conference: earnings call 1q 11-12 company: kirloskar ... 1q11-12 earnings cal… · -1 -...

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Conference: Earnings Call 1Q 11-12

Company: Kirloskar Brothers Ltd.

Date: July 27, 2011

Operator:

Ladies and gentlemen, good afternoon. Thank you for standing by and welcome to

Kirloskar Brothers Limited first quarter 2011-12 earnings call.

Joining us today in this conference room are Mr. Sanjay Kirloskar, Chairman and

Managing Director, and Mr. Umesh Shastry, Vice President, Finance. Mr. Umesh

Shastry will take us through the results highlights for the period ending June 2011. All

participants are requested to refer to the presentation available on the company web site

www.kbl.co.in.

As a gentle reminder, during the duration of the presentation, all participants are in a

listen-only mode. There will be an opportunity to ask the question at the end of the

presentation. If you wish to ask a question please press *1 on your telephone. Please be

advised that this conference is being recorded today.

I will now hand the conference over to Mr. Umesh Shastry. Over to you sir.

Mr. Umesh Shastry:

Good afternoon ladies and gentlemen and welcome to the KBL Q1 earnings call.

Along with Mr. Sanjay Kirloskar, our CMD, and me, we also have Mr. Alok Kirloskar

for this conference call and I would also like to tell you that unfortunately our Executive

Directors are not available today since they are out of the country, so they are not part of

this earnings call.

Before I begin with my presentation, I would also like to remind you that the overview

and the discussions that we have today may include certain forward-looking statements

that must be viewed in conjunction with the risks that we face. You all must have gone

through the presentation that has already been loaded on our web site. I will quickly run

you through some of the highlights of that presentation first and after we conclude that

we can throw open the call for questions and answers.

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So, as far as you know, the company at an overall a macro level was concerned, KBL

continued with its focus of being very selective in taking project and product orders in Q1

of this year as well. We basically gave a priority to see that the payment terms are much

better and that there are positive cash flows. So, it is only on that basis that we actually

selected the potential orders. We gave priority for manufacturing and execution where

payment terms were better naturally and there was a continued thrust on closing of the

current impending sites of our project sectors and for ensuring that the cash generation

improves. You all are of course aware of the inauguration of our Coimbatore plant which

actually took place in June and there are a few pictures of that also in our presentation

which you all must have gone though. The other highlight of the quarter was the sale of

our investments in one of our subsidiary companies namely Gondwana Engineering

Limited which also took place during this quarter.

If I move on to some of the highlights of the various sales and marketing sectors that we

have, regarding the irrigation sector, we received one electromechanical order from the

Karnataka government which was valued at about 11 crores.

As far as the water resource management is concerned, we received an order from Goa

PHED for about 27 crores. This was also an electromechanical order. The Bangalore

Water Supply and Sewerage Board for which we have been working for the last two

quarters, certain pumps and motors were dispatched during the quarter. We have a very

prestigious order in Bhopal for the water resource management sector as you all are

aware and we are glad to tell you that the clear water pumps were commissioned over

there and the water supplied to the city of Bhopal has also consequently commenced after

our commissioning of the pumps over there.

The power sector of course which continues to be one of our major sectors, we

successfully commissioned two concrete volute pumps at the Coastal Gujarat Power

Limited, Mundhra. We also commissioned certain raw water system for project which

was DVC Koderma project. There was one good news that the Department of Atomic

Energy issued an authorization to KBL for supply of equipment to Westinghouse USA

for the AP1000 nuclear reactors which are to be built in India. We also received orders

from Hinduja’s National Power Corporation for supply of CW pumps which was valued

at about 40 crores, and also an additional order from Lanco Infratech was received whose

value was about 9 crores.

Moving ahead to the gas, oil, and defence sector, we completed the engineering for fire

fighting packages for the offshore platforms at ONGC. The Pipavav project at the Port of

Pipavav, it was completed, the pumps were re-commissioned. We also had new light

weight portable submersible dewatering pumps dispatched to GRSE and these were with

IRS certification, and we also received an order from HPCL which was valued at about

2.3 crores.

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The industry sector eight i-CP pumps were successfully commissioned at Kandla. We

received orders for VT pump sets which were valued at about 1 crores and also from Praj

Industries also valued at about 1 crores rupees during the quarter.

The building and construction sector had a very good quarter and there was an

encouraging response for our FM/UL pumps and multi-outlet multi-stage pumps as well.

We also received orders for 12 multi-outlet multi-stage pumps from Mantri Builders for

40-storied residential housing project.

Regarding the distribution sector, you will be glad to know that the sales for this sector

actually increased by 32% as compared to Q1 of the previous year. Coimbatore plant of

course is manufacturing products mainly for this particular sector and this is a product

sector as you are all aware of. We have also got certain new products launched in the

domestic market in order to cater to the unrepresented market that we have. And we have

received an order from the Narmada Canal Project which is valued at about rupees one

crores for EEC-Corrocoated pumps.

