Kirloskar Pneumatic Company Ltd
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Kirloskar Pneumatic Company Ltd
Earnings Call Analysis
Q2-2025 Analysis
Kirloskar Pneumatic Company Ltd
Kirloskar Pneumatic Company Limited (KPCL) has reported robust performance in the first half of fiscal year 2025 (H1 FY '25), with sales skyrocketing to INR 706 crores, marking a 35% increase from INR 524 crores in H1 FY '24. This impressive growth trajectory continued into Q2, where sales reached INR 431 crores, up 56% from INR 275 crores in Q1 FY '25 and a notable increase from INR 282 crores in Q2 FY '24. The performance largely stemmed from heightened domestic market demand.
The company experienced a significant enhancement in gross margins, increasing by 300 basis points due to an improved product mix and execution of higher-margin projects. For H1 FY '25, material costs improved to 50.2% of sales, down from 52.8% in H1 FY '24. KPCL expects material cost levels to stabilize, which will positively influence margins moving forward.
KPCL's earnings before interest, tax, depreciation, and amortization (EBITDA) surged to 20% in H1 FY '25 compared to 12.7% in the previous year. Similarly, the profit before tax (PBT) rose dramatically to INR 128 crores in H1 FY '25 from INR 50 crores in H1 FY '24. The profit after tax (PAT) experienced a significant jump, reaching INR 94 crores in H1 FY '25 against INR 38 crores in H1 FY '24.
Robust order booking of INR 1,033 crores in H1 FY '25 signals strong demand and an order book totaling INR 1,780 crores as of 1st October 2024, up over 23% from INR 1,450 crores in the previous year. The company expects to achieve at least 20% growth for the full fiscal year driven by this strong backlog and promising inquiry pipeline.
KPCL has strengthened its manufacturing capabilities, especially in-house, which enhances its competitive positioning. The company has also announced a strategic acquisition of a 55.26% stake in Systems and Components India, which expands its footprint in refrigeration packages and bolsters access to the fast-growing pharmaceutical and food sectors. The management sees this as a pathway to facilitate sustained growth, aiming for an aspirational revenue target of over INR 2,000 crores next year.
While expectations for the full year project EBITDA margins at approximately 20% to 21% for the compression segment, the management cautioned that normalization following the high margin quarter might impact overall profitability moving forward. The guidance maintains an overall company margin expectation between 18% and 20%. The management advised investors to remain cautious about current momentum given the anticipated seasonal variations.
Despite slight slowdowns in certain segments, KPCL has identified growth opportunities in specialized sectors, including natural gas and food industries. The company's commitment to sustaining robust manufacturing levels in India through localized supply chains will further support its growth initiatives. The acquisition of a stake in a seasoned supplier reinforces this strategy as well.
As the company navigates fiscal challenges and opportunities, it reaffirmed its prospects to deliver stable growth and a positive outlook. The management concluded the call with Diwali greetings, expressing hope for a year of predictability and progress as they advance with their strategic plans.
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Ladies and gentlemen, good day, and welcome to the Kirloskar Pneumatic Company Limited Q2 FY '25 Earnings Conference Call hosted by Antique Stockbroking. [Operator Instructions] Please note that this conference is being recorded. I will now hand the conference over to your host, Mr. Amit Shah from Antique Stock Broking. Please go ahead, sir.
Yes. Thank you, Ryan. Good afternoon, everyone. On behalf of Antique Stock Broking Limited, I welcome you all to 2Q FY '25 Earnings Conference Call of Kirloskar Pneumatic Company Limited.
To discuss the results, we have the senior management team of Kirloskar Pneumatic represented by Mr. K. Srinivasan, Managing Director of the company; and Mr. Ramesh Birajdar, Chief Financial Officer of the company.
I'll hand over the call to Mr. K. Srinivasan for his opening remarks, post which we can open the floor for Q&A. Over to you, sir.
Yes. Thanks, Amit. Good evening to all of you. Let me start by wishing you all in advance a very happy and joyous Diwali. May the festival of light bring us all peace, prosperity and progress.
Before we start, let me ask my colleague, Jitendra Shah, Company Secretary, to read out the disclaimer, and then we will go into the call. Jitendra?
Thank you, sir. First of all, I wish you happy Diwali to all. The presentation uploaded on the website of the company, and discussion on the financial results during the earnings call may contain statements relating to future business developments and economic performance that could constitute forward-looking statements. While these forward-looking statements represent the company's judgments and future expectations, a number of factors could cause actual developments and results to differ materially from expectations. The company undertakes no obligation to publicly revise any forward-looking statements to reflect future events or circumstances.
Further, investors are requested to exercise their own judgment in assessing various risks associated with the company and also the effectiveness of the measures which taken by the company in tackling them as indicated during the discussions. Thank you very much.
Thanks, Jitendra. So once again, good evening to all of you. Thanks for joining our call. We had a very good quarter for good on all fronts, order booking, sales, collection and making the H1 an overall a good half year. Sales in H1 was at INR 706 crores as against INR 524 crores of the previous year, a growth of 35%. Most of the growth came from domestic market. Export sales at INR 43 crores was better than the previous year's INR 38 crores but it's nothing very significant.
Order booking was strong, and this leaves us with an order book of INR 1,780 crores as on 1st October. This is compared to the INR 1,450 crores on 1st October '23 is an increase of over 23%, and that bodes well for our next half year and going forward. The inquiry pipeline, too, is good, and we expect to have a continuing growth.
In H1, we had over 20 IP filings. This for us is a very important enabler to continue on our growth journey. The order intake for the newer products, Tezcatlipoca centrifugal compressors, Calana booster compressors, Aria frugal engineered compressors, Jarilo biogas compressor and Khione refrigeration compressors, all picked up, and this bodes well for the growing -- continuing growth of the company.
