a few areas where we think we can make a difference, and we'll continue to build our expertise or PPR so that we make a more compelling offer to our customers there.

[Omkar Kamtekar, analyst]

Okay. So it would be prudent to assume that the Mixing business will be growing much, much faster? And also I think you mentioned 15% to 20% EBITDA margin. So that will be good to assume?

[Aseem Joshi, executive]

I think that's a reasonable assumption to me.

[Omkar Kamtekar, analyst]

And just a final word on the working capital. So in the current quarter, we've seen approximately INR 20 crore because of the working capital. So how are we going to optimize that? Or is it just a one-off thing? Or is this going to be maybe prolong for some time?

[Manish Poddar, executive]

I think that has fallen into the base now. So I think as in 1st October, we started with a fresh base. So H2 and H1 will be completely different, Part A. Part B, there are a few initiatives, which we have already started working upon. And you'll see the results hopefully in end of March results as and when they come up. And to your previous question on Mixing, I think a couple of months back, we uploaded an Excel presentation and at that materials there in, you can refer that as well. And there's a full guidance given for next Mixing -- on the Mixing business.

[Operator]

The next question is from the line of Raj Shah from Marcellus Investment Managers.

[Raj Shah, analyst]

So my question was related to the unbilled revenues amount. In March '23, amount was around INR 100 crores. I just want to know how that amount has moved as on 30th September?

[Manish Poddar, executive]

So the revenue amount, as I said with regard to Mavag primarily has increased by something INR 56 crores, so to the extent of that amount increases.

[Raj Shah, analyst]

Okay. And how do you expect this amount to move by the year-end?

[Manish Poddar, executive]

I think it should be more or less be stable and this is a smaller reduction because as we grow, the revenue base increases. But I think at this stage, we are slightly on a higher side, so we can say a marginal improvement as we go on. Marginal reduction in the area.

[Operator]

The next question is from the line of Ritesh Shah who is an individual investor.

[Unknown Attendee]

This is Ritesh Shah from Investor Capital. So I just wanted to understand the business case for Mixing technology. That's one. So you did indicate examples for lithium and gold. This was quite niche as far as the Indian markets are there. Do we supply to any other nonferrous majors likes of Hindalcos, Vedantas of this world? And if yes, what is it substituting right now? Or is it something that is new that we are offering to these companies?

[Aseem Joshi, executive]

Yes. So as far as Mineral and Mining are concerned, I gave those two as examples. We do provide activation solutions to a wider range of mineral mining cases. While I can't take specific customer names for confidentiality reasons, certainly, we do cover other areas. And as far as what we are replacing, there is usually an existing activation solution, but the way we design our agitator, that it gives us better productivity or more efficiency in terms of power consumption. And that is what actually enables our sales vis-a-vis their existing solution.

[Tarak Patel, executive]

So just to add to this, I think in -- so I think in the past when these plants were built, especially in Metals & Minerals, in Oil and Gas, Petrochemicals, a lot of PPR was required. So most of these PPRs were already expecting, which would mean that the inquiry would only go to certain vendors. So in most cases, we do compete with the global business when it comes to Mixing.

However, we've made a mean for ourselves here in India. Now with these 2 acquisitions that we have done, we have also bought PPR, right? For example, we does have very strong PPR in certain industries. MixPro on the other hand, very strong PPR in other industry segments.

So we don't really have a lot of overlap. So when we combine the three businesses, we have really a much wider range of industry segments and PPR that we can use. The idea is to bring it all together and package it together under one umbrella of Mixing and then go out and then target the customer basing. We can now cater to a much wider range of industries. Like I said earlier, Mixing helps customers either reduce that time, which means they can produce more, you can reduce your power consumption, which means your costs go down, you can improve the quality of your product means you get more money.

So there's multiple benefits as the customer can touch and feel, and that's why Mixing is very, very important. And that's why we have decided as our technology leader to go after Mixing in a big way because it fits perfectly in the portfolio. It complements the synergies, mixing something we speak about with our Chemicals and Pharma customers, but now we can speak about it to a much wider range of customers as well.

[Unknown Attendee]

Right. Sir, appreciate your comments. So to my understanding, last time equipment, it's far, far for critical, right? So you will have some pricing power, and we can call out on margins what we want. How critical is Mixing as a technology when you look at your ferrous or nonferrous majors because it will be a very small part of the value chain to my understanding? So will it fair the same level of margins, ROC that we look at -- when we look at our traditional or core businesses?

