Kirloskar Oil Engines Ltd
NSE:KIRLOSENG
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
561.2
1 418.95
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Kirloskar Oil Engines Ltd
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to Kirloskar Oil Engines Limited Q4 FY '24 Earnings Conference Call.
[Operator Instructions]
Please note that this conference is being recorded. I now hand the conference over to Mr. Dhirendra Tiwari from Antique Stock Broking. Thank you, and over to you, sir.
Thank you very much. Good evening, ladies and gentlemen. We at Antique Stock broking, welcome you on this call to discuss 4Q FY '24 results of Kirloskar Oil Engines Limited. We are glad to have with us Ms. Gauri Kirloskar, Managing Director; Mr. Rahul Sahai, CEO, B2B business; and Mr. Aseem Srivastav, CEO B2C business, along with the rest of the management team. I first congratulate the entire team of KOEL for delivering yet another strong performance. And now I invite Ms. Gauri to start with opening remarks, following which we will open the floor for Q&A. Over to you, Ms. Gauri. Thank you very much.
Thank you very much for that kind introduction. Good evening to all of you. This Gauri Kirloskar, Managing Director of Kirloskar Oil Engines. Thank you all for joining the call today. I have with me Rahul Sahai, our B2B CEO; Aseem Srivastav, our B2C CEO; Ankul Gupta, CFO, B2B business; Mr. Smita Raichurkar, Company Secretary; and Amit Gupta, CFO of Arka. We also have on call with us Mr. Sachin Kejriwal. As you all must have gone through the stock exchange notice that we gave yesterday. Sachin has joined us as CFO with effect from today.
As usual practice, I will start with the business update first, followed by a quick overview of financial performance and then we will go on to the question-and-answer session. As evident from the figures, this quarter has been remarkably prosperous for Kirloskar Oil Engines. We've achieved the highest quarterly sales in KOEL's history. Moreover, when considering the entire year's performance, it also marks the highest annual sales ever. I extend my heartfelt congratulations to the entire KOEL team and express gratitude for their unwavering support. This success is undoubtedly a collective effort with every member of the team contributing to their utmost. I firmly believe that this milestone signifies just the beginning of our journey ahead.
At KOEL B2B, we are transitioning from a diesel engine manufacturing company to a technological leader in power and energy systems. We are doing this by focusing on our internal R&D, making progress on our technology tracks and encouraging innovation within our team. Coming to business updates. Overall demand has stayed strong this quarter too. If we look at the macroeconomic indicators, India's economy outperformed the expectations in Q3 '23, '24 with 8.4% GDP and was at a 6 quarter high. This trend continued. It was evident in the Q4 demand across sectors with high demand coming, especially from construction, infrastructure and railways in particular.
In power generation, Q4 demand, in particular, was a mix of CPCBII and CPCBIV+. As we approach the deadline of June 2024, we expect the CPCBIV+ demand to start gathering momentum. On the industrial side, we saw strong demand from our construction OEMs and government sectors such as railways and defense. Another noteworthy update is on the international business side. This year, we crossed the INR 500 crore international sales mark for the first time, taking the overall share of exports to approximately 12% of total sales. As the CPCBIV+ norms have opened up a lot of new avenues for our products internationally, I believe this is a beginning of the exciting journey ahead for us in the international markets. If we look at the business unit-wise breakups for the quarter as well as the full year, most of the businesses have grown double digit year-on-year.
So on the B2B side, I will talk about also the new and alternate fuel products first. The Optiprime series is gaining good traction. We shipped 17 Optiprime products, including 4 2,000 KVA gensets during the quarter. Gas genset sales have also been encouraging, and we expect the demand for natural gas gensets to increase going forward. We sold 229 gas gensets during last year. Remanufacturing is now part of our offerings through the launch of the New Life brand. Last year, we offered 110 New Life products to our customers. This quarter, the International business unit clocked a 70% growth over last year's Q4, making the full year performance at INR 520 crores, a 32% growth year-on-year. Please note that these are stand-alone numbers.
Now coming to the B2C business. Overall, the B2C growth was 7% quarter-on-quarter, mainly backed by a strong growth of Water Management Solutions. The farm mechanization business continues to decline for the quarter and also for the full year. We continue to increase market share in WMS due to our deepening and widening strategy we've appointed -- sorry, 83 deepening channels contribute to INR 22 crores and 91 new channels through the widening effort contributing to INR 26 crores.