Building in-house manufacturing capabilities has been a part of our ongoing theme to build sustainable competitive advantage. Our Nashik plant is being further developed for this purpose, and we will continue to invest in this going forward. The company signed a share purchase agreement to acquire 55.26% stake in M/S Systems and Components India Private Limited. Systems and Components are a reputed supplier of refrigeration packages to the pharma, chemical, food sector for over 30 years. They have over 700 successful installations across the country, and this acquisition would help us to access this fast-growing industry segment with our newer products.
The net working capital of the company was at INR 325 crores, while this is higher than the net working capital we had as of 31st March, it also reflects the enhanced activity levels across businesses, mainly on account of inventory. The usual challenges in terms of inspections, site readiness, et cetera, continue to play predictable sales, but this is nothing which is different from our normal course of business. CapEx spending and CapEx commitment in H1 was INR 24 crores and INR 86 crores, respectively. The fresh cash generation from the operations in H1 was INR 55 crores.
Let's now look at the results product group-wise. The air compressor business had pockets of heightened activity, particularly in the areas of construction and in the areas of pharma and metal. Consequently, portable compressors and the centrifugal compressors had a larger growth. This meant the new products like KRAMIS and Tezcatlipoca had enhanced traction. Sales of reciprocating compressor packages to various applications like the air separation plants, carbon dioxide plant, LPG plant, et cetera, continue to do well.
The refrigeration compressor business, this segment saw heightened activity, particularly with major packages getting shipped to refinery, fertilizer, ammonia terminals, et cetera. There was also a strong demand for compressors going into cold chain, ice plants, dairy industry. Sale of Khione refrigeration packages too picked up.
The challenges that we had on receiving compressors from Europe on time abated a bit, and this hopefully would give us strong performance in the next 2 quarters as well. With continuing strong order inflow in this segment, we expect this segment to continue to grow even during the next years.
Process gas compression systems. Execution of packages for the oil and gas projects in India was to plan. Sale of CNG packages and Calana booster packages picked up, and we expect this to stay strong even for the rest of the year. We started shipping the biogas packages with the new Jarilo range of compressors. With significant inquiry and order pipeline, we expect this space to materially contribute to the top line next year. Export sales are still coming in a trickle, and we expect to remain -- and this is expected to remain muted even in the current year and maybe even in the first half of next year. Overall, export for the year will be marginally over INR 100 crores as compared to the INR 69 crores of the previous year.
Tie-up with PDC Inc. USA in offering comprehensive compressors for hydrogen and other difficult to handle gases has helped us to win package orders for special applications. We expect significant order intake in this space in the next couple of quarters. The O&M service business continues to grow with the installed base growing, and this will continue to add to our regular business.
Outlook for H2 F '25. The industrial activity in India has slowed down a bit with three consecutive months of lower PMI. However, there are pockets of heightened activities, be it in natural gas space, food, dairy space or in special projects. We continue to offer and finalize orders from these customers. The trust to enhance manufacturing in India as a part of the government job creation initiatives will ensure that capital goods sector continues to grow in an accelerated manner even during the rest of the year.
At KPCL, the strong focus on in-house manufacturing, IP creation and localized supply chain will help us not only in achieving the quickest response to customer needs as well as to be more competitive based on our cost position. We will -- this will help us both in our top line growth and in margins. With strong order book to back, we expect to deliver on the planned double-digit growth for the year and progress on our aspirational target of INR 2,000 crores plus for the next year.
Now I'm going to request Ramesh Birajdar, CFO, to take us through the financial numbers. Ramesh, can you?
Yes. Thank you. Good evening, everyone. I trust you had the opportunity to review the results we promptly posted on the BSE and NSE website following the conclusion of the Board meeting. Additionally, we have uploaded a presentation on the financial results on our company's website. However, for the benefit of those who may not have had the chance to review the results, let me now provide a summary of our Q2 and H1 performance for FY '25.
Sales of Q2 FY '25 were higher compared to Q1 sales of current year as well as Q2 sales of FY '24. Sales at INR 431 crores, it registered a growth of about 56% compared to Q1 of INR 275 crores and compared to Q2 FY '24 sales of INR 282 crores. The H1 FY '25 sales were higher at INR 706 crores compared to INR 524 crores in H1 FY '24, so there was an increase by 35% in sales H1 year-on-year.
Other income for Q2 FY '25 was INR 6.17 crores, which is higher than INR 4.15 crores in Q2 FY '24 with other income for H1 FY '25 remains same compared to H1 FY '24.
Material cost for Q2 FY '25 was at 51% compared to 54.1% in the corresponding quarter of the previous year. For H1 FY '25, material cost improved to 50.2% against 52.8% of H1 FY '24. This is due to better product mix, package sales in Q2 FY '25. The equal split between projects and the products orders continue to remain reduction in the material costs, we expect material costs to remain in this level.
Employee-related expenses remained consistent in Q2 for both years. During the year, deserving employees were granted general increments and promotions aligned with the prevailing industry trend. As a result, H1 cost for FY '25 stands at INR 87 crores compared to INR 86 crores in the corresponding period of FY '24. In addition, ERE for Q2 FY '24, that is last year includes a onetime settlement cost impact of approximately INR 4 crores paid to resolve a pending labor dispute related to termination of 117 employees.
There is no interest cost relating to any borrowing either for Q2 or H1 as the company is debt-free company.
I would like to state that company has net cash and cash equivalent position of INR 253 crores as on 1st October '24. During H1 FY '25, the company incurred a CapEx of approximately INR 24 crores and paid a dividend of INR 26 crores.
Depreciation is lower than the previous year due to discontinuation of rotor business.
Other expenses are mix of fixed and variable. There is no significant variation in level of expenditure during the current quarter compared to previous quarter, except the power and fuel cost impacting due to the fuel adjustment charge by the State Electricity Board and increasing operation at Nashik forging and fabrication business.
