GMM Pfaudler Ltd
NSE:GMMPFAUDLR

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Earnings Call Transcript

Earnings Call Transcript
2022-Q4

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Operator

Ladies and gentlemen, good day, and welcome to the Q4 FY '22 Earnings Conference Call of GMM Pfaudler Limited. [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, ma'am.

P
Priyanka Daga
executive

Thank you, Stephen. Good evening, ladies and gentlemen. A very warm welcome to all of you into the quarter 4 FY '22 earnings call of GMM Pfaudler Limited. The earnings presentation was uploaded in the stock exchanges 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 India business, Mr. Aseem Joshi; our CFO of India business, Mr. Manish Poddar; our CFO of International Business, Mr. Alexander Poempner; and our Company Secretary and Chief Compliance Officer, Ms. Mittal Mehta. We'll give you a brief overview of the performance of the company, after which we will get into the Q&A.

Before we begin with the overview, a brief disclaimer, the presentation, which we have uploaded on the stock exchanges as well as on our website today, including our call discussions that have been announced, contains or may have certain forward-looking statements concerning our business prospects and profitability, which are subject to several risks and uncertainties, and 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.

T
Tarak Patel
executive

Thank you, Priyanka. Good evening, everybody. So I think I would like to start off by giving you a perspective for the performance of this financial year. I think we have seen a significant improvement in revenues across both the India and international business. We are now a INR 2,541 crores company. Not so long ago before the acquisition, we were about INR 600 crore company, a significant change in size and scale. And the international business has performed exceedingly well, a company that started at about $175 million to [indiscernible] revenue in excess of $230 million, which is fantastic in terms of execution. So across the board, across the international business and India business, execution has been fantastic and the revenue numbers, they speak for themselves.

On the profitability front, yes, we had a bit of impact on profitability. This is due to, obviously, the commodity price increases, metal prices have increased significantly. And in some European countries, namely Germany and U.K., which had an impact due to energy costs. We are already seeing [ pulling up ] of metal prices and hopefully if this continues, you would see a positive impact on profitability in the coming quarters.

In terms of order backlog, we begin this financial year with a 30% higher backlog than previous year which is a very strong and healthy backlog for us. In most of our sites across the world, we have about 6 to 8 months of backlog and in some even more than that. So we have good visibility towards the coming year.

The focus for the coming year is obviously to look at internal cost control, to look at ways of increasing profitability and maintain a similar level of execution for the next few quarters as well.

From a CapEx standpoint, a couple of increasing development. Our Hyderabad furnace is now up and running. We got the furnace commissioned a few days ago. So that will add capacity to cater to the Hyderabad and Vizag area. Our Brazilian furnace came online a few months ago and will help us cater to the U.S. market. The new furnace in the U.S. is also under decommissioning and will come onboard shortly. And then lastly, we had ordered a new furnace for Gujarat, which should come online sometime in September, will also add a lot of capacity, both for India and for supplying internationally as well.

Our Vatva facility is now fully ramped up. We have got 200 people employed there. It's running at full capacity. We expect Vatva to have a good impact on overall growth story here in India.

In terms of the industries that we cater to, our chemical still continues to be the driver for us here in India. Agrochemical and specialty chemical continue to invest. The China one story is playing out quite nicely, and we expect investments to continue. With the [ pulling up ] of metal prices we believe that some of the projects that were on hold will now be reinstated and new business will be coming in. But having a strong opportunity pipeline, there are many large projects that are going to be ordered in the next few months, and we see the next few quarters to be very strong from an order intake standpoint.

There's also a bit of revival in the pharmaceutical industry. There is the [ PLI ] team, which is creating new capacity in Hyderabad and Vizag. A lot of the Hyderabad-based pharma companies are looking at setting up fermentation plants, and that would obviously lead to business for us in the medium term. That's where we have some technology on fermentation and these large fermentation vessels will require applicators, which obviously GMM Pfaudler can supply.

Across the world as well investments continue, backlog remains high and new orders are coming in. However, as I said, the only concern is the commodity pricing and energy costs, and it will start to kind of go downwards. You will see that impact profitability in a positive manner.

Besides that, I also would like to inform you that we have added a new independent director, Mr. Prakash Apte, who is currently the Chairperson of the Kotak Bank. He will join our Board, and he will replace our Chairman after our Chairman retires after the AGM in August. So very good addition to our Board. He brings a breadth of knowledge and experience and from an internal standpoint, having worked with Kotak Bank, I'm sure he brings a lot of experience to the table as well.

With that, I would like to hand over the call to Manish. Manish will take you through the quarter and the financial numbers for the year, and then we can then open it up for Q&A. Thank you very much.

M
Manish Poddar
executive

Thank you, Tarak. Good evening, all. So let's move to the consolidated results for the quarter. Consolidated results, we were on revenue plan, we were just shy of [ INR 700 ] crores with a 9% growth for quarter 3. EBITDA margin stood at 10.2%. Cost per share continued for the quarter as well on account of metal and energy. However, on business outlook perspective, we have a strong backlog of [ INR 1,932 crores ], which is 30% higher than last year, which reflects our business outlook for the future.

Moving on to the full year, for consol results. We clocked revenue of INR 2,541 crores with an EBITDA of INR 330 crores at [ 13% ] at March. Here, it's important to mention that during this quarter, we had INR 17 crores of deferred tax assets being charged off to the P&L. This is related to the previous years and this is a noncash item and helps us in cleaning up the balance sheet. However, in cleaning up, this deferred tax asset had to be charged to the P&L and therefore, you see a higher tax charge for this quarter to that extent.

Moving on to the cash flow statement for the full year. We generated INR 270 crores of cash from business. Out of that, INR 99 crores will be reinvested back into the business on account of working capital and CapEx. And thereafter INR 122 crores was repaid on account of debt, lease, interest and dividend payout and the balance, INR 48 crores, is added to the cash in hand.