As you know, our focus has been on the profitability of the segment. We have been taking a series of steps to improve margins. The PBIT margin has improved 25% for the quarter and 73% for the full year.
I will now briefly update on the financial performance on a quarterly and year-to-date basis. These are stand-alone numbers. So first, a review of the Q4 FY '24 financial performance on a stand-alone level, net sales is at INR 1,378 crores for Q4 FY '24 versus INR 1,141 crores for Q4 FY '23, a 21% increase year-on-year. EBITDA is at INR 178 crores for Q4 FY '24 versus INR 129 crores for Q4 FY '23, a 38% increase year-on-year. EBITDA margin is at 12.8% for Q4 FY '24 versus 11.2% for Q4 FY '23. Net profit is at INR 118 crores for Q4 FY '24 versus INR 93 crores for Q4 FY '23, a 26% increase year-on-year.
The year-to-date or the whole year performance on a stand-alone basis. Net sales is at INR 4,806 crores for FY '24 versus INR 4,073 crores for FY '23, an 18% increase year-on-year. EBITDA is at INR 578 crores for this year versus INR 457 crores for last year, 26% increase year-on-year. EBITDA margin is at 11.9% for fiscal year '24 versus 11.1% for fiscal year '23. Net profit is at INR 375 crores for FY '24 versus INR 298 crores for FY '23, a 26% increase year-on-year.
Just as a note, the above EBITDA and net profit numbers are after adjustment of overdue receivables towards a customer and the detail is in the notes to the financial results. Looking at the working capital. With diligent efforts and regular monitoring, we have achieved a reduction of working capital by INR 140 crores in the quarter with inventory days down to 48 days from 60 in the last quarter. The cash position now stands at INR 269 crores at the end of the quarter. Please note that this cash is net of debt and includes treasury investments and excludes unclaimed dividends.
Now I will take you through the business-wise stand-alone revenue breakup for the quarter and year-to-date performance. The B2B business reported sales of INR 1,210 crores for the quarter, which indicates a growth of 22% year-on-year. The full year sales were at INR 4,182 crores for the quarter, which is 18% growth year-on-year. Within B2B, the power generation reported sales of INR 518 crores for the quarter, which is 11% year-on-year growth. and INR 1,905 crores for the full year, which is 15% year-on-year growth.
Industrial reported sales of INR 309 crores for the quarter, 28% year-on-year growth and INR 1,008 crores for the full year and 18% year-on-year growth. Distribution and aftermarket reported sales of INR 210 crores for the quarter, that's 19% year-on-year growth and INR 749 crores for the full year that's 19% year-on-year growth. International business reported sales of INR 173 crores for the quarter, which is a 70% year-on-year growth and INR 520 crores for the year, which is a 32% year-on-year growth.
B2C stand-alone business reported sales of INR 168 crores for the quarter, which indicated growth of 10% year-on-year. The full year sales were at INR 624 crores for the quarter, which is 15% growth year-on-year. Within B2C, KOEL Water Management Solutions business recorded a revenue of INR 153 crores for the quarter, up by 22% and INR 537 crores for the full year, that is 23% year-on-year growth. Farm Mechanization recorded a revenue of INR 15 crores for the quarter, down by 45% year-on-year. and INR 87 crores for the full year, down by 18% year-on-year due to seasonality leading to delay and subsidies from the states in where we operate.
Now, I will update you on the consolidated business. LGM sales were flat but with significant improvement in year-to-date PBT from INR 8 crores to INR 34 crores. The new plant construction is going as per schedule. LGM export grew at 15% and now contributes more than 30% of the revenue of LGM.
Now, I'll update you on the consolidated business. For the full year, Arka clocked revenue of INR 565 crores, which is a 52% growth year-on-year. The loan book as on 31st March 2024 was at INR 5,210 crores, including off balance sheet. Last year, Arka had an exception -- sorry, last quarter, Arka had an exceptional item of INR 31 crores towards the provision made for investment in Arka's alternate investment fund due to the regulatory changes announced in December 2023. However, during this quarter, INR 15.6 crores has been reversed from that exceptional provision towards investment in Arka Credit Fund I post clarification from RBI.
Overall, if you look at the consolidated results. For the quarter, the revenue from operations is at INR 1,660 crores for Q4 FY '24 versus INR 1,384 crores for Q4 FY '23, a 20% increase year-on-year. Net profit is at INR 131 crores for Q4 FY '24 versus INR 107 crores for Q4 FY '23, a 23% increase year-on-year. At a yearly basis, on a consolidated level, revenue from operations at INR 5,898 crores for FY '24 versus INR 5,024 crores for FY '23, 17% increase year-on-year.