Regarding our customer support and service business we had orders from the Tata Power

and HPCL Mittal Energy both put together valued at about 5 crores during this particular

quarter.

Moving on to our plants, we completed some model study for a few models namely

BHM125 and BHQ95 models for India Bulls and Jindal India Thermal Power Limited.

We also dispatched our largest VT pump is about 40,000 m3/hour discharge to Adani.

We dispatched hydel turbines during the quarter to Periyar as well as to Pench sites.

Certain models were developed with replicast casting process at the Kirloskarvadi plant.

And another important activity that took place at . . .

Operator:

Participants are requested to stand by. Leader’s line got disconnected. We will connect

him shortly.

Mr. Umesh you can go ahead.

Mr. Umesh Shastry:

Yes, okay. Sorry there was some technical interruption because of which the call got

disconnected. I will just continue from where I left off before the disturbance took place

which was primarily regarding the Devas Factory highlights. We have you know also

modernized our assembly lines in order to improve our productivity substantially at the

Devas plant and we are very strongly focusing on the product mix, so that you know we

produce basically the high value and the high contributing products which will definitely

help us.

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There are certain photographs like I have told you about the Coimbatore factory

inauguration which took place on the 17th of June which you would have seen along with

the photographs of how the Coimbatore plant is actually looking like, and one of the

things we would like to inform you is that about more than 90% of the work force in the

Coimbatore plant consists of ladies. So, this is something else which is definitely

noteworthy.

Regarding the Ahmedabad factory, we have got the consent to establishment from the

Gujarat Pollution Control Board. The construction work is in full swing and the

electrical work has also started. The machine installation will also start now from the

second week of August and we expect that this plant will probably commence operations

by about December 2011, that is December of this year. There are certain photographs of

the Ahmedabad plant also available for you on the web site which also you must have

gone through.

Moving on to the Kondhapuri factory, our valves manufacturing facility, there have been

some certain development works of you know certain big valves, 200 mm valve for the

PHED - Narmada Bhopal Project. There was also Kinetic Air valve which was

developed for the same project. We did a weight reduction of about 17 to 19% due to re-

engineering of our 4-inch and 6-inch size gate valves which again is a significant

achievement and development for the 1900 mm butterfly valve for the DJB-Vazirabad

project was completed by us at the Kondhapuri plant during this particular quarter.

The total size of the pending orders that we have at the end of Q1 is about 295 crores.

This is down from about 303 crores as of the end of last quarter but not very significantly,

it is down by about 7 or 8 crores, but during the quarter I would like to highlight that we

received orders of about 322 crores as against orders of about 317 crores which were

received in quarter four of last year, and out of the total orders that we received, the entire

orders were primarily for pumps and electromechanical orders. So, the product mix of

the orders that we received during this quarter is very healthy.

Moving on to the financials for the quarter, at a standalone KBL level we had sales of

about 430 crores during this quarter. This was compared to about 388 crores in the

previous year’s quarter, which is a rise of about 11%, and except the water and the

industry sector all the other sectors have actually crossed their sales as compared to the

previous year. As we have been telling you in the past, we are continuing with this

practice of making dispatches subject to a maximum cap on the amount recoverable as far

as the Andhra Pradesh orders are concerned because as you know the political situation

still continues to remain fluid over there. The other noteworthy achievement was that the

share of our own products improved from 51% in the previous year to 55% in the current

year and this is something as we stated right in the beginning in our highlights slide we

are strongly focused on, because this is something which will help us to improve our

bottom line as well as improve our cash generation.

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Regarding the profit before tax, it has actually increased to 46.7 crores against 6.2 crores

in June 2010. This is of course because of the non-operating income of 35 crores which

we have received being profit on sale of the investment in Gondwana Engineering, but

even if we exclude the 35 crores profit, we have made about 12 crores operating profit

during this quarter, which is double that of the previous year. So, with an 11% increase

in the sales, the operating profit has actually doubled as compared to quarter one of the

previous financial year.

Even if you look at the key standalone financials, we have in our presentation shown you

the charts without considering the profit on the sale of the investments so that there is an

apple to apple comparison, and you will notice that over a period of three years from June

2009 to June 2011, our income has actually gone up from about 406 crores to 431 crores

after going down to 391 in the last year’s quarter, and our PBT has also gone up from 7

crores to 12 crores and the cash profit has gone up from 12 crores to 15 crores. I repeat

all these figures are without considering the profit on the sale of Gondwana Engineering

Limited’s investment.

As far as the key financial ratios are concerned, they are more or less flat, but definitely

in value terms you would see both the PBT and the cash profit have improved if you look

at the comparison of the three years. Even if you take a look at the consolidated figures

that is KBL along with all its subsidiaries, this also excludes the profit on Gondwana

Engineering Limited, you will find that the income has increased from 539 crores in June

2009 to about 612 crores in June 11. Here too the PBT has gone up from about 15 crores

to 20 crores and the cash profit has gone up from 18 crores to 23 crores. So, definitely

there is an upward sign of the movement of the income as well as of the PBT and the

cash profits and as we mentioned this is basically something which we are focusing on

and which we are endeavoring to improve quarter on quarter and year on year.