The EBITDA increased to 22.8% in Q2, which is up from 15.6% in Q1 FY '25. For H1 FY '25, EBITDA also rose to 20% compared to 12.7% in H1 FY '24.
The PBT of INR 92 crores, that is 21% for Q2 FY '25 showed improvement over Q2 FY '24 of PBT of INR 27 crores, which is 9.4% and PBT of INR 128 crores for H1 was higher than PBT of INR 50 crores in H1 FY '24 due to product mix and our continuous efforts to reduce cost of manufacturing.
Consequently, there was a significant increase in profit after tax in both Q2 as well as H1 FY '25 with PAT rising from INR 38 crores in H1 FY '24 to INR 94 crores in H1 FY '25.
Company issued 68,200 equity shares in H1 under its stock option -- employee stock option program previous year, INR 4,200 equity shares. Consequently, paid-up share capital increased to INR 12.97 crores compared to INR 12.95 crores as at the beginning of the year.
Basic EPS improved to INR 14.57 per share for H1 FY '25 against INR 5.89 per share in H1 FY '24. With over 94% of revenues coming from the Compression segment, it remains the only reportable segment. The segment profitability in Q2 improved to 25.59% compared to 19.9% of Q1. And similarly, segment profitability for H1 FY '25 also improved to 23.1% as against 17.3% of H1 FY '24.
Order booking during Q2 close to INR 890 crores, taking H1 order booking of INR 1,033 crores. As a result, the company has an order book of over INR 1,780 crores as on 1st October '24, previous year, INR 1,450 crores on 1st October '23. Capital employed in the Compression segment rose by INR 55 crores, reaching to INR 352 crores at the end of H1 FY '25 compared to INR 297 crores at the start of the year. This has increased attributed to the expansion of the business activities in this segment. We have regrouped the finances where it is necessary.
Before I conclude, I would like to extend my warm greetings to all participants for the upcoming festive season of Diwali. Now this forum is open for discussion with our esteemed investors. Over to Amit Ji.
[Operator Instructions] Our first question comes from the line of Mahesh Bendre from LIC Mutual Fund.
Sir, in the first half, the performance has been very strong. So when we look at the H2, how do you see -- I mean, given the current order book and strong order intake, is the growth momentum will remain in this kind of growth rate for the next 2 quarters?
See, in the first 6 months, we have delivered a growth of about 35% over the previous year, but you must also understand H1 of last year was not a very great half year. The second half of last year was reasonably good. So keeping that in mind, we still feel that we will deliver, as we promised, 20% plus growth for the full year.
And sir, in terms of order intake, do you think what happened in the last 6 months compared to that, do you think there will be some momentum in terms of booking order inflow?
We are -- like I said, there are several segments where there is definitely a slowdown. But having said it, we have not been so far impacted because the business that we do in areas that are very specific to our products are still doing well. So we don't expect any slowdown per se. We'll continue to grow as planned, which is what we have said as our estimation for next year as well. We'll continue to deliver double-digit growth, strong double-digit growth going forward.
The next question comes from the line of Mihir Manohar from Carnelian Asset Management.
Congratulations on great set of numbers. I wanted to understand on the gross margin side, gross margins in the quarter have gone up by 300 basis points. So if you can explain what has led to this improvement in gross margin? I mean product mix to understand that. Second one on the booking side in order booking also this quarter.
I'm sorry to interrupt you, Mihir. Your audio is not coming in clear. Could you please...
Is it audible now?
Yes, this is a bit better.
So I wanted to understand on the gross margin side. The gross margins have gone up by 300 basis points. So what has led to this improvement? I mean what kind of friction is because of the product mix? And how should we see the gross margins and EBITDA margins for next year because of normalization happens, then EBITDA margins will once again cool off. So that was the first thing.
The second thing on the booking side, I mean, order booking of INR 600 crores this quarter, very strong performance over there. So just wanted to understand what has driven this order booking growth. You mentioned Calana and biogas. If you can quantify how much was biogas contribution and how much was the Calana, and your compressor contribution this quarter? And what was this number last quarter, that will be helpful.
So I will answer the second part first and then request Ramesh to answer the first part in terms of margins.
As far as the growth is concerned, our order booking has been pretty much secular, very much in the line with what we normally say of air compressors being about 20 refrigeration about 30, 35 and gas about 40, except in this quarter and also a little bit in the last H1 itself, the growth in the refrigeration space has been far higher than what we normally get. We do expect that will moderate in the second half. So that is only a few quarters' number. But overall, it has been pretty much in line with what we normally get. So that is as far as the sales is concerned.
Margins, I'll request Ramesh to answer it.
I hope if you can remember that we are telling the people that we are very selective in choosing the orders. And while selecting the choosing the orders, we are specific to any projects or packages where we specifically in for the higher margin. And during the Q2, we executed the projects which are having a higher margin. And that higher margin is impacted for the Q2. And we are reasonably okay with the subsequent quarter 2 -- quarter 3 and quarter 4, which will be normalized quarter for the quarter 3 and quarter 4. This is the exceptional margin we got in a few packages, and that is resulting into higher margin in this quarter.
So there are two, three components in it. Let me put it this way. There is a product mix. We are getting more equipment. So that's a 50-50 this, say, H1. So that is one advantage. Second is, like Ramesh said, we had a series of good project orders with better margin that went through in this quarter. We expect the whole thing to normalize in the second half. It will not be 23, it will probably come back to a normal of 20-ish. So we don't want to cold water on it, but I think we are in the right direction. There is a help coming in that we do more manufacture in-house now. So there are multiple things that help us to increase margin. We only want to caution that this is something that all came in well. It may not hold for the next 2 quarters, at least not at the same level.
Sure, sir. Sir, just on the margin side, if you can throw some light as to the new order booking has happened. Is it a higher gross.