Net profit, INR 468 crores for FY '24 versus INR 360 crores for FY '23 a 30% increase year-on-year. Please note that the EBITDA net profit numbers are excluding the exceptional items and provisions and reversals or overdue receivables made for a customer towards sales made in previous year. And for details, please refer to the notes in the financial results.
In summary, with 2 years down, the journey of our 2X-3Y strategic path, I'm very satisfied with the progress we have achieved. This is despite the last-minute unforeseen changes in the CPCBIV+ deadline. The deadline change has not just been on the -- not just affected us on the top line target, but of course, we had to make a lot of changes on the production line and keep our supply chain agile to manage the transition. I would like to reiterate that this was achieved because of the support we received within the organization as also from our supply chain partners. Amidst managing these challenges, we remain steadfast in our pursuit of new business development and progress in research and development. This underscores the dedicated endeavors of our team in crafting cutting-edge products for the modern era.
Our aim is to excel in internal combustion engine technology, spanning alternate fuel, hydrogen blends and hybrid engines. These innovations are tailored to support our customers in their decarbonization journey. In summary, with a strong FY '24 performance, we are very much on track for our 2X-3Y target, advancing satisfactorily on the 5 growth pillars. We have registered a 21% CAGR in the last 2 years on the base of FY '22 revenue of INR 3,250 crores. We have reached double-digit EBITDA margins, too, reflecting a healthy above 40% CAGR on the EBITDA numbers.
As we move towards the last leg of the 2X-3Y journey, we have our eye setup on the longer path that's ahead of us. We are committed to the strategic roadmap and our technology tracks. You will hear more about these in the coming calls, stay tuned until then.
With that short update, I would like to open the floor now for the questions.
[Operator Instructions] The first question is from the line of Amish from JM Financial Services PMS.
Congratulations on a very good set of numbers. My question is, is it possible on the B2B business to get some kind of flavor in terms of the volume growth versus value growth because we've seen quite a bit of value growth there and we have the CPCBIV transition, is it possible to understand how much was this due to price increases of the new products versus the volume growth and whether there was a volume growth in underlying business, that will be very helpful?
Just give us a moment.
This is Rahul. So what's actually been happening is at an overall level, we are seeing not just value, but also significant volume growth. And if I compare versus the base of FY '22, which is where we started the 2X-3Y journey, the volume growth versus that year is about 25%.
Okay. And this is as a basket for the whole B2B or does this mostly have no mistake?
For B2B helpful.
Okay. So this will include some -- will it include the international business growth as well? Or it will be largely the domestic growth, or B2B.
This was B2B.
Okay. And sir, is it possible to have any chance to get the number for this year? Because there was the sense that because of the price increase, the volume may not have come. So the consumers are probably buying the higher value-added nonpolluting products, but maybe volume wouldn't have come. But given the strength in the underlying businesses that we cater to, I mean, real estate and infrastructure, I was wondering whether the demand in volume terms also remains strong?
Yes. So our CPCBIV shipments continue to be at about 20% and lower levels. So the price increase that we were initially advertising as per the regulations, that didn't really come through in the last financial year because of the change in the norm, the soft postponement that ended up happening. So which is why it is still fairly apples-to-apples at this point. In this coming financial year is when we are likely to see full impact of the price increase after June, which is where the CPCBIV+ norms will kick in with full effect.
Okay, sir. So can I say in the context that no major price increase has resulted in a good volume growth? And in that context, is it possible to give us some sense what happens after the June thing?
So if I look at versus last year, we had at an overall level or, I would say, 10% volume increase. And the price increase after June would -- I mean, while it will vary by node, it would be at a weighted average about 35% to 40%, which is due to the enhanced scope of the after-treatment systems and the electronics that are going into the engine for power generation.
The next question is from the line of Ashutosh Garud from Ambit GPC PMS.
Congratulations for a good set of numbers. I just wanted an outlook on the margins going ahead given that we have clocked 17% to 18% kind of EBITDA margins in the last 3 to 4 quarters? That is one. And second, I wanted some color on the debt on the balance sheet? How do you think the debt will look like, let's say, 1 year down the line? And what kind of interest costs are you building in going ahead?
