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GMM Pfaudler Ltd
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Ladies and gentlemen, good day, and welcome to GMM Pfaudler Limited Q3 and 9 Months FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Priyanka Daga from GMM Pfaudler. Thank you, and over to you, Ms. Daga.
Thank you, Nirav. Good afternoon, ladies and gentlemen. A very warm welcome to all of you into the quarter 3 FY '23 earnings call of GMM Pfaudler Limited. The earnings presentation was uploaded on the stock exchanges last evening 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 our CFO of India business, Mr. Manish Poddar. 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 uploaded on the stock exchange and our website, including our call discussions that will happen now, contained or may have certain forward-looking statements regarding our business prospects and profitability, which are subject to several risks and uncertainties. The 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.
Thank you, Priyanka. Good afternoon, everyone. I am pleased to report another good quarter driven by strong execution across geographies. Our overall -- the performance remained on track, and we are confident of meeting our FY '25 guidance. In terms of financial performance this quarter, we reported a revenue of INR 792 crore, which is a growth of about 23-odd-percent and EBITDA of INR 118 crores, translating to a growth of 43% with an EBITDA margin of 14.9%. I would like to also highlight here that there are 2 onetime exceptional items. 1 is on the basis of an inventory provision where we were actually going to supply a large reactor from U.K. to China, and the application of this export license was rejected by the U.K., the government. Obviously, we have taken the most conservative approach and provided for the entire order. However, we will be reapplying for the export license, and there is a good chance that this export license will come through. And obviously, at that point of time, we would then provide for this in a deposited manner. The other option for this equipment is obviously we service to somebody else. And if this export license is rejected again, we would then look at selling to somebody else or then finding another way where we could probably remove the glass and then send it into China and have it reglass over there. So there are multiple options there.The other one is for the acquisition-related expenses, again, onetime and that is to the tune of about INR 8 crore. The PAT was also impacted by a onetime mark-to-market ForEx loss which is a noncash item. And obviously, in the first 2 quarters, we had a ForEx gain during this quarter because of intercompany loans, we had a ForEx net loss. In terms of our business performance, our shipment and order intake for the year is ahead of plan, and the outlook remains positive. Our technologies and services platforms are seeing good traction across geographies and our systems business opportunity pipeline remained quite strong.The order backlog as it stands today is about INR 2,247 crores, which gives us about 6 to 9 months of revenue visibility. We've also done a large stock in sale order had been fulfilled. 24 vessels have been shipped to Germany. Out of these, 7 have been sold and the reordering of new shipments are in process. At the same time, I would still like to mention that commodity and energy costs do remain a concern. However, we are working on cost control measures across geographies and hopefully, that will help mitigate some of these costs. In terms of other updates, we recently, as of this morning, completed the acquisition of Mixel France SAS and its wholly owned subsidiary Mixel Agitator Company Limited in China -- in France and China. The total consideration for this was about EUR 7 million. Mixel has a revenue of EUR 13.2 million, with an EBITDA margin of about 12%, and the backlog and the business visibility remains quite strong. This is a good acquisition for us as it helps us improve our listing on the portfolio, gives us access to new industries and to new technologies.Lastly, I would also like to make a statement regarding the DB liquidity event. DBAG is a responsible shareholder and has been a strong supporter of our business and management team since 2014. The lock-in agreements was between Patel family and DBAG so that DBAG will not exit until the successful integration of the Pfaudler International was completed. This was estimated to be around 3 years.But as many of you know, we actually outperformed and completed our 2020 guidance 1 year ahead of plan, and it was hence decided that it was the right time to start off DBAG's divestment. The recent liquidity event and sale of nearly 17.3% stake held by DBAG to high-quality investors shows that the strong demand and interest in our business. The Patel family is now the largest single shareholder and have continually increased our stake in 2020. Further, we have also agreed to purchase an additional 1% in the business from DBAG at a price of INR 1,700. Regarding the balance stake of DBAG, it will be sold to the right set of investors at the right time.At this point of time, I would like to now pass on this to Manish, our CFO of the India business, and he will take you through the numbers in more detail. Thank you.
