Kirloskar Oil Engines : FY 2022-23 Q4 Text Transcript

"Kirloskar Oil Engines Limited

Q4 FY'23 Earnings Conference Call"

May 19, 2023

MANAGEMENT: MS. GAURI KIRLOSKAR - MANAGING DIRECTOR -

KIRLOSKAR OIL ENGINES LIMITED

MR. ANURAG BHAGANIA - CHIEF FINANCIAL OFFICER

• KIRLOSKAR OIL ENGINES LIMITED

MR. RAHUL SAHAI - B2B CHIEF EXECUTIVE OFFICER

• KIRLOSKAR OIL ENGINES LIMITED

MR. ASEEM SRIVASTAVA - B2C CHIEF EXECUTIVE

OFFICER - KIRLOSKAR OIL ENGINES LIMITED

MS. SMITA RAICHURKAR - COMPANY SECRETARY -

KIRLOSKAR OIL ENGINES LIMITED

MR. AMIT GUPTA - CHIEF FINANCIAL OFFICER -

ARKA FINCAP LIMITED

MODERATOR: MR. AMIT SHAH - ANTIQUE STOCK BROKING

Page 1 of 15

	Kirloskar Oil Engines Limited
	May 19, 2023
Moderator:	Ladies and gentlemen, good day, and welcome to Q4 and FY '23 Earnings Conference Call of
	Kirloskar Oil Engines Limited hosted by Antique Stock Broking. As a reminder, all participant
	lines will be in listen-only mode and there will be an opportunity for you to ask questions after
	the presentation concludes. Should you need assistance during the conference call, please signal
	an operator by pressing star then zero on your touchtone phone. Please note that this conference
	is being recorded.
	I now hand the conference over to Mr. Amit Shah from Antique Stock Broking. Thank you, and
	over to you.
Amit Shah:	Thank you, Yashashri. Good afternoon, everyone. I welcome you all to Q4 FY '23 Post Earnings
	Call of Kirloskar Oil Engines Limited. To discuss the results today, we have with us now from
	the management of Kirloskar Oil Engines Limited, Ms. Gauri Kirloskar, Managing Director;
	Mr. Anurag Bhagania, CFO; and other senior dignitaries from the top management.
	I'll hand over the call to Ms. Gauri Kirloskar for her opening remarks, post which we can start
	the Q&A session. Over to you, ma'am.
Gauri Kirloskar:	Thank you very much. Good evening to all of you. This is Gauri Kirloskar, Managing Director
	of Kirloskar Oil Engines. I would like to thank you all for joining the call today. I have with me
	Anurag Bhagania, CFO; Rahul Sahai, our B2B CEO; Aseem Srivastava, our B2C CEO;. Smita
	Raichurkar, Company Secretary; and Mr. Amit Gupta, CFO at Arka.
	I will start with an overall business update, and Anurag will update you about the financial
	performance. A little less than a year ago, we started a journey of 2X-3Y. We said that core as
	an organization will grow 2x in 3 years. With that strategy in place, we started working on a
	major business transformation effort. The transition is still a work in progress. And for an
	organization of our size, it is a 3- to 4-year process. As is the case with any major business
	transformation effort, it is complex, it touches every part of our organization and many a times,
	we have to learn on the go.
	For an organization that has been in existence as long as KOEL, the change is even more
	complex than honestly challenging at times. And while we are doing all of this, the leadership
	team is fully cognizant that we have an existing organization to run immediate numbers to be
	delivered and stakeholder expectations of today to be met while getting ourselves organized for
	the future. It is a delicate balance that we are trying to strike. And so far, we have been pretty
	successful.
	The Q4 numbers and the FY 2023 numbers are indicative of both the beginnings of our
	transformation and also our ability to execute today's business opportunities while keeping a
	firm eye on the future. I am very pleased to present the Q4 and FY 2023 numbers. We continued
	our strong performance in Q4. For the quarter, the top line growth stand-alone was 16% and the
	full year revenue grew at 25% year-on-year. Across the board, both in the B2B and the B2C
	businesses, we saw strong growth. Demand in the B2B segment, especially in Power Gen and
	industrial engines continue to remain robust. On the B2C side, our channel expansion strategy
	played out well.
	Page 2 of 15

Kirloskar Oil Engines Limited

May 19, 2023

I would not attribute our performance only to the work that we are doing on strategy and execution, but also about a mindset of looking at challenges as opportunities and making full use of the opportunities when presented. Right through the year, we have had challenges around supply chain, but we were able to leverage the domestic supply chain nurtured and built over years to mitigate global supply shocks. We had the opportunity in terms of a stronger-than- expected order board, but our teams executed well to this challenge. This gives me immense confidence on our 2X-3Y strategy and our progress.

Now looking at the P&L performance, stand-alone EBITDA for the quarter was at INR99 crores, which is down by INR3 crores year-on-year. This is due to a onetime provision that we have taken as any good corporate citizen wood. We have made a provision of INR28.1 crores in line with our company policy of providing for aged overdue receivables. We are in active discussions with the customer for recovery of this amount and are reasonably confident we will collect this money. In the case that we are not successful, we have worked out a plan B to recover this money.

Despite this onetime impact for the full year, EBITDA is INR427 crores at 10.4% margin and is 59% up year-on-year. This performance is a mix of our efforts on pricing strategy and product cost improvements, product mix as well as volume gain due to strong demand. On overall yearly performance, exports grew around 50% year-on-year. I consider this good progress, and we are hopeful of maintaining our export growth volumes year-on-year.