So I'll answer your second question first, and then I'll just hand it over to Rahul and Aseem to comment on the margins going forward in their businesses. So just on the debt side -- sorry, can you hear me? Yes. So on the debt side, we expect to maintain just the same because we have a strong cash position currently. So we don't envisage that the debt levels would go up. Go ahead, Rahul.
So on the B2B side, our current EBITDA levels are up at about 14%. And we will look for opportunities to enhance that, but I wouldn't give any guidance at this point.
Okay. No, I didn't get your answer for the debt level, ma'am, if you can just repeat it.
Yes. So currently, we are having a debt of around INR 200 crores in the books. And we expect to maintain the same debt level. We do not expect to increase it as we have same cash in the balance sheet.
Yes. On the B2C side, our EBITDA level is now around 6.6%. And going forward, this will slightly go up.
The next question is from the line of Mahesh Bendre from LIC Mutual Fund.
Ma'am, you just mentioned about the natural gas gensets, and we already sold quite some volume in this quarter. So I mean, how is the product compared to traditional diesel engine in terms of performance and pricing?
This is Rahul. You can hear me, right?
Yes, yes. I can hear you.
So if you look at our natural gas portfolio, we are actually getting our entire portfolio certified for the latest emission norm that is CPCBIV+. In fact, most of it is already certified. Now if I look at -- if I compare it versus diesel, these gensets can -- these natural gas-based gensets can only go where the natural gas availability is there.
If I look at advantages versus diesel, while the emission norm compliance is the same, it will comply with CPCBIV. But natural gas is a cleaner and a more sustainable fuel source. Also, what ends up happening is the after treatment systems required to clean the emissions. They are simpler. So there is some amount of derating that happens at a platform level when we move towards natural gas. But at a product level, if you compare the pricing of diesel and natural gas, there would be, for equivalent appear 30% to 40% price variation where natural gas is more expensive. But if you look at overall cost of ownerships, then natural gas gens tend to be the better alternative.
Okay. Sure. And sir, a lot of investments are going in data centers now. So have we introduced a product in that category? And what is the prospects in that segment?
Right. So absolutely data center is one of the key segments that we are focused on. In fact, we have refined some of our platforms, such as the K4300 and we have got the BCCC rating for some of our platforms also and we will be -- so we are also, in particular, executing some orders with data centers.
Sure. And last question, what is the CapEx plan for the current year and next year?
Just give us a moment. So if you look at our CapEx plans for the current year, it's at about 1.5 to 2x what we did last year.
Okay. And so what could be that absolute number, ma'am?
It's approximately INR 400 crores.
Okay. And this is the for expansion of the facilities?
For some capacity enhancement and also investing on -- along the lines of the technology tracks that we have defined on the R&D side.
[Operator Instructions] The next question is from the line of Teena Virmani from Motilal Oswal Financial Services.
Congrats for a good set of numbers. Just wanted to get some sense on the demand scenario in the current quarter, quarter 1 of FY '25 as to how is the inventory status of CPCBII now? And how is the traction coming in along for CPCBIV, even prior to the implementation from the month of July? So how do you see quarter 1 of this fiscal panning out in terms of PowerGen demand?
So Teena, this is Rahul. What we see at the moment is demand for CPCBII continues to be fairly strong. We continue to fulfill our obligations to our customers as far as executing orders are concerned. What we expect is through this quarter CPCBIV+ will pick up slowly, but I think it's really when this quarter ends is where the switch over to CPCBIV will happen.
So how is the inventory status of CPCBII, is there any -- is there enough inventory of CPCBII to last till June in the system? Numbers for KOEL, but generally for the industry.
Yes. So I mean, you are right from -- by asking that question because the part in many cases are quite different. But from our standpoint, we planned the inventory ahead. There's no problem.
Okay. So you expect the demand for CPCBII to remain till June and there is sufficient inventory to cater to that demand?
Correct.
And then if you start shifting towards CPCBIV?
Yes, then there is it.
Okay. My second question is related to the other expenses, which are down in the current quarter. So is it more to do with the performance of B2C division where we are seeing some kind of improvement in the margin for B2C and that's the reason other expenses are down or any specific reason is there for lower other expenses?
Teena, can you just be a little bit more specific, what number are you referring to coming down?
Yes. So in the quarter 4 of FY '24 for stand-alone business, when we see overall other expenses as a percentage of sales, it is down to around 14.7%. And when we compare the same number for 4Q of FY '23, this number is 15.4%. So even though absolute amount would have increased, but as a percentage of sales?
