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Kirloskar Oil Engines Ltd
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Ladies and gentlemen, good day, and welcome to Kirloskar Oil Engines Limited Q4 FY '22 Earnings Conference Call, hosted by Antique Stockbroking. [Operator Instructions]. Please note that this conference is being recorded.
I now hand the conference over to Mr. Amit Shah from Antique Stockbroking. Thank you, and over to you, sir.
Yes. Thank you, [ Lizan ]. Good afternoon, everyone. On behalf of Antique Stock Broking, I welcome you all to 4Q FY '22 Earnings Call of Kirloskar Oil Engines Limited.
From the management, we have Ms. Gauri Kirloskar, Managing Director of the company. We have Mr. Pawan Agarwal, CFO of the company. And we have the other dignitaries of the management team.
I would now hand over the call to Ms. Gauri Kirloskar for the opening remarks, post which we can open the floor for the Q&A session.
Hello, Amit, can I go ahead?
Yes, yes. Yes, ma'am, please. Please go ahead.
Thank you. Thank you, Amit. Good evening to all of you. This is Gauri Kirloskar. I would like to thank you all for joining the call today.
As you must have seen yesterday's announcement, I am talking to you today as Managing Director of Kirloskar Oil Engines Limited. Present with me on this call are Mr. Pawan Agarwal, the Chief Financial Officer of the company; and our company Secretary, Mr. Smita Raichurkar. We also have our business unit heads, including the team from Arka Fincap, and our Head of Strategy here with us. Hope you are all doing well and keeping safe in these heatwaves, with all cities reaching record temperatures.
Today, we are here to talk about the Q4 and fiscal year 2022 performance. I would like to begin with giving you an update of the overall business environment and the demand outlook as we see it for fiscal year 2023. After that, Pawan will speak about the financial performance and a detailed update. Post that, we will be open for the Q&A session.
But before we begin, our customary disclaimer. We wish to start by qualifying that during the call, we may meet 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 the call. And we would not always be able to update on these forward-looking statements.
Fiscal year '22 had its own ups and downs as we started with the COVID second wave and now the ongoing geopolitical tensions on the Russia-Ukraine war background. Despite these pressures, fiscal year '23 looks good on the demand side with the government's infrastructure spending at an all-time high and the pickup in industrial CapEx.
Coming to Q4 performance, it has been a steady quarter for KOEL. We have delivered on both top line and profitability targets. With this quarterly performance, we witnessed a healthy top line growth of 22% for our consolidated business for the full year. However, profitability was under stressed mainly due to the rapid increase in commodity inflation, especially in the third quarter of this year.
On the operations side, the BS IV transition has been smooth. During last year, over 3,600 of our BS IV compliant engines have clocked more than 100,000 hours in the field. We also take pride in mentioning that last year, we provided a record set of gensets to hospitals and health care centers during the nation's fight against COVID. We launched 2 platforms -- platform engines into the market, Low Horsepower compact engine platform called R550 and High Horsepower platform at the 1,250 kVA and 1,500 kVA ranges. We also announced our entry into the electric motor space with the launch of 3 phase AC induction motors. The efforts on developing alternate fuel engines have reached its fruition, and you would witness the unveiling of some of these products in the near future.
So if I look at the overall macro environment now, from an overall Indian market point of view, we believe that KOEL with a strong manufacturing base in India and a largely indigenized supply chain, we are at the right place and the right time. Despite the geopolitical uncertainties and higher commodity prices, the structural story of India remains intact. Government's focus on infrastructure development and the additional trust for Make in India presents us with a great opportunity in this space. We are in one of the few markets globally, which has a strong growth outlook.
Coming to the sector we cater to. In the post-COVID scenario with accelerating economic activity, the power demand is on an ever-growing trend. We see a good opportunity in this environment for the Power Generation business. This expected growth in the volume needs to be handled tactfully on the background of higher commodity prices. As we had indicated in the previous calls, we are taking a series of planned price hikes to keep our margins intact. We have been taking these price hikes in a phased manner. So as of now, the top line growth you see in this quarter is coming from an excel volume growth and price hike both. Pawan in his remarks will dwell upon the numbers in detail.
As I mentioned earlier, the government's investment in infrastructure is at an all-time high. The push for manufacturing by a PLI scheme has given a good boost to private sector CapEx as well. This presents a very healthy demand scenario for our products. We are seeing good traction in order inquiries as well as an order book for the government schemes, like Jal Jeevan Mission, affordable housing, KUSUM schemes, which is the solar pumps, et cetera.
