Canada markets closed

Edited Transcript of KIRO.NS earnings conference call or presentation 26-Jun-20 9:30am GMT

Q4 2020 Kirloskar Oil Engines Ltd Earnings Call

Jun 26, 2020 (Thomson StreetEvents) -- Edited Transcript of Kirloskar Oil Engines Ltd earnings conference call or presentation Friday, June 26, 2020 at 9:30:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Pawan Kumar Agarwal

Kirloskar Oil Engines Limited - CFO

* Sanjeev Nimkar

Kirloskar Oil Engines Limited - MD, COO & Additional Director

================================================================================

Conference Call Participants

================================================================================

* Anubhav Rawat

Monarch Networth Capital Limited, Research Division - Analyst

* Ashwani Sharma

Anand Rathi Financial Services Limited, Research Division - Research Analyst

* Bhavin B. Vithlani

SBI Funds Management Private Limited - Senior Analyst

* Himanshu Upadhyay

PGIM India Asset Management Private Limited - PMS Portfolio Manager

* Manish Goyal

Enam Holdings Pvt. Ltd - Investment Analyst

* Ravi Swaminathan

Spark Capital Advisors (India) Private Limited, Research Division - Assistant VP

* Renjith Sivaram

ICICI Securities Limited, Research Division - Assistant VP

* Renu Baid

IIFL Research - VP

* Sandeep Tulsiyan

JM Financial Institutional Securities Limited, Research Division - Senior Research Analyst

* Vaibhav Saboo

Axis Capital Limited, Research Division - Assistant VP of Capital Goods

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, good day, and welcome to the Kirloskar Oil Engines Limited Q4 FY '20 Earnings Conference Call hosted by Axis Capital Limited. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Vaibhav Saboo from Axis Capital. Thank you, and over to you, sir.

--------------------------------------------------------------------------------

Vaibhav Saboo, Axis Capital Limited, Research Division - Assistant VP of Capital Goods [2]

--------------------------------------------------------------------------------

Thank you, Roy, and good afternoon, everyone. On behalf of Axis Capital, I would like to welcome the management of Kirloskar Oil Engines Limited on the call.

From the management we have, Mr. Sanjeev Nimkar, the Managing Director; and Mr. Pawan Agarwal, Chief Financial Officer. Now I would request Mr. Sanjeev sir to give us a brief opening remark, and then we open up the floor for any Q&A. Over to you, sir. Thank you.

--------------------------------------------------------------------------------

Pawan Kumar Agarwal, Kirloskar Oil Engines Limited - CFO [3]

--------------------------------------------------------------------------------

Thanks. This is Pawan Agarwal, the Chief Financial Officer of the company. Good afternoon, everyone, and thank you all for joining us on this call. I hope you and your families are safe in these unprecedented times. This is extremely challenging time for all of us, and our thoughts are with those most affected by COVID-19, particularly those who are on the front lines of this crisis.

Before I get into financial performance, I would like to highlight some of the ways we are responding to COVID-19. While we don't know how this will play out and how long this will go on, we will be transparent hereabout what we know today. Our #1 priority is to continue to provide our products and services in an uninterrupted way while providing a safe work environment to all our employees. We are incredibly proud of all that our company has been able to do over the past few months.

The need of hour for us is to ensure that we continue to provide our workforce with a safe environment, ensure that they can effectively work remotely, thereby ensuring their safety and well-being. Currently, we have majority of our workforce working from home across the company, including subsidiaries, except plant teams and, to some extent, the sales team, and for those who still need to go to office or into the market or branch offices, we are taking extra precaution and being extremely mindful of their safety.

On the customer side, we are proactively trying to service customers' orders through every possible mode. The customer care team is actively in touch with the customers via calls, e-mails and our business teams are reaching out to customers. We continue to be extremely prudent about our expenses and continue to strive productivity through utmost use of technology.

I would now like to discuss the highlights of our fourth quarter stand-alone financial performance. It might be an obvious point, but the quarter was actually and effectively in a way performance of 2.5 months, thanks to outbreak of COVID-19.

Our fourth quarter stand-alone sales at INR 700 crores was 11% lower compared to sales of INR 787 crores for the same period in the previous financial year. Total revenue from operations for the quarter stood at INR 711 crores against INR 848 crores in the previous year. Total income of INR 722 crores for the quarter was 17% lower compared to INR 866 crores for the same period in previous financial year.

EBITDA of INR 67 crores for the quarter was lower compared to EBITDA of INR 137 crores in quarter 4 of FY 2019. PBT for the quarter stood at INR 61 crores as opposed to PBT of INR 137 crores in quarter 4 of FY 2019.

As far as full stand-alone annual financial performance is concerned, the company saw a year-on-year decline of approximately 9% in sales at INR 2,841 crores in FY '20. The total revenue from operations for FY '20 at INR 2,877 crores was 10% lower against FY 2019.

EBITDA for financial year '20 is reported at INR 239 crores vis-à-vis INR 351 crores in the previous financial year. PBT for the financial year 2020 stood at INR 225 crore as opposed to PBT of INR 336 crores in the previous financial year. The company generated INR 295 crores of cash from operations in FY '20 against INR 263 crores in the previous financial year.

I would now like to briefly touch upon the financial performance of our 3 subsidiaries, that is La-Gajjar Machineries, LGM; KOEL Americas; and Arka Fincap Limited. In the financial year 2020, LGM registered a little over 9% year-on-year growth in sales despite COVID-19. The sales grew to INR 453 crores in FY '20 from INR 413 crores in FY 2019. PBT for the year was INR 23 crores versus INR 20 crores of PBT in the previous financial year.

KOEL Americas sales grew from USD 2 million in 2019 to USD 2.5 million in FY '20, and it reported a PBT of more than USD 129,000 for the year FY '20 compared to roughly USD 85,000 in the previous financial year.

Arka became fully operational since April 2019 and since then it has been delivering profits month-on-month. Revenue from operations for FY '20 stood at INR 48 crores, with a PBT of about INR 10 crores. KOEL infused nearly INR 500 crores of capital in Arka in the financial year 2020.

At a consolidated level, the revenue from operations declined by 7% from INR 3,636 crores in FY '19 to INR 3,379 crores in FY '20, with a PBT of INR 331 crores and INR 245 crores in FY 2019 and FY 2020, respectively.

With this financial summary and background, we may now commence the question and answers. Thank you.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) The first question is from the line of Renu Baid from IIFL.

--------------------------------------------------------------------------------

Renu Baid, IIFL Research - VP [2]

--------------------------------------------------------------------------------

My first question would be to understand a bit more on the genset side. What was the impact of slippages in revenues or loss of revenues because of the lockdown in the fourth quarter? And as we draw for FY '21, what is the outlook for overall PG portfolio? And do we see the industrial business, especially demand from construction and real estate bottoming out and bouncing with government thrust on infrastructure?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [3]

--------------------------------------------------------------------------------

I think there are 3 questions you asked in 1 question.