So Teena, that's just fixed cost leverage that you're seeing because of the increase in volumes and sales.
Okay. Okay. So what is a sustainable number going forward with this level of nearly 14.7% or so, is the -- it looks to be the sustainable number going forward as volumes improve?
Yes, it should be.
Okay. Got it. If I may ask 1 last question, and then I'll join the queue again. My another question is related to exports. You've seen a very good traction in export numbers in the current quarter and even for the full year. So what's the strategy to increase exports from the current levels. Because as per your strategy plan, your target is still higher on the export front. But how do you plan to take it to those -- or how do you plan to grow export numbers further from the current levels in terms of geographies, in terms of nodes? Or is it something that you're targeting something inorganic to meet the current targets which are given in the strategy plan?
Teena, this is Rahul. See, on the international side, it's -- we are looking at developing the market. So it's not just exports. It's actually international business for us because we have to generate the leads and orders and things like that. So we are evaluating each of the geographies very carefully. You may have seen in some of the messages we've given out, the Middle East and the U.S. are key markets that we're focused on. So on the power generation side, we have GOEMs appointed in both these markets, which is something that we have not traditionally done, and we are operating via GOEM model now.
So -- and along with that, we are also taking a hard look at what is the structure required for those respective geographies to build for us. So if you were to ask me what are the focus areas? The focus areas at this moment are Middle East and the U.S. We're being extremely purposeful. So which is why I won't give anything away. It's proprietary at this point, but international business is important, and you are seeing the focus translate to numbers in the last quarter.
Got it. Got it. So would there be any kind of elongated growth also would you be tableting to meet the targets given in strategy?
So we are evaluating all options, whether it's organic or looking at inorganic growth opportunities, either for market access or for certain technologies, we are evaluating all options.
The next question is from the line of Ashwini from Emkay Global Financial Services Limited.
Congratulations for great performance. My first question is on the Industrial business. If you see the performance has been very strong during the quarter, was there any one-off large order during the quarter in the Industrial business? That's what I wanted to check. What is the outlook that you gave going ahead?
Yes. So while I wouldn't give any guidance on the Industrial side, but what I can say is the Industrial business wasn't one large order. In fact, if you track the performance quarter-on-quarter, the Industrial business has grown fairly consistently. Of course, Q4 was relatively large for us, but the industrial business has grown pretty consistently. So we engage very closely with our OEMs. We want to make our OEM successful, and we intend to grow with them.
Okay. Secondly, any feedback you would like to share with us on the Optiprime cities of gensets, which you launched some time back?
So in general, we've got good feedback from our customers. Optiprime is a novel product in the market. And there is a clear positioning for it. I think there are clear advantages for our customers. And so these customers are also acknowledging that, which is why we've been able to sell 4, 2,000 KVAs in the last quarter. I mean at that range of genset, customers won't take a chance unless and until they are completely convinced. So I think the Optiprime is a new product in the market. We're quite excited about it, and we're hoping that we can build further on the product in the months to come.
So this is -- just to clarify, this is lost only in domestic market or we're looking for export market also for this?
So one of the orders that we fulfilled in the last quarter was for international markets.
[Operator Instructions] The next question is from the line of Sagar Gandhi from Invesco Mutual Fund.
My first question is on your thoughts on 3 things. First is volume growth once CPCBIV kicks in? Second is, how do you see realizations different for CPCBIV versus CPCBII? And third is given the experience of CPCBI versus II 10 years ago, we saw realizations dropping significantly when this transition happened or I mean when this realization kicks in? So how do you see this realization decline from 4 to 2 over the next 2 years?
Thanks for that question. So this is Rahul. So if you look at volume growth, when I look at the industry, as we transition to CPCBIV full time, we expect the volumes to be at a somewhat similar level, the kind of volume growth overall that's happening in the industry. I think in the short term, those volumes may remain flat for this year, and that's what we anticipate. But what will also happen is that a lot of -- there will be -- there are a few companies that have their portfolios completely certified at this point. So those respective companies may see market share gains. So it's a situation that we'll have to play out for us to actually see what specific impact is there.
But from our business standpoint, we are pretty geared up. I mean we have our portfolio certified, so we are pretty geared for that. Now coming to your next question. If I look at the realization difference between CPCBII and CPCBIV, at this point, we would expect the realization to be somewhat similar. We're not expecting a domestically different realization. But I'd be in a better position to comment once I have been through 1 or 2 cycles because the market forces will pan out, and we will have to watch for it. So it's difficult to comment on that at this point.