Moving on to the balance sheet. Our balance sheet continues to gain strength. Net debt to EBITDA is at 0.5, net debt to equity stands at 0.3. And also happy to note is pension liabilities have gone down from $60 million to $50 million as the industry thrives, the present value of the future payables go down as per the actual valuation, so this helps us in reducing the pension liabilities as well.

Moving on to the profitability matrices. EPS continues to grow to INR 91.4 per share. ROE and ROCE also show -- now in a healthy zone, so ROCE at 22% and ROE being 25-plus percent. That obviously means that Pfaudler acquisitions has been value accretive for the shareholder.

On integration, Tarak already mentioned a few things about it, so we can go to the income statements for quarter 4. It's probably the last quarter where we showed this breakup in [indiscernible] between what the business has performed, what the accounting adjustments have been and starting up to very good [indiscernible] numbers. The only significant item is on the column fees taxes, INR 17 crores is something that we spoke about already. In the interest of time, rest of the slides, we may skip, but we might just go directly to the last slide, which is Slide #30 on account of working capital.

On the working capital, on the left side, you see the consolidated numbers. Inventory has risen from INR 530 crores to INR 670 crores. Obviously, because of metal price hedging, we have to buy more material, but what's heartening to see is customer advances have also risen from INR 218 crores to INR 222 crores. So therefore, the net funding at the group level remains almost stagnant from INR 242 crores to INR 247 crores. So the inventory days also net-net has [indiscernible] on a consol basis, although the backlog has risen from INR 1,500 crores to INR 1,900 crores.

Trade receivables have been managed well at -- stayed static at 51 days. Payables also have been extended from 48 to 56 days and primarily on account of India. And as we move on to standalone numbers, you'll see inventories have risen in India from INR 113 crores to INR 231 crores. And you can appreciate that India business is primarily on account of technology and [ service systems ] and new services components. So we have to make sure that the backlog or higher backlog, we had to make sure that the inventories are in our hand to avoid any metal price increases.

Therefore, the inventory days have increased from 32 to 61 days for the 31st March '22. However, that piece, we have tried to reduce on the working capital side so our receivables is reducing from 64 to 54 days and payables increasing from [ 55 to 71 days ]. By doing these 2 pieces, we have tried to maintain the cash conversion healthy.

With this, we can open the call for the Q&A. Priyanka, over to you.

P
Priyanka Daga
executive

So Stephen, maybe we can open the call for Q&A, and we'll be happy to answer any questions that you have with us.

Operator

[Operator Instructions] The first question is from the line of [indiscernible] from Ambit Capital.

U
Unknown Analyst

Sure. Tarak, firstly, in terms of the strategic plan that we are awaiting. Could you please throw some light on the avenues for the growth for revenue as well as improving profitability as well as your revised guidance for the consolidated entity as well?

T
Tarak Patel
executive

Right. So we are currently working on our new equity story as well as our future outlook. We are currently in the process of getting this done. Due to the uncertainties in the global market, it is taking a bit longer. However, for the next year, I would state that -- obviously, the international business grew at [ 20-plus percent ]. I don't think that's going to continue, the idea for the international business next year is to really focus on profitability.

But the India business, obviously, will continue to grow. We have 2 new factories here, 1 Hyderabad and 1 in Vatva, which will definitely add significant revenue and growth here in India.

But from a timing standpoint, you are now looking at August to have a Capital Markets Day and come out with a new 3-year equity story/kind of a guidance document. And I think that is where we will be more comfortable to give you some kind of guidance.

U
Unknown Analyst

Sure. And also, we understand that the employee expenses for your international operations will stand at roughly 20% will be revenue. So I wanted to understand what kind of revenue growth -- ramp -- revenue ramp up are we looking at, so that, that percentage also employee expenses and corporate revenue comes down to more manageable levels for the international operations?

T
Tarak Patel
executive

Right. So I think currently, the focus in the international business is including profitability through external kind of initiatives. I think many of them will, like, for example, let's say, operational excellence, the 2 new factories, Germany and China, are now running at full capacity, so there'll be better absorption definitely over there. We're also looking to penetrate new markets through India-made value sourced equipment within -- fully made Indian equipment into some European countries like Spain and Russia and the U.S.

We also look at Germany buying a lot of components in India. So all of these will help us increase revenues. But to give you a number in terms of revenue growth, I think it will be too early. I would say the working businesses grow in the range of 5% to about [ 37% ]. This year has been an exceptional year. You will see some growth there, but I'm not very comfortable to give you a definite number right now, maybe in August, I will be in a much better position to do that.

U
Unknown Analyst

Sure. But any update in terms of how much more investment will you have to make in manpower over there in order to grow international operations?

T
Tarak Patel
executive

No. So there is no plan of adding people anywhere. And just to add here, not a single employee has left the former group since the acquisition. We are not adding any people. We have just maybe one furnace that is going to cater to U.S. market because Brazil acts as a low-cost source for the Americas. In Americas, we are refurbishing an equipment. So there's no real major CapEx going on. If anything, we would even look to rationalizing some manufacturing footprint. Right now, we have 3 facilities in Europe, maybe one too many. So we can look there as maybe a way of rationalizing our manufacturing. And as more and more stuff moves to India, we can use India to do the heavy lifting and then the final [indiscernible] and the finishing can be done in the European or the American facilities.

Operator

The next question is from the line of Harshil Shethia from AUM Fund Advisors.

H
Harshil Shethia
analyst

Sir, I just had a question. Looking at the international business, our order intake has drastically dropped for the quarter. So what might be the reason for it? Are we seeing the demand environment is very cautious [ these prices ] are or what is happening? Can you just elaborate?