With that actually I come to the end of the presentation that I have as far as the

information which was uploaded on the site was concerned. I would now throw open the

floor to questions and answers that you may have and I hand over this call back to the

operator. Thank you.

Operator:

Certainly sir.

At this time, if you wish to ask a question, please press *1 on your telephone keypad and

wait for your name to be announced. If you wish to cancel your request, please press

hash or the pound key.

First in line, we have a question from Mr. Kamlesh Kotakk from Asian Market. You can

go ahead please.

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Mr. Kamlesh Kotak:

Hello, good afternoon sir.

Mr. Umesh Shastry:

Yes, good evening.

Mr. Kamlesh Kotak:

Just wanted to understand what is the financial performance of all our subsidiaries, if you

could throw some light on that, and particular reference to Kirloskar Construction and

Engineering.

Mr. Umesh Shastry:

Okay. Kirloskar Constructions, you would have… I mean actually there is statement

made by the chairman in his speech.

Mr. Sanjay Kirloskar:

Let me just say what I have said during the annual general meeting that last year we did

incur a loss and this was due to delays in execution, we were not able to achieve whatever

we wanted to achieve as regards growth, but what we were able to do last year was we

were able to minimize losses in operations as compared to the previous year and what we

did to do this was moving all the operations number one to Pune, earlier it was in

Chennai, so we wanted to monitor the company very closely. We have also deputed a

senior executive to look after the day to day management. In my speech, in the beginning

of the speech itself, I said that you know while we did have a very high I mean compared

to the previous year our profit was 173 crores and we had a major reduction or a very

high write off which was of an advance of 67.47 crores to Kirloskar Constructions and

Engineering during the year. And this was done you know we as KBL we have to ensure

that whether it is Kirloskar Construction or KBL, it is our own subsidiary, and we have to

ensure that on one side the project execution takes place and on the other side our

reputation is not damaged. So, this was one financial thing that we had to do but on the

other side in operations we are monitoring the operations every fortnight, project to

project, formed teams to handle closure of the old projects and for execution of the

ongoing projects. We also have further invested about 15 crores in the capital of KCEL

to make sure that they are able to close these projects and come out of potential claims.

We anticipate that during the current year there could be some write offs, but we cannot

ascertain the exact amount right now though we will try and ensure that these are kept to

the minimum level and this is all because we have to ensure that you know KBL does not

suffer in its reputation or the group does not suffer.

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Mr. Kamlesh Kotak:

So, sir, for the current quarter what is the revenue and loss amount, if you could share

with us?

Mr. Umesh Shastry:

Yes, I will tell you, taking our Indian subsidiary companies including Kirloskar

Constructions, the total sales for the quarter was about 87 crores and we had a profit of

about 2.3 crores on this 87 crores but this was because KCEL actually made a loss of 4.3

crores, so that is why combined profit of the four Indian subsidiary companies was 2.3

crores. If we take a look at our foreign subsidiary companies, this is for the period

January to June not for the quarter because they are three months behind us you are aware

because in March we show the January to December results, the sales for the foreign

subsidiaries was 218 crores for the period from January to June and on which we have

made a profit before tax of 12 crores, and all the units are profit making. The Kirloskar

Brothers Europe BV is at a break even for the first six months. The orders on hand are

very good and in the next six months, you know there is going to be a good profitability

coming from the Kirloskar Brothers Europe company also.


The only thing I would like to add is last year the loss of Kirloskar Construction was

around 10 crores or so for the first quarter.

Mr. Kamlesh Kotak:

Yes, okay. Secondly sir, what is the status of progress in terms of execution across the

verticals? Do you see any slowdown particularly in the two big verticals, irrigation and

power, how the things are now moving there?


As far as irrigation is concerned, you know most of our jobs are in the southern states of

Andhra and Karnataka, though Andhra has a much higher proportion of execution going

on. To begin with I think we have told you that we have received one order for irrigation

and that is from I believe Karnataka Government. What we have done you know we

have been selective with orders, we are being very careful with the terms and going on

the basis that if it does not match what we want then we would rather opt out of the

bidding process. So the order that we have received from Karnataka is basically for

equipment, and as far as execution is concerned, Andhra we had a cap of about 100

crores earlier as to the amount of exposure we would have, we have reduced it to 50

crores.