Thank you, Tarak. Good afternoon all. We start with the consolidated numbers. The revenues for Q3 of FY '23 stood at INR 792 crores, a decent 23% growth Y-o-Y. EBITDA margin stood at 15% at INR 118 crores. This is a 2% increase in the margins Y-o-Y. PAT also is up Y-o-Y. However, in the current quarter, we were hit by a couple of exceptional items worth INR 22 crores, first 1 was the inventory provision of the inflows that Tarak explained. This was a GLE equipment shipment plant from U.K. to China because of the rejection of the export license, we could not ship it out. And therefore, we took a [indiscernible] of providing 100% of the booking [indiscernible]. The second exceptional item was on the legal costs on the recent acquisitions and the [indiscernible] of INR 8 crore. Apart from these exceptional items, we also had a ForEx MtM loss of INR 18 crores, which is a noncash item on the foreign currency ForEx. This is on [indiscernible] in euro and as you know, this quarter euro appreciated so hence the resultant loss of interest. Again, this was a noncash item. And likewise on the YTD performance, revenue stood at INR 2,300 crores, up 26%. EBITDA stands at 14.5% at INR 335 crores, up 3% margin Y-o-Y. PAT also stands at INR 199 crores, up 2.5x versus last year. Therefore, you will observe that we are on track to achieve our guidance for FY '25, which is INR 3,700 crores of top line and INR 630 crores of EBIDTA.Over to you, Priyanka.
Thank you, Manish. Nirav, we can now open the line for questions.
[Operator Instructions] The first question is from the line of Utsav Mehta from Edelweiss Asset Management.
First 1, what is the gross debt as it stands currently and how much of that is in foreign currency?
Utsav, the gross debt stands at INR 800 crores and INR 400 crores is in the international business, which is obviously all in foreign currency, whichever currency in those countries. And another $5 million of ECB, which is [indiscernible]. Apart from that, we, of course, have some $45 million of cash to net debt [indiscernible].
Okay. And this excludes the employee liabilities, right, pension liabilities?
Yes, this is the total debt. This is the only debt to the bank.
Okay. I just wanted to understand the INR 18 crore foreign currency translation loss on an international debt of INR 400 crores, that's almost 5% for a quarter.
Okay. So this is not on the bank debt. This is an intercompany loan, a legacy loan out of the previous -- once we acquired the business from DBAG. This is a loan from a euro entity to a dollar entity. The loan is in euro. So while the debt gets knocked off as we consolidate between the loan received under loan paid, the price fluctuation gets impacted because the dollar entity has to pay in euros. Therefore, we see -- you would have seen Q1 and Q2, we had a positive impact of INR 22 crores, INR 22 crores each quarter because the euro depreciated. This quarter, euro appreciated, therefore, there's a loss of in INR 18 crores. This is not the INR 400 crores of PFI debt.
Okay. Sorry, how much was the gains that were booked in the earlier quarters?
22 plus -- something like INR 44 crores in H1 of this year. So maybe we had over the 9 months, we are still positive. There is a gain of INR 24 crores, INR 25 crores of gains -- net gain is still there.
And that gain is in other income, is it?
Since [indiscernible] this will be in the other income.
Perfect. Great. I just --
Sorry, just as a subsequent point. So therefore, you see the net -- the other income for 9 months is INR 37 crores versus INR 5 crores. So majority of that is, as Tarak mentioned is [indiscernible]
Okay. Great. Tarak, you guys have given a sort of a guidepost in terms of the EBITDA that you want to achieve. But I also wanted to understand this INR 800 crores of debt, sort of what is the target in terms of bringing this number down? And how will you go about achieving it over the next 3 years?
Yes. So we have [indiscernible] so the actual number is not 800 million because we have cash on hand as well. So it's lower than that. However, we do have a plan to be debt free by FY '28. However, we believe that it will be sooner than that. We do have some small acquisitions lined up, but nothing significant. So most of the cash that we will generate now and our cash generation is -- we have a track record of generating good cash flows. So I think over time, you will see that the debt number will reduce significantly. And we obviously have a plan to remain below the 1x in the total debt. And hopefully, it was lower until we acquired, obviously, the 46% [indiscernible] recently, and with this new acquisition in Mixel. But I think over time, you will see that the number will start to reduce and come significantly below the 1x mark.
So from this INR 800 crore number, should I assume will be a peak number from here on in, it should decline?
Yes. So I think that is around where we will be. I don't think these numbers will increase significantly or if anything, you'll see it going down over time.
Okay. Wonderful. And one last question from my side.
To clarify, net debt today is how much?
Minus 300 to net debt to be INR 500 crores.
So INR 500 crore, because we have cash on hand, so the net debt is about INR 500-odd crores.
Understood. 1 last question from my side. At the analyst meet, you had mentioned that high-cost inventory, especially in India will be sort of done by the second quarter. And in the third quarter itself, you'll start seeing some benefits of that. But the standalone business in India this quarter has still shown a sort of 50% gross margin and 15% EBITDA margin. So just wanted to understand how this number will trend over the next few quarters?