[Tarak Patel, executive]

Yes. So the big project that we have done where we were competing with International players. We did a fermentation project where we were competing with a Chinese company, and we must have made, I think, higher than 30% EBITDA margin in those specific agitators, right? So these are all critical, especially when it's critical and you cannot take any kind of risk -- the customer cannot take a risk, then they have to make sure that they pay for -- and compared to manufacturing outside of India.

So this is competing with German, French or Chinese player, our cost of manufacturing in India is much lower. So we are maybe 25%, 30% cheaper. But because of our lower cost, we've made significant improvement in margin. So Mixing generally is a profitable business. It has changed a lot. And in most cases, the Mixing business will probably give you better margins than Glass Line and that's the idea of really growing the Mixing.

[Operator]

The next question is from the line of Shyam Maheshwari from Aditya Birla Mutual Fund.

[Shyam Maheshwari, analyst]

Congratulations on a good set of numbers. Just I had a couple of questions. One on the International business. When I look at the gross margins this quarter, they are a little off the numbers that we usually post around 3% to 4%. Wanted to understand why that is there's some competitive pricing that you're seeing there? Is it some acquisition-related integration costs, but that are probably one-off in nature?

[Tarak Patel, executive]

International business you're talking about or India business?

[Shyam Maheshwari, analyst]

The International.

[Tarak Patel, executive]

There's, it's slightly lower. What is lower, you said sorry?

[Shyam Maheshwari, analyst]

Gross margin. The gross margin. Gross margin. Yes.

[Tarak Patel, executive]

Maybe at product mix, maybe yes, exactly. So I think in the International business, the technology business has seen -- in this quarter has been a bit on the higher side. And as you would imagine, our technology would consume that. No raw material. And that is the main reason for this higher increase in material cost.

[Shyam Maheshwari, analyst]

Right. So this is probably mix related? No competitive kind of pressure as such?

[Tarak Patel, executive]

Yes, it's primarily on the Mixed side. I mean competitive pressure is there now. I mean if the market were to slow down, obviously, there is more people buying for the same kind of order book. There is definitely more competitive pressure. I would say Europe and International U.S. is not as intense as we've seen at least here in India. But I think in India, we've done quite well with maintaining or maybe even improving market share in Glass Line. So our order book in Glass Line in the last couple of months has been quite strong. We expect some more large orders to finalize in the near future. So from that perspective, I think both International and Glass Line margins could probably see an improvement if the market were to kind of turn and the demand were to increase.

[Thomas Kehl, executive]

The revenues that you see right now, they are not under competitive pressure because the revenue from the last quarter order intake from 8 months ago.

[Shyam Maheshwari, analyst]

I understood. Second question was just on the outlook of the chemical industry as such. We have guided for growth beyond FY '25 as well. Right now -- orders right now are muted. What gives you the confidence that the chemical industry will come back? And maybe if you could give kind of a breakup between like agrochemicals, specialty chemicals, which sectors you are seeing maybe some sort of pickup happening in the recent months?

[Tarak Patel, executive]

So I probably was hoping to ask you the same question in terms of what you think about chemicals because you probably are tracking and following more chemical companies than we are. But I think what gives us confidence is that, one, are some of the projects that was supposed to be finalized maybe 6 months ago, have finally started kind of people are tending up inquiries, they finalize on their equipment and they are now getting into the negotiation phase, right?

That started to happen. And I think that gives us a little bit more confidence because earlier maybe a quarter ago or 2, 3 months ago, we did not have that confidence, I think. Things have got pushed out, but I think things are now -- I mean, in terms of chemical industry, when I say chemical, it's really agrochemical, the bottom has been reached. I don't think there's any further kind of downside there. So if anything things are going to improve, raw material prices have also stabilized. Like you must be knowing many of the -- much of the overstocking is going to get consumed. And then obviously, U.S., Brazil will start ordering again.

So we will see a ramp-up of the chemical industry, mainly agrochemicals. Specialty, Pharma have been decent. They have been kind of doing okay. People building like CPVC, PVC, Epicerol, all these kind of specialty chemicals continue to do quite okay, and then Pharma is picking up. So, all in all, I think the whole situation even though has -- I mean, chemical is cyclical.

We've always known this. Obviously, we've been in an up cycle for the last maybe 5 to 6 years. So people didn't realize that there is also a down cycle. I think the idea is when there is a down cycle, we should be aware and we should make sure that we have control of our cost and make sure that we don't lose market share, which we are doing. And as soon as the markets are concerned, I think we will be in a strong position to take this opportunity and make sure that we are, again, in a strong position.

[Operator]

The next question is from the line of Sarang Sanil from RW Investment Advisors.

