Kirloskar Oil Engines Ltd

NSE:KIRLOSENG

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to Kirloskar Oil Engines Limited Earnings Conference Call hosted by Antique Stockbroking Ltd. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Dhirendra Tiwari from Antique Stockbroking Ltd. Thank you, and over to you, sir.

[Dhirendra Tiwari, analyst]

Thank you. Good evening, ladies and gentlemen. Welcome to 1Q FY '23 Post Results Conference Call of Kirloskar Oil Engines Limited. We are glad to have with us today, Ms. Gauri Kirloskar, Managing Director; and Mr. Pawan Agarwal, CFO; and the management team with us. Let us begin the call with an introduction about the results for the quarter by the management. And thereafter, we will take the floor to the question and answer.

Now I'll request Ms. Gauri to start the conversation, and then we'll move on to the Q&A. Welcome, Ms. Gauri. Thank you.

[Gauri Kirloskar, executive]

Thank you. Good afternoon to all of you. I would like to thank you for joining the call today. Present with me on this call are Mr. Pawan Agarwal, the Chief Financial Officer of the company; and our Company Secretary, Ms. Smita Raichurkar. Also present are our business unit heads, including the team from Arka Fincap. A new attendee for our earnings call this time is Mr. Aseem Srivastav. Aseem is an industry veteran with significant domain expertise from the pumps business. He has joined us as the CEO for B2C business with Water Management Solutions and the Farm Mechanization business reporting into him. I will first start with an overall business update, and then Pawan will update you about the financial performance.

But before that, a customary disclaimer. We wish to start by qualifying that during the call, we may make some forward-looking statements. These statements are considering the business environment we see as of today, and therefore, there could be risks and uncertainties that could cause actual results to vary materially from what we are discussing on this call and we would not always be able to update on these forward-looking statements.

On last quarter's call, I spoke of 3 major factors that are working favorably for us from a macroeconomic standpoint. First, I spoke of the government's focus on infrastructure development and the focus on Make in India. Second, I spoke of the China Plus One strategy that many organizations and countries are forced to adopt as a sourcing strategy. And third, I spoke of the geopolitical situation and its implication, I spoke of the supply chain constraints that are arising because of it.

I will start by giving an update on these points for quarter 1. The government's thrust on infrastructure spending continues, and we are seeing strong demand coming from these sectors. The China Plus One strategy is gaining more focus, too, as we see a sudden interest from many global organizations to come into India as an alternate sourcing strategy. However, the geopolitical situation put constraints on the existing supply chain. The situation still remains challenging, but we do see an improvement on commodities softening from the last time we spoke.

However, the same geopolitical situation is also having another different impact on us. With the sudden power crisis in Europe and the U.S., there is a sudden surge in demand for coal internationally. This has led to a situation in India where we see a power deficit of greater than 1% from the pre-pandemic level of 0.3% on average. This has, in turn, created a sudden demand for power backup, which has had a positive impact on our numbers. Overall, the macroeconomic situation has created a strong demand for us in quarter 1.

Let's start with the overall financial performance first. As a company, we delivered better results on all fronts when compared to Q1 of last year, as you can see from the presentation that was uploaded on our website yesterday. Even if we compare against Q4 fiscal year '22, the top line and EBITDA are almost at par.

If one looks at the trend of our industry over the years, one can find a certain level of seasonality. Q4 is normally the strongest quarter as it is summer and the need for power goes up. Q1 is traditionally weaker than Q4, but still strong, and then we see a tapering of demand in Q2 and Q3 due to monsoons and then picking up in Q4. However, this time, we are seeing a Q1 that is as strong as Q4 of 2022, and that is a good sign for us.

At the stand-alone level, sales at INR 944 crores was up by 48% year-on-year, with EBITDA at INR 103 crores. This represents around an 11% margin as compared to approximately 8% in Q1 last year and 10% in Q4 FY '22. Net profit for the quarter was at approximately INR 65 crores. That's a 164% growth year-on-year. Please note that the year-on-year performance is based on the pandemic hit Q1 of last year.

On the consolidated side, revenue was at INR 1,191 crores, 45% up year-on-year, and net profit at INR 82 crores, 154% up year-on-year. Overall demand was buoyant, particularly for Prime Power Solutions business, i.e., the Power Gen, Industrial Engines and related customer support. Power Generation business demand in Q1 '23 saw strong tailwinds fueled by power cut situations that I referenced earlier. We saw good demand for our products in the low horsepower and medium horsepower segments.

And in terms of sectors, real estate and service sectors, especially have been showing an uptick in demand. Along with these sectors, we remain focused on hospitality and the data center market too. Our product range goes up to 1,500 kVA and we will move up further in the range, whether we do it ourselves or through partnerships.

For Industrial, there was strong demand for tractors, self-loading mixers and firefighting pump set engines. As I said in the beginning, demand is strong and it boiled down to our ability to get the demand catered to. Supply chain challenges did continue this quarter, and I feel that our teams did a great job in securing supply in time. Our long-standing relationships with our supplier partners helped, and our manufacturing and production teams complemented by delivering the products on time.