T
Tarak Patel
executive

No. So there are a certain kind of few items which obviously has impacted internal profitability. One is an impact of higher energy cost in the range of about EUR 300,000 which is maybe a 0.5% impact on profitability. On top of that, we had a large order for Russia in the range of about $700,000-odd which we had provided for because obviously due to the war, we were not able to ship. And there is another provision for a onetime expense for an M&A. We are planning to sell one of our good companies in the portfolio, so that has also been provided for. So about basically a 1.5% impact on profitability of the international business just coming from these one-off items.

H
Harshil Shethia
analyst

Okay. And are the new orders which are currently being taken are at higher margins?

T
Tarak Patel
executive

Yes. So we've been very picky and choosy. We've changed our strategy. Over the last few quarters, we've kind of held [indiscernible] and decided to kind of break it out. And I'm happy to kind of report that we have been able to really win really good margin business, especially here in India with the glass line business. Internationally, we've always managed to get a premium and they've always been quite clear in terms of what orders they would take. So I think the quality of our backlog is definitely good in terms of margins. And hopefully, the metal prices support, as we start going down, then you would see a double impact, probably one on pricing front and one on the lower input cost front, which will then obviously positively impact the profitability.

H
Harshil Shethia
analyst

Okay. Sir, earlier when we had acquired Pfaudler Inc., we had a 4-year plan, and we had guided for 14% EBITDA margins. So can we say that, that it can be achieved in FY '23 itself with our focus now on profitability rather than from revenue growth?

T
Tarak Patel
executive

So we always try to improve profitability, but I would just give you a kind of -- just, I think, wait till August, everything will become quite clear. As a group, we definitely see a lot of possibilities both in terms of growing revenue through new markets, profitably improvement through some of these initiatives that we are working on, the low cost sourcing, like cost optimization. So we are really working hard to make sure that we come back to a good level of profitability. And that's something that we will definitely come back to you maybe in August and give you some kind of guidance in terms of what the next 3 years will look like.

H
Harshil Shethia
analyst

Okay. Sir, I had a few questions on the India business also. Is our Vatva facility now up and running at full utilization levels or still is it in the ramp-up phase?

A
Aseem Joshi
executive

This is Aseem Joshi. Yes, our Vatva facility is fully up and running now as of Q4. And they have a healthy backlog level. So we do expect a lot more product [indiscernible] in this financial year.

H
Harshil Shethia
analyst

Okay. As for utilization levels, what kind of revenues can contribute to the overall India business?

A
Aseem Joshi
executive

So it really depends on the product mix for materials and construction, et cetera. So ultimately, this can be about INR 400 crores or so. It really comes down to what products are being made and particularly what materials in construction to use, roughly [indiscernible] INR 150 crores.

T
Tarak Patel
executive

At its full capacity in coming years.

H
Harshil Shethia
analyst

You said INR 150 crores, right?

T
Tarak Patel
executive

No, no. The INR 400 crores is what the plant capacity is. Last year, we closed the heavy engineering business, I think, for INR 120 crores -- sorry INR 140 crores. So you will see a significant improvement this year because as you just heard, now that is fully ramped up and would add significant revenue for that business.

H
Harshil Shethia
analyst

And sir, on the last part of the question, our order intake for Q3 was INR 696 crores for the international business, which has dropped to almost half at around INR 343 crores. So what might be the reason for that?

T
Tarak Patel
executive

So this is a combination of reasons, but I think overall, it was basically to make sure that we book a good profit -- good margin order because we had a strong backlog. So the strategy was obviously to go after a very lucrative business. In Q1 this year, we've already had a record [indiscernible] month both in India and internationally, and we are pretty much now back to the similar levels of order backlog. So I think we are okay from that standpoint.

Operator

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

A
Amar Maurya
analyst

Yes. Am I audible, sir?

T
Tarak Patel
executive

Yes, go ahead.

A
Amar Maurya
analyst

Yes. So sir, a couple of questions from my side. Like what would be now the current facility of GLE in India at this point of time? And what would be the utilization level in this quarter?

T
Tarak Patel
executive

So the current capacity before the new furnaces will come in, this is not counting the new furnace in Hyderabad which just came online a few days ago and the new furnace in Gujarat which have been around a 3,000 EUs per year range, about 2,400, 2,500 in Gujarat and about [ 500-odd ] in Hyderabad, so the 3,000 would be the total capacity. Aseem, you want to jump in?

A
Aseem Joshi
executive

No. [indiscernible]

T
Tarak Patel
executive

Yes. With the new furnaces coming in, we will, at that point, also need to update the capacity because the new furnace in Gujarat, the large furnace, will add a good amount of capacity. The Hyderabad one also will add capacity, so we might need to come back with a new number on the total new capacity here in India.

A
Amar Maurya
analyst

Okay. And what would be the utilization in the current quarter?

T
Tarak Patel
executive

I would say full capacity. I think both the plants were running at full capacity and already at full capacity. Obviously, the [ blast furnace ] is run 24/7 in 3 shifts. Fabrication runs for 2 shifts. So I think we are pretty much at full capacity. In Hyderabad, we've also made some changes to the [indiscernible]. We tried to kind [indiscernible] operational. So there will be some improvement possible. But generally, we are running 100% utilization.

A
Amar Maurya
analyst

Okay. And the India now, sir, it seems the metal prices and the glass lining, everything has gone up. So like earlier you used to guide like the per unit realization for the GLE in India would be around INR 20 lakhs. So it would be around -- what would be the average realization now?

T
Tarak Patel
executive

So actually, I think the INR 20 lakh number is on the higher side. What we had, I think -- so our normal 1 EU, which is about 6,300 meters is about INR 16 lakhs, INR 17 lakhs odd what was the current price range is. We do have increase since then, but the EU size might have also increased. I don't have the data on the top of my head, but knowing that we increased prices over the last few months, I would think that those prices will definitely [ increase ].