Now you spoke about 2014, when the transition from CPCBI to CPCBII had happened. Now that was a slightly different transition because each company had followed a different strategy and a lot of companies continued with mechanical platforms, even in CPCBII. But what is happening in this transition is there is a convergence of technology where most companies are following the same technology part, which is that of whether it's a diesel engine or a fuel-agnostic engine, along with the selective catalytic reduction and a diesel oxidation catalyst. So engine, it's DOC and an SCR. So most companies are following the similar technology there.
Sorry to interrupt you, sir, the line of the current participant seems to have disconnected. May we have the next question? The next question is from the line of Jeetu Panjabi from EM Capital Advisors.
You have great numbers, very satisfying to see this. So 2 questions, can you talk a little bit through the export side, what are the trends you're seeing? What's driving the growth? I know it was part of the plan? And do you kind of think that from here, there will be an acceleration over the next 12 to 18 months. What's the broad thinking there? The second question I had was on Arka. So we've crossed the INR 5,000 crore book size. And just love to hear what's the thinking there? And how do you see things from there going there?
We'll start with -- Rahul, will give you an update on the exports question.
So on the export side, we want to accelerate. We're being purposeful. But I mean, we definitely want to accelerate this business a lot more than what it is today. I can't give out a number at this point, but just in terms of our business contribution we wouldn't want the international business to be closer to go from the current numbers to be closer to about 15% to 20% sooner than later. So that's something that we are focused on.
So just on that, you're seeing the growth trends there are promising at the order book and the discussions are all very positive. Is that fair to assume?
Yes. I mean in the same side. We are exploring multiple avenues, frankly. And while the discussions are positive, but there's still a lot that needs to go in execution to make the sale and the billing, et cetera, happen. The good -- I mean, the opportunity for us is that we have very low market shares outside the country. So even small market share like, for example, a 1% or 1.5% or 2% market share in a large market, for example, like the U.S. or some of these larger international markets they are extremely meaningful from our business standpoint. So we're not looking for -- I mean we're not looking to change the industry at this point internationally, even small steps will go a long way for our business.
And on the Arka side, Jeetu, thanks for your question. So yes, we crossed INR 5,000 crore AUM size. And as stated on prior calls as well, I think the path that the business will follow now is looking towards the external market as well to raise capital and they'll be on that path.
The next question is from the line of Bharat Sheth from Quest Investment.
Congratulations Gauri and the team on good set of numbers. Gauri, we had a plan to enter in the U.S. market to grow that. So can you give some color on our journey to enter in U.S. market? And what -- how do we see that market in the next 5 years?
Yes, sure. So if you look at what's happening globally the global power generation market is increasing at about a 4% CAGR. There are 3 key markets: the U.S. China and India. These will be the large players, and I'm talking about 5 years out, the next 4 to 5 years, this is what is likely to happen. So U.S. is amongst the biggest power generation markets in the world today. The U.S. and China make up a large chunk of the genset market. When we evaluated multiple modes of entry, we realize that having a local partner who is vetted with us makes more sense. And if we can use a local brand that makes more sense versus going with our own brand, which is why we invested in a company called Engines LPG LLC that has the brand name of Wildcat.
Now Wildcat is a local American-made genset company, and the brand positioning is that it's made in the U.S. And we want to leverage that positioning and we're working very closely with Wildcat to make wildcat successful. So our mode of entry for the U.S. market is alongside Wildcat, and we're working towards that. The U.S. market poses tremendous opportunities. I mean if you look at the overall market size, it's about, I mean, I would say, roughly $3 billion to $4 billion. And right now, the Wildcat business is very small, but I'm pretty confident that we can make our strategic moves and even small market share gains will be very meaningful for us.
Yes. And Gauri, now second thing, you said that we are making huge investment next year also particularly to develop a new product in R&D. So can you give some color to what are the white spaces on today and where this kind of investment is required? And how that will take our company over the next few years?
Sure. So if you look at some of the communication that we've done in the past calls, we have talked about the changing landscape in our -- in the energy transition that's taking place, and we have defined 4 technology tracks that we will be focusing on going forward. So I'll just ask Rahul now to articulate those 4 technology tracks because this is the path along which we are making these investments so that over the next, say, medium term, we're ready with the kind of products that we expect our customers would want in their decarbonization journey.