--------------------------------------------------------------------------------

Renu Baid, IIFL Research - VP [4]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [5]

--------------------------------------------------------------------------------

Okay. So the first point is what we lost on the Power Generation because of the lockdown. It was close to INR 45 crores we lost in Power Generation alone because of the lockdown because we had lots of orders lined up and we could not execute that during that time. That is the first -- answer to the first question.

Second, you asked how is the outlook for the entire FY '21?

--------------------------------------------------------------------------------

Renu Baid, IIFL Research - VP [6]

--------------------------------------------------------------------------------

Yes, on the PG and industrial portfolio both?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [7]

--------------------------------------------------------------------------------

Sure. I will answer one-by-one. For the Power Generation side, right now, we have around 70%, 80% of our outlets opened up, but the transactions which are happening there are around 30%-odd, not beyond that. I'm talking as of June. And the next quarter traditionally is a slow quarter, it is traditionally. So July to September quarter, generally, Power Generation is on a slower side, and then market picks up. But right now, with the unprecedented context around us, predicting Q3 and Q4 is tough, but our best estimation stands at maybe Q3 and Q4 will be same as last year. We'll try to balance it out, whatever maybe the industry condition unless it is extreme tough externally. We are -- we feel Q3, Q4 should be okay. And Q2 will be substantially down. And Q1, obviously, there are hardly any interactions happened in Q1. So Q1, Q2 put together will be at least 50%, 60% lower than the last year. But Q3, Q4, we expect to be closer to or almost similar to the last year. That's our mission on the Power Generation side.

Industrial side of the story is industrial has recovered back in the month of June close to 60%. And next 3 quarters, we expect it to move around 90% from July. And we are hearing a lot of news from government that apart from their investments on the social sector this year, they will not cut down much on the infrastructure part of it, which has been the major driver for last 3 years. The infrastructure drive was a major trigger for our Industrial Engine segment. So at least on paper, government is talking about that. A lot of news is around that side. Currently, we are at 65%, 70%. We hope we will end up around 90% in July.

--------------------------------------------------------------------------------

Renu Baid, IIFL Research - VP [8]

--------------------------------------------------------------------------------

Sure. Sir, my question on the PG side is also to understand from an end market perspective, given that real estate sector has been significantly impacted. So on a -- from a qualitative perspective, what would be your comment on how the key end markets are there and which markets would actually revive earlier and which segments you think would continue to lag in terms of recovery through the next 12, 15 months?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [9]

--------------------------------------------------------------------------------

Our estimation is -- because new project activation will be on a slow track because everywhere, because of the labor problems and the social distancing norms to be followed, the production -- the demand side has significantly impacted. So what -- in the recovery front, we will see the medium horsepower, which is generally we talk about, in our parlance, around 30 kVA, 40 kVA to 200 kVA. That will be the recovering fastest followed by the lower horsepower and then followed by the higher horsepower. Because in normal conditions, higher horsepower doesn't get impacted much. But looking at unprecedented situations now, the figure of higher horsepower will be the slower figure which will come back (inaudible).

--------------------------------------------------------------------------------

Renu Baid, IIFL Research - VP [10]

--------------------------------------------------------------------------------

Right. And if I can ask one more last question, would be, can you share with us what were the volume numbers within the Power Generation segment for us, both in terms of the DV series and the HHP segment for us?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [11]

--------------------------------------------------------------------------------

Yes, we can share with you later. We do have these numbers available, but we'll share with you separately.

--------------------------------------------------------------------------------

Operator [12]

--------------------------------------------------------------------------------

(Operator Instructions) The next question is from the line of V. Rajakumar, who's an individual investor.

--------------------------------------------------------------------------------

Unidentified Participant, [13]

--------------------------------------------------------------------------------

Hello, can you hear me?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [14]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Unidentified Participant, [15]

--------------------------------------------------------------------------------

Sir, my question is regarding the Arka Fin Capital. I understand from the balance sheet, I think, we have invested close to about INR 500 crores in the subsidiary. Just wanted to know what is the strategy of getting into finance now given the kind of turmoil that we see in the NBFC sector? What is the sort of color and how it helps Kirloskar Oil Engine to get into this space at this point of time?

--------------------------------------------------------------------------------

Pawan Kumar Agarwal, Kirloskar Oil Engines Limited - CFO [16]

--------------------------------------------------------------------------------

So this -- the formation of Arka Fincap, as you know, was placed in the previous financial year, 2019. At the group level, we saw that there is an opportunity in NBFC space and the company had strong balance sheet, and we thought that we would be -- we will be ideally suited to exploit the market opportunities, especially in MSME segment and real estate and corporate lending space. And that's how the Board decided to take plunge into this NBFC space and that's how Arka Fincap was conceptualized.

--------------------------------------------------------------------------------

Unidentified Participant, [17]

--------------------------------------------------------------------------------

Okay. But given the current turmoil, do you see, from a long-term standpoint, Kirloskar will be able to sustain in this field and make meaningful numbers because, I mean, I see a lot of even Tier 1 players struggling in this market. So I just want to know how -- what is the kind of target, what kind of size you are looking at to grow this subsidiary?

--------------------------------------------------------------------------------

Pawan Kumar Agarwal, Kirloskar Oil Engines Limited - CFO [18]

--------------------------------------------------------------------------------

Yes. So we -- as you can see, we are taking measured steps as far as Arka is concerned. We have invested INR 500 crores in the previous year. And although there was a commitment to invest further, but we have not put in additional capital in the company as of now. Even Arka is going very slow in terms of -- and taking very careful measured steps in terms of lending. Arka's lent, as on March, about INR 450 crores loan book they have and they have a treasury asset of about INR 140 crores, which we are keeping as of now. Looking at the situation, till now, we have focused only on corporate lending and real estate. We have not started MSME. We are looking at the market very, very closely. And you can see the revenue, INR 48 crores of revenue we have generated in the company in the financial year '20 and we have generated INR 10 crores, INR 12 crores of profit before tax. So we are taking extremely, extremely measured steps in Arka, assessing the market, understanding the market. We are in no hurry, and we are taking very careful steps in this direction.

--------------------------------------------------------------------------------

Unidentified Participant, [19]

--------------------------------------------------------------------------------

Okay. The second question is on -- is there any chance for buyback given the subdued valuation the company is enjoying to -- I mean I see the valuation is quite [specific] given the history and the value behind the company. So I just wanted to know Board's thinking on those lines.

--------------------------------------------------------------------------------

Pawan Kumar Agarwal, Kirloskar Oil Engines Limited - CFO [20]

--------------------------------------------------------------------------------

The Board deliberated on this issue in the last Board meeting, and the Board was of the view that at this point of time they find that it is not necessary to go for buyback.