The additional positive on the macro side for us is the China Plus One strategy. As I mentioned earlier, we are at a very sweet spot in these changing geopolitical environment. With manufacturing, engineering and innovation being our core competencies, we also know the Indian market like the back of our hand. Our brand is a household name in India. We have the experience of creating fit-for-market products, distribution and service channels, and that makes us the right partner for global players, who may want to enter the Indian market for manufacturing or selling. This will help us to gear up for any international opportunities that may open up in our sector.
So to sum it up, the overall outlook looks buoyant, given the pickup in government spending infrastructure investment, higher construction activity and an overall positive trend in the industrial CapEx. However, we believe higher inflationary environment will put pressure on the cost, which we will have to watch carefully. But with scaling up newly-introduced businesses, we should be able to take that impact. We expect good growth in business segments, like Electric Pumps, fire pumps and the traditional genset and engine business in this positive demand environment.
Now for the further deep dive into financial performance and analysis, I will hand it over to Pawan.
Thanks, Gauri. Good evening, everyone. With the positive demand outlook shared by Gauri, let me now give you all a view of the fourth quarter and the year gone by.
While the press release and the earnings call presentation, which have been released, has the performance details, nonetheless, I would like to go through the key parameters on financial and business performance, and then we can get into a Q&A session.
On a stand-alone basis, the total revenue from operations for the fourth quarter stood close to INR 990 crores against INR 914.6 crores in quarter 4 of the previous financial year, an increase of 8%. As you can see, the major cost increase was around the raw material side, raw material cost to sale percentage has increased by 3.7% from quarter 4 last year to quarter 4 this year. This has impacted the EBITDA margins. Consequently, the EBITDA was at INR 102.6 crore in quarter 4. EBITDA margin is at 10.4%, which was lower by 2.7% against quarter 4 last year. However, EBITDA margins were higher by 4.3% against the trailing quarter.
There is an exceptional item pertaining to profit arising on sale of investment in Arka Fincap Limited of around INR 52.7 crores during the quarter. So the profit before tax is at INR 142 crores and net [ profit ] is at INR 120 crores for the quarter.
Now looking at the full year stand-alone performance, revenue from operations grew by 22% to INR 3,300 crores. However, EBITDA is at a level of about INR 269 crores due to lower gross profit and higher other expenses compared to last year. As you can see, the major impact is of commodity price increase, wherein the raw material cost to sales percentage has increased by 4.7% year-on-year basis.
The current year other expenses in the P&L also include a onetime expenditure incurred by the company towards the Kirloskar brand refresh program, which we undertook to strengthen our market position. Consequently, profit before exceptional items and tax for the year was approximately 12% lower at INR 210 crores. Net profit for the year stood at INR 208 crores witnessing 23% growth over last year. This has the effect of exceptional items that I had mentioned earlier. Most of the business divisions have demonstrated healthy double-digit sales growth in the current year. Total stand-alone sales grew by 23% for FY '22 over last year. This was contributed by mainly Power Generation, Industrial business and Institutional Project Solution businesses.
Moving on to the segmental performance. As you must have noticed from last quarter, we have been giving updates of our segmental performance. This keeps the consistency in line with our financial segmental reporting. There was a feedback from one of the analysts regarding the segmental reporting. Going forward, we would like to make the financial presentation more and more investor-friendly for a clear understanding of the business segment.
Coming to the Engine segment, in Power Generation business, all major subsegments have registered healthy double-digit sales growth year-on-year and quarter-on-quarter. Export sales have registered a growth of 110% -- 119% year-on-year. We have strengthened presence in mobility segment with installations in metros and major airports.
On the Industrial business side, sales registered a decline of 15% year-on-year and growth of 2% quarter-on-quarter. We have completed firefighting pump set range expansion and supplied more than 300 Kirloskar firefighting pump sets in the market.
On the Customer Support business, sales were nearly at the same level year-on-year, while quarter-on-quarter, it registered a 12% growth. We continued to maintain healthy Customer Delight Index score of more than 90.
Institutional Project and Solutions business saw an impressive growth of 106% year-on-year and 292% quarter-on-quarter.
Now looking at the Electric Pump segment, at La-Gajjar Machineries Private Limited business has registered sales nearly at the same level quarter-on-quarter and a decline of 11% year-on-year. EBITDA Margin for the quarter continued to remain under pressure due to steep increase in commodity prices.
As you know, LGM had formed a wholly-owned subsidiary by the name Optiqua Pipes and Electricals Private Limited in February 2021 to tap the market opportunities in the allied segment and adjacencies in the Water Management Solution vertical. Further, as we have mentioned in the last call, Optiqua entered into a joint venture with ESVA Pumps India Private Limited by obtaining 49% equity stake in the company on 4th October 2021.