I don't want to get more granular than that in terms of order booking. We are booking a lot of good orders and with good margin. It is not in anybody's interest to tell exactly where we are booking our bigger orders. Like I said, it is broadly in line with our normal split between air, refrigeration and gas compressors, except that the refrigeration compressor order booking has been far more than the normal. We also expect this to normalize in the next 2 quarters.
And just lastly on the order booking and margin. I'm not asking for a specific number, about the INR 600 crores of order booking, which has happened, the budgeted gross margins behind that, are they higher than what you used to have as a budgeted gross margin, let's say, 2 quarters or 3 quarters now?
The margins, like we said, there is a combination of many things. It's not just only the price at which we book. As we manufacture more in-house, as we take out costs, as we get a better cost in our purchasing, as we get our volumes in place, the margins tend to improve.
So the order booking is one part of it, which is really the market given price. The margins eventually is the difference between what we get as a price and what we build as a cost in all our manufacturing activity and our operations. So there are two things playing here. We are working on one extensively. So that allows us even with a given price to make better margins.
The next question is from the line of Sanjaya Satapathy from Ampersand.
Congratulations on a fantastic set. You have more than enough for last year's slowdown and back to that 20%...
Sanjaya, sorry to interrupt you there. Your audio is not clear.
Is it better now?
Go ahead, Sanjaya.
[indiscernible] that given the kind of difference in growth, is there change that has happened between gas and non-gas that is air now.
So Sanjaya, I broadly understand what you're asking. I said that in the 2 quarters, there has been a relatively different split than we traditionally have. There has been more refrigeration-related compressors and compression packages and slightly lower on the gas side. But it is a 1 or 2-quarter result. We expect it to normalize going forward. By and large, the split is not going to change. It will change within the range of that 5% that we talk about. Yes, there was some lesser packages on gas that went out, more packages on the refrigeration that went out, but that will all average out when you look at the full year.
The last thing I just wanted to clarify on this that we know that you have a much bigger market share in gas refrigerators and that is where you have been become more aggressive with your product. So over a period of time, your market mix be shifting towards different...?
You see the general story around gas, what we call as a gas compressor business includes three buckets. There is a natural gas business. There, it is largely the natural gas that is drilled out of India, which is roughly about 20 billion, 23 billion metric tons -- cubic meters -- sorry, 23 billion cubic meters. Then there is an imported component, which largely comes as LNG, which is roughly about 40 billion to 45 billion cubic meters. We see a role of more coming out of how LNG is going to be processed. So that too is our gas business. So we don't see any slowdown in that.
There is a new thing that's coming up, which is the biogas project with our new Jarilo in place, we expect biogas to scale up. And that we know that is going to be an ongoing scale up that will happen. And we probably are the only people who can offer complete package end-to-end, right, from the low pressure and the high pressure.
Then the third area of growth is going to be the hydrogen space. And there, too, we have packages there available.
So we don't see this split between the three businesses changing significantly going forward. There will be a couple of quarters of up and down depending on large packages of one going and other not going. But by and large, we are quite confident that we will stay with this split. This allows us to be more predictable. It allows us to sort of make our business plan better, and will stay with this.
And considering that your order book now is closer -- I mean, so much higher, so your visibility -- has gone up setting aside the quarterly volatility?
Your audio is almost as good as my visibility. In any case, let me answer this. The visibility of having an order is one part, but the execution is largely dependent on these customers clearing the drawings, clearing the engineering, having the site ready, giving our clearance for dispatch, et cetera. So it's only half the story when you have the orders in place, at least it fixes our price and what we have to do. But the quarterly dispatches or the eventual sale has got multiple other variables, which is what I mentioned. The usual challenges of dispatches, site readiness, et cetera, would continue to be a part of our business challenge that we'll handle.
The next question comes from the line of Mayank Chaturvedi from HSBC.
Congratulations on a phenomenal quarter. Sir, on the margin side of things, you've said one of the reasons is the in-house manufacturing that you're doing more and more. So if you can just add a bit more color to it as to what kind of increase have you seen on the in-house manufacturing? And are there more investments going in, in that? And what activities would it be regarding? So that would be my first question.
Okay. As far as manufacturing is concerned, what we have put out is that we are doing most of our fabrication, forging, et cetera in-house. We are looking at doing several more things that we will share as we go forward and commission those operations in full scale. But that is one big dimension. It allows us two things. First is, there is an element of cost saving, but more importantly, it allows us quicker execution of projects. If a project is put through in a shorter period, my other costs start coming down. So that is another help that I get.
So there are two things that is happening out there. And I would like to put some numbers on it a little later when we come to a larger scale, but that is just a contributing thing.
The two or three or other reasons, as Ramesh explained, in getting better margins this quarter has been, one, orders with greater margins, which was actually booked well. Second is we got a better product mix. We had products, like I said, going more towards equipment and less towards projects. And the third one is also an important factor has been that the overall volume growth has allowed us to be more efficient. This is again coming from internal manufacturing as well as other process.
To give you a number on our CapEx, we are going to do about INR 100 crores in the next 12 months. That's the kind of CapEx we are committing for building up capabilities for both in-house manufacturing and packaging.
Great, sir. Great. And just to end the loop on this, are you also witnessing any realization uptick for the equipment that you're selling?
Will you repeat again, please?
Are you witnessing any realization uptick on the equipment that you're selling given that the market is strong in the pocket.
Early. We're not getting any better price from anything. Actually, on the contrary, there is a pressure to put down prices. Like I said, the PMI has gone down 3 months in a row. Of course, this month, I hear is up, but which only means that there's more pressure on the purchasers to put down prices. So prices are not going up.