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So we will be even more careful when we ship out to Andhra Pradesh though the way we

see it the position in Andhra Pradesh is a little better than last year, but we want to make

sure that we do not get into any other issues. So, irrigation which is one large vertical for

us from the year 2009-2010 when it comprised of something like 800 crores out of a

turnover of 2000 crores, last year came to about 350 or 370 crores out of 1950, so this

year also we will make sure that we are able to improve our balance sheet which has been

spoiled by the irrigation sector and we will be careful with the supplies as well as with

the orders. On the other side as far as power is concerned, yes, it is looking up. The

orders if they are for the vertical turbine type of pumps or the split case kind of pumps we

are only taking product orders or electromechanical orders. When it comes to concrete

volute, it comes with the civil construction, but the margins are a little better when we

supply concrete volute pumps, and order booking is okay, I think it is probably at the

same level as, on slide #18, 322 crores is the total order that has been received for the

quarter but that is not only for power that is for the whole company, and the pending

order backlog which was at the end of Q4 977 crores, is at 854 crores for power. But I

would just only like to say that 977 crores probably comprised of a lot of civil work as

well. The composition of the order board has changed. The current order board would

have far more of our own supplies than civil works.

Mr. Kamlesh Kotak:

Okay. So, sir, in terms if execution also how you see the progress has been steady all

across the factors or there is a slowdown because of the overall kind of macro

environment getting now bad in terms of the growth and the interest rate and all those

issues now spreading up. So, how you see the execution and the progress on the front?


I think it is okay. I would not say it is extremely hot, the rise in turnover is in percentage

terms . . .

Mr. Umesh Shastry:

Primarily because we completed the execution of some of our projects which we had

planned. So, . . . .


That is what percentage, are we above last year?

Mr. Umesh Shastry:

11% is the rise in the turnover.

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11% is the rise in the turnover despite you know whatever restrictions we are putting on

for irrigation, because irrigation there is a further reduction in sale compared to the last

year also because we are taking care. So, that slack has been made up by I would say

distribution to a certain extent where the business is all cash and carry. Our distribution

sector has done a great job going into the market and improving visibility and having

products available in the market place because these are products which if you are not

there, if your product is not available then you lose the sale, people would immediately

go to the next one. So Q1 sales for distribution as Umesh Shastry mentioned are 32%

higher than the previous year.

Mr. Kamlesh Kotak:

Okay. So, overall sir, do we maintain our previous quarter guidance of 15% revenue

growth and may be 20% operating profit growth, because the margins this quarter also

are still not coming up. So, how you see the year ahead progressing?

Mr. Umesh Shastry:

See, as far as the revenue growth is concerned, we would definitely not like to you know

hedge our number right now, but our endeavor would be despite whatever the situation is,

we would like to execute whatever projects that are currently in process during the

quarter and ensure that we are able to you know increase our margins and increase our

cash flow correspondingly during the quarter. So the focus will continue to be on

improved margins and improved cash flow during the quarter. But by and large we

would definitely not have any dip as far as the revenue is concerned.

Mr. Kamlesh Kotak:

Okay, sir. Thank you very much. That is all from my side.


Thank you.

Operator:

Thank you sir. Next question comes from Mr. Manish Goyal from Enam Holding. You

may go ahead please.

Mr. Manish Goyal:

Yes, good afternoon sir.

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Good afternoon.

Mr. Manish Goyal:

Sir, just to harp more on the business opportunities, what we see is that as compared to

quarter four in this quarter most of the segments of our order book has come down except

oil and gas and defence, and what is more visible is in the power and the irrigation sector,

so just wanted to, and also on other side that order intake what we see is that on

sequential basis it has been improving in the last three or four quarters. So, going

forward how do we see that where do we see this order book stabilizing and which are

the segments you see that would probably see growth going forward, because in the last

two years we have seen our order book as a whole coming down. No doubt the

composition of order book has been improving. So just want to get a sense segment by

segment how do we see in irrigation going forward and power and . . .


Okay. Irrigation, power, and water, our endeavor will be to as much as possible not take

any orders for civil and piping. The only area where we might have to do it is where we

are supplying our concrete volute pumps. So, though the order board will reduce, I

expect that you know the composition will be such that the margins will be better because

they are all going to be own products. The other thing that we have done in these three

sectors as well as industry and building and construction, is we have brought out in the

last one year products with a great amount of differentiation compared to not only

domestic competitors but also our international competitors, so we are telling our

customers that we are giving you a far better product and therefore we will probably, we

are not in the process of taking orders on the basis of L1, but on the basis of what value

we add to you, and therefore in a large number of cases though we are not L1 or our

prices are a little higher than anyone else, customers are seeing value in this. As far as

gas, oil, and defence is concerned, I expect the order board to slowly rise because it is a

new sector and we are still getting all the accreditation, the approvals from the DGQA

and people like that to make sure that we can continuously supply. The new products are

being developed for marine applications as well and the oil and gas sector. Distribution

as you can see does not have an order board and the same is the case to a great extent

with industry where large portion of their business is dealer related and therefore

whatever comes in is shipped out quite fast. So, you know for that 17 crores order board

that you see, the sales of distribution in the quarter were in excess of 100 crores. So,

distribution business as it rises, it is not going to show that large on order board

especially when we come out with the Coimbatore plants and the Ahmedabad plants, you

will see the rise in turnover but you won’t see a corresponding rise in the order board.