We were also more agile in managing the commodity market inflation and pricing environment. This quarter, we also extended our new iGreen series called iGreen 2.0 to key markets. These engines are powered with a new R550 series of engines that offer compact design, fuel efficiency and higher power quality. The iGreen 2.0 version has 30% volumetric reduction in terms of a smaller footprint and provides a renewed commitment to its customers as a reliable and efficient product.

As a strategy, as spoken last quarter, we have realigned our focus on export markets. The firefighting segment has witnessed good traction in our Middle East markets as we have increased wallet share with major OEMs. Power Generation segment also has shown impressive growth. Overall, we have achieved a year-on-year growth of 64% in the international markets.

South Africa industrial and UAE firefighting are our focused market segments. We have achieved a leadership position in both markets. Market and product strategies have been developed for both businesses to consolidate our leadership position.

To boost our exports further, we have undertaken the development of new engine platforms, and this is planned to start rolling out in Q4. On the large engine side, the Fishery segment is showing good demand. We crossed the milestone of 1,000 engines in the Fishery segment in this quarter, and some of our engines have clocked over 10,000 hours in the field, which is a significant milestone that shows the endurance of our product.

Now coming to new product launches. Electric motors, which we launched last quarter, are also showing positive traction, though there's a long way to go. Another new product is the organic waste composter. And at this stage, it's more like concept selling, and we will see the traction it generates in the market as well as the drive to move into greener buildings and technology. We are at the final stages of getting our alternate fuel engine portfolio launched, and you will hear about it soon in the near future.

I will now move on to our B2C businesses, which includes the Water Management Solutions, that is LGM, KOEL Water Management Solutions as well as the Farm Mechanization business units. So let me first give you an update on the water management side. In the last couple of quarters, the margins were immensely under pressure. The main reason was commodity price inflation not being passed on to our customers. The business needs a far more nimble and flexible approach when it comes to responding to input cost variation. That is our learning, and we have made corrective action. The results are showing, and we have managed the inflation very well in this first quarter.

LGM had one of the best quarters in the recent past with good top line growth and positive EBITDA. More details are shared in the segment updates in the earnings presentation. During quarter 1, KOEL Electric continued its strong growth over last year's Q1 with 25% growth. It strengthened its position in the traditional states of UP, Bihar, Kerala and Maharashtra, while showing strong improvement in Karnataka and Odisha. The Farm Mechanization business is also showing strong growth with new product launches, more channel partners, customer pull and export orders.

On the raw materials side, the overall commodity market is quite unsteady and we need to watch the price fluctuations very closely. As this industry is marked by aggressive and dynamic pricing, we will take prudent steps at the right point to keep our focus on gaining market share. Going forward, we are focusing on export sales, specifically from LGM. Other focus areas include deepening and widening of footprint, cash generation, cost consciousness and marketing activities. These initiatives will help us increase market share while maintaining margins.

Now turn on to Financial Services. During quarter 1, the global economy has been facing a challenge of increasing inflation. Apart from that, our Central Bank has also been grappling with rupee depreciation. It leads to shift the focus of Central Bank from growth to control inflation. Global central banks have been increasing rates, and RBI has also increased rates by 140 basis points, including a 50 basis point hike in August of 2022 during this fiscal.

Excess liquidity from the ecosystem has been falling sharply, mainly due to 3 reasons, which is the cash reserve ratio hike, ForEx seal by RBI and limited credit offtake. However, our NBFC, Arka Fincap Limited has delivered satisfactory results for quarter 1 of fiscal year 2023. There has been modest growth in assets under management of the company without any challenge on asset quality.

As of 30th June 2022, Arka's AUM stood at INR 2,514 crores, with liquidity in excess of INR 300 crores. Arka's profit for the quarter was INR 15.3 crores. Overall, the balance sheet of Arka was at INR 2,837 crores, mainly comprising of INR 951 crores of net worth, INR 1,815 crores of borrowings and INR 71 crores of other liabilities. The portfolio yield of the company is at 12.4% with a focused approach towards control over OpEx and contribution from fees income, and the company has registered a return on average equity of 6.9% for Q1 for fiscal year 2023.

In conclusion, going ahead, we will keep a close watch on the global economic environment such as slowdown possibilities and the war situation, but are cautiously optimistic about the domestic demand scenario. While tailwinds like CapEx programs, PLI schemes, infrastructure spending, power situation and opening up of services sectors all go well for us, inflation could pose some challenges in the near term. All our new product development programs on alternate fuel and preparation for emission transition for next year is progressing well and is on track.

We will continue all necessary investments in resources and product development and continue to focus on geographical expansion and market penetration. In the presentation and results circulated, we have added segment-specific key comments to give you more insights into the individual business units.

Thank you very much. I will now hand over to Pawan for more detailed financials.