So let me just start out by saying that you're absolutely right. We were hoping for some impact, positive impact of metal pricing reducing and old inventory actually moving out. But again, this quarter, we had a very large shipment of 1 specific job for heavy engineering. There is a significant change in product mix. The India team Aseem and Manish are both working on improving our margins here in India. Obviously, material costs still remain a concern. We are still about twice the amount of was 12 to 18 months ago. There has been significant increases. We tried pass on as much as we can to customers. The heavy engine business, like we know, is definitely not as lucrative as the glass-lined part of the business and the product mix itself is having an impact on margin. But we do believe that we have taken some actions over the last few months where the order intake in heavy engineering, obviously, is more profitable. We are working on increasing prices in the glass-lined business. Our [indiscernible] products is obviously doing quite well. So we do have a plan that over the next maybe few quarters, we will start seeing an improvement in margins. Maybe Aseem you want to jump in and just kind of talk a little bit more about what really impacted the Q3 margins here in India and how do you see them going forward?
Yes. Thanks, Tarak. So we are -- so I think Tarak covered most of the points. I think I'll just elaborate on reengineering a little bit. As you know, this is a line of business that we've really accelerated this year given the backlog we had in the last 3 to 6 months, as we have shared earlier, we've been a lot more selective about the kind of orders we take in this business and I'm happy to see the change in the margin and the backlog profile of [indiscernible] ship. So we expect the benefits of that to come really in the following financial year. And at the same time, our filtration drying and systems business, both continue to ramp up as well as the mixing business continue to ramp up very nicely, and we start to see profitability there. I think Manish will just add a couple more points.
So just to give you a perspective, heavy engineering was more than 25% of the business this time in this quarter. So therefore, you see there's certain -- in the Q1 -- sorry, Q3 standalone numbers, the INR 276 crores versus INR 256 crores in Q2. And on top of it, the major order that we had behind the order that we had were shipped out this quarter in Q3. And we expect the balance leftover something like INR 20 crores to be shipped out in current quarter Q4. And then we had fun with that big order where it was really margin dilutive. We did get something like 1% of material reduction, in fact, had a positive impact in our P&L. However, this was more than done by this higher share of the heavy engineering business. If we actually take out internally, if you take out -- when we did the calculation, if we take out the heavy engineering business, the rest of the standalone business stands at 20-plus percent EBITDA margin. And before --
And maybe just to add in terms of business strategy, we've also kind of taken a look at heavy engineering. We are kind of thinking of reducing our exposure there, keeping the revenues to a smaller number while filling that factory up with other products like mixing like proprietary. And hopefully, that will help us also kind of improve the margins coming out of the new facility in Cat.
Is there a difference in the working capital Yes. Sorry, last question, it was just a follow-up to this one. Is there a difference in working capital between the HE business and the glass lining business?
Yes, it does consume significantly higher amount of working capital, both on the inventory and on the receivables side, simply because on the inventory side, the [indiscernible] cycle is that much larger. So GLE would have a normally 3-month growth impacting cycle it may go from 6 months, 9 months as well.
[Operator Instructions] Next question is from the line of Sandeep Tulsiyan from JM Financial.
Just following up on the margin question on international side. I think when we had guided originally to improve our margins somewhere about 16%. The expectation was that although we maintain standard margins around 20%, there would be a significant step up in the impacts to margins, which has kind of played out in the first 9-month period. So I just want to understand where all do you further see scope of improvement in international margins from this 12.7% what is reported in the current quarter or do you think largely all of those improvement plan has materialized, and this is where our strategic margins should sustain?
So indeed, yes, I think the international business today is part with our India business. Even in the past, India business is accounting to nearly 70-odd percent of our total profit. While today, the international business is nearly as big and as strong as the India business. So that's definitely a very kind of a heartening situation for us. We also see that this margin in the international business will continue. So new acquisitions that we've done will only help us kind of improve and maybe grow this margin as well. 1 of the recent acquisitions that we've done with Mixel, again, mixing is a business that we really are focusing on. We're trying to create mixing as 1 of -- a new kind of business line for us, again, because 1, very much -- it really has good margins. It's a technology play, it really helps our customers improve, let's say, backs to R&D transfer, reduce power consumption. So it's really becoming more and more popular. Again, you don't have too much competition again, and it's a very cross-sells -- very well, right? So across the board, it ticks all the boxes. It opens up a wide new set of industries, metals and minerals, water, waste treatment, cosmetics, [indiscernible] beverages, besides chemical and farming, right? So mixing is something that we really want to focus on. We really want to create a brand, a global brand where we can really be 1 of the top key players in mixing globally, and that's what we are working towards. We are looking at small acquisitions that will help us in reach this kind of size and scale and hopefully, that's something that we can announce shortly.But generally, in the international segment, the acquisitions that we've made will only help us improve the margins. Hydro as [indiscernible] has done quite well. We've seen significant over intake. Again, a very kind of good technology products, again, with high margins. The services businesses are growing again high margin. Industries are doing quite well, again, very high margin. So overall, we are quite confident that the international business margins should sustain. I will also note that now internationally in Europe, especially in Germany, we are now seeing prices of the gas and electricity coming down. So that's where we're going to have a positive impact. We've already taken cost reduction measures.For example, we have gone down to a 4-day work week in Germany this [indiscernible]. So we are working on a lot of different things. But generally, to answer your question, yes, I do believe the international business will continue to perform and maybe even do a little bit better. We have our CEO of the International business here with us today, so maybe he wants to jump in and say a few words on this.