The next segment is Financial Services division. Our total investment in Arka Financial Holdings Private Limited as on 31st March '22 stood at INR 837 crores. Arka Financial Holding in turn invested INR 834 crores in equity share capital of Arka Fincap Limited, including the shares which were transferred from KOEL.
Other performance details have been updated in the earnings presentation.
As far as consolidated performance of KOEL Group is concerned, here are the key points. Net sales at INR 3,978.7 crores for FY '22 versus INR 3,254.8 crores for FY '21, which is 22% increase year-on-year. Net profit of INR 170.9 crores for FY '22 versus INR 197.4 crores for FY '21, that is 13% decline year-on-year.
The Board of Directors has recommended a final dividend of INR 2.5 per share, which is 125% of the face value of INR 2 each. With this, the full year dividend declared would be at INR 4 per share, which represents 200% of the face value.
As far as the outlook is concerned, as Gauri mentioned in her remarks, we see a positive demand outlook in the economy across our business segments. So the revenue growth outlook looks promising. However, on the profitability side, we need to keep a close watch on the inflationary pressure on overall costs.
We have been taking the price rises, sales price prices and you would see that effect in coming quarters too. On the newly introduced businesses, we see great opportunity to scale up, and our teams are geared up for the upscaling of these new businesses.
As we have done with the numbers update, I would like to update you all on KOEL's sustainability journey. Last quarter, we had given an update on KOEL's sustainability structure. You would hear more from us on this space in coming quarters. Our focus on sustainable business practices and emphasis on socially inclusive business remains intact. We will enhance the reporting standards and adapt to new practices in line with regulatory requirements.
To conclude, I would like to mention that overall, we remain enthusiastic and optimistic about the market opportunity. With this summary, we may now commence the question and answer. Thank you.
[Operator Instructions]. The first question is from the line of Sandeep Tulsiyan from JM Financial.
The first question is pertaining to the price hikes that have been rolled out in the last 1 year, which you mentioned has been taken in a staggered manner. If you can highlight cumulative what would have been the price hikes across each segment that is PowerGen, Agri, Industrial, if you can broadly highlight the overall content.
Sandeep, it would be difficult to give you an overall ballpark number, but through the year, including quarter 4 in various businesses, the price rise decisions have been taken at different points of time and at different rates across different categories, SKUs, et cetera.
Electric Pump, for example, in WMS, we took price increase in April, July, November, then January and then again in April '22, we have taken at various rates. Similarly, in other businesses also we have taken. But there was a little bit of wait and watch in quarter 3 or quarter 2, quarter 3, where we did not take so much of price increase. However, in quarter 4, I think across all businesses, we have taken price increase in different order. And that has helped us improve the raw material cost to sales ratio in quarter 4.
No, the reason I'm asking is -- so PowerGen, of course, we have done a very strong growth. But other than PowerGen, most of the segments, if you look at it on a year-on-year basis, that's largely single-digit growth in Agri as well as Industrial. So I want to understand how much should we look at it from a pricing growth perspective and how much would have in the volume growth, where there is more headroom to cover because, of course, first quarter was impacted during the year.
Just a moment. Arvind, would you like to give some color on Power Generation business and probably I can ask Milind to talk about Water Management. Arvind, you are there on the call?
Mr. Arvind Chabra?
Yes?
Yes, sir, please proceed.
Can you hear me? .
Yes, sir.
Okay. Thanks, Pawan. Sure. Good afternoon, Sandeep. In the PowerGen, as Pawan mentioned that in the early FY '22, quarter 1, quarter 2, it was like lag because the commodities again shooted us. But quarter 4, as like in the previous quarter, we have been taking the lead, so we took the lead in terms of the price increase. And if I have to give some reference, it is high double digit, which was the overall consolidated price increase over the year, which was almost in line with the commodity inflation as far as the PowerGen is concerned and similar was the case for the Industrial.
Yes. So as far as KOEL electric is concerned, there was a volume growth of around 14% as compared to last year, and total price hike what we took was a little behind the market real price increases. But overall, we were roughly around 5% behind the market prices, but volume growth, we were at 14%.
Understood. Second question, sir, is regarding the breakup, which you usually share, for the PowerGen, if you can highlight how much of the sales was DV series? And how much was the other low kVA genset what you sell? And what would have been the trade [indiscernible] right? And similarly, in the Industrial segment, what would have been the ballpark breakup between tractors and off-highway?
Thanks, Sandeep. On the DV side, we had in quarter 4, just a minute, I will give you the numbers.
And for the full year also, if you can, please?