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Industry has increased its order board to some extent compared to I think the order intake

was also a little higher than the previous quarter. Building and construction again is a

new sector for us, again with quick deliveries. So, you won’t see too big an order board,

you will see a lot of you know throughput over there. Customer support and service 44

crores order board is a little worrying for me because it should go as quickly as possible.

There were certain large orders that were received and this is possibly on account of that,

but you know as like Mr. Shastry said, we will be executing or we are in the business, on

the project side, the turnover that you are going to see a certain portion of that is going to

be civil turnover that is not going to be replaced within the system. So, I am not making

any statement saying that the order board will go beyond 3000 crores when we meet next.

Mr. Manish Goyal:

Okay, so basically what we will see is that despite order book at 3000 crores we may still

see our top line growth going forward.


Yes.

Mr. Manish Goyal:

Okay. And also coming back to irrigation, power, and water, in particularly power we

are seeing that off late there has been significant slowdown in the investments which is

being planned and lot of projects are getting either now shelved down, and power has

been a growth driver for us in the last two years, so what is the sense you get that going

forward; can we see a degrowth in power?

Mr. Umesh Shastry:

You know, there is no likelihood of you know negative growth per se, but yes the order

inflow has slowed down because of the reasons that you yourselves have mentioned, but

the projects which are currently being executed by us, yes those projects will continue to

you know get executed over the period of the next few quarters. So, this may be a

temporary phenomenon as far as an inflow is concerned, but as far as an execution is

concerned, there should be no issue.


And you know, as we have informed in the annual report or in the AGM as well earlier,

KBL is placing a lot of stress on overseas business. We have a good relationship with

Alstom, with Bechtel, with other smaller players who are in the power sector and it will

be our endeavor that even if India slows down we will try and see how we can, and I

mean we are the only Indian company that is capable of doing jobs overseas especially as

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we in every case I think we have done it before schedule. So, we will try and ensure that

the international orders in the power sector increase as we go forward.

Mr. Manish Goyal:

Are we pursuing any significant opportunities and are we expecting any significant order

flows in the near term sir?


I do not think I have ever said any. I do not want to make a commitment because you

know there are many cases where we are based but as long as the order does not come in

our hands, we never speak about it.

Mr. Manish Goyal:

Okay. And in irrigation and water, we said we will focus only on the pumps and

electromechanicals. So, are we getting orders from the main line contractors who are in

turn getting orders from irrigation and water in India? So, are we seeing any uptake on

that front?

Mr. Umesh Shastry:

Irrigation, we mentioned to you about the Karnataka Government’s order for the

electromechanical in the beginning, and we also get an electromechanical order from

PHED Goa for about for about 27 crores. So, which means that we are definitely getting

orders for the components for the pumps and the components not necessarily including

civil.

Mr. Manish Goyal:

No, what I am trying to say is that these are directly from the users but what we are

seeing that as we are not pitching for the EPC orders directly.


We are getting orders from EPC contractors if that is your question.

Mr. Manish Goyal:

Yes, that is what I wanted to know.

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Yes, we are doing that but we are getting those orders on our terms and we are very clear

that if we do not like them then we tell them that please go so and so competitor can

supply it to you and most of the time we then find that they do not want to go there.

Mr. Manish Goyal:

And as far as Andhra Pradesh is concerned now what is the outstanding dues, one, and

what is the retention money out due from them?

Mr. Umesh Shastry:

The outstanding money is about 40 crores, that is it, and the overall retentions, etc., which

are due from them are more than about 200 crores, but this is because of the fact that we

mentioned last time in the year’s earning call also that it is because the civil contractors

have not completed the civil portion of the work that has to be executed for those

projects. So, till that portion is executed and till the government deems the entire EPC

contract to be completed, they will not release the amount that they have retained for our

pumps and electromechanical parts that we have already supplied over there.

Mr. Manish Goyal:

Okay. And out of this, out of 1460 crores irrigation order book how much would be from

Andhra Pradesh, sir?

Mr. Umesh Shastry:

It would be roughly about 850 to 900 crores.

Mr. Manish Goyal:

And there was one large order where we had not started work and so, is it that, has there

been any progress on that?

Mr. Umesh Shastry:

No, not yet. There is still about 650 to 700 out of this 850 to 900 crores of AP is work

which is not yet commenced by us.

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Mr. Manish Goyal:

Okay. And sir on Kirloskar Construction last year also in the balance sheet what we

could see is that after we wrote off advances of 67 crores we have bought some claims

from the Kirloskar Construction and we have paid some money towards that. And in

addition to this in the current year also we have invested another 15 crores. So, just want

to get a sense that they have been pumping lot of money, so where do we see end to this?