[Sarang Sanil, analyst]

I hope I'm audible. So sir, my first question is what is that you're doing differently in the International business now, which is clearly getting reflected on your margins with the capacity utilization, head count rationalization or have there been any revamp in the existing facilities? I mean what are the top levels apart from the better pricing that you get?

[Tarak Patel, executive]

So maybe, Alex, you can take this question. The question is what are you doing differently in the International business so that your profit margins have improved significantly from about 7.5% about 2.5, 3 years ago to now nearly 15%?

[Alexander Pompner, executive]

There are several effects of Q1 as Thomas mentioned before. A lot of the orders that we currently see in our P&L that we offer when we had the peak for energy prices raw materially last year. So we were able to increase our prices further. And in the meantime, the cost structure stabilized again and, therefore, we benefited from this higher for the better price business with the lower cost structure now.

[Tarak Patel, executive]

Right. And I think the other thing that maybe from the pricing improvement that we did, but also the execution in the facilities, namely Germany, China, Italy, I think these are new facilities that took some time to ramp up and now the momentum is kind of strong and we are getting good absorption of the fixed cost. Having said that, we always also look at and maybe Thomas can talk a little bit about the employee cost generally and what we have done over the last few months to make sure that we are more efficient.

[Thomas Kehl, executive]

Yes. Sarang, the cost has increased due to the inflation of the regions. Again, we have been able to manage to increase our prices accordingly. That was not significantly difficult because all our customers have the same issues we absorbed. But at the same time, we were able to increase productivity to operational excellence programs to also combining, let's say, better operational processes and productivity increase and this is how we counter those cost increases.

[Sarang Sanil, analyst]

Got it, sir. So my second question is, when I see your margins in the last 2 years, in Q4, there is a bump up in other expense as a percentage of revenue. So is there any big expense that you incur in Q4? And is it something we can expect going forward?

[Tarak Patel, executive]

Yes. So there is -- in Q4, there is usually incentive, right, International business. Last Q4 that we have new strategy or we have the calendar. January is the new calendar where they have the higher salaries that you pay normal year. So the margins, we have to reduce cycle returns for -- we have to record January, which happens to be Q4 for us. So employee expenses generally go up. Yes, in Q4, but I think generally for the year, you will see that we are around what we've guided to work. But yes, Q4, you will see a slight increase in employee expenses in the International business.

[Sarang Sanil, analyst]

I meant in other expense?

[Tarak Patel, executive]

I think exactly reference to last year of Q4, probably we may not have something of immediately to your mind. But I think there would a cool legal expenses, they were there on account of acquisition of that.

[Thomas Kehl, executive]

So maybe I assume that you refer to the cost that we spent for the acquisitions. And for the, let me say, you remember that we also tried to dispose the H1 business. And for the year-end, we -- in fact, we include all the costs for this. So this is more or less considered as a onetime impact. So please do not consider going forward that in the Q4, we always see a significant bump in that operating expense.

[Sarang Sanil, analyst]

And my final question is, if the effective tax rate being the 26%, 27% range only from this year because past 2 quarters, we saw a little on the higher side, right?

[Alexander Pompner, executive]

Yes. So for internal business update, we always had some changes in the tax rate. I think, in general, we gave the guidance to consider of 27% to 28%. Between the quarters some changes, but I would consider that for this quarter, we are at 25%, 27% rate again. So yes, for the full year, you will see product that are published precisely in conciliation where you see the impact due to deferred taxes due to the fiscal units that we have probably, so at the general guidance remain at the 25%.

[Operator]

Thank you. Ladies and gentlemen, we would take that as our last question for today. I would now like to hand the conference over to the management for closing comments.

[Tarak Patel, executive]

So thank you, everybody, for joining us for this call. I think most of the comments that we've made today will kind of show you that we have line of sight in terms of where we want to be. We obviously have now also a shareholder who has come in recently, and we will be engaging with them as well to kind of build strategies and see areas of improvement and that we will obviously kind of look to maybe at some point, look to give you guidance maybe more than FY '25, which we are currently have guided to work.

Having said that, we also have some specific strategies for acquisitions, M&A opportunities that we continue to look at. So that's something that we will continue to do. And then lastly, like I said, we are making sure that our cost structure remains intact and that we can look at operational efficiency to help improve margins. And hopefully, the market is starting to turn, and there is some uptick. And if the market was to kind of turn around much faster than obviously the demand goes up, which means then everybody kind of increases price. So that will help also in terms of profitability.

But generally, I think we have performed quite well for the first half of the year, and we expect to continue with the momentum for the next half as well. And we look forward to speaking with you at the end of Q3. Thank you very much, and have a good evening.

[Operator]

Thank you. On behalf of GMM Pfaudler, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.