Yes, yes. Yes, just a moment. We sold 1,000 numbers, which includes the DV series and the SL series, all put together 1,000 units. And for the full year, the equivalent number was 3,269.
And in terms of rupees, crores, now what would have been?
Roughly about INR 400-plus crores, INR 409 to be precise for the full year. And for the quarter, it is about INR 131 crores.
Got it. And the makeup between the traded products and for the Industrial segment, if you can share, please?
Yes. Just a minute. So in the industrial, as you know, we have tractor segment. So in tractor, we did in quarter 4, INR 31 crores of sales in Industrial below -- within Industrial. And other than tractor, which is construction equipment, firefighting pump, et cetra, all put together is INR 146 in quarter 4. Full year number, tractor is INR 156 crores. And other than tractor, which includes firefighting pumps, is INR 481 crores.
Understood. Sir, next question is pertaining to all these new products. If you can now give us some sense in Optiqua now what all products would form the entire addressable market because we have a tie-up for pumps and we have some electricals and other things. So what should be the addressable market and which all product lines we will be present in? Are these electric motors what we have launched part of the Optiqua portfolio? Or they will be sold through the KOEL franchise? And on the other products, like transformers is one product we had spoken about in some of the earlier calls, which we'll be selling to the railways, if you can give an update on that front also, please.
Sandeep, thanks. There are 3, 4 questions in one question. So let me attempt to answer these one by one. So the easier one, motor business is sitting in KOEL, Kirloskar Motors, which is under the Kirloskar brand we are selling motors. OWC, or organic waste composter, and the Optiqua range of products that I will request Rahul to talk more about it. And also he will touch upon transformer side.
Sandeep, this is Rahul here. So I'll start from your first question, which was on the wire. You asked about the Optiqua portfolio. And you also asked about the market size. So the Optiqua portfolio is divided broadly into 2 segments. One is the wire and the flat cables, the electrical part, and the other one, which is about INR 1,000-odd crores size. And the other one is the pipes. Now the pipes is a huge market. But here in Optiqua, we are more focused on the column pipes side. As Pawan mentioned earlier, Optiqua, the logic of getting Optiqua under our fold was to get into allied business. So basically, whatever is coming along with the submersible pump. That is what we are concerned with, although -- so that means that the larger CVC pipes, the huge market, the INR [ 30,000-odd ] crores, that's not really the focus [indiscernible]. So that was on Optiqua.
The second question was on electric motors. And in electric motors, we have -- so this business is sitting pretty much in KOEL, and it is -- we've just launched it, the range that we have launched is up to 37 kilowatt. And gradually, through the next 2, 3 quarters, we are going to expand this range up to higher trend sizes. And we are also going to expand this range for higher efficiency motors. We are also appointing a lot of dealers across all 4 zones. So this business is in scale up mode. We are seeing -- so this was launched in the end of March. But going by last month's experience, we see a good feedback from market. So we really anticipate a good year this year for electric motors. And...
And market size for this will be?
See, the LV -- so we are currently into low-voltage motors, AC, which would be roughly around INR 4,000 crores to INR 5,000 crores. Yes. And the last question was on transformer. Currently, we are reassessing the whole transformer market, especially in the railways, given whatever has happened in the COVID year. And so that means currently, it's on hold. So we will come back to you maybe some time later on what is that we want to do on transformers.
Sandeep, organic waste composter, as you know, it's a concept study, and we have been showcasing this product to our channel partners, and we are getting encouraging response. However, in terms of numbers, this is going to take some time to get some meaningful sale number from this product. But overall, outlook looks positive. Maybe Arvind may like to throw more light on OWC product, specifically.
Yes. Pawan, thanks. You already said the most. Yes, this product is now well accepted by the channel. Though as of now, it is more compliance-driven, and we are building into the concept that how it is beneficial and why customers should take, and the response is very, very positive. So maybe in the coming quarter, you will see more and more number flowing in from this product also. But for the overall stability and acceptability of product, it is building up very fast.
Understood. And just if I can squeeze in one last thing on the management. We had seen a lot of exits during the past quarter. Have all those positions we filled in, in the current quarter, or there are hirings which are yet to be done? And just wanted to understand the role is now split, the Managing Director and CEO role of what we read in the announcement yesterday. So both these positions will have the executive role full time is what I want to do -- get a clarity on.
So thanks, Sandeep, for this question. This Pawan. We have -- you would have seen in yesterday's announcement, [ Mr. Aseem ] has been brought in. So he's going to look after the B2C part, which essentially right now is Water Management Solutions business plus the Farm Mechanization business. So he's going to meet that business.