Okay. Great, sir. And just one other question from my end. We were -- we have been highlighting that the CGD compressors have been slow moving. Clients have been slower to take deliveries. And now there is an APM allocation cut that has come up. So just wanted to get your thoughts on it. Would you see a rather slower rollout going forward, maybe on the mother compressors again, what are your thoughts?
Yes. So there are several people who had asked for this question as well. So my first answer is the natural gas production in India has been declining -- and so this 20% reduction in allocation of natural gas to the CGDs is something that was in the offering. We always expected this to happen.
But if you look at the -- and you must understand that the natural gas given to CGD, which accounts for roughly between 21 to 23 billion cubic meter is only 1/3 of the total gas requirement of the country. And this has been -- allocation is down by about 20%. But this is supplemented by an 18% increase in the same period of LNG imports, and that is 2/3 of the total gas consumption.
So effectively, if you take away 20% of 1/3 and 18% of 2/3, there has actually been a growth in the actual gas that has been consumed in the country. We handle gas. It doesn't matter to us whether it came out of an LNG route or a natural gas drilled in India. So the actual gas consumption in India has only gone up, and this doesn't include any other injection, be it biogas or hydrogen or whatever it is.
So there is a growth in consumption. The split between what is internally produced and what is imported is changing adversely as far as India is concerned. Consequently, the price of natural gas that will be available to the user would probably go up by between INR 4 to INR 5 as I'm told. But that will not make an impact in the supply of compression packages as far as we are concerned. And we are far more flexible than anybody else.
So we will actually see a benefit in these kind of switches because we are locally making, we are able to understand the technologies and modify things to suit whatever way the gas is generated. So it's all an advantage for us as a company. Not for the user, probably end up paying a little more, but that's a part of the economic activities of a country.
Right. No, I think that makes a lot of sense. Probably there will be a switch between the mix between mother compressors and booster compressors. We'll be selling more of booster compressors now that the natural gas rollout will be declining. Is that understanding correct?
Yes. And partly, yes, but see, even LNG can be gasified and put in the same pipeline. And the same pipeline, it still have gas. It doesn't matter, it didn't come from a natural well, but came out of an LNG from a port and then it is gasified and put in the pipeline.
So in a way, the split between mother and daughter station is not going to be a big change because of this. The change is happening primarily because the CGDs are not investing on the pipeline fast enough. So that is the reason why you have more of Calana sales. And for us, Calana, though we get a volume, we are not very happy with it because it doesn't make us money or at least like what we would like to make.
Right. As far as I understand, Calana is 1/3 the price of a mother compressor, right?
That's right.
The next question is from the line of Kunal Sheth with B&K Securities.
My question on CBG has been answered. I just wanted to get some sense on CBG. CBG compressor, sir what would be the size of the market any sense, that you can give?
The PNRGB report is available, which has said clearly, we'll have 18,000 installations till 2027, '28, it will probably go up to even 300, which means that many new stations have to come on an average about 2,000 plus a year. This will continue for at least another 4, 5 years. It could be a mix of mother and daughter stations, and that has not changed at all. That will remain.
Sir, I was referring to the compressed biogas compressor, CBG.
Okay. On the CBG side, the announced intention is 5,000 stations in the next 5 years. Again, like I said, 5,000 will come next 5 years may take longer than 5 years. The initial set of large installations with a lot of fanfare have all not lived up to the technical expectation. Most of the challenge is coming from the bio source and the generation of biogas. The quantums are not in line. The compression is not an issue. Compressions are working. We are in a good wicket there. But so it's all going to take a little time.
See, CBG, unlike other things, is dependent on bio source, and that's not a very stable thing. So that is going to go through a challenge. So it's not going to be very easy. We expect it to scale up next year, but this 5,000 will definitely take more than the announced 5-year time.
But sir, any sense that -- how much -- what is the price of a compressor typically that would be required in a typical CBG plant?
See, the CBG plants come from 5 TPD, 10 TPD, 25 tonnes per -- TPD is tonnes per day. Our packages, we have anything starting from INR 65 lakhs to INR 80 lakhs going up to INR 2.5 crores. So it depends on what is the volume, what is the kind of bio source, how are they going to collect it, how are they going to clean it? Is it going to be wet scrubbing? Is it go through a stem cell. So there's a whole lot of science behind it, and we have a solution for everything. As long as somebody can produce a biogas, we'll compress it and give it to you.
Sure. Sir, and last question, you did mention that the margins is a factor of product mix and therefore, will cool off in the second half. But sir, any sense on what will -- what are we targeting for the full year in terms of margin? Should it be much higher than last year? Last year, we ended up with about 15.3% EBITDA margin. should this year be around 17, 18 or higher?
You can expect a little bit of 20% plus on 15% in that range. But our segment margin, what we indicated earlier also, it is between in the range of 19% to 20%, 21%.
EBIT margin that you're talking about?
Operating margin for the Compression segment, which is in the range of 19% to 21%.
Operating. This is the EBITDA you're talking about, sir?
No, no, operating yes.
See for us EBITDA is the same, because it’s very small. Yes, go ahead.
Yes. So you are referring to, I think, EBIT margin, right? That was 25.
EBIT and EBITDA is almost same for in our case because it is no interest cost.
Okay. Okay. So this number, we are targeting about 20%, 21% for the full year.
Yes, yes.
So like you said, there is a company EBITDA margin, there is a segment margin. Generally, we said that the company's margin will directionally go towards 18%. We stay with it. The segment margin, we said it will be 20-ish. It will probably be higher than that marginally, around that.
We want to be a little careful with margin until it sort of settles down. As you see that we had a good quarter, and we want to ensure that we are able to hold on to some of this. We are also mindful of the slowing down of the activity in some segments, and we have to have the ability to flex prices and pick up orders if need be.
The next question is from the line of Sahil Rohit Sanghvi from Monarch Networth Capital.