[Pawan Agarwal, executive]

Thanks, Gauri. And good afternoon, ladies and gentlemen. Our quarter 1 results reflect a very healthy start to financial year 2023. This was achieved despite ongoing disruption in the business environment due to COVID-19 and geopolitical scenario. Despite these external challenges and inflationary environment, we are pleased with our performance during the quarter, especially when one considers the challenges one had to operate in.

Though the inflation had been a concern until last quarter, we saw some green shoots in terms of inflation easing out on certain commodities towards the end of this first quarter. If the similar trend continues, it may give some respite in the coming quarters. More specifically, we expect to see some part of its favorable impact in quarter 3.

Our first quarter stand-alone sales at INR 944 crore was 48% higher compared to sales of INR 639 crore for the same period in previous financial year. All business divisions have delivered significant growth on a year-on-year basis. Revenue from operations stood at INR 953 crores in quarter 1 compared to INR 647 crores in quarter 1 last year. Our export sales at INR 95 crores registered a year-on-year growth of 64% in the quarter compared to INR 58 crores in quarter 1 of last financial year. And export share in the total sales improved from 9.1% last year to 10.1% this year.

Good growth was visible in the Power Generation and Industrial segments in the international market. GCC and Africa region demonstrated good growth in sales. Power Generation and Agriculture business divisions delivered 62% (sic) [ 64% ] and 25% sales growth, respectively, in quarter 1 year-on-year basis. Within Power Generation Business division, high horsepower segment, that is 200 kVA and above, grew by 86.5% year-on-year. Satisfactory growth was seen in the low to medium horsepower segment, which is less than 200 kVA as well.

Industrial Business division grew by 45% in terms of value and over 12% in volume terms on Y-o-Y basis in quarter 1. Within Industrial view, tractor segment grew by 13% in terms of value, whereas other than tractor segment, which includes construction equipment, earthmoving, fire pumps, et cetera, delivered a value growth of 62% year-on-year basis. In fact, construction equipment subsegment grew by nearly 113%. Agriculture business, which includes diesel and electric pumps and related spares; farm mechanization, which is power tillers, weeders, et cetera; and tractor parts and oil delivered a growth of 25% year-on-year. Electric Pump business registered a growth of 24% in quarter 1, whereas tillers and weeders business clocked 27% growth.

In anticipation of strong quarter 2, we have built up a little extra inventories in quarter 1 to ensure minimal business disruptions. Due to supply-related issues on some of the raw materials, significant sales during the quarter were back ended and hence, you can see increase in receivables, which is expected to get normalized in quarter 3. This has led to an additional investment in working capital during the quarter. The investment in net working capital stood at 14 days as of the end of quarter 1 this year, vis-a-vis, 8 days at the end of last financial year. But this is only a temporary phenomenon. And going forward, we do not expect major issues on the working capital side.

Cash generation from operating activities in the first 3 months of the current financial year was approximately INR 27 crore, whereas nearly INR 92 crore of cash was used towards operating activities in quarter 1 of last financial year. During the quarter, company has further invested INR 99.6 crore towards share capital in its 100% subsidiary, Arka Financial Holdings Private Limited. The total investment in Financial Services business of KOEL stands at INR 936.6 crore as on 30 June 2022.

At a consolidated level, revenue from operations has improved by 45% from INR 821 crore in quarter 1 of financial year 2022 to almost INR 1,191 crore in quarter 1 of FY '23. PAT for the quarter for the group was a little over INR 82 crore compared to approximately INR 32 crore in quarter 1 of previous financial year, registering a growth of 154%. At the segment level, during quarter 1, all the segments delivered growth in revenue on a Y-o-Y basis. The Electric Pumps segment grew by more than 21%, Financial Services segment grew by 106%. Other segment, which includes farm mechanization, tractor spare parts, oil and new businesses, grew by 32%. And the Engines segment saw more than 49% growth on a Y-o-Y basis.

As indicated in the previous earning call, we are happy to report that Electric segment is back in profit in quarter 1, and we are working towards improving the profitability of this segment as we go along. Financial Services segment continues to deliver superior results, and it has reported close to 140% jump in the segment profit year-on-year basis.

As far as outlook for the rest of the year is concerned, we expect Power Generation, Industrial and Institutional Project Solutions business to continue to do well in coming quarters. We are pleased to inform you that we have a healthy order book in hand. We have a good visibility of new order inflows from the international markets, as well as in the Institutional and Project Solutions business divisions. We expect to accelerate our quarterly revenue growth during the coming quarters in the year. We are keen to improve our EBITDA margins from the current levels, but it will largely be a function of how the external environment plays out.

Macro concerns like geopolitical tensions, elevated raw material costs, power and fuel prices continue to remain a short-term challenges. But as a company, we will continue to focus internally to further improve our operational efficiencies and continue to deliver superior financial performance.

With this summary, we may now commence question and answer. Thank you.