A
Amar Maurya
analyst

Okay. Okay. And sir, now this glass line, specifically for the India, I mean, this quarter, the revenue has degrown but you are indicating now from here on as the new capacities are there, and you can expect a good order book in this particular year. So I mean what should we expect? Like what kind of a growth like GLE stand-alone business could be in the next year?

T
Tarak Patel
executive

So I think -- I don't think we've degrown [indiscernible] glass line. I mean, glass line, year-on-year, we are actually...

A
Amar Maurya
analyst

I'm talking about the quarter. I'm talking about the quarter.

A
Aseem Joshi
executive

The quarter maybe a bit of a...

T
Tarak Patel
executive

Yes. But -- so then you have some [ terminal ] questions of shipments that was sent out and the customers listed generally. Our glass line business now with new capacity coming in, we should be growing at double-digit early teen kind of number. Again, the market share that we have, which is currently in excess of 50%, a significant improvement in market share will come at a cost, right? So we don't really want to go after the low end of the market. We want to kind of stabilize our market share, but really go and take the high-value orders.

If we have excess capacity, I would [indiscernible] you will need to either to export, to sell to the Pfaudler Group, which obviously is much more lucrative to really focus on the services and [indiscernible] businesses. Again, it's not a very large component. We expect that business to grow over the next few years because the number of equipment that we keep supplying in the Indian market need to grow. Our installed base will increase to maybe now to 20,000, 30,000 reactors in India, they all are aging. So hopefully, that will be another lever of improving profitability. But all in all, the focus is definitely kind of pick and choose the right business going forward.

A
Aseem Joshi
executive

And I'd just like to add to one thing that Tarak said, the premise of the question was about degrowth quarter-on-quarter. I just checked, it actually happened just a little bit from Q3 to Q4, we've actually grown in our glass lining business as well.

Operator

[Operator Instructions] The next question is from the line of [ Ashish Kabra ] from Fair Deal Traders.

U
Unknown Analyst

Yes. So Tarak, 2 small questions. One is what will be your margin guidance for FY '23? And like, can you share some revenue guidance also, not for the next year, but for like FY '24 or FY '25?

T
Tarak Patel
executive

So the guidance for next year again, like I said, the focus is definitely on improving profitability. I think currently, the India business is around 20% to 80% of EBITDA margin. I would like to believe that we would be maintaining something along the same lines, maybe improving it slightly. The international business currently around 98%. I think we see some improvement there as well.

If we are well supported on top of that, with metal prices going down quite a bit, that would just further add to the improvements as well. Obviously, [indiscernible] there's definitely a lag between the time the prices come down to the actual time when we [indiscernible] so there will be a short lag of maybe a quarter or a few months.

But otherwise, I think that in this kind of challenging environment, I think the focus should be more on internal cost measures, so look inwards and see where are the areas that we can really kind of be very much more efficient. So but for other ones, I think that these two others that we currently are enjoying will be both India and international, should be quite easy to maintain, if not improved upon.

U
Unknown Analyst

Okay. And Tarak, any revenue guidance, like if you can give for FY '23 or '24?

T
Tarak Patel
executive

In terms of revenue guidance?

U
Unknown Analyst

Yes, yes.

T
Tarak Patel
executive

Yes. So maybe just wait till August, everything will be quite clear. We're working on it. Obviously, we had a plan in place, but the challenging times have kind of impacted obviously a little bit in terms of the outlook. But we have coming to you very shortly.

Operator

The next question is from the line of Jason Soans from Ashika Stock Broking.

J
Jason Soans
analyst

So one question I just want to ask in terms of CapEx. So when you look at pharma and chemical CapEx, a lot of pharma typical chemical CapEx, clearly, the trend has been shifting from the high-cost destinations, which are U.S. and Europe, to the East. So countries like China, India are benefiting from this demand shift, especially due to low cost and various other advantages.

So now I just wanted to understand, sir, of course, there a lot of volatility all over the world. And clearly, there is a marked shift here. So what I understand is there is a China plus one shift for sure. And there is also another shift which has seen a lot of this high-end worth countries have kind of realized that it's not wise to depend upon a certain country. So while basically you do all the high-end work, these pharma typical chemical CapEx or whatever, but keep it to yourself. It's sort of a protection-ish measure.

So are you seeing this trend being developed all over the world, and if this trend does develop, it will really benefit Pfaudler as in your acquisition as well and your value sourcing and other strategies? Can you see this kind of strategy being played out, this trend being played out to China plus home country, that kind of trend being played out over the world? Do you see this trend taking shape?

T
Tarak Patel
executive

Yes. So I tend to agree with you there's definitely at least 2 major trends happening. The India trend in investment and having this kind of a derisking of China is definitely happening. You can clearly see that with the kind of work that is going on for a company like SRS, PI Industry, [indiscernible]. A lot of product is moving from China to India. And that's a very small percentage. So even if another 5% or 10% move to India that would be a massive, massive amount and would require a massive amount of CapEx, right?

So that's definitely a trend that we are seeing. We also know that the Indian consumption of speciality chemicals, agrochemicals will also keep increasing. So that's something that will continue to be a strong driver. Many of the chemical companies have recently kind of got listed in capital markets. So those guys will also continue to need to add capacity to obviously maintain their growth momentum.

So all these things, you will definitely see investments in the chemical sector here in India. The thing about chemical is that, there, the actions are also much more critical. So the need for higher quality, bigger sizes also increases. So that's where we really have a very strong foothold. So that would be definitely something that we would really want to go after.