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [21]

--------------------------------------------------------------------------------

No. The other, we will be looking for a lot of new spaces for investments. So that it's the right time to look at allied spaces for further investments and growth of the company rather than the buyback.

--------------------------------------------------------------------------------

Operator [22]

--------------------------------------------------------------------------------

The next question is from the line of Renjith Sivaram from ICICI Securities.

--------------------------------------------------------------------------------

Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [23]

--------------------------------------------------------------------------------

Sir, if you can just elaborate in under PowerGen, how much of the 750 kVA above we have sold and what has been the growth rate in that segment because that is relatively new for us? And how has been the pricing in that segment given the overall environment?

--------------------------------------------------------------------------------

Pawan Kumar Agarwal, Kirloskar Oil Engines Limited - CFO [24]

--------------------------------------------------------------------------------

So in DV series 750 kVA upwards in the financial year '19/'20, we have sold about 100-plus, 109 to be precise, engines, earning a revenue of about INR 41 crores.

--------------------------------------------------------------------------------

Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [25]

--------------------------------------------------------------------------------

Okay. And this was last year, how much?

--------------------------------------------------------------------------------

Pawan Kumar Agarwal, Kirloskar Oil Engines Limited - CFO [26]

--------------------------------------------------------------------------------

Last year was INR 60 crores revenue, '18/'19, and the number of units were 159.

--------------------------------------------------------------------------------

Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [27]

--------------------------------------------------------------------------------

Okay. So we have seen an overall decline in the more than 750 kVA?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [28]

--------------------------------------------------------------------------------

Yes. So last year, the market throughout the year was very, very slow overall. So that was one of the reasons. And in the end, we were carrying orders of around -- the overall orders were high, but executable orders in the month of March we lost execution of around 15, 1-5 number, because of the last minute close down. And post opening up now, the customers are not having the funds. So that is another story. But overall, the whole year was slowed down on the UHHP and HHP story. And if you look at the overall Power Generation market as such, at least market itself has declined by 7% to 8% last year.

--------------------------------------------------------------------------------

Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [29]

--------------------------------------------------------------------------------

Okay. And how much would have been HHP market decline? Will it be in line with us or will it be -- ours will be more than the market decline for HHP segment?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [30]

--------------------------------------------------------------------------------

No, we will be a little -- our decline will be less than the market decline because we have some published data of some independent agencies available with us, which indicates that as on year ended March '20, KOEL has gained 2% of our value market share over last year whatever we have ended up. So that clearly indicates that our decline was lower than the market decline.

--------------------------------------------------------------------------------

Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [31]

--------------------------------------------------------------------------------

No, I'm talking about specifically this 750 kVA above. Was there any impact in terms of the competitors reducing their prices and because of that we had seen a shift of market share towards the competition?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [32]

--------------------------------------------------------------------------------

You are right. There was price pressure from the competition. We took certain calls that KOEL will not play the price game in the market, and that has never been our strategy in the market to play with the price. So if certain cases are very, very competitive, then we decided not to go ahead. So you are right, those costs we have taken. But overall, I think we are still holding market share of around 14%, 15% in [that particular domain].

--------------------------------------------------------------------------------

Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [33]

--------------------------------------------------------------------------------

Okay. And sir, if you want to look at -- we were planning to launch the 1,000 kVA above. So what is the status over there?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [34]

--------------------------------------------------------------------------------

The actual firing of the prototype engine and genset we have completed. But to make it production worthy, there are certain more endurance tests and things are happening at the back end side. But as of this moment, and we are also evaluating alternate options for the fuel system what we have deployed because our product is ready with the X type of fuel system. We're also evaluating Y type of fuel system which may be further cost competitive for us. So that work is going on. So looking at that, we feel at the end of this FY we should be able to place the pilot sets in the market.

--------------------------------------------------------------------------------

Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [35]

--------------------------------------------------------------------------------

Okay. And sir, finally, this new emission norms is planning to come. So lots of competition are putting up CapEx towards this test sales and stuff like that. So we would also -- what are we planning in terms of CapEx towards this emission norms? Have we allocated some amount for that? How do we strategize ourselves to be ready for that?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [36]

--------------------------------------------------------------------------------

Yes. I think it's a good question. See, you are aware that in this year itself BS IV emission norms are coming our way, which are meant for the Industrial Engine segment. Now for this BS IV, we had already deployed close to INR 60 crores to INR 70 crores worth CapEx for BS IV transition. Now when we prepare ourselves for BS IV transition, which is fundamentally the CRDI technology, a lot of the test bears and things are commonly used for even the CPCB 4 also. So independently, for CPCB 4, we may be investing another INR 50 crores odd investments, which are underway. But as of this moment, we are prepared for both the transitions. So BS IV which is -- which was scheduled to be in this year starting first of October 2020, now the circular of government -- the draft circular is out, which is indicating it will be 1st April 2021. So it got postponed. However, CPCB 4 indication what government has given, circular is not yet out, but the indication whatever they have given that remains intact. So I think together, our CapEx is already allocated. Out of that, BS IV we have already utilized, and that will be also useful for CPCB 4. Out of CPCB 4 CapEx what we have allocated, maybe 25% we have already utilized.

--------------------------------------------------------------------------------

Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [37]

--------------------------------------------------------------------------------

Okay. And are we ready with the technology in terms of when it shifts to electronic we have the capability to move with the technology?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [38]

--------------------------------------------------------------------------------

Already 1250 and 1000 are with electronic only. So already, we are in the -- this new technology or CRDI electronic technology, we are operating in this domain for last more than 4 years now. So all the tricks of this technology, the company has mastered, and we are deploying that for even the BS IV and same would be for CPCB 4+.

--------------------------------------------------------------------------------

Operator [39]

--------------------------------------------------------------------------------

(Operator Instructions) The next question is from the line of Sandeep Tulsiyan from JM Fincancial.

--------------------------------------------------------------------------------

Sandeep Tulsiyan, JM Financial Institutional Securities Limited, Research Division - Senior Research Analyst [40]

--------------------------------------------------------------------------------

My first question is pertaining to the pricing decline that we were seeing in the industry. Based on the trend that you have seen over the last 5, 6 months, do you sense that undercutting or aggressive pricing practices have come down or not?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [41]

--------------------------------------------------------------------------------

Okay. See, currently, the markets are very, very slow. So what we anticipate at this point that some lower kVA and medium kVA, some competitors may try this last minute price down tactics for some time because the capacity utilization even in commercial vehicles is very, very low. So some common players between commercial vehicle and this Power Generation domain, they may attempt on that side. However, our company is completely focusing on cashing on the value-adds what we have given to the customers in terms of iGreen offer. We have also come out with a 5-year comprehensive service package for the customer. So we are mostly sticking to that. So there can be some reaction from competition on the low-to-medium side. On the higher side, we don't anticipate much, but we may not react to that. We will try our tactics differently.