[Operator]

[Operator Instructions] We have the first question from the line of [ Munjal Shah from IDA Wealth LLP. ]

[Unknown Analyst]

I have 3 questions. One is considering what was happening macro in terms of infrastructure, et cetera, plus the company's own efforts in developing new products, new geographies. What type of CAGR revenue growth can we expect for next 3, 5 years, excluding Financial Services? Like could we be doing like 10%, 15% CAGR revenue growth, okay?

Second is what is -- like you have been talking about exports, okay? Do we have certain targets like in next 3, 5 years, what will be the overall export as a percentage of sales? And third is on the financials. Considering the current interest rate hike, what you mentioned also, how much provision have we made in Q1 in terms of NPAs?

[Gauri Kirloskar, executive]

Thank you for your questions. So on the first question on growth for the next 3 to 5 years, I would say that the growth percentage that we're expecting is in the low double digits. Exports is a bit higher at 15% to 18%. And for your third question, which is on the NBFC, I will request Amit Gupta to answer. Amit, are you there?

[Unknown]

Yes, ma'am, I'm there. So [ Munjal, ] just answering to your third question regarding the interest rate hike and the provision on the book, I would like to highlight the fact that the provision in the book has been made on the entire book. The entire book is current as of now. So considering the interest rate hike, we have not been making any extra provision because the provision which has been made is in line with the RBI guidelines, and it is being to the satisfaction of our statutory auditors who have already limited to the financial for quarter ended. Considering the fact that interest rates are hiking, these interest rates are being passed on ultimately to the customers. So we don't foresee any need for extra provision in terms of asset quality.

[Unknown Analyst]

Thanks a lot. Just to summarize, you mentioned revenue CAGR should be in low double digits. So would it be fair to assume somewhere around 10%, 15%?

[Pawan Agarwal, executive]

No, it's difficult to give a specific number. But as Gauri mentioned, low double digit is what we are comfortable with, at least in the next 2 to 3 years, is what visibility we have. But it will be difficult to give a specific guidance in this regard, a specific number.

[Unknown Analyst]

And secondly, I missed on the export part. I think you mentioned somewhere around 17%, 18% as a percentage of revenues.

[Pawan Agarwal, executive]

Right now, we are trending at 19% of the total revenue as export revenue. Our ambition and aspiration is to hit the high teens number as a share of total revenue, and we are working towards that.

[Unknown Analyst]

Okay. And last question is on how -- what is the capacity utilization in Kagal, okay, and in Khadki, okay? And how much CapEx would we need over the next 3, 4 years, excluding Financial Services?

[Pawan Agarwal, executive]

So in Kagal plant, we have about 55% to 60% depending upon what is the order book position. That is the level of capacity utilization right now. And in Khadki we are making very limited products over here. Largely, it is R&D center. So capacity would not be quite a relevant thing to talk about as far as Khadki is concerned.

[Unknown Analyst]

Okay. And CapEx over the next 3 years, actually, ex Financial Services investment?

[Pawan Agarwal, executive]

So there are 2 parts to this question. One is about Kirloskar Oil Engines Limited, where we'll spend roughly about INR 70 crore, INR 80 crore annually. Basically to meet the emission norms requirement and few other sustenance related and new product development-related CapExs. Whereas if you look at La Gajjar Machineries, there, we do not see any major CapEx requirement. However, since we will be moving to a new manufacturing facility, that CapEx probably over next 18 to 24 months would be somewhere close to INR 100 crore in LGM. And in Optiqua, where we make wires, cable, pipes and ESVA, which is our joint venture, there are not material CapEx plans, at least in the near term, next 1 or 2 years.

[Unknown Analyst]

So INR 70 crores, INR 80 crores is annual CapEx for Kirloskar Oil, okay, INR 100 crores is for LGM total, right?

[Pawan Agarwal, executive]

Yes.

[Unknown Analyst]

For next 3 years or annually?

[Pawan Agarwal, executive]

Two years. We can say next 2-year visibility we have.

[Operator]

[Operator Instructions] The next question is from Sandeep Tulsiyan from JM Financial.

[Sandeep Tulsiyan, analyst]

The first question is pertaining to the margins that you have shown in both Electric Pumps as well as Farm Equipment. If you could just give a little bit more color on this. Electric Pumps, of course, of this business was profitable and was undergoing some temporary headwinds. There was a onetime brand promotion expenses now we had incurred last year. And -- but the Farm Equipment piece was loss-making for a very long time. So the profitability that we see in the current quarter, if you could just give a little bit more explanation as to is it -- what kind of steps have you taken other than price increases? And how much of this profitability is sustainable? What is the sustainable margins that you're expecting in both of these segments?

[Pawan Agarwal, executive]

Sandeep, this is Pawan Agarwal. Thanks for your question. See, in Farm Mechanization business, there's a lot of work which is happening. However, we still -- we are not out of the woods. The green shoots that you see in terms of margin, I mean, in the current quarter, is just a journey. So right now, I don't think we can claim that we have come out of this difficult situation, which we have been seeing for the past many quarters. .