Mr. Umesh Shastry:

You are right that you know we have purchased claims receivable from them against the

loans that we had given them last year of 67 crores, you are right, and this year yes we

have 15 crores of preferential capital but like you know it was mentioned by the CMD a

little earlier, there are about 8 or 10 projects which KCEL has been executing for a

certain period of time from which we need to come out of. So, we are basically doing all

that is required to be done in order to close those projects and bring them to a satisfactory

conclusion or a satisfactory end so that the image of the organization and the KBL brand

name is also protected, that is the basic intention. So, we presume that within a period of

the next four to five months these projects which KCEL is currently doing and for which

we are helping them out should probably be closed. So, we do not anticipate this going

beyond December of this year, and we have not taken any new orders, etc., in that for

KCEL barring one major order which was received from the National Institute of Ocean

Technology, but the order execution is not expected to start any way before January

2012. So, you know, the focus will be in the next five months close all the current

projects which are on hand and do whatever it takes in order to ensure that they are

satisfactorily closed to the client’s satisfaction.

Mr. Manish Goyal:

So, out of the ten projects, how much would get completed in the next six months sir?

Mr. Umesh Shastry:

All.

Mr. Manish Goyal:

Most of them.

Mr. Umesh Shastry:

All.

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Mr. Manish Goyal:

All of them, okay, and the new order which you got is from whom you said?

Mr. Umesh Shastry:

NIOT, National Institute of Ocean Technology, but that order commencement is only

from January 2012 onwards.

Mr. Manish Goyal:

And this is for what?

Mr. Umesh Shastry:

This is for desalination pumps.

Mr. Manish Goyal:

Okay. And hopefully this will not have any negative baggages?

Mr. Umesh Shastry:

Not at all.

Mr. Manish Goyal:

Okay. And is it possible to give us what is our debt figure as on date and what are net

current assets figures sir?

Mr. Umesh Shastry:

Our total borrowings as of June end is basically 457 crores including our term loan of 94

crores. So, excluding the term loan of 94 crores, it is about 363 that is the borrowing

figure, and the net current assets figure is at about 690 crores as of June end.

Mr. Manish Goyal:

Okay. So, not much improvement on . . .

Mr. Umesh Shastry:

No.

-16 -

Mr. Manish Goyal:

Sir, how do we see these going forward, this is the last question, by March end? Would

you like to give any number target?

Mr. Umesh Shastry:

We would like to basically get our borrowings down in March 12 to about 150 crores

lower than they were in March 2011, that is basically our target.

Mr. Manish Goyal:

Okay, thank you very much sir. Thanks a lot.

Mr. Umesh Shastry:

Yes.

Operator:

Thank you Mr. Manish. Next question comes from Mr. Abhijit Vara from Aquarius

Securities. You can go ahead please.

Mr. Abhijit Vara:

Thank you for taking my call. I just want to understand regarding this Westinghouse

order. What is this you know if you could please provide some details as in what

equipment you will be supplying and what is the size of the order?


You know what has been said is Department of Atomic Energy, Government of India,

has given authorization to KBL for supply of equipment to Westinghouse of USA for the

nuclear reactor to be built in India. So, there is no order yet. Basically the Westinghouse

I guess is going to put up a power station in India. Government of India, the way they are

going about it, I think they would like to encourage Indian equipment to be used, and for

any nuclear installation the rules are that you know the Department of Atomic Energy has

to authorize Indian companies to participate in any business we first need the

authorization from the Government of India. So, this basically means that we will be one

of the bidders for pumps and hopefully valves, because as you have seen elsewhere we

are applying for the end stamp. N stamp is an American way of I mean it is like ISO9000

or these other certifications or accreditation that say basically our plant is capable of

delivering to the nuclear industry.

-17 -

Earlier the Indian nuclear industry did not insist on this, though they have huge

requirements for quality and safety, this is something that is global and we have never

participated in any global requirements earlier. So, it is basically giving us the

opportunity to quote for these jobs and hopefully get the job. What we will be quoting

for is basically is either pump or valve, we will not be supplying anything else.

Mr. Abhijit Vara:

Okay got it. And sir regarding this you know growth in distribution division, what is

exactly driving cyclic wise posture supplies I should say, 32% year on year growth. If

you could just please you know give us some as and where the growth is coming from?