--------------------------------------------------------------------------------

Sandeep Tulsiyan, JM Financial Institutional Securities Limited, Research Division - Senior Research Analyst [42]

--------------------------------------------------------------------------------

Okay. And second question is pertaining to the share of hospitality as well as real estate in our overall PowerGen portfolio because these 2 segments have seen the sharpest kind of decline post COVID?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [43]

--------------------------------------------------------------------------------

Yes. Obviously, so you yourself answered the question because these 2 segments are under tremendous pressure going forward. Hospitality, because of the current conditions and travel has substantially come down. But I'm very happy to share with this group here that traditionally we are doing extremely well in hospital segment, health care segment. And during last -- this 3 months period, in spite of knockdown being there, we had to open up our warehouses, our factories, even our [GM] factories to deliver on an urgent basis gensets for the COVID hospitals which are coming new -- everywhere. More than 200 such gensets were delivered only in the last 2, 3 months. And traditionally, we are holding a very good share in the hospital segment. Our service being the major driver there because having a wider network and very prompt service of KOEL on the ground. So that is coming handy to us. And in the health care sector, we are gaining share.

--------------------------------------------------------------------------------

Sandeep Tulsiyan, JM Financial Institutional Securities Limited, Research Division - Senior Research Analyst [44]

--------------------------------------------------------------------------------

But share of these real estate and hospitality not on a normal year?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [45]

--------------------------------------------------------------------------------

This, it is not for only KOEL. This will be for the whole industry. If the hospitality segment itself goes down, so we cannot be doing anything about it and even for the real estate segment. But within real estate, we expect the commercial segment to bounce back quickly more than the residential one, and that we'll try to cash in.

--------------------------------------------------------------------------------

Sandeep Tulsiyan, JM Financial Institutional Securities Limited, Research Division - Senior Research Analyst [46]

--------------------------------------------------------------------------------

Sir, my question is if in PowerGen sales that we are clocking on an annual basis. Out of that, how much -- INR 1,300 crores. Of it, how much is real estate as well as hospitality put together is what I'm asking?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [47]

--------------------------------------------------------------------------------

That percentage is not readily in front of me right now, although we do track of that. But real estate and this hospitality segment should be anywhere up to 30%, 35%.

--------------------------------------------------------------------------------

Sandeep Tulsiyan, JM Financial Institutional Securities Limited, Research Division - Senior Research Analyst [48]

--------------------------------------------------------------------------------

Okay. And sir, lastly, if you could share those numbers of power tillers or DV series and electric pumps that you normally give in the call for 4Q as well as full year?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [49]

--------------------------------------------------------------------------------

So power tiller, this year sold 4,076 units, [negative]. The comparable number last year was 4,095. Which other number you're looking for?

--------------------------------------------------------------------------------

Sandeep Tulsiyan, JM Financial Institutional Securities Limited, Research Division - Senior Research Analyst [50]

--------------------------------------------------------------------------------

Sir, DV series volume as well as value that we share. I think the number we have last year was 2,940 in terms of volume and we have INR 340 crores in terms of value.

--------------------------------------------------------------------------------

Pawan Kumar Agarwal, Kirloskar Oil Engines Limited - CFO [51]

--------------------------------------------------------------------------------

Okay. Yes, the HHP series this year, INR 346 crores, number unit is 3,406. Comparable number previous year was units 2,939 and value was INR 338 crores.

--------------------------------------------------------------------------------

Sandeep Tulsiyan, JM Financial Institutional Securities Limited, Research Division - Senior Research Analyst [52]

--------------------------------------------------------------------------------

Okay. And this year value would be?

--------------------------------------------------------------------------------

Pawan Kumar Agarwal, Kirloskar Oil Engines Limited - CFO [53]

--------------------------------------------------------------------------------

This year value is INR 346 crores.

--------------------------------------------------------------------------------

Sandeep Tulsiyan, JM Financial Institutional Securities Limited, Research Division - Senior Research Analyst [54]

--------------------------------------------------------------------------------

INR 346 crores?

--------------------------------------------------------------------------------

Pawan Kumar Agarwal, Kirloskar Oil Engines Limited - CFO [55]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Sandeep Tulsiyan, JM Financial Institutional Securities Limited, Research Division - Senior Research Analyst [56]

--------------------------------------------------------------------------------

And for the electric pumps within the stand-alone, how much we would have done for the year? We have the number for LGM, but wanted to check for this one?

--------------------------------------------------------------------------------

Pawan Kumar Agarwal, Kirloskar Oil Engines Limited - CFO [57]

--------------------------------------------------------------------------------

Well, I can give you -- it's INR 89 crores this year, electric pump, versus last year number was INR 68 crores.

--------------------------------------------------------------------------------

Operator [58]

--------------------------------------------------------------------------------

The next question is from the line of Ravi Swaminathan from Spark Capital.

--------------------------------------------------------------------------------

Ravi Swaminathan, Spark Capital Advisors (India) Private Limited, Research Division - Assistant VP [59]

--------------------------------------------------------------------------------

Sir, I joined in a bit late. I just wanted to get your sense on the current run rate of the usual normal in each of the segments, that is PowerGen and lower, mid and high kVA and also the industrial and Agri business. How things are as of now?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [60]

--------------------------------------------------------------------------------

Ravi, nice to hear your voice on this call again. Because you joined a little bit late, but I touched upon Power Generation and industrial already. That Power Generation this quarter is almost wash out. This month, we are doing a little bit, but still very, very low. Next quarter, we expect around 50%, 60%. And Q3 and Q4, we will be back to the last year's number in PowerGen. Industrial, overall for the year, we expect to come closer to 90% of last year. This year is -- overall I'm talking about.

There -- coming to the Agri side of the story, that is the engines going in Agri segment as well as the electric pumps going in Agri segment, we are attempting to be on track with our post -- the pre-COVID AOP, whatever the annual operational plan which we have built up. So end of this year, at least double-digit growth we'll target for this segment in spite of current crisis. So we will still gun for double-digit growth for the Agri side of the story and will be for farm mechanization side. So in farm mechanization, the tiller business, we have good order board with us for the next 6 months. And we expect we will have a [double-digit] growth in this business. And the LGM side of the business, we also intend to be growing double digit.

--------------------------------------------------------------------------------

Ravi Swaminathan, Spark Capital Advisors (India) Private Limited, Research Division - Assistant VP [61]

--------------------------------------------------------------------------------

Got it, sir. Got it. And in terms of the HHP side in the PowerGen, so across infra, there is manufacturing, there is industrial, then real estate. How the traction has been? So I mean which is doing relatively better? If you can give a qualitative sense, it will be really great among the end markets.