And the -- as we had mentioned in the earlier call, the Customer Support Business, Abhaya Naik had left to pursue his own venture. So that position was filled at that point itself by promoting his direct report. And this process was going on for a long time. So that position has been filled. And otherwise, there are no other open positions in the company, which needed any immediate action.
Okay. And B2C will be taken care by [ Mr. Aseem ] and what about the other B2B part?
So B2B, we are in the process. We will see going forward, right now, we have -- Arvind is there and the other businesses are there, so they are taking care of the business, but we will evaluate the situation and we take a call on the Head of B2B business and Board -- we'll be guided by the decision of the Board on this matter.
The next question is from the line of [ Ashwani Sharma ] from ICICI Securities.
Sir, my first question is on the employee cost. If I look at the stand-alone numbers, there is a decrease of around 14% on a Y-o-Y basis. But when I look at the consol number, there is increase around 2%. How do we explain this, sir?
On the stand-alone number, we are in employee-related costs. Last year was INR 199 crores, and this year is roughly INR 207 crores. So couple of things. This year, obviously, there was an annual pay raise, which was given to employees. Also, the ESOP cost has come in to play this year, which is roughly about INR 2.5 crores for the full year. So these 2 things have played out for this increase.
As far as consol is concerned, the last year number was INR 257 crores at a group level. And this year number is about INR 285 crores, INR 286 crores, which again includes the normal increase and ESOP at -- ESOP cost at Arka as well as at KOEL level. So there are no other extraordinary items sitting over here.
And what will be the numbers going ahead, let's say, if I talk about quarterly run rate in stand-alone business?
Come again, please?
Going ahead, how do you guide this number. So let's say, in Q4, the stand-alone employee cost was INR 49 crores, can this number be -- this will be the number going ahead?
There were some reversal in quarter 4 this year. Overall, it would be around INR 55 crores to INR 56 crores per quarter on a steady basis.
Okay. So my second question is on the PowerGen business. If you could talk about different sectors, how is the demand out there, which other sectors, which are kind of where you see a strong demand coming?
Sure. I will let Arvind answer this question. Arvind, over to you.
Yes. See, as Gauri also mentioned in our opening remarks, that from the quarter 4 onwards, the demand has been very positive from all these sectors since the infra projects are back on track, be it the residential or the commercial side, and the health sector as well as the other manufacturing set up, most of the new projects have already started getting unlocked. So overall, the demand has been coming in from all the key sectors when it comes to the Power Generation and which was further fueled by the off-late in the last 2, 3 months, we have started hearing a lot about the power crisis situation because the economy was coming back on track. So it is from all the keys segments.
The next question is from the line of Ameet Kalyanpur from East India Securities.
Further -- just taking it further on this PowerGen, what is the -- what are the volumes that we are seeing in Q1? I mean what is the magnitude of the incremental demand on account of this power situation? .
Arvind, can you answer this one?
See, on account of this particular power crisis situation, the demand in the lower-end segment is slightly high. I can say that it will be the early double digit. Wherein from the higher-end perspective, these power crisis will not make much of the difference in terms of the demand. Only growth is coming more on account of the project getting unlocked because those are anyway the planned purchase from a larger gestation period perspective. But yes, smaller end has a sudden spike, wherein the customer was looking at the early supply.
[Operator Instructions]. The next question is from the line of [ Mazal Shah ] from [ Eda ].
I just wanted some forward-looking, like next 3, 4 years, where do you see this Arka, okay, from here on, actually? Kirloskar has invested close to around INR 800-odd crores. I think historically, it was mentioned that we'll be investing somewhere close to INR 1,000-odd crores. Okay. And beyond that, okay, where will the capital come from? And what size -- what book size are you looking maybe 3, 4 years down the line? And with this interest rate scenario moving up, okay? And there is some slowdown, okay? Are we seeing any change in the business plans? Or is there a concern about bad debts or something of that sort?
Thanks, [ Mazal ], for this question. Actually, there are quite a few questions bundled in one question, and I will answer a few of them, and then I will hand over to Amit Gupta, who is the Finance Head for Arka Fincap.
So as far as the commitment -- capital commitment to Arka Group is concerned, the Board of KOEL has taken a call and decided to invest up to INR 1,000 crores, and that remains intact. And of course, as you would have noticed that there has been no additional subsidiaries have been founded in our Financial Services businesses, Arka Financial Holdings Private Limited and Arka Management Services. And there has been a shareholding restructuring has been done, whereby now KOEL is holding a stake in Arka Group through Arka Financial Holdings Private Limited.
Secondly, the financial performance of the subsidiary continues to be robust. Quarter-on-quarter, we are on the growth trajectory, both on the top line and bottom line. And the loan book looks very promising. There are no major issues in terms of [ NPAs ], et cetera, on our selling in the market.