Yes, and thank you very much, Tarak. The international business is doing quite well. [indiscernible] based on order intake. The inquiries are still at a very high level, and we don't see any projects being postponed or [indiscernible] anything our customers and marketplace -- and with that, we have taken a lot of actions in countering the cost increases in material energy prices. However, the overall energy consumption and the cost of energy is less than 5% of the total revenue with the impact is overseeable. And with energy prices coming down now will positively impact us because the current margin already includes higher energy costs that we have been absorbing. And so far, we are looking into, let's say, good foreseeable future on that part. So overall, the business in the International is intact also in the [indiscernible] so we could see a lot of activities going on in -- the order intake, especially on the service side is pretty good.
Understood. That's quite elaborative. Second question that I have was on these acquisitions that we had done in India, that specifically the De Dietrich facility, Hindustan Dorr-Oliver facility. If you could give us some color how those acquisitions have panned out in terms of ramp-up in production? What are the capacity utilization raised at these manufacturing plants? Where are they in terms of what you envisioned 3 years back to the scale and size that you can grow these businesses that you acquired? A bit more color with some quantification should help over there.
Sure. So this is Aseem. I'll take this 1. There are 2 acquisitions that we've done in recent times in India, so the De Dietrich plants in Hyderabad and the HDO, Hindustan Dorr-Oliver plant in Vatva, Ahmedabad. We're actually very pleased with the way both these facilities are ramping up. First, the plant in Hyderabad, this is a glass lining plant, the idea was to be able to be local to the Telangana belt, where we have a key set of customers. I need to report that over the last few years, we have ramped up production to a point where we're doing roughly 2.5x what that plant had achieved in the past in terms of revenue output. So we're very pleased with the realized delever. And we continue to ensure that our purpose are standardized streamline and work [indiscernible] for this plant. At the same time, in our Vatva facility which is our heavy engineering factory, again, that ramped up very nicely. And while we have had the margin dilutive issue related to the order, the production itself has come up very nicely. And so, from an operational standpoint, we see a [indiscernible] Tarak anything to add?
Yes, really just to be added we've added a furnace in Hyderabad, the new furnace in Hyderabad where we have expanded capacity there. We've added some factory space as well. We also are manufacturing from agitated metal agitators for Mixel in Hyderabad. We've also manufactured new products in Vatva, so we're really using all the real estate as much as possible. We also, at the same time, just commissioned our big, big furnace here in Karamsad, 80,000 litres. We have received 6 orders for 80,000 litres tank. These are the biggest vessels that can be made in India, and the timing was perfect just when we started this new furnace, we actually got the orders for [indiscernible] project. So timing was good, and we do have the capabilities now to make super large vessels here in India.
[Operator Instructions] Next question is from the line of Salil Desai from Marcellus investments.
I have a question, Manish, if you can help me understand this. So if I look at EBITDA in the international business, and this is the number on Slide 21 of your presentation was about INR 71-odd crores, right, which is the international business's EBITDA. And if you look at the EBIT in the overseas business, I'm assuming these are like-to-like comparisons and the EBIT was close to INR 14-odd crores, INR 14.15 crores. The part of the difference that you think which [indiscernible]
Salil, we can't hear you very clearly. Can you maybe just slow it down a little bit and speak up a little bit, so we can hear you a little bit more clearly.
Sure, sure. I'll do that. So I think the EBIT in the international business is INR 71 crores -- sorry the EBITDA is INR 71 crores. The EBIT in overseas business, which is part of the segment results is some INR 14.15 crores. So I'm just trying to see how do we get from INR 71 crore to INR 14 crore. I saw some depreciation could be about INR 20-odd crores. But if you could help understand the rest of the bridge could be really helpful, this seems like a pretty large difference.
Okay. So Salil you're right. So if we start with the segmental EBIT of INR 14 crores in Q3. So from that, we add another inventory provision of INR 14 crores. We are leasing cost excepting in cost of INR 8 crores so that's about INR 22 crores, plus we add this effect on the [indiscernible] of INR 18 crores. So INR 14 crores plus INR 22 crores plus INR 18 crores makes it INR 54 crores, right? So that's the basic construct of this Q3. And likewise, if we see like-for-like, Q2 of EBIT said INR 69 crores, right? Now INR 69 crores had a INR 22 crore FX gain, right? So INR 69 crore minus INR 22 crores actually makes it INR 47 crore on a like-to-like business performance perspective. So Q2 EBIT adjusted would be INR 47 crores, Q3 adjusted EBIT will be INR 54 crores.