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [62]

--------------------------------------------------------------------------------

So Power Generation, HHP right now, we are executing the orders only what we have selected before the lockdown, that is one. Point number two is the new orders whatever we are collecting are fundamentally from the process industries, that is the FMCG side of the story or selecting from the health care sector.

Manufacturing, infra industry or real estate are extremely slow, hardly anything was orders from that segment right now because a lot of labor migration has hit hard to this segment and the demand side is very, very low. And within LHP, MHP and HHP, MHP is a segment where we are seeing good traction in the market. So HHP and LHP right now -- LHP, incidentally, there was good traction because of this (inaudible) which is both in Western side and Eastern side. So that gives us some good quantity sales of LHP, but that was incidental. Overall, MHP is the segment, which is doing better.

--------------------------------------------------------------------------------

Ravi Swaminathan, Spark Capital Advisors (India) Private Limited, Research Division - Assistant VP [63]

--------------------------------------------------------------------------------

Got it, sir, got it. And my last question is with respect to exports. So I mean, oil prices, et cetera, have been volatile. So how have customers responded from Middle East and Africa? And if you can talk about other geographies also which you are trying to foray U.S., et cetera, how the overall market has been?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [64]

--------------------------------------------------------------------------------

Yes. On the overall international, last year was a reasonably good year for us. We registered double-digit growth last year on international business. Our strategy is, whatever we had taken for ourselves in the international market, has come out well. For example, we focused on Industrial Engines in South Africa. So that market responded extremely well for us. So we registered extremely good growth there. Then on our firefighting segment, FM-UL domain, we are only third or fourth player globally to offer a big range. And all across the world, from Middle East, from Europe, USA and even Southeast Asia, we have started getting good responses on our FM-UL range.

A lot of OEMs are giving us repeat orders there. So our strategy on FM-UL has started paying off. So that's a very telling thing. Even the acceptance of our HHP, that is a DV range in international market, is really good. So that's another strategic story giving us results. So that's on the last year's overall positive things on the international side.

Right now, what we are going through lockdown, unlock, all these things. So many of the international markets, Middle East as well as Southeast Asia and Africa, all of them are undergoing the similar way, but we expect with our strategies which have nothing to do with the lockdown because -- and which currently China sentiment all across. So we expect some good movement in international market for our (inaudible) engines, FM-UL side of the story and even for Power Generation, but subject to those economies opening up. If the economy is closed down, then nothing can be done. But if it is open, we are expecting good traction.

--------------------------------------------------------------------------------

Ravi Swaminathan, Spark Capital Advisors (India) Private Limited, Research Division - Assistant VP [65]

--------------------------------------------------------------------------------

Got it. My last question sir?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [66]

--------------------------------------------------------------------------------

yes, yes.

--------------------------------------------------------------------------------

Ravi Swaminathan, Spark Capital Advisors (India) Private Limited, Research Division - Assistant VP [67]

--------------------------------------------------------------------------------

So I mean -- I mean, is there any trend of Chinese gensets being replaced by -- I mean any sentimental traction from different countries where Chinese gensets can replace with KOEL gensets in the LHP side?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [68]

--------------------------------------------------------------------------------

We are seeing similar traction, and we have received some orders from Middle East, which are a standard replacement of Chinese with our products.

--------------------------------------------------------------------------------

Operator [69]

--------------------------------------------------------------------------------

The next question is from the line of Bhavin Vithlani form SBI Mutual Fund.

--------------------------------------------------------------------------------

Bhavin B. Vithlani, SBI Funds Management Private Limited - Senior Analyst [70]

--------------------------------------------------------------------------------

Sanjeev, if you can talk about the agriculture as a segment, I think, it's closer to INR 1,000 crores and if you can give more the outlook on a 3- to 4-year basis, how is it that this segment can actually grow and the initiatives that, as a company, we are taking to capture market share and increase growth?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [71]

--------------------------------------------------------------------------------

Yes. Bhavin, this is one of the strategies of the company to derisk our existing segments and also to relatively minimize the vulnerabilities of different, different segments. So you are aware, we have strategically gone into this LGM acquisition and that has worked out very well. So if you look at last year's performances of our different businesses, LGM is close to double-digit growth. And in spite of last 10 days -- 15 days not having the sales because of lockdown, otherwise, LGM numbers would have been far better than what we have reported right now. So -- and whatever strategies we have put it in LGM, they are coming out very good. The same strategies we are replicating in KOEL electric side of the story, and it is also paying off.

So going forward for next 3 to 4 years horizon, we are implementing verticalization as a strategy because right now, all those businesses there are clubbed together. But we identified that within the pump segment, there are clear 3 types of buyers and their buying profile is very, very different to each other. And we have verticalized that in LGM. That is how we are able to grow there. So we have done the segmentation like there is an MMB to small pumps segment, we call it as a mini mono block kind of market, which is INR 3,000 crores, INR 4,000 crores kind of a total size of the market. So that behaves differently. Then we have submersible market and then we have agricultural pump side of the market. And each of this segment is close to INR 4,000 crores odd. So that's the size of the market.

So once we have divided this market, we align all our internal manpower as well as market channel, both side as per these verticals. And that started us paying off last year and it will continue to pay off in the next 3 to 4 years. So my outlook on overall, this -- we call this vertical internally as a water management solution vertical. So our outlook is very buoyant on this side in terms of implementation of our strategies, and we gaining share in that. In fact, even there, the solar pumps, what the government of India's big plants are there. So we are ready with our product portfolio, what is required for the solar side of the story. So we will be aggressively participating into that segment. Even the international acceptance of our brand as well as our products from the water management solution segment is extremely good. So we are also buoyant on that.

--------------------------------------------------------------------------------

Bhavin B. Vithlani, SBI Funds Management Private Limited - Senior Analyst [72]

--------------------------------------------------------------------------------

Understood. Just a follow-up to this question. Would the underlying growth actually look lower as the diesel segment is, as we have already highlighted, is getting disrupted so the overall headline growth of the agriculture as a portfolio looks low?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [73]

--------------------------------------------------------------------------------

Overall, no. This question is a little confusing. So you...

--------------------------------------------------------------------------------

Bhavin B. Vithlani, SBI Funds Management Private Limited - Senior Analyst [74]

--------------------------------------------------------------------------------

So let me rephase. The underlying revenues and the market of the diesel pump market has been declining. And there is a substitution with the electric pumps and we have a reasonably large share of the diesel pump segment. Would the underlying de-growth in the diesel pump cap the overall growth of the agriculture?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [75]

--------------------------------------------------------------------------------

Yes, yes. Because see, diesel electric pump is declining almost 15%, 20% every year. For example, 4, 5 years back, we were selling diesel electric pump around, let's say -- within that, there are 2 segments in diesel electric -- sorry, diesel pumps -- diesel engine pumps. One segment is going to the farm land and other is going to the small OEMs. So the small OEM segment -- and this was like INR 130 crores was going to the OEMs and around INR 140 crores, INR 150 crores was going to the farmers, the agriculture space. So this INR 140 crores of agriculture has come down to INR 40 crores in the last 4, 5 years. INR 100 crores decline we have seen there, whereas the OEM segment of diesel engines pumps going there, which is INR 130 crores, declined to INR 110 crores. So we do not see OEM decline much. So it will sustain on that. But you are right that whatever INR 90 crores we could get in the electric pumps, that has balanced the INR 100 crores decline of diesel pumps.