But I'm quite hopeful that with Aseem at the helm of affair and he's looking at all the areas very, very objectively, and there's a lot of work happening in this area, the margins are likely to trend upwards. It may take some time. It may not happen immediately. But over the next 3, 4 quarters, I think the Farm Mechanization business should deliver a reasonable margin, if not a double-digit margin, but at least 5%, 6% margin we are aiming at.

[Sandeep Tulsiyan, analyst]

And on the Electric Pump side, is it similar or...

[Pawan Agarwal, executive]

Yes, Electric Pumps, as you rightly mentioned earlier, this business was doing a reasonable margin earlier. There was a rough patch of a couple of quarters and we are back in profit, especially on the LGM side, where we had a difficult quarter 4. Quarter 1, again, we are back to the old EBIT margin range, 6% to 7%. And we are working towards improvement in margins. So both at KOEL Electric and Varuna Electric Pump, we do not see any reason why we cannot get double-digit margin in coming quarters -- in next few quarters.

[Sandeep Tulsiyan, analyst]

Understood. Second question is on the growth. You mentioned that the growth in high kVA was more than 80%. And of course, it was not as high in the low horsepower and medium horsepower. If you could also give us a backdrop of how the base industry grew during the same period, and what would be our market share in different HP category, please?

[Pawan Agarwal, executive]

Yes. I will request Arvind to answer this question. Over to you, Arvind.

[Arvind Chabra;Head of PPS Business Unit, executive]

Yes. This is Arvind. See, let me first speak about the market. From the market perspective, that Gauri also mentioned about, that the market grew approx. 15% over the last year. Though the last year might not be the right benchmark because it was partially COVID impacted. But at the same time, quarter 1 also saw growth over the previous quarter, quarter 4. The final numbers of the final market report is yet to come in. But from the perspective of low and medium horsepower, market is expected to be almost flat, wherein the maximum growth would be led by the medium and the high horsepower. When I say medium and high horsepower, maybe 62.5 kVM above range. And more the higher horsepower would be, higher the growth. And that's what we also followed.

In fact, just to repeat, as we saw that in the quarter 1, we again took the leadership position, which we have been talking about in the past since the commodity was not, we took the leadership position. And from the very first of the quarter, we increased our prices in the market. This lead was not only helped us in terms of managing the commodity inflation, which is getting reflected in the financials. But at the same time, the industry also followed and it helped in elevating the price -- overall price acceptance in the market.

In this initial phase, for a few days, I would say, or for, let's say, 2 weeks or so, we actually went to the extent of regulating most of the opportunity in the market. So that might have some bit of impact on the market share. But that was more temporary in terms of achieving the balance between the price and margins.

But finally, the good part is the exit, as Pawan mentioned, that exit to the quarter is with a very strong inquiry board in the order book, which means the price has got established in the market and we have come back to our earlier level in terms of the overall market opportunity participation in our win rate.

Now this is actually further getting positive with the new launch in the lower horsepower, the R550, iGreen 2.0, which Gauri mentioned. This product that we have just exposed to very limited market, though we expanded it in the quarter 1 to South and West market, and it's getting a very encouraging response because of its very unique proposition of best footprint, technical superiority, reliable performance and the overall lower cost of ownership over the life of the product.

And this will definitely play a major role in terms of moving the market share numbers. And this particular technology or a platform will also get extended during this quarter to the other kVA notes also.

[Sandeep Tulsiyan, analyst]

Okay. So can you give those market share numbers that you have from an overall perspective as well as in special KV categories?

[Arvind Chabra;Head of PPS Business Unit, executive]

So that detail is yet to come. So in all probability, we would be holding -- or let's say, we would have definitely witnessed a growth in the high horsepower range, wherein in the lower range, probably we might have compromised some basis points on the market share, as I said. That to establish the price in the market, we compromise on few of the opportunities during the first 10 to 15 days of the quarter. But numbers are yet to come in.

[Sandeep Tulsiyan, analyst]

Okay. And also in high HP range, your 200 kVA and plus range, if you could give us more sectoral color as to which are the end markets which are driving the growth between, say, the major markets that you operate in, metro rail or residential realty or hospitality and other segments that you cater to.

[Arvind Chabra;Head of PPS Business Unit, executive]

So yes, Sandeep, sure. From the high horsepower range, as we have been talking in the past also, our DV story is going very well. And if I may request, Pawan, probably we would have again clocked an average of 100 plus numbers month-on-month. So that is -- that continues. And if I have to speak about a very specific sector, yes, this was again by the -- it was led by the infra as well as the real estate. In fact, mobility also played a major role this time. And we were -- we have very recently secured a bulk order of 910 kVA, which is the higher end of the hiring from a very large project, which will be supplied in the running quarter and the subsequent quarter.

Also, from further high-end perspective, the K43000, acceptance from the market is very, very good. The initial response in terms of the inquiry participation is very, very encouraging. And the supplies would be very soon starting from this quarter and the subsequent quarter.