Okay. The distribution sector actually looks at I mean this self pumps which are all

below 30 kilowatts and these go for industry, they go for domestic, and they go to

agriculture. The competitors here are not the major multinationals but the Indian

companies as well as the unorganized sector. Basic need of this sector is availability of

products and availability of products, the right products in the right place because the

duty conditions across India change from region to region. So you have to have the right

product, at your customer or available to your dealer, I mean available for the customer

or available to the dealer in a few days to ensure that sales take place. And what happens

is here a farmer or a housewife or someone would walk into a store and ask for a pump, a

domestic pump or an agricultural pump and say that you know I would like to buy this

pump, I would like to buy a Kirloskar pump or I would like to buy a Crompton pump or

Texmo pump, and she has her own choices or she has her own beliefs as to what she

would like to have which make she would like to have. But if one is to there, but the

need for water especially as you can understand for farmers, a farmer will have to have a

pump when he sees the need for water. So if the pump is there, then it will be sold, if it is

not there, someone else’s pump will be sold. So, one of the reasons for rise in net assets

is the fact that we have higher inventories which because we believed after the work that

we had done in the last two years to increase our network by appointing new dealers, new

retail agents and things like that, then we would need to carry a little higher stock to make

the sales happen. The fact that we sell the most efficient pumps and that has also been

advertised, we have the largest number of Bureau of Energy efficiency approved by third

party, five star rated pumps. So, that also helps us because there is an increasing

awareness of sustainability and energy efficiency now in the market. So, a good product

line, efficient product line, and availability in the market, that is what we have worked on

and that is what has resulted in this higher sale.

-18 -

Mr. Abhijit Vara:

Okay, right. Sir, regarding the investment in Hematic Motors, you increase your equity,

right? So, what was this capital requirement sir?


The exact transaction that has happened the last is difficult to explain. But the idea is

again coming back to the smaller pumps, increasingly the purchase decision is being

defined by energy efficiency and what we needed in house was electrical and electronics

supplier who can help us get there, and that is why Hematic Motors which was a group

company was brought into the KBL fold to ensure that KBL’s products have that

advantage in the market place. So that is the rationale for getting the Hematic into…,

because we need our own internal electrical and electronic supplier.

Mr. Umesh Shastry:

Actually three companies which was Hematic Motors, Pressmatic Electro Stamping and

Quadromatic, which were three subsidiaries earlier, and you know one was basically the

motor division, one was the stampings division, and one was the con rod and you know

small components division. Now, what happened was Hematic Motors actually based on

the share valuation which was done of the shares of Prismatic and Quadromatic,

purchased the shares of Quadromatic and Presmatic Electro Stampings, and a company

called Hematic Motors was formed. Now, we had advanced a loan to Hematic Motors of

about 30 crores in order to purchase the shares of Prismatic and Quatermatic which was

basically converted by us into a share capital in the Hematic Motors Limited itself. That

is why you know this figure of 30 crores has come. And as the CMD rightly said, all

these motors which we were hitherto buying the higher frame motors from Crompton and

others, now you know we have an in-house manufacturing facility available for the

motors that are required for our Devas, Coimbatore kind of products, and Kirloskarvadi

also of course, and we believe that this division will be that way from the perspective of

synergy and everything very-very good to have and it will definitely help us in order to

reduce our raw material cost also because we believe that the motors manufactured from

the Hematic Motors will be cheaper than the motors that the price you would have paid

had we purchased these motors from the Crompton and other motor manufacturing

suppliers.

Mr. Abhijit Vara:

Okay, fine sir. In fact I also understand you are executing one project in Egypt, right, one

large order. So, what is the status of this?

-19 -


Benban and Rozaikat are two pumping stations that are being executed in Egypt. We will

be handing them over by the end of this calendar year and they are near Aswan and

Luxor. When the Egyptian troubles took place, though it was not needed but we felt it

would be better to bring all our people over here because we did not know what was

happening. Our person in charge of this project actually he was very reluctant to come

because people are very friendly over there towards Indians, I mean all over Egypt, but

we still brought them because you know families were getting worried about their loved

ones. So, we brought them and they went back ten days later. The projects are being

executed on schedule.

Mr. Abhijit Vara:

Fine sir. That is all from my side. All the best.


Thank you.

Operator:

Thank you Mr. Abhijit. Once again, participants who wish to ask any question, please

press *1 on your telephone keypad and wait for your name to be announced.

Next in line, we have question from Mr. Gagan Thareja from BNK Securities. You can

go ahead.

Mr. Gagan Thareja:

Good evening sir.

Mr. Umesh Shastry:

Good evening.

Mr. Gagan Thareja:

Sir, you have given the composition of the order book in terms of your end user

industries. Is it possible to get a composition of your sales for the quarter like-wise with

a comparison with the corresponding quarter last year?

-20 -

Mr. Umesh Shastry:

You know, we are asked this question normally at practically every earnings call or even

in the past at the analysts meet which we use to have and we normally do not share this

information because you know since this information goes out to the public at large we

would not like you know to have this information available to our competitors from the

perspective of the sector wise data, so that is the reason why we do not normally give it

out or you know publish it in our presentation. It is only internally reviewed by us

naturally because these are all growth engines, so, you know different sectors.

Mr. Gagan Thareja:

Okay. Is it possible to get an idea about the order board of some of your subsidiaries,

especially the significant ones like SPP or Ebara?


I do not have it off the cuff. But I think SPP’s order board is around 24 million pounds.