--------------------------------------------------------------------------------

Operator [76]

--------------------------------------------------------------------------------

The next question is from the line of Ashwani Sharma from Anand Rathi.

--------------------------------------------------------------------------------

Ashwani Sharma, Anand Rathi Financial Services Limited, Research Division - Research Analyst [77]

--------------------------------------------------------------------------------

Yes, my most of the questions have been answered. Just 1 question, sir. What would be the CapEx number for FY '21 and '22?

--------------------------------------------------------------------------------

Pawan Kumar Agarwal, Kirloskar Oil Engines Limited - CFO [78]

--------------------------------------------------------------------------------

FY '21, we are looking at INR 70 crores, INR 75 crores kind of a number CapEx, that too basically to support the ongoing projects.

--------------------------------------------------------------------------------

Ashwani Sharma, Anand Rathi Financial Services Limited, Research Division - Research Analyst [79]

--------------------------------------------------------------------------------

And next year?

--------------------------------------------------------------------------------

Pawan Kumar Agarwal, Kirloskar Oil Engines Limited - CFO [80]

--------------------------------------------------------------------------------

That we are not in a position to confirm as of now.

--------------------------------------------------------------------------------

Operator [81]

--------------------------------------------------------------------------------

Next question is from the line of Sandeep Tulsiyan from JM Fincancial.

--------------------------------------------------------------------------------

Sandeep Tulsiyan, JM Financial Institutional Securities Limited, Research Division - Senior Research Analyst [82]

--------------------------------------------------------------------------------

Sir, I have a follow-up on the cost side. We have seen a very decent control over fixed costs over the last 1 or 2 quarters. I just wanted to check what kind of cost cut measures have been implemented. And within our other expenses (inaudible) stand-alone, would we be able to control it or decline it from the current levels?

--------------------------------------------------------------------------------

Pawan Kumar Agarwal, Kirloskar Oil Engines Limited - CFO [83]

--------------------------------------------------------------------------------

So there has been -- as you rightly pointed out, there has been stringent control over various costs in the company, and we have taken a number of measures and this -- obviously, the journey has started much before COVID-19 hit us. COVID-19 event gave us an opportunity to relook at each and every element of fixed cost, and we have taken a number of measures in order to bring it down further. So the overall sense that you are getting from stand-alone number, I think this is kind of 3% lower other expenses compared to last year. The kind of measures that we have taken, we expect the cost to go further down going forward, which you will see in the next year financials.

--------------------------------------------------------------------------------

Sandeep Tulsiyan, JM Financial Institutional Securities Limited, Research Division - Senior Research Analyst [84]

--------------------------------------------------------------------------------

Sir, could you a little bit elaborate more in terms of have we (inaudible) any salary cuts or within the fixed expenses what are the larger heads if you renegotiated some third-party contracts or some rental or some other variable expenses that you have been able to bring down over there, if you could highlight specifically?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [85]

--------------------------------------------------------------------------------

I think, Sandeep, we have collected all the pieces together. So whatever you just mentioned, it is a combination of all these measures we have implemented in the company. And obviously, because surviving the institution is a top priority for all of us. So all these measures, what you just mentioned, we have implemented.

--------------------------------------------------------------------------------

Sandeep Tulsiyan, JM Financial Institutional Securities Limited, Research Division - Senior Research Analyst [86]

--------------------------------------------------------------------------------

Okay. Okay. And just 1 last question I have on the industrial side of business. If you could broadly give us a breakup of that between construction equipment, tractors, how does that look now? And what was it compared to last year?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [87]

--------------------------------------------------------------------------------

Right now. So last year, out of total INR 440-odd crores, so close to INR 140 crores will be the tractor side and INR 300-odd crores is construction equipment.

--------------------------------------------------------------------------------

Sandeep Tulsiyan, JM Financial Institutional Securities Limited, Research Division - Senior Research Analyst [88]

--------------------------------------------------------------------------------

Sir, the reported number that we give is somewhere about INR 650 crores for industrial?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [89]

--------------------------------------------------------------------------------

That is including the exports. I thought only domestic. So that's including the exports.

--------------------------------------------------------------------------------

Sandeep Tulsiyan, JM Financial Institutional Securities Limited, Research Division - Senior Research Analyst [90]

--------------------------------------------------------------------------------

Okay. So the balance INR 100 crores is export?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [91]

--------------------------------------------------------------------------------

Yes. Yes. Correct.

--------------------------------------------------------------------------------

Sandeep Tulsiyan, JM Financial Institutional Securities Limited, Research Division - Senior Research Analyst [92]

--------------------------------------------------------------------------------

And last year, what was this breakup that you just gave us?

--------------------------------------------------------------------------------

Pawan Kumar Agarwal, Kirloskar Oil Engines Limited - CFO [93]

--------------------------------------------------------------------------------

So let me give you the breakup of industrial segment. Last year, we got on a stand-alone basis INR 650 crores of revenue, which had tractor contribution of INR 150 crores roughly and other than tractor segment contributed INR 500 crores. The like-for-like number for FY '20 is tractor is roughly INR 120 crores and other than tractor INR 386 crores, put together INR 506 crores of revenue from industrial segment. This includes exports.

--------------------------------------------------------------------------------

Operator [94]

--------------------------------------------------------------------------------

The next question is from the line of Himanshu Upadhyay from PGIM Mutual Funds.

--------------------------------------------------------------------------------

Himanshu Upadhyay, PGIM India Asset Management Private Limited - PMS Portfolio Manager [95]

--------------------------------------------------------------------------------

Yes. My first question was in last few years we have already entered 3 businesses through pumps La-Gajjar. We have entered finance business, NBFC business and, again, the tillers. And we want to further diversify, and we are also focusing currently on exports. Right now, it seems we are getting. What would be the rationale? Why not focus on these 3, 4 ventures, which we have already entered and grow our presence in those markets and -- rather than investing in newer and newer dimensions before becoming market leader in the businesses where we've already ventured in last few years? Can you elaborate?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [96]

--------------------------------------------------------------------------------

Yes, you are absolutely right. So whatever the 3 ventures we have done, the next expansions will be in the similar space and allied space only. It will not be completely absolutely new dimension. We may not go like that. It will be only allied or expansion within that domain.