Okay. All right. That helps. And the next question is, Tarak this is for you. Now when you said that you have some more acquisitions in some planned or thought of, you're looking to add products, geographies, if you can just explain how -- I mean how much more do you need to acquire before portfolio you think is a complete or?
Part of our strategy -- so when I spoke about mixing and mixing becoming a business, a stand-alone business that we really want to focus on, with the Mixel acquisition, we have now presence in Europe. Mitel has a factory in China. So we have a presence automatically in China. And through our Mixion business plan we are running here we have a business here in India. So India, China, Europe taken care of, that leaves only the Americas as a place we don't have operations. So that's something, but it's in the same space as mixing. So we know to kind of combine these 4 geographies and have a global mixing platform that we can go out and we can sell or we can -- we have one focus person. We actually just hire a person who's going to take over as the head of the mixing business of the company eventually. So we're heading [indiscernible] focus and the ability to grow. Like I mentioned to you, the market size of mixing is much, much bigger than glass lined. It's a technology play for a high-margin business. It's something that involves a lot of cumulation, software, technology, proven track record, so companies who have supplied equipment in the past, that automatic qualifies you with large oil and gas project, license the project, it really opens up a really wide range of application and the industry that we can cater to.It's very much complementary to glass lined. It's also very important today that companies are looking at ways to reduce [indiscernible] power consumption, include [indiscernible] improve product quality and team. So mixing is becoming g a very, very important part of the efficiency improvement program. Most of the Indian companies have 300, 400 reactors. But if you can reduce the power consumption of each new asset under 25 horsepower to 15-horsepower, you have a tremendous savings be possible, right? So we're seeing it's something we are focusing on.Mixel acquisition was the first step. We have something planned as well, something smaller, something not too large. Again, our size of acquisitions are not that big between the $5 million to $10 million range, but some of these acquisitions can double a [indiscernible] very quickly. And our eventual goal in mixing is to be at least in the top 3 in the world, and that would put us in the $100 million to $150 million mark, right? And that will happen eventually 3 to 5 years from now, and that's what we are aiming for.
Next question is from the line of Jonas Bhutta from Aditya Birla Mutual Fund.
Just a question on just trying to put in place the commentary to the numbers. So basically, what we've seen is in the last 2 quarters, our order intake has sequentially declined from a peak of almost INR 990-odd crores, down to INR 770 crores. But on the other hand, we also earlier comment where you said inquiries seem to be still robust. So should we sort of -- how should we think about this in terms of is this largely a timing issue where clients seem to be taking longer or you're seeing genuine slowdown while people seem to be talking to you, but there is a general slowdown happening, particularly in Europe?
So I think it's a combination of multiple things. Generally business environment is a bit subdued over the last maybe 2 quarters. I think the Ukraine war, the global inflationary issues and problems going on. But the inquiries still continue, maybe the time they take to finalize has kind of increased, but we are seeing, again, some kind of a reversal in those trends. We have, over the last quarter, seen significant projects here in the glass-lined part of our business here in India. Like I mentioned to you, yes, we've seen some slowdown in existing business internationally, but the opportunity pipeline remains strong. We do expect some large orders to come in, in the fourth quarter. Luckily for us, we have a large backlog in most geographies, 6 to 9 months, in some cases, even more than that. So that gives us good revenue visibility. We also have the ability now to kind of target some orders, which usually -- or earlier, we could not target now in India being part of the global sourcing program, we have to be able to go enter new markets like Eastern Europe, Southeast Asia, some parts of Spain and Africa. So there are a lot of opportunities available. But generally, we have also been kind of selective in terms of what we take.And I think 1 thing in India, especially that we have done is we've kind of been selected both in HE and glass-lined. The glass lined has picked up last month, and we expect that to pick up as well. I think the other thing that you can mind as well is that last couple of quarters, we had a lot of large orders from heavy engineering. But because of the large backlog that we have in that business, new orders will take some time because we already have a [indiscernible] for 9 months. So we expect orders need to come in the next few quarters. And with Mavag, for example, I [indiscernible] has a backlog of close to nearly 15 to 18 months, right? So generally, the activity is there. They're still finalizing new orders. So there is activity going on in Europe and in the U.S. India is also picking up. Maybe Thomas, you want to add something on what you're seeing in Europe and in India.
