Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Kirloskar Oil Engines Ltd (BOM:533293, Financial) recorded the highest ever Q1 sales at INR1,334 crores, a 6% increase year-on-year.
- EBITDA margin improved to 14.7%, up by 250 basis points from the previous year.
- Net profit for Q1 FY25 was INR135 crores, a 30% increase year-on-year.
- The Industrial segment experienced substantial growth of approximately 38% year-on-year.
- International business grew by 23% year-on-year, showing significant progress in expanding global reach.
Negative Points
- The Farm Mechanization segment experienced a decline in sales.
- PowerGen sales declined by 13% year-on-year, although this was offset by growth in other segments.
- Working capital increased by INR135 crores due to gearing up for CPCB 4+ production, impacting cash flow.
- The Financial Services segment saw an 11% decrease in PBIT year-on-year.
- There was a 34% year-on-year decline in the Farm Mechanization sales within the B2C segment.
Q & A Highlights
Q: For the segmental revenue you shared, data center-related revenue comes in power generation, right? So I wanted to understand how much portion of power generation revenue is linked to data centers?
A: Hi, Rishabh, so this is Rahul. I wouldn't be in a position to give out a specific number. But from a business standpoint, we are focused on the data center segment. Today, it is not extremely significant for us. Going forward, given the product ranges that we've entered into, it will be far more significant.
Q: Have we explored exporting gensets for data center usage abroad? And like what are the main players who are in the export business internationally for that? And any cost difference or quality difference we have versus competitors abroad?
A: Thanks for asking that question. Like I was saying that we are focusing on products that go into data centers. We are aware of the competition. So you have all the large engine manufacturers focusing on data centers. We are very aware that it's a growing market. If we go into the market depending on what market it is, we will be able to have varying value proposition. Cost leadership could be one of the value proposition, but product differentiation is also something that we are focusing on.
Q: When we look at the end market right now, how is the demand environment you are seeing as this transition is happening to CPCB 4? So maybe if you can just give some color from the various end markets perspective, the demand or the inquiry pipeline?
A: It's Rahul. So, if I look at -- and I'll answer the CPCB 4 ramp up with our GOEMs first. Just in this last quarter, we ramped up to very close to our normal CPCB 2 numbers with CPCB 4. Now the inference from that is that since the primary billing is happening, the demand continues to be strong because we operate on the replenishment model, theory of constraints. From a lead standpoint, and these are end customer leads, we are not seeing any major changes in terms of demand signals. So the demand continues to be strong. Gensets continue to be leveled to back up for critical infrastructure projects. And we are not seeing any softening happening. We are keeping a close eye on market developments. But at this point, we see that market continues to be strong.
Q: On the spare parts business, if you can touch upon that with the CPCB 4 compliance increasing and the entire provision happening. How do we see the spares business growing over the next two to three years? What could be the growth trajectory in the spares business as more and more now gensets come to the OEMs are more get serviced by our own service partners rather than going outside. So how does that positively impact the service business?
A: Right. So you're right, it will definitely positively impact the service business. Now that is a function of two things. One is the technology becoming more complicated. So that's from the market side. And the second thing that we're doing is we are also ramping up on our service channel capabilities. So there is some restructuring work that we're doing there as well. To ensure that, we're able to respond to our customers in time. Now if you look at the last quarter's performance of our aftermarket business, it is substantial double-digit growth. And that is primarily because of these two key initiatives.
Q: You mentioned your 2030 mission. So if you can just break up this $2 billion revenue target between the product side and the Arka side, what would be the difference and importantly the revenue of these two businesses? And also, you mentioned that there could be some inorganic activities also. So excluding the inorganic part also, what kind of revenue you are looking at from the product business?
A: Yes. Thanks for your question. First, I just want to state that again, the five-year target is an ambition. So that's number one. And if you look at the slide that we put up on line, we have talked about some of the strategic levers that we will focus on to get to that kind of growth. So we are very clear (inaudible) where we need to focus. I'm not going to, at this point, be able to give you a business-wise breakup. So what I can say is that most of the growth achieved will be on the B2B side. And if you look at the growth rates that we've achieved historically over the last two years, that's the sort of trajectory that we would expect. So I'm going to leave it that. The detail that we want to provide has been provided in this slide, and it's really going to be impossible for me to dwell further than that because even if you look at 2X3Y, when we had announced it two years ago, we had actually specified certain, say, buckets of revenue as a bridge. If you look back, the way it's panned out is quite different. So yes, that's part of the detail that I can give you right now.
Q: The international side numbers have been pretty good, 23% growth. I'd love to hear a little more color on what's working within that? What's not working within that? And do you think that this growth rate can sustain over the next 12 months?
A: Jeetu, this is Rahul. So thank you for your compliment. We are very focused on the international side. And what we are doing is we are taking a very close look on the kind of competition we have, the kind of products that we need to create to win those markets. And most importantly, what is the channel and distribution structure that we need to have. So if you, for a moment, look at the investment that we made in Engines-LPG LLC, that is (inaudible) the brand. That is an outcome of one such analysis, and it is part of our Americas strategy. So there are different strategic moves we are making in different markets. They're seeing a positive payback of those initiatives and which is reflecting in some of the growth that we are seeing. And we remain pretty committed to that thought process. Because unlike India and while we club it as International business, but each of these countries are fairly unique with their own dynamics. And a thorough evaluation is needed. So that's basically where we are. So we're being very, very deliberate about that process.
Q: Arka will add a INR5, 700 crore balance sheet there, AUM there. What is the plan going forward? And would do you think there'll be some kind of I don't know how to say, spinoff or whatever activity over there that we had talked about earlier?
A: Yes. Thanks, Jeetu, for the question. Amit, do you want to you want to -- you want to answer and I can supplement if required?
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