From an international standpoint, I completely agree with you what we've seen over the last maybe 18 months has definitely been this kind of nationalistic drive where countries who are overdependent on India and China are building local redundancy. They were dependent on life-saving medicines like antibiotics and paracetamol from India and China. And then during the pandemic obviously overnight everything stopped, right? So I think that kind of revival is being seen, we are seeing this clearly in Europe. We have one of our subsidiaries in [indiscernible] had nearly a 2-year backlog, which we've never seen in our life. There's something that is driving this. And this drive would really be created by new capacity being created in Europe.

Similarly in the U.S., we have had a large order in the U.S. for latex manufacturing, again, something that we are dependent on Malaysia for, but we want to create capacity within their own geographies as well. So I think these 2 trends will continue, and obviously, it bodes well for GMM Pfaudler India, but also for the international business.

J
Jason Soans
analyst

Sure. And another question I had is in terms of manufacturing process. So obviously, you are at the forefront in gel equipment. So I just wanted to know in sort of core DNA, is there a difference between the manufacturing process, let's say, for example, just if I have to take in a local context, actually, last quarter, we are the second in market share. So is there a major difference between the manufacturing? Just to understand Pfaudler has [indiscernible] and trademark. So just wanted to understand, is there any significant difference in terms of a manufacturing [indiscernible] or a technological difference between these 2? If you could elaborate.

T
Tarak Patel
executive

Manufacturing, really it is the same process that they would follow. They might have different firing cycles of the different glasses, but really, where the technology comes in, it is in 2 areas. One is the quality of welding that you do because glass lining, by its nature, if the welding is not good enough will kind of chip off and will be damaged quite quickly. So welding is very important. And 2 is the formula of the glass itself, right? So this is a form of glass that has been developed over the last maybe 100 years, keeps [ building ] improvements. Pfaudler Germany works with the local university and tech, and we are actually currently working on a new glass which we hope to launch maybe in the next few quarters, an ESG-compliant glass, which is heavy metal-free, good for the environment. That's something that we are working on.

But glass is basically the technology that differentiates our equipment and somebody else's, and that will directly co-relate to the life of the reactor, the life use of the reactor. The better the glass formula, the better the glass quality, the longer the reactor will last.

A
Aseem Joshi
executive

And I'll just add. At a macro level, the process is similar. And where we see this is in terms of an analogy for us [indiscernible] so the [indiscernible] same as the [indiscernible] is the same as the core. Clearly, they all are building products, but the product at the end of the day is very different. So similar in glass line vessel, our vessels last longer, provides greater performance, therefore, are the preferred choice among customers.

J
Jason Soans
analyst

Sure. And sir, just wanted to also, if you could elaborate, it just gets talked about less. You have clearly had a brand strategy and a realignment and a global plan as well. I can clearly see that. So could you talk about more such initiatives about Mixion in the field, [indiscernible] which gets talked about less, actually, in con calls or other aspects. So if you could just throw some light on [indiscernible] what plans do you have for taking these subsegments forward?

T
Tarak Patel
executive

Yes, that's a good question. And we only talked about glass line because you only asked us about glass line. It was not my choice that you would like to speak about glass line, that's obviously a big chunk of our business and people understand that. So that's where the main -- most of the questions come from.

But we recently completed our rebranding exercise. So we now have a unified global brand. We have a common website within the group. Everybody will move to gmmpfaudler.com website, there's key alignment. Aseem, myself and Manish were in Germany last week. We had attractive business to the glass lining facility in baghouses. You again saw our last process equipment in [indiscernible] and like you mentioned, we went and met the people at [indiscernible].

[indiscernible] the glass line house is a very, very high technology mechanical [indiscernible] we're doing well. When Pfaudler bought this company a few years ago, it was a revenue of $3 million. Today, it's clocking about $10 million of revenue. So in the 3 years -- in the 1.5 years, it's grown by 3x, very profitable. They have developed a mechanical team that we call ace5000 for the India market, specifically fully made here in the Indian market. We've launched that already. We expect those to [indiscernible] India to improve.

The good part of our mechanical steel will also give a lot of aftermarket business. The materials, the components and the spare parts of mechanical steel is also very lucrative. We now plan to launch this ace5000 steel in the Chinese market. We decided to hire [indiscernible] dedicated for this mechanical team. Again, this market could be as big as $10 million, $15 million we are looking in the first 3 years, right? So huge amount of the potential there.

Then like we said, we have Mixion agitation where we kind of are mainly an India-based player where we sell about INR 70-odd crores of agitators. We are in the process of now working this fermentation. So we will see a very large order from a Hyderabad-based company for agitators for furnitures. This is for [indiscernible] plants that they are putting up. So that would be a great area for growth as well.

And then [indiscernible] is our heavy engineering business. Again, I spoke about this earlier that our Vatva facility will be fully catering to that. And then Normag is also a nice, interesting business. Obviously, it's something that is growing. We expect that business to double in size in the next 2 to 3 years as well. And that is really lab process equipment. So this kind of tall glass equipment that go into any of the pilot plant.

So all in all, we have a nice portfolio of products. We are kind of interconnected, we have the same customer. So cross-selling becomes quite easy for us and the idea eventually to kind of build on this portfolio, add more complementary products so we can kind of have a wider basket of products that we can go and sell to the customer.

J
Jason Soans
analyst

Sure, sir. And this last quarter has been very volatile in terms of world markets, you take any aspect that's been quite volatile in terms of the Russia-Ukraine war, et cetera, and a lot of other factors. Just wanted your sense on the end market demand, domestic and export both, and any major impact of this Russia-Ukraine on European demand, especially?

T
Tarak Patel
executive

No. So I don't think there's been any impact of the Ukraine crisis on the demand in Europe. What happens is energy costs have gone up in Germany and in the U.K. But generally, otherwise, the business environment is quite strong. Alex is here. Maybe Alex, you want to add a word on what the economic situation is like in Europe?