Yes. So looking at -- this is Thomas, looking at the [indiscernible] American as I said before, I think they are quite normal on a high level still. Demand is not really slowly down. I think we have seen in the last couple of years is slightly overheated situation that is coming back to a notification. So the decision making process of customers are not slowing down more than they have been before. They were extremely fast over the last 3 years, and that couldn't hold forever. So we are not concerned about what our intent about these demands that we see in Europe or in the Americas at this point.
Yes I think you're seeing, Tarak mentioned, a lot of activity, especially in the [indiscernible] actually growing quite nicely and the [indiscernible] All pharma companies remain somewhat [indiscernible] Overall we are pretty satisfied with the backlog [indiscernible].
Got it. And just from a -- given that we don't have too much of a history of how order books used to behave for PFI before it came in. Given that we are sitting on a backlog of about INR 22 crore to INR INR 50-odd crores, and even if we sort of inevitably grow our sales next year by about 10%, you're talking roughly 3,300 kind of number. With this kind of backlog, what kind of order intake that you think that you will have to pull through so that you can comfortably sort of reach at least a 10%. So has typically order book to sales coverage been 0.7x or this seems to be on the lower side, just from a historical perspective?
No, I think from a historical perspective, I think this is record order books was to be much, much lower. In India, obviously, we do prior start the year with at least half the order book of what the year targeted. So let's say, for example, if we have a INR 1,000 crore revenue target, we should have at least INR 500 crores of revenue on hand. So from that standpoint, half the revenue -- sorry, half the order backlog is already on our book. We will book new orders in Q4, plus also what you probably don't consider in this is fares and services, it these are ongoing, and these are short delivery items that get booked continuously. So that will only add to it. So I think we are quite comfortable from order backlog standpoint. That's why I mentioned we have about 6 to 9 months of visibility. We don't have any kind of urgency in terms of building in orders or dropping prices. We can hold pricing. We know there are large orders in the pipeline, more large projects here in India that are currently happening. We have good projects on hand in Europe as well. So overall, I think we are in top position. But like we basically telling the market, there will be ups and downs. But the current backlog is a strong kind of base to build on.
Got it. And the last 1 that I had was on margins. So you mentioned that the heavy engineering piece still has a legacy order book of INR 20 crores to INR 30 crores, which probably will get executed in the fourth quarter. So is it fair to assume that the fourth quarter margins of the standalone piece could sort of be similar to the Q3 or there are levers there also which you think they will us better margins there?
So obviously, we are looking at internal measures to reduce cost, but I would stick with the current margins that we have been delivering. Obviously, there will be new orders coming in but again, metal prices again have kind of stabilized now. There's been some talk that it might even go up. So we have to be a little bit careful, but I think we definitely have opportunity to reduce cost internally. I think Manish are working on that. There's a current year procurement activity going on with the help of a consultant to look at large contracts and to find ways to find them more efficiently. So all those things will be ongoing. But right now, I don't want to really give you a number or change that number for the last quarter. We do always [indiscernible] go and next year, hopefully, we have some actions in place where we can see some improvement in margin [indiscernible] number.
Next question is from the line of Bhavesh from Jeetay Investments.
Sir, can you hear me?
Yes loud and clear.
I just wanted to understand on the valuation front. So can you just give me a brief on the valuation, what we like acquired the spending or the remaining 46% which we acquired on that front?
Manish? We -- out of 46%.
So I think we have a detailed presentation tender for this at the time of acquisition, and it compares all about the -- I think if you talk about the EBITDA multiples, it was 6.5%. That was the valuation multiple, if that's what we're looking at.
Okay, okay. And just on the 2014 DBAG one?
DBAG we had acquired -- 2014, we acquired the Pfaudler Group. I'm not sure at that point because it was done directly with another company, what DBAG ended up paying, I have no idea. That's something that is not in the public domain and that was done between within NOV who is an American economy and DBAG, not sure of those numbers. But the 2020 -- the 2020 numbers as well as the 2022 numbers both have been been compared and they are on our website, you can have a look and all the details in terms of EV valuation multiples are all part of that presentation.
Okay. Okay. And just one another question that in the chemical side, are we catering to only like -- is there any segment which we are not catering to other than like agro and specialty chemicals? Is there another sector or profile?
So obviously, agrochemical and specialty chemicals are the big one. We also do dyes and paint for glass lined equipment. In pharma, we do ACI, basically [indiscernible] we don't do formulations -- there are certain applications like fluorination it and you use fluorine, you can't use glass-lined because it reacts to the glass. But besides that, all major applications in chemical and pharma -- sorry, agrochemical and specialty chemical will require some kind of glass lined equipment in the plant.
Next question is from the line of Venkatesh Balasubramaniam from Axis Capital.