--------------------------------------------------------------------------------

Himanshu Upadhyay, PGIM India Asset Management Private Limited - PMS Portfolio Manager [97]

--------------------------------------------------------------------------------

Okay. And one more thing was on the industrial side of the business, for the annual performance also, there has been a sharp fall, okay? If we see the larger peer in the industry for -- in the industrial segment has been more flattish. And for us, it has been for the year down 22%. Have we lost any OEM side of the business? Or traction are we getting on getting newer OEMs, means can you elaborate what is happening on this industrial side of the business?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [98]

--------------------------------------------------------------------------------

First thing, we have not lost any OEM last year. Overall industry decline was around 27% last year. If you look at the published data, so decline was 27%. I do not know which player you are talking who remained flattish last year. I'm a little surprised on that. So almost everyone had -- every player in the industry has declined. Decline can be anywhere between 15% to 30% to 35%, can have change. Industry decline was 27%. Our decline is around 22%.

--------------------------------------------------------------------------------

Himanshu Upadhyay, PGIM India Asset Management Private Limited - PMS Portfolio Manager [99]

--------------------------------------------------------------------------------

Sir, the largest player in the industry, they have reported a flattish type of revenue, okay, on industrial side in the quarterly con calls what they have stated, so -- for the year, I am saying. So...

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [100]

--------------------------------------------------------------------------------

No. If you are referring to largest player like JCB or something, then it's a different story all together.

--------------------------------------------------------------------------------

Himanshu Upadhyay, PGIM India Asset Management Private Limited - PMS Portfolio Manager [101]

--------------------------------------------------------------------------------

No, Cummins I'm saying.

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [102]

--------------------------------------------------------------------------------

Their industrial is including railways, including many things. It's not apple-to-apple comparison of what industrial we are talking about. So you need to look at their composition of industrial. Our industrial means purely the engines which are going to construction equipment and (inaudible) equipment domain. So we are very, very strategically clear on this thing. And market decline of 27% of this industry is a published -- externally published data.

--------------------------------------------------------------------------------

Himanshu Upadhyay, PGIM India Asset Management Private Limited - PMS Portfolio Manager [103]

--------------------------------------------------------------------------------

And one more thing, in the exports which is INR 240 crores what we have, what would be the bifurcation between PowerGen and the other engines, means for industrial or non-industrial?

--------------------------------------------------------------------------------

Pawan Kumar Agarwal, Kirloskar Oil Engines Limited - CFO [104]

--------------------------------------------------------------------------------

Yes, the breakup of exports business segment-wise is Power Generation, we did register a growth of 12%. So that is about INR 116 crores this year compared to INR 103 crores last year. Industrial segment, we registered a growth of 34% in exports, INR 71 crores versus INR 53 crores. Agri, a decline of 9%, and customer support a decline of 8%. So overall, INR 240 crore versus last year INR 214 crores, which means 12% growth.

--------------------------------------------------------------------------------

Himanshu Upadhyay, PGIM India Asset Management Private Limited - PMS Portfolio Manager [105]

--------------------------------------------------------------------------------

And the traction what we have seen in industrial on exports, do we expect the trend would be similar, so industrial would do much better than PowerGen? And why would the customer support fall Y-o-Y in exports, means just to understand?

--------------------------------------------------------------------------------

Pawan Kumar Agarwal, Kirloskar Oil Engines Limited - CFO [106]

--------------------------------------------------------------------------------

It's a small segment. It's not a very large segment in exports.

--------------------------------------------------------------------------------

Himanshu Upadhyay, PGIM India Asset Management Private Limited - PMS Portfolio Manager [107]

--------------------------------------------------------------------------------

But every year, when the population of engines what we have is increasing in export markets or the global markets, would not the customer support be increasing?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [108]

--------------------------------------------------------------------------------

No. Customer support is a direct function of the utilization of the machines, actually. So if the machine utilization comes down, last year at least in domestic overall industrial segment was down because the utilization was down. Similarly, in some other international markets, if the genset usage is not there and industrial machine usage is low, it is directly linked to that because in this we do not get revenue of service. We get only revenues of spare parts because service goes to the local dealer who is there. So even if there are certain costs which are preventive maintenance costs which happen on service without spares being changed, then in our records it will not reflect. So the service revenue goes to the local channel partners, and we only get the spare parts.

--------------------------------------------------------------------------------

Operator [109]

--------------------------------------------------------------------------------

The next question is from the line of Manish Goyal from Enam Holdings.

--------------------------------------------------------------------------------

Manish Goyal, Enam Holdings Pvt. Ltd - Investment Analyst [110]

--------------------------------------------------------------------------------

Sir, couple of questions. First on the -- if you can highlight, which even presentation talks about, the railways business, number one. Number two, on the larger engines business, which also has some part of the defense business. So if you can provide outlook on larger engine, railways and the defense business, please?

--------------------------------------------------------------------------------

Pawan Kumar Agarwal, Kirloskar Oil Engines Limited - CFO [111]

--------------------------------------------------------------------------------

Manish, coming to railways, last year, we sold around INR 75 crores odd in Railways. This year, also, we have good order board. Only thing what we need to work around and we are pretty much on course on that is improving the margin side on the railways front because last year we were developmental player in railways. As we speak to you, we are already upgraded by railways to Grade A supplier. So we are Grade A supplier for railways. So it is a better status to be in railways business with this kind of status. So we have already achieved that. That's the point number one.

Point number two, we have healthy order board even for this year, and we will be improving our profitability in railways going inside in this year. That's on the railways front. And our outlook on railways is reasonably bouyant. And to share with you, we are the first company in the railways fraternity to introduce IoT in our gensets whatever we have supplied. And railways as a customer they're are extremely happy to use this technology because first time in the moving vehicles they are getting -- they are able to track the performance of their power cars. So very happy moment for us, and it has been well accepted by railways. They are happy with our performance.

Coming to your large engine side of query. Last year, we received a big order execution from defense side, which is under execution right now this year. Another big order is on the way. So we are gunning for the annual plan what we have made for the large engine side. Within large engine domain, we also introduced a range of 3 products [2 years back] with fisheries. The small trolling boats, small boats. So these people buy kind of marine engines. So through large engine side, we [subsidized that]. So this range is also well accepted in the market and our competition here is stressed to the Chinese brand. And with the current context, the Chinese brand acceptance will go down. So we have very good positive traction on the fisheries range what we sell there as well as the defense order board what we have closed. There's quite a few orders are yet to be placed on us, but we are already [L1 in that]. We are waiting for orders to be placed on.