Congratulations on a very, very excellent set of numbers. My first question was just to understand what kind of market share do we right now have in the biogas compressors? I mean what kind of competition do we have? I understand you told me that we have the largest range of compressors, probably everything under the possible demand. So I mean, how much of the demand that you told could be possibly falling under pneumatic? I mean, what -- how much can we cater to?
Okay. This is a question that is tough to answer in one session, but I'll give you a rough answer. We have three segments. We have the air compressor business where our market share is as low as 5% to 7%. We have the refrigeration compressor business where our market share in the ammonia reciprocating compressor business, which is for cold chain and ice plant is anywhere between 70% to 85%. We have the package business where we make large refrigeration package with hydrocarbon refrigerants where our market share could be 80% plus. It depends. If you lose one package, then it is 80, if you lose -- we win everything, then we go to 100. So it's only about 6 to 12 packages a year.
Then we have the gas compression business. There, we have large packages. There, again, our market share would be about 50%, 55%. But if you then look at the distribution business, which is really the mother compressors, daughter compressors, et cetera, our market share would be about 35%, 40%. It's a duopoly, but we are about 40 each, 40%, 45% each and the rest is all with smaller companies.
So that's broadly our split. And this is only the market that we currently address. There is a huge market in each of them, which are completely met by imports. And many of our launches are targeting to address this market, which is currently served by imports. That's the way we are looking at it.
And sir, I mean, my question was more of to figure out the market share we have in the biogas compressor segment. I mean would that -- would you have that number separately? I mean.
No, no, no. Biogas is a very, very nascent industry. There will be no real installed numbers and available. So there are a lot of people saying that one of your orders, partly installed, partly not done, et cetera. So there is no market share per se at the moment.
Okay. But the whole order can be sum up to -- can be summing up to roughly [ 50 billion ], that is the opportunity, the market opportunity.
The biogas business, like I said, there is a government intention to have 5,000 biogas compression stations. 5,000 could be anywhere up to INR 5,000 crores, if you're going to put INR 1 crore for a station. That could be the market in the next 5 to 8 years.
Got it, sir. And secondly, sir, in the last con call, you said that there are some order bookings expected for the hydrogen compressors used in electrolyzers. So what kind of have you seen on that front?
We have not received so far an order for a hydrogen compression package. We expect to finalize something during Q3.
The next question is from the line of Ankur Kumar from Alpha Capital.
Congrats for a very good set of numbers. Sir, in terms of execution, if I look at Q2 tends to be lower than Q3 and then Q4 is the best quarter. So given our strong INR 1,780 crores of order book, we expect similar trend as in Q3 would be better than Q2 and then Q4 will be the best?
I'm going to be careful here. See, we expect generally Q3 to be a shorter quarter because we have these Diwali closures, holiday season, et cetera. But overall, generally, we have a lot of dispatches, which doesn't go in Q2, goes in Q3, et cetera. So this time, I expect Q3 to be as good as Q2 around that. That's my expectation. And Q4, as usual, will be a great quarter.
Got it, sir. So in terms of the INR 1,780 crores, can we expect like INR 1,000 crores in second half?
That is giving something which I don't know. We hope to have somewhere -- see, we have potentially orders which are good. But generally, so far, we have not done 1/2 of INR 1,000 crores. So let's see where we get to.
Got it, sir. And sir, in terms of gross margins, it's like 1H is like around 50%, while last year was around 46-odd percent. And historically also, we have been like this only 45%, 46% types of gross margins. So given you talked about improved product mix, and so in terms of this order book, what is the expected gross margin? And would you like to comment on that, please?
Considering the current level of the cost reduction what we are doing, expanding the activity in the Nashik plant, and we are expecting the orders, which is what we expect the margins as per the expectations. But we see that similar type of margin will continue in the coming years or so.
Got it, sir. So in terms of our guidance was INR 2,000 crores and then at that time, 18% margin. So given 1H has been such strong, can we expect this 18% to go to higher to, say, 20% or we expect this to be at 18% only.
No, I think we covered the margin part in the first saying that the segment margin will go 20% to 21%, that is the compression segment. The company margin would be in the range of 18% to 20%. Give it one more quarter, then we'll be more clearer on it. But directionally, we'll get there.
The next question is from the line of Chandrakant Kanakia, an individual investor.
We have grown by 56% in sales. Can you break it down in air compression, refrigeration and the gas part?
We would not like to do that, Chandrakant. And see, this is -- we have done, by and large, good growth in all the three. I wouldn't like to give you an exact split between the three. Like I said, for the first 6 months, the growth in the refrigeration part has been more than the normal thing. But other than that, see, if you get more granular than that, then you actually are giving, let's say, unnecessary focus on business targets for competition.
The next question is from the line of Sriram Kapur from PL Capital.
Congrats on a great set of numbers. I have -- I wanted to focus a little bit on your gas compressor business. So just to understand, and you might have addressed this in previous quarters, I'm just looking for a bit more clarity. But you had mentioned that your 50-50 sort of split between compressors -- gas compressors and gas compression systems, if I'm not mistaken. And you -- on this call mentioned that the segments that you cater to are the natural gas produced domestically, the LNG imports, you've got biogas, hydrogen.
I just want to understand, do you also cater to -- how much of your business caters to your typical upstream, midstream, downstream industries in the refineries and oil drilling for various applications like gas injection systems and gas transportation. How much of your business is actually catered to that? And what kind of -- if you could quantify how that opportunity is growing with all this kind of refinery and petrochemical CapEx coming up in India over the next few years, how you are positioned to capture that opportunity?
Yes. So it's a good question that you asked, and let me clarify. The gas business, like we said, is about 40% to 45% of our turnover. And in the gas business, half of it comes from the compression systems, which is the upstream, midstream and downstream. The other half comes from the gas distribution, which is really the mother station, daughter station and the AMC, the spares distribution and running these packages, which is almost installed. There's over 1,000 of our packages across the country, and they have to be operated and maintained by us. So that's about the other half.