A
Alexander Poempner
executive

No, no, no. [indiscernible] what you just said. So energy cost is definitely the key impact from us. But otherwise, we are refining our Russian business which so far also [indiscernible] more.

T
Tarak Patel
executive

Yes. So we didn't have too much exposure in Russia. Russia was a market that we would have liked to kind of enter into. So that obviously is pushed back. But generally, I think the business environment continues to be quite positive. I mean, obviously, if we go over to end, and things start returning to normal, that would lead them to a better situation. But otherwise, I don't think that it's really something that's impacting business in the long term.

Operator

The next question is from the line of [indiscernible] from MAXIMUS Securities.

U
Unknown Analyst

The year is over, and I think very much congratulations are in place. Congratulations, Tarak, for your Indian team as well as the overseas team. I think you have done a fantastic job. I normally don't go through a quarter by quarter performance, I only look at it from year. So from where it became, I think, we have come to a tremendous [ things ]. So congratulations on that.

T
Tarak Patel
executive

Thank you.

U
Unknown Analyst

I have this [indiscernible] question though. I didn't see it covered, maybe [indiscernible] and that will [indiscernible] this company to declare. Can you take us through the rationale of the bonus?

T
Tarak Patel
executive

Yes. So the bonus, I've been getting this question for the last 5 years since I took over as MD. So every year during the AGM or at some of the investor calls, I always get, when is the next bonus will be. I think the idea behind the bonus really, and this is something that we were getting requests from investors, fund houses, that they would like to be part and participating in our growth story.

However, the availability and the liquidity of the shares was something that was holding them back. Hopefully, this bonus issue will kind of help us increase liquidity. It's a tax-efficient position for the shareholders who currently hold units on the shares, but the idea where is to kind of increase and improve liquidity.

Also, after completing the acquisition, there were obviously questions around Indian companies buying international businesses. Many of them did not do so well. I think today, after 1 year of fully integrating those businesses, I can proudly say that we've done a fantastic job, both in terms of revenue. I see the motivation, the experience within the group, I would say, just meeting people. Everybody is excited to be part of this company now. They finally have an owner that understands the business, who continue invest in the business.

So I think that we are now in a situation where you will see benefits accruing over time. And it's a good time to also reward shareholders who stood by the company for these many years. And after 1 year of the integration now fully complete and back to business as usual, I thought -- we thought that it would be a nice time to reward our shareholders as well.

U
Unknown Analyst

Very good. In fact, that's the perfect answer that I was looking for. Had it been anything else, I may have been a little responsive. And really, I would like to repeat, it's a fantastic performance under challenging times. What the team undertook was a daunting task. I think [indiscernible] I'll think about it.

T
Tarak Patel
executive

Thank you.

Operator

[Operator Instructions] The next question is from the line of [ Sidharth ], an individual investor.

U
Unknown Attendee

Congratulations on the result. I just want to know the rationale behind the Edlon divestiture, given that -- I mean, somewhat utilized [indiscernible] at least it seems like [indiscernible] business which is also profitable.

T
Tarak Patel
executive

Right. So Edlon is a product that is not core to our main business, has a different customer base. So that's why as part of the portfolio, we will be adding companies, but I think only wise to also remove something that's not really adding too much value. Even though the company has a revenue of around $12 million and about $2 million of EBITDA. For the next level of that company growth, you have to invest another $2 million to $3 million into that business, which we really are not sure if we would like to do.

And being -- we had not had quite a good brand globally. And if we could get a good valuation for it, I think it's better to kind of divest as long as use the proceeds to kind of add new companies to the portfolio that kind of fit in much better with the complementary aspect of our business.

Operator

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

R
Rohit Ohri
analyst

Tarak, continuing with the question for Edlon. What sort of approximate valuation you think you'll get from sale of this segment?

T
Tarak Patel
executive

So we don't know yet as the process is onwards, but I think the book value...

A
Aseem Joshi
executive

INR 100 crores.

T
Tarak Patel
executive

About INR 100 crores. Book value is INR 100 crores. We don't know, we haven't got this yet. But depending on the demand, we obviously would like to buy cheap and sell expensive. So hopefully, we can get a good value for it.

R
Rohit Ohri
analyst

Okay. So is there another property that you intend to sell in Mumbai? Can you take us through that? What was the area and what is the square meters of that property?

T
Tarak Patel
executive

Okay. So I think, square meters, I would not know. But it's our old office building. We actually moved from [indiscernible] [ Gudala ] office. We have a much bigger office and that office currently has not been used to full capacity. We would rather use the funds for better cash management, and that was in form of assets that we own. It's a prime real estate on the top floor [indiscernible] tower, so there will be high demand for it. So that was one thought behind it.

The other was a residential apartment that the company owns. I think that's also in a building that has become considerably older. So it's a good time to kind of divest that as well and then use the proceeds for business purposes.

R
Rohit Ohri
analyst

And the approximate value of these 2 properties would be?

T
Tarak Patel
executive

I don't know offhand, but when we bought the office, the office was around INR 5 crores or something like that for about 6,000 square feet, if I remember correctly, something along those lines. It was very old, we only bought it really in the early 2000s before [indiscernible] as well so...

R
Rohit Ohri
analyst

[indiscernible]. Okay. You touched upon starting to proceed within some new business. What sort of business are you looking at? Will it be going towards the green chemistry kind of a business or something that you'd like to share?

T
Tarak Patel
executive

So we are always looking out for a good company. The M&A market in Europe is hot right now. I think a lot of people look at Pfaudler now being a global company, to piggyback on Pfaudler to really give them the global reach. So we get a lot of requests and a lot of manual [indiscernible] written memorandum to kind of look at.