--------------------------------------------------------------------------------

Manish Goyal, Enam Holdings Pvt. Ltd - Investment Analyst [112]

--------------------------------------------------------------------------------

If you can just give us a sense, what is the size of these orders? Like you received a large order, you said last year and is under execution?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [113]

--------------------------------------------------------------------------------

Last year, the order which we have received is of INR 70 crores. Another order of similar magnitude is in the pipeline. So another INR 60 crores, INR 70 crores. And once such big orders with good margins if we get, it balances the business for that year. That means then we can look at it very long-term projects in this. That's what happened last year also. And this year also we are expecting same.

--------------------------------------------------------------------------------

Manish Goyal, Enam Holdings Pvt. Ltd - Investment Analyst [114]

--------------------------------------------------------------------------------

So large orders, if you can clarify, like this is in under bidding or what is the status?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [115]

--------------------------------------------------------------------------------

Out of this, almost 60%, 70% we have already billed in first quarter. So this is under execution.

--------------------------------------------------------------------------------

Manish Goyal, Enam Holdings Pvt. Ltd - Investment Analyst [116]

--------------------------------------------------------------------------------

And what are these largely for what application, sir?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [117]

--------------------------------------------------------------------------------

So these are special projects which is EPC kind of a project, which the -- it is going into Navy and Navy has given a big contract to their PSU, which is (inaudible). And through them, we have received these orders.

--------------------------------------------------------------------------------

Manish Goyal, Enam Holdings Pvt. Ltd - Investment Analyst [118]

--------------------------------------------------------------------------------

And just last question on overall, like our Agri portfolio. So in power tiller, what we saw was last year in FY '20, as per some market leader, that market has declined. I believe the market has declined to some just 40,000 tillers, if I'm right...

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [119]

--------------------------------------------------------------------------------

You're right.

--------------------------------------------------------------------------------

Manish Goyal, Enam Holdings Pvt. Ltd - Investment Analyst [120]

--------------------------------------------------------------------------------

So like -- and one of the main reason was lack of subsidy. So how this market evolving now? And over here also, we have roughly 30% of the supplies from Chinese players. So -- and third question is that we were earlier in 15 HP and we were planning to launch 12 HP. And so if you can give us perspective, how are we positioned and how do we see the market dynamics?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [121]

--------------------------------------------------------------------------------

First thing, you are absolutely right. Last year, market decline was around 20%. This market was 50,000 odd, which has come down to 40,000. We expect this year this market may go back to 45,000 kind of level. And next year, we'll touch 50,000 back. That's our estimation.

Yes, this market is dependent on government subsidies and sometimes if subsidies get delayed, then it impacts them. But we are constantly gaining share. And you are absolutely right, 15 HP was our flagship product there. We introduced 12 HP last year in this market. We have gained good numbers out of 12 HP. And we are also further modifying this 12 HP with further cost-competitive product, which we'll be launching in another 1.5 to 2 months' time frame in the market. It gets far more competitive to gain share. So at the end of this year, we are pretty confident that we will be clear market #2 player in this market.

And we are also horizontally expanding some more product lines which are going into small farm mechanization domain. So when we look at this market, KOEL has clear strategic intent that we want to be a significant player, #2 player in the market and a profitable player, who will be providing small farm equipment. So obviously, as keeping tractors aside, other than tractors, whatever is required for the small farming, those equipment will be provided. So we will be expanding this product basket, and we will be a profitable organization here.

--------------------------------------------------------------------------------

Operator [122]

--------------------------------------------------------------------------------

We have 1 last question, please. We take the last question from the line of Anubhav Rawat from MNCL.

--------------------------------------------------------------------------------

Anubhav Rawat, Monarch Networth Capital Limited, Research Division - Analyst [123]

--------------------------------------------------------------------------------

Sir, just wanted to know like to which all tractor OEMs do we cater to and in which HP segments?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [124]

--------------------------------------------------------------------------------

We have offering in almost all HP segment in tractor line. So there are quite a few OEM names we would not like to take here. But one big large OEM all of you are aware is PTL, so that is Punjab Tractor. So traditionally, for a long time, they are our -- consistent buyer of our products. So out of all my tractor segment, they occupy 85% of the value and volume. And other than that, other players take this from us and we have offerings as low as 25 HP to as high as 96 HP tractors.

--------------------------------------------------------------------------------

Anubhav Rawat, Monarch Networth Capital Limited, Research Division - Analyst [125]

--------------------------------------------------------------------------------

All right, sir. Understood. Understood. So sir, the Swaraj Tractor or PTL, I mean, how much of their engine demand would we be catering to?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [126]

--------------------------------------------------------------------------------

Anywhere between 15% to 20%.

--------------------------------------------------------------------------------

Anubhav Rawat, Monarch Networth Capital Limited, Research Division - Analyst [127]

--------------------------------------------------------------------------------

15% to 20%. Okay. Perfect. Understood. Just 1 last question on this TREM IV, sir. So what's the latest happening? I mean, is it being pushed forward? There was some news flow, I mean recently.

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [128]

--------------------------------------------------------------------------------

On what?

--------------------------------------------------------------------------------

Anubhav Rawat, Monarch Networth Capital Limited, Research Division - Analyst [129]

--------------------------------------------------------------------------------

On this TREM IV emission norms?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [130]

--------------------------------------------------------------------------------

So BS IV emission norms?

--------------------------------------------------------------------------------

Anubhav Rawat, Monarch Networth Capital Limited, Research Division - Analyst [131]

--------------------------------------------------------------------------------

Yes, TREM IV, sir. It's supposed to come in October. So is it being...

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [132]

--------------------------------------------------------------------------------

I just talked about that. It was supposed to come on 1st October. Now it is postponed to 1st April.

--------------------------------------------------------------------------------

Anubhav Rawat, Monarch Networth Capital Limited, Research Division - Analyst [133]

--------------------------------------------------------------------------------

So has it been pushed forward, sir, has it been done?

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [134]

--------------------------------------------------------------------------------

Yes, yes, yes. There is a draft circular out from government. Another thing is it will be converted as a final circular.

--------------------------------------------------------------------------------

Operator [135]

--------------------------------------------------------------------------------

That was the last question in queue. I would now like to hand the conference back to the management team for any closing comments.

--------------------------------------------------------------------------------

Pawan Kumar Agarwal, Kirloskar Oil Engines Limited - CFO [136]

--------------------------------------------------------------------------------

No.

--------------------------------------------------------------------------------

Sanjeev Nimkar, Kirloskar Oil Engines Limited - MD, COO & Additional Director [137]

--------------------------------------------------------------------------------

I think we've covered up all.

--------------------------------------------------------------------------------

Pawan Kumar Agarwal, Kirloskar Oil Engines Limited - CFO [138]

--------------------------------------------------------------------------------

Yes. Thank you.

--------------------------------------------------------------------------------

Operator [139]

--------------------------------------------------------------------------------

All right. Thank you very much. On behalf of Axis Capital Limited, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.