[Pawan Agarwal, executive]

Yes, you're right. I mean just to give numbers to what Arvind said, the DV series in quarter 1, we have sold 373 units. Whereas the similar number for quarter 1 last year was 257. So you are right.

[Sandeep Tulsiyan, analyst]

And in rupees crore, what is this number? And if possible you could share DV series number for the whole of FY '22, please?

[Pawan Agarwal, executive]

So FY '22 full year value was INR 271 crores.

[Sandeep Tulsiyan, analyst]

Okay. And number of -- sorry, in terms of number of units for full year '22 is how much?

[Pawan Agarwal, executive]

Full year was 1,472 units.

[Sandeep Tulsiyan, analyst]

Got it. All right. Sir, other question is on the exports. What is the business model exactly we are following over here. You did mention some geographies in UAE and other geographies where we are leading the market in the opening commentary. But if you could highlight within each segment, what kind of business model have you? Is it more direct customer sales or is that a distributor kind of a model? And any color you could give in terms of new product introduction, what has that contributed to the 60% plus growth that we have seen?

[Gauri Kirloskar, executive]

Yes, sure. So we follow and distributor model in our export markets. And in terms of new product introductions that I have referenced also is mainly for the U.S. market, where we're introducing engines that are certified for Tier 4 Final. We have very stringent emission requirements in the U.S., and it takes a long time to get certified for that. So we're ready with some products there that we will be introducing towards the end of this year.

[Pawan Agarwal, executive]

And to answer your second question, segmental within export, which segments are doing well, which is leading to 64% year-on-year growth. So in Power Generation, year-on-year, we have delivered 93%. I'm talking about export market. Industrial segment has given 79%. Customer Support, which is a smaller share, there we have grown by 49%. And every business has grown by 11%. So in total, 64% year-on-year growth in export business.

[Sandeep Tulsiyan, analyst]

Got it. Sir, I have a couple of more questions, if I may. One is on the LGM side, any thoughts on acquiring the balance 24% stake, because the call option is now due? So what are your thoughts on the same?

[Pawan Agarwal, executive]

Thanks. So the acquisition of remaining 24% stake in LGM is governed by our shareholder agreement. And as per the shareholder agreement time lines, this stake will be acquired by the company.

[Sandeep Tulsiyan, analyst]

Okay. Any indications at what valuation, at what price will be paying for this?

[Pawan Agarwal, executive]

See pricing because the pricing is already predefined in the 2017 shareholder agreement. However, I can tell you that this 24% acquisition is likely to get completed within this quarter, which is on or before 30th of September. But valuation, we would not be able to reveal at this point of time.

[Sandeep Tulsiyan, analyst]

Okay. Understood. And last question is just another bookkeeping one. Within the Power Gen sales that we did in last year, INR 1,430 crores, and also in the current quarter this INR 430 crores run rate what we are doing, how much is the traded portion, the alternative battery control panels, all that we do? If you could just break that up for me, please.

[Pawan Agarwal, executive]

Last year, full year was INR 272 crores. And in quarter 1 current year, the equivalent number is INR 85 crores. And quarter 1 last year was INR 50 crore the traded items.

[Operator]

[Operator Instructions] The next question is from the line of Renjith Sivaram from Mahindra Mutual Fund.

[Unknown]

Sir, just wanted to understand strategically, like is it fair to assume that at some point in time, we will think of moving out our NBFC business because that doesn't constitute our core and probably then we will focus on our manufacturing? And so probably, can we expect strategically what's your thought process that sometime in the near future we'll move it out from our core manufacturing? If you can throw some strategic light on that.

[Pawan Agarwal, executive]

That's a great question. I think this question has been coming up on calls time and again. But we have been maintaining that we have started our journey of Nonbanking Financial Services business very recently. It's 3, 4 years old, maybe. And we have a long way to go. We have been seeing very good response from the market and which is visible in our numbers also. At an appropriate time, the Board of Directors will take a call on this matter and accordingly will inform The Street. At the moment, we are doing pretty well, and we are expanding, and we will continue to deliver growth in this business in the coming quarters and years.

[Unknown]

So how much have we till date put in equity in that? And how much further you're planning to pick that NBFC?

[Pawan Agarwal, executive]

We -- as we had mentioned in earlier calls also, the Board of KOEL has given a comfort up to INR 1,000 crore to -- in terms of equity infusion in the Nonbanking Financial Services business. Out of that INR 937 crores, we have already infused. So that is the position as on 30th June.

[Unknown]

So will there be any future enhancement of that or your -- it will be like kind of this is something which will be comfortable?

[Pawan Agarwal, executive]

No, at this point of time, again, it will be a speculative answer because we have been -- we have adopted a calibrated approach in terms of putting in capital in Nonbanking Financial Services business. And that has helped the subsidiary -- Financial Services Subsidiary really well. They have been able to leverage in a meaningful manner and the growth is coming in. At this point of time, KOEL Board has not looked at the issue of further capitalization of Nonbanking Financial Services, because still some room is left out of INR 1,000 crore commitment, which has been given by the parent company.