Now the package business of compression systems, this is a long cycle thing. We finalize orders. It takes about generally a year to finalize. It takes about a year to execute it. So there is a fairly long visibility on it. We are doing a lot of work in this space. A lot of orders are being finalized. Like I said, the market split, I did answer one of the earlier questions. If you win all the package orders that year, then we'll be about -- almost all, then were about 80%, 85%. Otherwise, we are about 45%, 50% of the total order that is put out.
Why do we lose? Why do we win? We win where it is just a package that is being ordered. Many times, we lose because the order is placed through an EPC contract. It goes into some of these smaller companies who pick the entire thing as an EPC contract. They in turn, try and then get the compression packages. In this case, they have a choice to go and buy compression packages from let's say, what we think are not the standard sources. They have some advantages in these things. Those are times when we lose these packages. Otherwise, when it is just a package, we tend to win them. So the order, let's say, the market share, like I said, could be anywhere between 50% to 80% in this segment. Does it answer your question?
Yes. And sir, you mentioned earlier that this market could be around -- you put out numbers saying INR 2,000 crores to INR 4,000 crores. Is that specifically for these upstream, midstream and downstream?
Market for gas systems can be anywhere in a good year when a lot of orders get finalized, could be a few thousand crores, INR 1,200 crores to INR 2,000 crores. It depends on what would be a part of the package. If you take EPCs, it's even bigger. Our compression package alone could be anywhere in this range, about INR 2,000 crore.
Okay. No, that's very helpful and helps clear things up. And now focusing a little bit on the CNG packages. So in your previous call, you mentioned that the overall opportunity for setting up the CNG infrastructure till 2030, where about 12,000 stations are about to be set up, and that could be split 2/3 in booster stations, 1/3 in mother stations. You give sort of a rough estimate. And the total opportunity size could be INR 18,000 crores. If I'm not mistaken, that's the number that was thrown out.
I just want to get some clarity on that because if we're talking about INR 1 crores, INR 1.5 crores per mother station and there's about the math doesn't seem to add up of it coming up to INR 18,000 crore opportunity. So if you could clarify that? And also, are these 12,000 additional stations from what we have now? Or is it expected to be 12,000 total stations by the end of 2030? Just to understand.
The total stations -- see, if you go to PNRGB's website, it's available in public domain. Petroleum and natural gas regulatory board, they have said they have installed roughly about 6,000 stations. They have said there will be another 12,000 stations coming up. So the total becomes 18,000 stations. This 12,000 they said about 1.5 years back, I believe at least about 1,000-odd have since come up.
Now generally, they have not said which out of it will be mother stations, which out of it is booster. Mother stations are approximately INR 1.2 crores to INR 1.4 crores plus. The daughter stations are about INR 40 lakhs. It could be anywhere between INR 35 lakhs to INR 45 lakhs. So that is the kind of split that we have. Nobody says what exactly will be mother station, what exactly numbers will be on daughter station. So we'll have to put some estimates.
This is the new installation. There is a running installations that also have to have an O&M timing on it. So when you take these numbers, you'll have to say that there is an ongoing operating and maintenance and cost that's coming on each of them. That's like an annuity business. And then there are new stations. So when you add up all that, you will see that the numbers match.
So INR 18,000 crores would be a fair estimate of the opportunity size available in this, just to clarify, right?
The next 5 years plus. We don't know whether they'll do it in 5 years, where they'll do it in 8 years. I like I always keep saying in all my calls, the numbers we say that we'll achieve, we'll achieve. It's only the time scale that changes. It could be 1 or 2 years more than what is expected or 3 years.
Sure, of course. And of this, you mentioned that at least in the mother station packages, Kirloskar Pneumatic has a higher market share, could be around 40% odd, but the daughter stations, there's about -- the higher competition. So you're less likely to capture 40% of that market, right? Or is that...
You're very much correct. Mother Station is -- it's not a duopoly, but it's at least a 40% for both of us. The daughter station, there are a lot of small local players, and they come and go. So we are also not keen to be a big player in that. Daughter station is an interim step as a technology. We are in it because the users want us to be. It is not a very lucrative business. It is a lot of service for a small value of business. So we will be there, but we are not pushing to become a 40% shareholder. We don't want it.
The next question comes from the line of Mihir Manohar from Carnelian Asset Management.
[indiscernible]
We again can't hear you.
Is it audible now?
Bits and pieces, yes.
Yes, sure. So I wanted to understand on the biogas side. I mean, how important or how commercially important will biogas for FY '26? What would be your understanding around that?
See, biogas is an interesting area. It is not something that is going to be earthshaking. It's not a big part of our business at the moment. It's one of the areas that can become interesting going forward. We expect to -- if there is a INR 5,000 crore opportunity in 3 to 5 years, we would like to be a dominant player in that.
Sure. So I mean just is it -- is the movement happening enough so that some packages could come around next year?
See, we will get orders. We are getting orders. We will get more orders. Like I said, the challenge is not so far in the compression side. The challenge is in getting the bio source on a stable way and to generate biogas in a predictable, stable way. That's the challenge all the installers are battling with. So they have to first resolve that before it becomes an extremely viable business where more investments can come in.
Sure. Just a second question was on the engineering side [indiscernible]
The questions are just not clear at all. The audio is so bad. I can't hear you.
Is it audible now?
Bits and pieces, yes.
The next question comes from the line of Aashna Manaktala from HDFC AMC.
Just one question from my side. You mentioned that you're seeing a bit of slowdown in certain segments. So what subsegments would that be? And I'm assuming that is not CGD because that slowdown has already been factored in, right?