Yes. I actually had 1 question for Manish and 1 question for Tarak. Now costly, Manish, last year, if you actually see the fourth quarter results, fourth quarter last year, effective tax rate was almost 60%-odd in the fourth quarter. Are we expecting a similar level of effective tax rate in the fourth quarter? This is a question for Manish.
Venkatesh, both effective tax rate for the organization stands at 27%. However, there have been fluctuations on the positive and the negative side through the quarter as you've seen. There have been tax reversals and as for credit last quarter as we saw. And similarly, this quarter as well. Hello, can you hear me Venkatesh?
Yes.
Similarly, if you see for the current quarter, Q3, you have a PAT of INR 19 crores, a reported number. And if you add 27% of normal tax rate, you give us INR 5 crores of taxes. And then the ForEx MtM that we spoke about that INR 18 crores, so that will give you -- that will obviously is nontaxable. So that's a INR 6 crore impact. And these are the minor deferred tax accruals and deferrals. And because of that, we come to the number that we have at [indiscernible]
Okay. The other question is to Tarak. Now obviously, you are planning to buy 1% from DBAG fund, and I believe that you need some regulatory approval. So what exactly is this regulatory approval which you are waiting for? And when does this come through? That is first part of the question. And when will this happen, this 1% stake purchase? Secondly, I guess, when you actually buy from DBAG, it's an interstate purchase, so it doesn't trigger an open offer. So does it also mean that when the next round of the remaining 13-odd percent of DBAG, whenever that comes to the market, you will be looking to buy more because if you don't buy from them and you buy on the open market, it might end up causing an open offer. So are you thinking about increasing your stake even further in the next round? So if you could provide some color on that, that would be useful.
Sure. So Venkatesh, let me start off first with the approvals required. There are 3 approvals required, the U.K. FDI, French FDA and Italian FDI, both of these the 3 approvals are only getting triggers because we're crossing the 25% mark when we acquire this 1% stake from DBAG. Those applications have already been made, and we expect that and the CCI approval to come sometime in the mid of March. So we expect the transaction to be completed in the March month, end of March, something like that. When we acquired this 1%, we would cross from 24.2-odd percent to 25.2%. So we would have crossed that threshold. After crossing the 25% mark threshold, we can then free from the market, we can buy from the market. So any more acquisitions of shares will not trigger any open offer because we bought the 25%. DO I plan to buy more from DBAG? Obviously, when that time comes and the DBAG is looking to sell that stake, we will think about it. But right now, my first goal was 24%, 25% mark. I also mentioned in the past and yet as the dominant promoter, we would like to be somewhere around the 28% to 30% mark. If that is possible, I would like to do that. Timing, I'm not very sure, but if there's an [indiscernible] from DBAG sure we'll consider it.
Next question is from the line of Ronak Vora from AUM Fund Advisors.
When we say our and are full with the order book of 6 to 9 months, what kind of capacity do we have and currently as in what kind of utilizations are we at and where can we reach?
So I would definitely say that in our India glass-lined business, we are not at full capacity. India has a backlog of about 6 months. So there is definitely potential to kind of improve the capacity in India and take more orders. Like I mentioned to you, orders have been -- we've been choosing and picking orders carefully to make sure that we do -- win margin business. But in Europe and the other geographies, we do have a higher capacity utilization. And I think the order backlog there is much stronger as they have the 9 months in most of the glass lined factory. So there the utilization rates are much higher. I also mentioned that we have kind of reduced -- we've taken some steps to reduce stock in Germany where we've gone to a 4-day work week, but they are still producing the same the amount of equipment. So the utilization has actually improved. We are also working on a global operational excellence program. So we have seen significant improvement in our China facility. China is really an area where we want to grow market share. We have a brand new facility there. We have new furnaces there. We just recently also finished manufacturing 140,000 litres glass-lined vessel, which is the first time that's been done in the group. So we have very big plans for the China facility and hopefully market share in China can increase significantly.
Just to add, as I recall from our industry guidance that we gave, we do not expect to make any significant CapEx for our guidance of INR 3,700 crores. We actually think that we should be able to do something like INR 4,000 crores to INR 4,500 crores out of the current CapEx. So if that answers your question.
So basically, currently, your gross block, which is a INR 300 crores can of INR 400 cores to INR 4,500 crores of top line, correct?
Yes. Of course, there will be maintenance CapEx throughout, as we mentioned in the guidance period in the guidance presentation as well. So you should expect that 2.5%, 3% of CapEx in 1 or 2 years.
Yes. I'm just getting rough figures, ballpark is fine. Secondly, you said that India is underutilized, and we are picking orders. Is it something because the pharma industry in India has been dull, the chemical has been pretty good. Is it something that there are lack of orders in the market, which is leading to the 6 months of order backlog.