Amit can give you more color on the operational part of Arka's performance. So I'll hand it over to Amit. Amit? Amit, you're there?
Am I audible?
Yes, please go ahead.
Yes, you are. Please go ahead.
Thanks, Pawan ji. So just to highlight the financial performance of Arka Fincap Limited for FY 2022, just to update on the PAT number that we have doubled the PAT in this financial year, standing at INR 32.5 crores as compared to the PAT for FY 2021, which was listed at INR 16.8 crores.
In terms of loan book, in terms of profitability, in terms of net worth of a company and leverage, on all the parameters, the company has been performing very well. The loan book of a company has increased from INR 1,124 crores to INR 2,379 crore as on 31st March 2022, which is being supported by the equity capital from the promoter and a debt, which is very much essential for the Financial Services business. We have got more than 28 lenders onboarded as on 31st March 2022, which are there to support the future growth trajectory of the company as well.
Since day 1, as we have committed to get the loan book diversified and present into 3, 4 different business segments, the company has been following that continuously basis and the SME, MSME business is also getting attraction day by day. As on March 2022, 13% of entire loan book is diversified into SME and MSME segment. Earlier, last financial year, the number was only 3%. However, in this financial year, the company has opened more than 10 branches. And now it is getting diversified into the regional level as well, which is catering to the local needs of the B2B customer and also focusing on a digital framework to the B2C customers as well.
In terms of the future expected growth as you have asked, so over a period of next 2 to 3 years, the company intends to grow this loan book from INR 2,000 to at least INR 7,000 crore to INR 9,000-odd crores trajectory, wherein again, the loan book will totally be diversified into various different segments. Not only catering to the loan segments, but also we are coming up with a fee-based income kind of a structure. This year itself, within Arka Fincap, we opened a new division called the Distribution division, wherein the company got a very good attraction and earned a fee income of almost INR 5 crores for the financial year. The distribution income, taking a confidence from here, we are coming up with an [ AIF ] also and gradually will spread its wing to the other areas of Financial Services as well. I hope I'm able to answer your question in detail. .
A few follow-up, okay, if I may. One is when you spoke about this fee income of INR 5 crores, can you share more details of -- means what type of...
See, this is more like syndication income, wherein the company itself doesn't participate, but it is a totally third-party, wherein we go into the market and basis our analysis and our -- the thing I could use a judgment and commitment kind of a thing, the lender is also agreeing on the creditworthiness of the borrower, and they are ready to sanction and disburse the limit.
So it's basically a syndication?
Yes, this is a syndication income.
Okay, okay. And secondly, like you mentioned that you're looking at multiple fold increase in the loan book, maybe 3, 4x, okay, in next 2 years' time, right?
2 to 3-year, I said.
So let's assume 3 years, okay. So how much capital would you need and from where would this incremental capital come in if Kirloskar is providing INR 1,000 crores?
See, so far, the commitment from the promoter side is INR 1,000 crore. So that is why the business plan for this financial is being freezed. We are still with the discussion with the promoters and that call is yet to be taken.
So should we assume that Kirloskar can pump in beyond INR 1,000 crores at a later date?
See, I can only say that it is not yet decided.
Because -- see, because earlier historical commitment first housing costs. Now there is a change in the communication. I presume that there is a possibility that beyond INR 1,000 crores can be...
This is Gauri Kirloskar. I'd like to say something. So once the INR 5,000 crore book size is crossed, we will come up with future plans, and it will be in line with how Financial Services, companies and businesses raise money, and we will come back to you with those plans.
So till INR 5,000 crores, there won't be any capital -- further capital, needed, that's what one should assume?
Yes. I can give you the breakup of this also. For the INR 5,000 crores of a loan book, we need an equity capital of INR 1,000 crores. There will be a clawback of profit of the company internally as well and which is very well enough to take us through the leverage of 4x. So we'll leverage to INR 4,000 plus INR 1,000 crore of equity from the promoter will easily take us to INR 5,000 crores.
Sure. Second question is with regards to cash flows, okay? The company has been generating a lot of cash flows not only from operations, but also historically from working capital, okay. So going forward, what kind of usage do we see for these cash flows, okay? How much CapEx do we see? Or we have more acquisitions in the horizon? So if you can just throw usage of this cash flows actually. And also, if at all, there is a possibility to answer in this forum or whatever because the [ Kulkarni ] families have intend to sell their stake, okay, in the markets, which is roughly 14-odd percent. So if you can throw some light on that also, it would help us.