Thanks, Gauri. So Bharat, if you look at the 4 technology tracks that we have defined for ourselves, the first track is fuel-agnostic internal combustion technologies. Now our focus there is to build whatever products that our customers want as per the fuel that becomes available. So if natural gas is a fuel that's becoming available, we will build a portfolio of products that work on natural gas. So that's number one.
And similarly, for example, if you look at hydrogen or there are different fuel types, and we're working on all of those things. And it's all internally developed. If you look at our second track, we are looking at energy solutions, which include the likes of microgrids. So setting up microgrids, which include synchronization across different energy sources. If you look at solar and genset, battery energy solar systems. So we believe that there is a significant delay that we can make there. And so that's our second technology track.
The third track is around electrification. We have been making our moves there as well. So we have different kind of motors available now, mostly on the single phase and partly on the three-phase side also, we want to expand that portfolio and get into specialty motors. And our fourth track is around electlizers and fuel cells. So that's an area of development as well. I can't give out too much right now as proprietary but these are the 4 tracks that we are working on. And most of the capital allocation is happening along these 4 tracks, either to create capacities or in core R&D.
Okay. Great. I mean can keep one more question?
Yes, sir. Please go ahead.
If you can give also now color our user industry, how if you can give you a number of or tracking order, which are growing much faster and how much our product is there? And do we have any white space in that industry?
Sorry, in which industry are you talking about?
Our user industry, like the data center, tower, right from an online industrial and then marine side also?
Okay. So specific white spaces that we see within these.
Which is growing much faster and do we have any kind of a white space in...
Sure, sure, So I'll give a few examples, and then you can feel free to ask me further questions. So I'll give an example of Railway segment. So we did our highest-ever business in Railway segment this last year and Railway is growing. Now within Railways, we are dominant in the power car application. But there are white spaces in, for example, track machine, OHE car, Tower Wagons. So there are other applications where we are not present today in a meaningful way where we have opportunities. So the white spaces very much exist.
Now if I look at, say, on the construction side, we are engaged with a lot of industrial OEMs. But we are still not present in certain applications like the 20-ton excavator. Similarly, if you look at mining, we are present in mining to the low hold stump trucks in some markets outside India. But on the mining side, we are not present in India. So I would say each of these are growing segments.
And similarly, if you look at the data centers or look at on, I would say, fishery, the marine. These are all opportunities. We have to focus our product development on the opportunities that we see come into fruition quickly and are also meaningful. So white spaces definitely exist.
Rahul, I mean, to answer that question, what kind of opportunities are there? And how do we...
Sorry to Interrupt you, sir. I request you to come back for a follow-up question. The next question is from the line of Salil Desai from Marcellus Investment Managers.
No, I was a little curious to understand. You mentioned that 20% of your genset sales are in the CPCBIV+ category. So what kind of customers who are today buying CPCBIV when there is no pressing need for them to do so?
Yes. So see, if you look at the way the regulation -- or the regulation that has come in, the end customers or their suppliers whoever had given us orders by June of last year, end of June of last year, are the orders that we are executing right now. So in a sense, this is all our already existing order board. The ones who had not, we are fulfilling CPCBIV orders.
I see. Okay. All right. So more recent orders are likely to be?
Yes, correct. So the more recent orders are likely to be CPCBIV. The regulation was designed. So the postponement of the soft postponement, the way it happened, if you read the verbatim, what it says is that we had to ensure that we have end customer orders or orders of their suppliers in our books by the end of June, and that has been submitted to the ministry. Now orders that have come in after that, we are fulfilling CPCBIV orders.
All right. And given the typical production life cycle, should it be over by now? I mean, I'm not sure why we have to wait till June for selling only CPCBIV because you wouldn't take really 9, 10, or 12 months to deliver a product, right? So in that sense, all new sales from, say, 1st of April onwards should ideally be all CPCBIV. Am I missing something? Or is there a nuance on this, too?
Well, there's -- in a sense that the nuance is that till that time, so I mean, end customer orders or orders of their suppliers. So till the time, there is a way that customers can get access to CPCBII genset, they will try for that, which is why a lot of CPCBII demand continues to exist. But from, I mean, strategically, the way we are planning our operations, we are planning to wind down our CPCBII supplies through this quarter because we also need to ramp up on the CPCBIV side.
Understood, right. And just one more clarification. You mentioned that next year, you may see volumes being flat, but because you are in a position that the product is certified, but could be market share gains. Is that -- did I hear that right? I understand it right?