Gauri, you would like to add something.

[Gauri Kirloskar, executive]

Yes. So the idea was to give the Financial Services business a firm footing and the commitment from KOEL was INR 1,000 crores, and it will remain at that. From the balance sheet -- from Arka's balance sheet point of view, they are still under levered. So they still have enough room to grow from an NBFC point of view in terms of leverage. And then they will also follow the normal process of raising Tier 2 capital like any other NBFC would do for its group. I hope that answers your question.

[Unknown]

Okay. This new emission norms are coming, so how prepared are we in terms of -- are our new emission norm engines tested in all modes? And what's the level of preparedness there? And with whom we have this technology collaboration to get into this newer norms, If you can throw some light there?

[Arvind Chabra;Head of PPS Business Unit, executive]

Yes. So from the CPCB 4 cutoff perspective, since if you all remember, this actually was supposed to be cutting from '22, but because of the pandemic and all, it was deferred by year. So if you ask from our preparations perspective, we are well prepared even if the original date would have been there. As far as the technology part is concerned, I will have to reserve my comment because till the time product doesn't go out. So what technology tie-up we have in terms of the back end we'll not be able to disclose. But from a revenue perspective, most of the products are already under target.

[Unknown]

Even the testing is kind of done for most of the notes.

[Arvind Chabra;Head of PPS Business Unit, executive]

Yes, because that's what I said. See, whether you have achieved the compliance or not, that will be an outcome of the test results. So most of the notes are already on the test side. And they have to go through a cycle of testing hours, so that work is already in progress.

[Unknown]

So what's the likely price increase?

[Arvind Chabra;Head of PPS Business Unit, executive]

Price increase, we can say it will be in the range of 30% to 35%. I mean, that's what has been the case in terms of the BS IV journey also. And since the emission norms, that is for the off-highway and this is for the Power Generation, so the estimated increase is in the range 30% to 35%.

[Unknown]

Okay. So this will probably happen July 2023, right?

[Arvind Chabra;Head of PPS Business Unit, executive]

That's the cutoff as of now, which is the condition.

[Unknown]

So we can see probably a prebuying in -- during that -- before that period because of the price increase?

[Arvind Chabra;Head of PPS Business Unit, executive]

That is quite possible because the similar was the situation when the change from CPCB I to CPCB II happened. But the prebuying impact of CPCB 4 would more depend upon the other panel activity, if you would have noticed is happening in terms of the retro controls to the existing device. Because that will define the final delta between the 2 products. And the key driver for the prebuying would be the cost difference on the customer pocket. So it will be too early to say anything until the time more clarity come in terms of the retro emission control norms.

[Unknown]

Okay. And we are prepared for even the HHP and higher horsepowers, which we have launched for -- to comply to that norms?

[Arvind Chabra;Head of PPS Business Unit, executive]

Yes, yes. So whatever range would come in CPCB 4+ review, we are ready with that. As of now, it is anything less than 1,000 kVA cover under the CPCB 4 norms, so we are all set for that norm.

[Operator]

[Operator Instructions] The next question is from the line of Amit Shah from Antique Stockbroking.

[Amit Shah, analyst]

Congratulations for a very strong set of numbers. My first question was on the price hike. You mentioned that we have taken some price hikes during this particular quarter. So what is the quantum of the particular price hike.

[Arvind Chabra;Head of PPS Business Unit, executive]

So quarter 1, our price increase to the market at an average level for the Power Generation was in the range of 6% to 7%. It varies from note to note. But average realization was in this range.

[Amit Shah, analyst]

Okay. Okay. And sir, we have been witnessing very strong demand and even you suggested that the inquiry pipeline seems to be very strong. So would you like to give any guidance for FY '23, given that the inquiry levels are very strong, near-term visibility is very strong. Incrementally, even the CPCB 4 norms are supposed to get implemented, which can lead to a prebuying. So if you can give us some indication as to what is the kind of growth that we are targeting for FY '23? So that would be really helpful.

[Pawan Agarwal, executive]

Thanks, Amit. It will be very difficult for us to give you any guidance on the revenue growth at this point of time. But all I can tell you is that quarter 2 is looking very, very bang. And quarter 3, also, we have encouraging situation as of now, is all I can tell you.

[Amit Shah, analyst]

Sure, sir. Sir, also one more thing on the supply side, you mentioned, right, that we are facing some sort of challenges on the supply side. So if you can highlight what are the challenges? And whether going ahead do we see any retailing of those challenges? And if those challenges are resolved, what is the kind of growth that we can witness during the quarter?

[Gauri Kirloskar, executive]

So I think the supply chain challenges are pretty much universal challenges that everyone else is facing, whether it's commodity inflation or the shortage of certain components, a few components. I can tell you that our supply chain just 4% of the components are imported. And we are working on keeping it local and also having plan B or plan C, where necessary, to build a more resilient supply chain. On the growth, I think demand today is not a problem. So as Pawan said, we're seeing a buoyant demand for quarter 2 and going into quarter 3. So if the supply chain situation improves, I think we can only be more optimistic than that.