[ Mazal ], let me answer your first question. You are right, the company generates impressive cash flows from operations. And as we have informed earlier also, we are actively looking for the right opportunities in the market. And we will pursue our M&A pursuits going forward. But these businesses would be pretty free to our business, what we are doing in KOEL, whether on the energy side or on the Water Management side. And obviously, the cash gets deployed on capital expenditure as well as dividends. So those things will continue in future.
Next year, also, we intend to spend about INR 85 crores to INR 90 crores towards capital expenditure. Largely the amount will be invested on emission norms work, which is going on, especially CPCB 4, and also BS V is going to kick off this year. So some amount of investment will go in that also. That journey will start.
Motor [indiscernible] also will require some CapEx investment, but not a very significant amount, but there will be some CapEx towards that also.
So that is how the funds are going to get deployed. Moreover, the Board has also reviewed the capital allocation framework in the current year and which was presented by the management. So there is a plan, there is a method how the cash is going to get utilized over the period of next 2 to 3 years.
Okay. And last, like, there's a lot of noise, like we hear in media about this diesel gensets, somewhere they are getting banned and somewhere, they are not getting banned. In our press release, we have also mentioned about alternative fuels actually. So if you can throw some light on that, actually what's happening exactly? It will help us again.
Arvind, would you like to take this one?
Yes. Yes, we do keep hearing. And as you know that there is an association named IDEMA, who is leading this on behalf of the diesel engine manufacturer. And they are working very closely with the authorities in terms of that. So this is -- as we say, this is as of now a speculation. There is no firm notification and all, but the relevant people are already taking it up with the authorities. But at the same time, as the norms are becoming more and more stringent, and we are all compliant to that. And then we shift to the cleaner fuels and other alternative options is definitely going to stay with the standby power.
I'd also like to add to that, that as the move to gas and other fuels, especially in India, they're talking about ethanol and methanol, we are working on all of these and you will hear in the coming days about when we are ready with these technologies.
And sir, one last question...
I'm sorry to interrupt, Mr. Shah. We request that you return to the question queue. There are other participants [indiscernible].
The next question is from the line of Alisha Mahawla from Envision Capital Services Private Limited.
Sir, firstly, I just wanted to know what is the volume growth we did FY '22. I missed that number earlier.
I can't hear you, Alisha. You have to be a bit louder, please.
Am I audible now?
Yes.
Just wanted to know what is the volume growth we did in FY '22?
Again, it would vary from segment to segment. In Power Generation -- you are talking about FY '22 growth over FY '21, right?
Yes.
So Power Generation has grown by 25% to 30% volume-wise. Industrial saw -- tractor -- as you know, in Industrial, we have tractor and then other than tractors, which is basically all construction equipment and off-highway equipment. So tractor, there was a degrowth. And in other segments, construction, there was a growth, a modest growth, not significant. I can't reveal the exact growth numbers. And other element also was more or less at the same level or there was a slight [ degrowth ].
And also earlier in the call, you mentioned that we have taken price hikes in phases throughout the year. Have we passed on all the cost pressures that we have faced in the last year? Or is there still some balance that is not being covered. And if so, how much?
So the cost increase has been going on. Input cost increase has been going on through the year. And as I mentioned earlier, quarter 3, we did not take much of price increase. But from quarter 4 onwards, we have accelerated both the timing and the quantum of price increase across our business segments. And accordingly, you can see that the raw material cost to sales ratio, which is there in the published results, in the previous quarter, which is quarter ended December '21, was 71% and which has come down to 65.5% in the March quarter. So which means our actions are showing results in terms of the sales price increase.
Understood. And is this a sustainable number at gross margin level, 35% or like you were saying manufacturing cost of 65%? Is this a sustainable number going forward?
Very difficult to predict the numbers. We're looking at the volatility of commodity prices going forward. But all I can tell you at this point of time is that we are committed to pass on the input cost increase to the market very promptly unlike in the past. So our endeavor is to slowly march towards the margins that we were making earlier and which got a setback in the financial year FY '22, especially the first couple of quarters. So we are actively working towards that, and you will see better results going forward.
Understood. And just one last question, if I may. We did mention again earlier in the call that we're seeing strong visibility on the back of industrial CapEx and government infra spending. What is the kind of volume growth we are targeting or aspire for, for '23?
Can't give you any revenue guidance or volume growth guidance at this point of time simply because things are still quite volatile. Supply side on the availability of components, et cetera. These are quite uncertain times as of now. So it will be difficult, unfortunately, for us to give guidance.
But assuming the volatility, like you were mentioning [indiscernible] cooling off, et cetra, can we assume at least a double-digit volume growth across segments?
I can't give any commitment on this at this point of time.