But we really want to get into businesses that are very similar and cater to the same kind of customer base that we're currently catering to. And like you said, we would love to get into something on a technology process, green chemistry, automation, digitization, those are the kind of things that -- you have a company with a very strong base and we have a very strong brand name, but I think we need to kind of bring in new tech -- new age technology to kind of really add value. Aseem, do you want to jump in?

A
Aseem Joshi
executive

Yes. I guess as I said always done very disciplined process around the targets we go after, and we'll continue to do so. So you will see our track record is pretty strong around the portfolio of companies that we have. And I think you can expect the same, if not more, deliveries in years to come.

Operator

The next question is from the line of Harshil Shethia from AUM Fund Advisors.

H
Harshil Shethia
analyst

Sir, I just want to ask, our furnaces in Germany are gas-based or...

T
Tarak Patel
executive

No, they are electric furnaces in Germany and in the U.K.

Operator

The next question is from the line of [ Ashish Kabra ] from Fair Deal Traders.

T
Tarak Patel
executive

Ashish, we can't hear you.

U
Unknown Analyst

Yes. Tarak, can you hear me now?

T
Tarak Patel
executive

Yes.

U
Unknown Analyst

Yes. So one small question from my side. In the presentation, you had actually mentioned that you are looking to increase the wallet from the -- from our U.K. business. So like what kind of synergies are you seeing and now how are they panning out?

T
Tarak Patel
executive

So I don't think we said it specifically with our U.K. business. It's a general statement for all our businesses where we have opportunities to kind of -- and the potential to sell medium [indiscernible] equipment. There are customers in certain geographies in Europe, some parts of South America, Southeast Asia that are value buyers. And it would definitely make more sense, either building the entire vessel here in India or also looking at maybe a hybrid solution where we build most of the vessels here and some components from the other geographies.

So low cost sources from India will obviously -- will pick up steam. In the first year of this program, this year, the budget was already across by about 300%. So we already done extremely well in terms of this program. We're also now planning a stocking sales program where we will stock equipment in Europe, for the European market, that will be sold by other German entities.

So all these things are progressing quite well. And the idea behind that is to really kind of come and get business that usually was not coming to Pfaudler.

Operator

The next question is from the line of Jason Soans from Ashika Stock Broking.

J
Jason Soans
analyst

You highlighted some one-offs, actually. I kind of missed on that. Could you just repeat that?

T
Tarak Patel
executive

On what, sorry?

J
Jason Soans
analyst

You had mentioned some one-offs in the quarter in the initial part of the call, but I missed that part.

T
Tarak Patel
executive

In the international businesses, Edlon sale, there was EUR 300,000 provision for that. There is a power cost increase in the range of $300,000 between Germany and the U.K. as well. And there is a EUR 700,000 provision made for an order which is manufactured, but we were not able to ship to Russia. So these are the 3 one-offs and won't be recurring. Except for the power cost, if that continues to go up then that will continue. But otherwise, the other 2 are basically one-off.

J
Jason Soans
analyst

So $300,000 of power cost increase and $700,000 provisioning for the Russia -- for the Russian order?

T
Tarak Patel
executive

Yes, and another $300,000 for the Edlon sale for the [indiscernible]. So all in all, about EUR 1.4 million, which probably impacts profitably at the international business by about 1.5%.

J
Jason Soans
analyst

Okay. So the total amount comes to how much did you mention?

T
Tarak Patel
executive

EUR 1.4 million.

J
Jason Soans
analyst

EUR 1.2 million?

T
Tarak Patel
executive

Yes.

J
Jason Soans
analyst

EUR 1.4 million? Sure. Okay. And just wanted some [indiscernible] from yourself. On the pharma city development in Hyderabad, I remember a lot of time that you used to speak about when you were acquiring the [indiscernible] facility, especially. So you said that you could -- there's a lot of demand coming from the pharma city in Hyderabad. So just wanted to know your take on it, what are the current developments and how is it shaping up?

T
Tarak Patel
executive

So that's a very interesting question and a very timely question because, as we speak, the CEO of Pfaudler International is with K.T. Rama Rao in Davos, meeting him and asking him to give us allocation for land in pharma city. That's going on as we speak and maybe there will be a tweet or something from the Telangana Ministry later today. So the Pfaudler CEO was invited and the Government of Telangana wanted to discuss with us our plans and expansion plans in Hyderabad.

Our current plant is in Nacharam, which has been earmarked for an IT development. So eventually [indiscernible] down the line would have to leave that site and we are now working with the government there locally to give us land allocation within pharma city so we can then cater directly to the new pharma plants that will come up in that area.

In terms of timing, this is something that we've spoken about for quite some time. I don't have a real clear idea in terms of the land allocation. I believe, it's complete. But I think over the next few quarters, once things are stabilizing, after the pandemic, I think that got pushed back a little bit, but I think people will start moving to pharma city sooner than later.

Operator

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

R
Rohit Ohri
analyst

The question for pharma city is already asked. I just wanted to ask that in terms of the green chemistry, are you thinking of moving towards hydrogen?

T
Tarak Patel
executive

No. So I think we were looking at green intel technologies. There were some other technologies, specifically in the U.S. that the U.S. teams are working on. But we are really kind of open-minded when it comes to green technology, which is something that we could even do in the EV space. I think recycling of batteries is becoming quite important and some of the sulfuric acid which goes into the batteries require glass line equipment.

That is something that we can build around the glass line having a heart of glass line will be definitely areas. And maybe there could be new avenues and new maybe other chemistry which can open up as well. So it is something that we are working on. And as soon as we have some more information on this, we will definitely let you know.

R
Rohit Ohri
analyst

Would you like to share anything on the new developments for acid recovery at that?