See, the slowdown in manufacturing primarily comes of auto, auto component side. There are slowdown in other segments as well. But -- it doesn't affect us as much as it affects others because our market share in the air compressor business, which is where bulk of this action would be, is not a big one. So for us, it is less important. Second area of slowdown has been in exports. Several geographies have been affected. Again, export is not a big part of our business. Consequently, that slowdown doesn't impact us.
Yes, we had plugged in a lot of opportunities for growth in West Asia, North Africa, et cetera, related to the oil and gas sector. Clearly, there's a slowdown in that sector as well. No big orders are getting finalized as fast as we expect. And that slowdown has also been factored in. We've been saying that, look, these are all areas which are interesting, big, but is definitely slowing down, and we will have to wait to encash on these orders.
Understood. That helps. And you also mentioned that you're also launching some new products which are targeting imports. So what product segment would that be?
This is across the board. There sounds like Tezcatlipoca is a centrifugal compressor, which comes under the air compressor business. It goes after imports of compressors in this area. If you look at the Khione and there are several around it coming up, these are all compressors which target imports in the refrigeration space. The Jarilo is a compressor that targets imports that would otherwise be required for the biogas and other spaces.
So there are clear products which have been identified and put in place targeting imports. Aria is an air compressor, which targets cheap, low-end Chinese imports. So there are quite a few products. A lot of our products that have been launched are import substitutes.
The next question is from the line of Rohit from Progressive Shares.
I like the way you spell out KPCL in the annual report as knowledge management, people, process, customer care, lasting partnerships. Sir, I have two questions. The first one being, you did mention about the IPs being at 20 this quarter. And last quarter, it was around 15. So if you can just take us through that which subsegment are you focusing on? And how quickly or how slow will these products be launched in the market?
Yes. So just to clarify, the H1 IPs are about 20, which means this quarter, we actually had only about 5-odd filings compared to the first quarter. Okay. So overall, we said 20, we'll hopefully do about, let me say, at least 40 IPs or something that only can be reported after it happens. So okay.
So when we look at IPs, we look at three things as IPs. It may not be only a product patent. It could be a design registration. It could be a special trademark registration, et cetera. We also measure, which is not really in public domain, we also measure the number of peer approved publications in international magazines of repute, et cetera. So we have a lot of criteria that we have set up. It's there in our presentation. You can take a look at it.
We talk in terms of how we build a chain of processes, which will develop competitiveness, both in terms of products, process and our offerings to the customer and market. Quite a few activities go around it. Around this is what we put out as a measure we put out the IPs that have been filed during a quarter or a half year.
Okay. So out of these, approximately how many new products can come out from our umbrella?
Okay. So the products have -- let's say, whatever we have announced in public domain, Tezcatlipoca, new. I'm talking of what is new in the terms of what has been launched and scaled up in the last 2 to 3 years. Calana, Aria, Jarilo, Khione, KRAMIS. So there are quite a few of them that have been launched and have been scaling up. So these are the ones all come out of internal development, our own IP.
True. But these are -- are you looking at catalog products from this basket? Or is it going to be something out of the box kind of innovative development from KPCL?
Okay. So here, you will have to look at -- see, we will -- the last breakthrough in compressor was a screw compressor was done 30 years back. Most of what IPs we create would all be improvements, extensions, not a fundamental change. We're not going to make something which is great. We are not coming from the science side of development. So if you look at the R&D, the R is still a very small part, D is the bigger part.
So these are all improvements, developments and uniqueness of the existing general products, but are better superior than them in multiple ways. It could either be a frugal engineering, which allows us a cost competitiveness. It will either be a performance-related thing, which allows it to perform 10% to 15% better or it will have several unique features, which allow us to do one or two more things compared to anybody else, et cetera. They are not something that, let's say, it is a completely different kind of a product itself.
Okay. Sir, my second and last question is related to SCIL, System Controls India. I know you're doing some due diligence and probably working on some closing adjustments over there. But if you can just take us through the synergies or maybe the diversification or soft diversification in industrial refrigeration and what exactly?
I'll answer that. Systems and Components is a company that we have just completed a shareholders' agreement today and announced. The actual share transfer will happen as soon as the shares are dematted, et cetera, which is a part of the new requirement even for private companies that transfers can happen only after the shares are in the demat format. So that's being done.
So we will run this business as an independent subsidiary. The reason it will give three advantages. One, for systems and components, it will allow better management. And obviously, we will try and bring in new possibilities for the company. For KPCL, it allows us, one, access to a very fast-growing segment.
See, like we said in the refrigeration space, we largely cater to the hydrocarbon packages or we go to the reciprocating packages for the cold chains, ice plants, et cetera. This allows us to access the pharma, chemical and dairy industry in a more significant manner.
We also have the possibility to use through systems and components, some of the compressors that we are designing and developing new, and these should also can be packaged and sold through their network. So this is an advantage that we see. It's a very small company as we speak. We will have to build it up and use its cost base to scale up.
Sir, would you like to share anything on the land that is available at Patgaon or maybe scope for greenfield or maybe brownfield expansion that can happen?
We have land with KPCL at Nashik, Saswad and other places. So land is not the reason for acquiring systems and components. So they will have the land for their own growth, and that will be there.
So would you be focusing on improving the margin profiles, which SCIL currently has or maybe on the saving cost or maybe the execution speed up?
A very small company like I said, first, would be to grow the company in terms of scale and size. Everything else will come along with it.
Ladies and gentlemen, that was the last question, and it concludes the question-and-answer session. I now hand the conference over to the management for closing comments.
So once again, thank you all. Thanks for taking time to listen to our call. And as we close for a week before Diwali, I wish you all well. May the year bring us all far more predictability. I know it's a BANI world, but let's have far more predictability, far more progress and success as we go forward. Thank you all very much.
Thank you.
Thank you. On behalf of Antique Stockbroking, that concludes this conference. Thank you for joining us. You may now disconnect your lines.