The next question is from the line of Amit Shah from Antique Stockbroking.
Yes. My question was more pertaining to the CPCB 4 norm implementation. So as we understand that, sir, from next year onwards, CPCB 4 norms would get implemented. So just wanted to understand, do we see any prebuying to happen in this particular financial year, that is FY '23? And what is the kind of price hikes that will materialize once the CPCB 4 norms get implemented? Yes.
Arvind, can you just answer this question, please?
Yes, Amit. So there are 2 questions. The first one is that do we see any prebuying happen. If we go by the historical trend, there are chances, but it's difficult to say at this stage. Reason being is, as Pawan mentioned, with the kind of volatility, which is prevailing in the market, it is very difficult because ultimately the consumer is the one who has to decide that when he wanted to mature his purchase. As far as the cost, the raw material cost, again, it purely depends upon how commodity would behave. But if you have to benchmark the current standard, then definitely there will be some bit of increase, which would come in from BS -- CPCB 2 to CPCB 4. But the exit numbers are still to be concluded because the protos and the tests are still going on. So once the products are finalized, we will have the exit outlook that how much is it going to impact the business.
And sir, one more question. I just wanted to understand on the Optiqua portfolio. So since it's an upcoming product portfolio that we have developed, what is the kind of contribution that we envisage from the Optiqua portfolio? And if you can give us a guidance with regards to the growth prospects of Optiqua over the next 2 to 3 years. So that would be really helpful.
Thanks for this question, Amit. Optiqua, as you know, we formed this company and we acquired the business Optiflex Industries, the partnership from, with a view to grow the ancillary and alike businesses. And I'm happy to report that FY '22, which was the first year of commercial operation, and in fact, we did business for almost 10 months, 10, 10.5 months, it clocked a revenue of INR 40 crores. Out of that, about INR 18 crores was sold internally to KOEL and LGM, and INR 22 crores was external sales. So it was quite up to the mark, and this is -- this was in line with our expectations in the first year.
Going forward also, we see a good opportunity in the marketplace for the products, which are produced by Optiqua, both for sell-through LGM and KOEL as well as products, which are getting sold by Optiqua under its own brand name, which is the Optiqua Pipes and Optiqua Cables, et cetera.
Next 2 to 3 years, difficult to comment, but I do not see any reason why we should not be crossing INR 110 crores, INR 120 crores in the next 2 to 3 years' time.
As far as the margins are concerned, as you know, the -- it is -- the Optiqua company is in the business of winding wires, cables, pipes, [indiscernible] matters. And as you go -- as your volumes go up, as your sell number pools go up, the margins start improving. In the near term, maybe possibly 1 to 2 years, it would not be very impressive, probably around 4%, 4.5% margin. But if we are able to scale up this business to -- which is what our aspiration is to take it to INR 300 crores to INR 400 crores business, there is every possibility that probably we can hit 5% to 6% or 7% margin in this business.
Can I now request Shrikant Pataskar, who heads our International business, to give a flavor on what is happening on the export side, what is the demand environment and how is Kirloskar playing out. Over to you, Shrikant.
Briefly speaking, we have been active in Africa and Middle East regions, traditionally. And in the recent times, we have expanded our operations in Americas region, especially the Latin American region. We are also looking at introducing market-oriented new products, which are more like offering product solutions to the market. Since it's a very fragmented market, different countries have different requirements from the product. We have to adopt to those requirements -- have products for those requirements. The opportunities going forward look quite bright for us, especially as our deliveries are not as much affected as our competition, which is opening new customer accounts for us. And also with the new products that we are introducing, our market coverage is getting expanded. And that looks quite promising for this year.
Our 2 factors, which are of concern, one is we are still not very sure about what can be the impact of Russia and Ukraine war on some of these markets? And secondly, the logistics environment still remains quite challenging, availability of containers for shipments and the logistics costs. So those 2 are the challenges that we are looking at. We are already working partly on improving the container availability, making optimum utilization of the container space, whereby we can impact the -- where we can reduce the impact of increases in the logistic cost to an extent.
So that's briefly, we are looking in terms of the product verticals, Power Generation is one segment, which offers opportunities. And firefighting engines, the reason that we supply for firefighting pump sets, where we have developed product range very specifically for international markets. That is giving us a very good opportunity, especially in UAE. So that's the overall brief.
Thanks, Shrikant.
Ladies and gentlemen, that is the last question. I now hand the conference over to the management for the closing comments.
Thank you, everyone, for joining the call and for the interest in the company and your questions.
Thank you.
Thank you. Ladies and gentlemen, on behalf of Antique Stockbroking, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.
Thanks.