Yes.
The next question is from the line of Mayank Chaturvedi from HSBC Mutual Fund.
Just a clarification on my end. Did you some ways so that you expect the realization of CPCBIV to be similar to CPCBII is earlier? I have that...
Mayank, sorry, your voice is very slurred. So not sure why? Can you come close to mike?
Just one clarification from my end. Somewhere I hope that you expect the realization of CPCBIV+ to be similar to CPCBII. So can you elaborate? Because I think earlier, you were expecting a 35%, 40% price hike between, I mean, depending on the various notes. So if you can elaborate on that?
Yes. So the price realization you're right, is 35% to 40% on average, depending on the node where we were -- when we were talking about it being the same, we meant on the margin side.
Ladies and gentlemen, we'll take this as a last question. I would now like to hand the conference over to Mr. Dhirendra Tiwari for the further comments. Please go ahead.
Thank you very much and...
Sorry to interrupt you, sir. There is a lot of background noise from your end.
We're okay to take the last 2 questions. Yes, we can hear the last 2 questions.
Yes, you can do these 2 and then we can close this.
The next follow-up question is from the line of Sagar Gandhi from Invesco Mutual Fund.
Yes, I'm sorry, I dropped off during my last question. So I didn't hear your thoughts on realization drop once the competition kicks in after the CPCBIV launch. So if you can throw some light there?
So Sagar, just in the interest of time, we did answer the question. Unfortunately, you had dropped off. So may I please request that you read the call transcript. And if you have any further questions, you're free to e-mail us.
Sure, sir. So I have one more further question and that is related to Kirloskar end usage contention that we've been doing and contention on the similar businesses within group companies, especially related to the Farm business. Can you give clarification for these 2 points?
Yes. So unfortunately, I won't be able to comment on those issues because they're all subsidies in the call.
Okay. And my last question is on import content on CPCBIV versus CPCBII?
Yes. So our import content on CPCBIV is roughly around 9% to 10% versus if you look at CPCBII, our import content was around 3%.
3%. CPCBII was 3%?
That's correct.
Our next question is from the line of Mohit Pandey from Macquarie Capital.
My first question is just a follow-up. So when you're down the line, is there scope for this import content to go down further? And in that sense, is it there proper margin expansion? That's the first question.
The way I would request that we think about this is, we would look for the most reliable and cost-effective suppliers irrespective, honestly, where they are in the world. Now in case the expertise lies in India, we will digitize the supply. But in case the expertise lies elsewhere, we want to make sure that we're working with the best suppliers that we can work with.
Okay, sir. Very clear. And secondly, on the data center offerings, just wanted to understand if you are planning to invest in further new products for that market? Or you think current offerings are sufficient to gain market share in that particular segment?
We will continue to invest in a product roadmap that caters specifically to data center.
Okay, sir. And last -- just last question. So in the initial remarks, I think you mentioned that with the CPCBIV products gaining traction, that opens up for revenue on the export side. So just wanted to understand. So without a regulatory push similar to what is there in India, do you think there will be absorption of the higher prices in the export market or the high priced product typically for CPCBIV+?
Sure. So each region has their own version of CPCB. So there are certain norms that exist in many regions. So for example, if you look at CPCBIV+ in India, that's very similar to U.S. EPA Tier 4 Final, very close to euro Stage 5, pretty close to euro Stage 5. So there is some version of regulations around emissions that exist in many regions. The comment that we had made earlier around with these emission changes happening in India, opportunities open up for us was primarily around getting our product certified in India, but also getting the technology to ensure that we can introduce products outside of India because genset outside India, especially more mature markets, will operate with an after-treatment system for instance. Today, we have after-treatment systems and we have the dexterity to plan our products with after-treatment systems. So the opportunity is definitely larger today than what it used to be.
Ladies and gentlemen, we'll take this as the last question. I would now like to hand the conference over to Mr. Amit Shah closing -- sorry for Mr. Dhirendra Tiwari for closing comments.
Yes, very much. I think you're shifting names, nonetheless. Thank you, Gauri, Rahul and Aseem for giving us this opportunity to host the call and looking forward to continue hosting you. All the best for future. Thank you very much, and we will conclude this call now.
Thank you very much to Chorus Call and Antique Stock Broking for hosting us, and thank you for the interest in the company from all of the participants and your continued support. See you next time. .
Thank you.
On behalf of Antique Stock Broking, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.