Kirloskar Ebara’s order board is close to 120 crores though it is not the subsidiary, I

really should not have given you this number. And who else is there, Hematic Motors

and everything is all you know, this is like the distribution business. Kirloskar Brothers

Thailand and Kirloskar Brothers Europe have very small order boards in the range of 1 or

1.5 million dollars. The business also is I mean the sales throughput is very quick.

Corrocoat would probably have an order board of about 8 to 9 crores. Kolhapur Steel

also has an order board of about 8 to 9 crores.

Mr. Gagan Thareja:

My last question would pertain to competition, I mean there is news in the media

regarding Clyde putting facilities in India and possibly even having acquired an order for

a supercritical plant. We have already heard of Flow Serve and ITT and Grundfos in the

past. Do you see that I mean do you see that making the market more fragmented and

impacting you know the business economies in the immediate term?


Obviously as more players come in and a lot of the new ones are buying orders, the

market is going to get more fragmented. But these are companies against whom we win

orders abroad, so yes I mean it will depend order to order, how they fair, and how we fair,

and we know this while they are trying to come into our market, it is our job to also go

into their market. So, Clyde coming in, Clyde’s order would probably be for boiler feed

applications which is an application which KSB actually should be worried about because

we are not in that market of boiler feed pumps.

-21 -

ITT would come in with large circulating water pumps as well as pumps for irrigation

and they will be trying very desperately to get orders because ITT internationally is

splitting into three and they are trying to increase their order board. So, we will see that

happening over here as well.

Mr. Gagan Thareja:

Right sir. And there will be I mean bulk bidding for the NTPC orders, I mean

subsequently orders for pumps might go out. It might not happen immediately but I

mean what is your understanding of what would be the time gap between the initial

ordering for the boiler TD set and subsequent ordering for you know the other equipment

including pumps what could be the opportunity size there?


The CW system is usually amongst the last items to be ordered because it does not take

that much time. Earlier I think it would take 24 months or so. Currently, from order to

execution we normally quote about 12 to 15 months, though in some cases where

customers wanted some things urgently, we have supplied in five to six months, because

we are the only ones who have our own pattern shops, our own foundries, and things like

that. So, we are able to control the entire manufacturing process far better than anyone

else.

Mr. Gagan Thareja:

And what could be the potential opportunity size, addressable opportunity for you from

these bulk bidding orders?


Good question.

Mr. Gagan Thareja:

A ballpark sir, a ballpark number.


You know it depends on order to order, but I really cannot give you a ballpark figure

because I do to know what they will do in the end.

-22 -

Mr. Gagan Thareja:

Okay. And sir you have started your facility in Coimbatore, I mean it is probably the one

how in India which is known for pump manufacturing, your next door to CRI, Texmo,

Sharp, and you know a whole assortment of other unorganized companies, I mean you

indicated that availability is what drove you, but I mean is it a region which is not already

serviced adequately for pump?


Yes, Kerala and Tamil Nadu are our biggest markets for these small pumps, and that is

why we wanted to be there locally, we also wanted to learn from them. You are never

too big to learn also. So, the vendor base is also very well set up in that area and we went

there because huge opportunities are over there.

Mr. Gagan Thareja:

I mean should I presume that the growth for your Coimbatore sales is dependent upon

your gaining market share or do you feel that there is enough for everyone to grow

without eating out into someone else market.


I think that the market is such that there is room for everyone to grow, and if we increase

our market share while we are at it like we have been slowly doing for the last few years,

it is more fun.

Mr. Gagan Thareja:

Okay. And what could be the turnover from Ahmedabad and Coimbatore put together


I think we are looking at Coimbatore to go to 20,000 pumps which is the rated capacity of

the investment that has been made, and later on a little more investment will be made, not

of the same size but to take it to double that amount. So, we would like to make about

five lakh pumps from there, and five lakh pumps would be around 100 to 120 crores

turnover of that plant.

Mr. Gagan Thareja:

And for Ahmedabad?

-23 -


Ahmedabad is for submersibles and the initial turnover should be around…, because the

capacity will be around 87,500 pumps a month. So, the initial capacity to turnover itself

should be close to 100 or so crores.

Mr. Gagan Thareja:

And at optimal level?


After we invest, it can go anywhere up to 200 to 300 crores.

Mr. Gagan Thareja:

Thank you sir.


Thank you.

Operator:

Thank you. At this time, I would like to hand over the conference back to Mr. Umesh

Shastry for his concluding remarks. Over to you sir.

Mr. Umesh Shastry:

Okay. Thank you ladies and gentlemen for joining us for this quarter one earnings call as

well as for the questions that you have raised. I would now like to formally close the

session and transfer you back to the operator. Have a great evening. Thank you.

Operator:

Thank you sir. Ladies and gentlemen, that concludes KBL’s earnings call for today.

Thanks for participating. You may all disconnect now.

conference: earnings call 1q 11-12 company: kirloskar ... 1q11-12 earnings cal… · -1 -...

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