No, it's a combination of multiple things. I think 1 is that most of our furnaces in Gujarat are on GAAP. So we try not to use the gas furnaces and use it at [indiscernible] basis, so we can't consume the gas, which is at the lower prices. So we don't need to over kind of extend and use this on to 24x7. So we've been a little bit conscious about that. Plus, we now have the Hyderabad facility, which also has capacity. Like you rightly said, there has been a little bit of a program when it comes to pharmaceuticals, but then the agrochemical and speciality chemical sectors are making up for that shortfall, right? So there are large projects in the pipeline, PI Industries, NPP 12 and 13 is coming. [indiscernible] announced a new agrochemical plant mainly putting PVP project. These are all large reactors [indiscernible] chemicals is expanding as well. So there's no shortage of orders. Expansions are happening. India will continue to invest in chemical and pharma. Obviously, in the past, earlier on, maybe if you look back 10 years, pharma comprised nearly 60% of our glass lined business, today only accounts for 30%. So pharma has definitely slowed down, which can be deployed by chemicals. Hopefully, pharma will start coming back, and that will also add more orders coming into the market and it will definitely be more business for us as well.
Next question is from the line of Rohit Ohri from Progressive Shares.
2 questions. The first 1 is related to this holding of Pfaudler Inc. So is there any binding clause or binding agreement or contract because we had some of these contracts in the past for 3 years. So are there any more contracts or are they willing to extend it going forward?
No. So there is no contract in place. But again, I mentioned that DBAG is a responsible shareholder. We will only sell and they will only sell when the time is right and with the right set of things. So again, there is no specific timeframe as and when the demand is there, the right price and the right set of investors, we would like to do the transaction. And obviously, the private equity investors, they have a financial timeframe that's been announced in 2014. It's already now nearly 9 years. So the timeframe is probably at the end of the timeframe. So when we find the right position for them, I'm sure they will be looking to exit and at the right time.
And if you can just share like what is the timeline? Is it like September, or October?
So I can't really say any timeline right now. There is no specific timelines. Again, it all depends on what happens in terms of the demand, the increase levels. So as I said, at the right time to the right set of investors, we will then plan that sale accordingly.
Okay. My second question is related to the split that you do in premier segments and subsegments. We see that the standalone and international has been reducing in terms of the percentages for technologies. And on the same hand, the systems and the services is growing and it is inching slightly more towards the north side. So any guidance you would like to give for this or will this trend continue with technologies becoming slightly weaker and system services going towards the north?
Maybe Tarak can explain -- a perspective, our technologies is growing naturally slower than systems and services because systems and services are the new businesses that we have [indiscernible] It's all relative because ultimately, the buyer has to stack up to 100.
I thought you said it very well, Manish thank you. Our core business where we have high market shares in all the regions. And therefore, we grow consciously with the market. We are not growing the market share at any price. We are mentioned decisions on what orders we take and whatever we're not going to take. And the other segments are our pure [indiscernible] segments where we are investing in capacity and also in M&A. And those are the segments where we are looking for growing the pie and getting to the piece of the pie and they're naturally as Manish said, both ways we expect to be significantly high.
Next question is from the line of Jaiveer Shekhawat from Ambit Capital.
1 question. If I remember right, I mean in the previous call, you had mentioned that the reason why you're not participating, especially in the kind of orders that your domestic competitor usually gets into is because these are on the lower end of the F&D. Now when I look at their margins, that is whether be the gross margin or the EBITDA margin, they seem much better despite having the higher mix of that lower end of F&D. So could you just help me understand and probably provide your perspective as to how probably they are able to make better margins, despite being on the lower end?
I'm not sure what you're speaking about, but in terms of glass lined, obviously, we are the market leader. In F&D, filtration and drying, we are definitely the market leader, and we focus on the high end of any kind of situation which requires technology, that's what we really focus on. I don't have access to -- I mean, I have access to company numbers, I don't really know how and why those numbers are the way they are. What we can tell you is that being a market leader, we drive price. Price is important for us, and we make sure that we will only do business in the glass-lined segment at a price that makes sense to us as the price leader, and we do command a premium when it comes to glass-lined because of our quality and our technology. Even in the F&D business that we do, we have specific products like [indiscernible] glass-lined ANFD, like BCD, again, very specific [indiscernible] critical. And hence, again, the margin profile there is significantly better, and that's what we really focus on.
I now hand the conference over to Mr. Tarak Patel from GMM Pfaudler for closing comments.
Thank you very much, everybody, for joining the call. Have a nice weekend, and we will talk to you after our Q4 results. Thank you very much.
Thank you very much. On behalf of GMM Pfaudler Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.