T
Tarak Patel
executive

So acid recovery, there's an ongoing project, one in India and one internationally. I think there was a recent order that we got from China as well in acid recovery.

I think acid recovery is something that we hope will grow the next 2 years and maybe, to be honest with you, it's not growing as fast in India as I would have liked, but we are not stopping there. We are continuing our focus. We are going and meeting people and there are some strong opportunities in the pipeline. Hopefully, it will materialize into orders in the next few quarters.

Operator

[Operator Instructions] The next question is from the line of [ Santosh Kumar Jha ] from Optimize IT Systems.

U
Unknown Analyst

Yes. First of all, very, very congratulations for the company's growth earning and better performance.

T
Tarak Patel
executive

Thank you.

U
Unknown Analyst

But I have a little question about a stock split. Any plan for quarter -- next quarter for stock split?

T
Tarak Patel
executive

No, no plans right now. We could have split the stock this time as well, but then that would be the last split that we could have done because we already had INR 2 and the lower split [indiscernible] INR 1, so maybe we'll keep it for later when the time is right. But right now, there are no plans for a stock split. I think the bonus is there's still clear liquidity, which we wanted to finish. So I think the purpose has been solved, and I don't think we need to look at the stock split for at least for the next few years.

Operator

The next question is from the line of [ Sidharth ], an individual investor.

U
Unknown Attendee

In terms of technology and automation, I just want to know if you have already invested in or plan on investing in any asset life cycle management software systems?

T
Tarak Patel
executive

So technology digitization, automization, have we invested, what are our plans, maybe you can take that one.

A
Aseem Joshi
executive

Yes, I'll take that. So clearly, digitization industry [indiscernible], et cetera, is happening all around us. And [indiscernible] everyone thinks so, we invest in the right solutions that are relevant for our business. So we have thus far data a baseline of systems in our factories, in our operations, peers, HR, IT, et cetera, where on which we can then take further and use the data that come on these systems to drive the [indiscernible].

So over the last couple of years and really going into this year in terms of mix, that foundation will be extended. We've already started efforts to make sure things like our Salesforce system that's used consistently across the corporation and maybe the power of Salesforce is [indiscernible] depository of a need that actually could make smarter decisions. So Tarak talked earlier about figuring out which order to [indiscernible]. We extensively use analytics to make that kind of decision.

And in our factory, we are using digital systems for product management, project tracking and control, so that we have much better visibility on how orders are progressing and [ predicting ] when our product will come out of the factory. And then last bit is on the product itself, glass line vessel prediction, there has not been a smart vessel. It's been a [indiscernible]. There's a lot of technology in glass, but now we are also further enhancing our capacity to consider [indiscernible] vessel. So we have a portfolio of growth that we currently sell in Germany. We are working to enhance that portfolio, whereby our customers can get a lot more detailed information about process parameters for their [indiscernible]. So we're pretty excited about the potential it offers. But this is -- and so this is a priority for us. But we make sure that we invest where it makes sense and if we had initial combination of investments in systems and this direction across both -- across peers or products, our factory processes as well as our [indiscernible] support functions also.

Operator

Ladies and gentlemen, due to time constraints, we take one last question from the line of Jason Soans from Ashika Stock Broking.

J
Jason Soans
analyst

Yes, sir, this is my last question. Just wanted to ask, well, the PPA impact on the depreciation, we had accounted -- we had guided for a $6 million noncash impact of course. But now this INR 15 crore impact on deferred taxes, just wanted some clarification on that because that wasn't expected.

So if you could just show some color, I mean, I understand it is noncash, but if some color can be provided? The $7 million was -- yes, it was $6 million to $7 million was pretty much part of the cost, and this was -- this $15 million has come out. The deferred tax that's basically given to the company.

T
Tarak Patel
executive

Right, Jason. So what has happened is once you get into any acquisition, you get 12 months to -- after that, you need to review your existing balance sheet and get into what are the assets and liabilities that you want to revisit. And as part of that exercise, if there was a deferred tax asset, it is completely different from PPA. The deferred tax asset, which has existed in the balance sheet, which we wanted to write it off because that is an asset which is not yielding any value in the future period for us. And therefore, we had to take a write-off in the P&L.

And to that extent, that PPA we think this got disoriented to that extent. So this is, again, as you rightly mentioned, this is a nontax item. Only the deferred tax asset goes down and the profitability to that extent goes down as well, relatively.

PPA [indiscernible] opening balance sheet [indiscernible] to acquire the business, you have the asset allocation from the new management, and that's what we explained, I think, last quarter Q2. That's a completely different number from there.

Operator

We will take one more question from the line of [ Viral Sangvi ], an individual investor.

U
Unknown Attendee

Tarak, can you hear me?

T
Tarak Patel
executive

Yes.

U
Unknown Attendee

You talked about the requirement of good demand stream from the pharma industry. Do you see any good impetus also from the agro industry as well going ahead?

T
Tarak Patel
executive

Yes. So I think also from an agrochemical standpoint, there are large projects in discussion right now, people like UPL, PI Industry, [indiscernible] speciality chem [indiscernible] investing as well. So across the board, we have seen a strong demand for chemicals. Agrochemicals obviously will also pick up. It may be driven by speciality chem but even companies like [indiscernible], for example, are really investing in agrochemical business.

Operator

Thank you. I now hand the conference over to Ms. Priyanka Daga for closing comments. Over to you, ma'am.

P
Priyanka Daga
executive

Thank you, Stephen. Thank you, everybody, for joining us. Look forward to speaking to you during our next investor meeting. Thank you once again.

Operator

Thank you. Ladies and gentlemen, on behalf of GMM Pfaudler Limited, this concludes this conference. We thank you all for joining us, and you may now disconnect your lines.

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