[Amit Shah, analyst]

And one more question on from my side. Is it anything few new business ventures to enter into, one was on the biowaste management system and second was on the induction motor side, and thirdly, on the transformers business side that we are planning to enter in FY '23. So any update on all these 3 businesses? What is the status and whether we are doing that with our plan of entering all these businesses? If you can just highlight that.

[Unknown]

So I'll -- this is Rahul. I will answer about electric motors parts. So electric motors, we have launched in the first quarter. And going by the response that we got, we seem to be going smoothly in terms of both the order booking as well as in terms of the sales. But also in terms of building our future range, so we have gone to the market with limited range to start with, but we are working very hard to complete our entire range going up to high range of 355 frame.

And also going into Higher Efficiency Motors from IE2 to IE3 range. So that range completion is currently under way. The building up of channel partners in the whole of India is going on very well. The organization chart in terms of having our zonal teams, et cetera, is all in place.

So all in all, I would say we are as per our plans in the electric motor space. As far as the transformer business goes, we have updated last time also that we are taking stock of the overall situation in the railways space as far as the tender flow is concerned. And therefore, we had put it on hold, at that time and the status continues as it is.

[Arvind Chabra;Head of PPS Business Unit, executive]

And Amit, this is Arvind again. Just to answer on the biogas side, biogas is not of an open consumer market kind of a product. It's a very specific project-related product. And we are doing pretty good there. Because this addresses a very specific -- because of the input fuel, it addresses a very specific segment of STP and the plant. And our Power Generation Solution is actually a part of the entire setup. So where we have very good tie-ups and as and when the new opportunities are coming in, we are the preferred supplier there.

In fact, I would also like to add, there is one more product or the segment where we have entered in the recent past. I think that was the end of quarter 2 and early quarter 3 of FY '22, which was the Kirloskar firefighting pump for the domestic market. Earlier -- we definitely was one of the preferred market player in terms of the Indian supplies to the overall solution.

But in last year quarter, we entered as full product supplier in the market. And that product has been doing pretty well. We have been growing continuously quarter-on-quarter. And the good part is in the last quarter, which is quarter 1 '23, we have even extended the range to the complete solution, which is Indian-driven pump set, motor-driven pump set and Jockey pump set as a solution, which definitely would help us to address a broader market and boost further in terms of our customer acquisition journey for that particular opportunity.

[Amit Shah, analyst]

This is helpful. Sir, all these 3 businesses put together, what is the kind of...

[Arvind Chabra;Head of PPS Business Unit, executive]

Can you speak up, please, you are very inaudible.

[Amit Shah, analyst]

Am I better? Is this better?

[Arvind Chabra;Head of PPS Business Unit, executive]

Yes, it's better.

[Amit Shah, analyst]

So sir, all these 3 businesses put together the electric motors, biowaste management systems. All this put together, what is the kind of contribution or revenue that this businesses can generate in the near to medium term? If you can just highlight what is the kind of opportunity available to us.

[Pawan Agarwal, executive]

Again, a great question. I think the size of the market, size of the opportunity is quite attractive, and that's why we decided to enter this space. But like any new concept or new business, it takes time to evolve. So right now, we are checking the acceptance of our offering in the market on all the areas, except transformer, which is tender -- government-tendered business. So there, it is difficult to comment. But electric motor or KFP, Kirloskar Fire Pumps or the organic waste composter, the products have been received really, really well. The early signs are very encouraging.

Just to give you a sense, on Kirloskar Fire Pumps, we are clocking INR 20 crores to INR 25 crores per quarter, and this is growing -- this business is growing. Electric motor, we have just cracked the surface. I think the way Rahul explained, we have great plans to expand the range. And the size of the market is humongous. And so the area of place is big for us. And once the range is available, then it would be end distribution because both the factors are equally important. I think we'll have a decent journey going ahead in electric motor business.

[Operator]

Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Dhirendra Tiwari for closing comments.

[Dhirendra Tiwari, analyst]

Thank you very much. I take this opportunity to thank the management of Kirloskar Oil for giving us the opportunity. Before we close the call, may I request Ms. Gauri to give a final word, and then we'll close. Thank you.

[Gauri Kirloskar, executive]

In conclusion, we would like to mention that we continue to remain focused on sales and profitability growth and making our businesses more competitive. We look forward to a great year ahead from a sales point of view, coupled with maintaining and protecting low double-digit EBITDA margins, as mentioned earlier.

Thank you for your participation in this earnings call. We appreciate your time and interest in us. Thank you.

[Arvind Chabra;Head of PPS Business Unit, executive]

Thank you very much.

[Pawan Agarwal, executive]

Thank you.

[Operator]

On behalf of Antique Stock Broking Ltd. that concludes this conference. Thank you for joining us. You may now disconnect your lines.

[Pawan Agarwal, executive]

Thank you. Have a good evening. Thank you very much.