On the B2B side, we are fully geared up now for the CPCB 4+ transition that is effective 1st of July. In fact, I'm happy to share that we are the first in the country to receive CPCB 4+ certification from ARAI on one of our product platforms. On the product side, manufacturing side and on the channel and aftermarket side, we are progressing as planned, and I'm confident that we will be ready with the right products at the right cost, at the right quality and all at the right time.

At a consolidated level, revenue from operations for the quarter is INR1,384 crores, which is 17% growth year-on-year. The full year revenue from operations is INR5,024 crores, a 25% growth year-on-year. At the net profit level, Q4 was at INR79 crores, 16% growth year-on-year. Net profit for the full year stood at INR332 crores, registering 94% growth on year-on-year. This reflects our efforts to improve profitability across all of our business segments.

This year, we completed the acquisition of LGM, and it is now a 100% subsidiary of Kirloskar Oil Engines. Our LGM business recorded INR122 crores of revenues for the quarter and INR546 crores for the full year. Our current focus is centered on implementing our leadership and management practices within this organization. And I'm very enthusiastic about the potential for LGM. Aseem and his team have a clear strategy, and they are already making steady progress on this front. We have acquired land to consolidate the LGM factories into one optimized unit, and our plan is to move into this factory before the end of fiscal year '25. We do expect to see further operational efficiencies with this factory consolidation.

Now coming to segmental performance, I wish to draw attention to the increase in profitability in all 3 segments. The B2B segment saw a margin improvement of over 200 basis points. The

Page 3 of 15

Kirloskar Oil Engines Limited

May 19, 2023

B2C segment turned its margins from negative approximately 1% last year to a positive 3%. And the Financial Services segment also experienced an improvement of approximately 200 basis points in margin.

With all the business updates done, I would like to also give an update on our ESG efforts and plan. Last year, we voluntarily presented the BR SR along with our annual accounts. Throughout the year, significant progress has been made in establishing a robust governance structure and implementing a comprehensive policy framework for our ESG initiatives. This demonstrates our commitment to creating value for all our stakeholders.

Furthermore, I am pleased to share that our Nashik plant was honored with the first price for National Energy Conservation Award 2022, organized by the Bureau of Energy Efficiency under the Ministry of Power, Government of India. The award was presented by the Honorable President of India. This recognition signifies our continuous efforts to optimize energy consumption and reduce our environmental impact. We remain committed to our mission to prioritize ESG considerations and contribute to a more sustainable future for our company and society as a whole.

To sum it up, I feel very proud of what we have achieved in the last 1 year, and it gives me immense confidence as we go into the next year. As part of the 2X-3Y strategy, we said that we will work on 5 core pillars, which are our core growth, technology, channel, operations excellence and people. Work is happening on each of these areas. Some are already showing results and some will over time. Reflecting on the progress we have made on the 5 pillars this year, I feel more assured of our capabilities. Having said that, there is still a lot more to be done, and my team and I are invested in our strategy and in executing our strategy.

With that note, I would like to stop here and hand the call to Anurag for his update on the financials.

Anurag Bhagania: Thanks, Gauri. Good evening, everyone. You've heard the business update. I will run quickly through the financial performance for the quarter and the year. As you see from the numbers, Q4 was another good quarter, I would say. I am happy to report that this is the third quarter in a row where we actually hit INR1,000 crores or plus in terms of revenue from operations, and I'm confident we are building a very strong foundation for our journey ahead.

Coming to the financial performance, I will start with a stand-alone performance first and review the Q4 financial year '23 performance on a stand-alone basis. Revenue from operations stood at INR1,152.6 crores for the quarter 4 financial year '23 versus INR990 crores for the same quarter last year, which is a 16% increase year-on-year. EBITDA stood at INR99.2 crores for the quarter 4 '23 versus INR102.6 crores for the same quarter last year, which is a 3% decline. EBITDA dropped first time below double digits due to onetimers impact, which Gauri also mentioned in her opening remarks. Profitability and expenses, as you know, includes a onetime cost of INR28.1 crores on account of provision for doubtful debts for aged overdue receivables.

We are in active discussions with the customers. But as per our consistent policy of good accounting standards, we are providing for this amount. On recovery, this provision will be

Page 4 of 15

Kirloskar Oil Engines Limited

May 19, 2023

reversed. EBITDA margins stood at 8.6% for the quarter, and this was 10.4% in the prior year same quarter. Net profit stood at INR64.9 crores for the quarter versus INR119.6 crores for the same quarter last year. Please note that last year, there was also a onetime gain coming out of sale of Arka, our subsidiary shares to the tune of INR52.6 crores. Cash and cash equivalents was higher than INR200 crores, actually, INR210 crores.

Now looking at the full year '23 financial performance at a standalone level. Revenue was INR4,116 crores versus INR3,300 crores for the prior year, which is a 25% increase year-on- year. EBITDA at INR426.9 crores in financial year '23 versus INR268.8 crores for the financial year 2022, which is 59% increase year-on-year. EBITDA margins at 10.4% versus 8.1% last year, and net profit at INR270.3 crores versus INR208 crores in the last year, which is a 30% year-on-year increase.

Here, if we remove the onetime impact of Arka shares, the net profit actually grew 74% year- on-year. Our working capital, which was trending at worse in the first half of the year have started to show early signs of softening. The increase in demand, the higher volume had led to significant increase in working capital, almost INR162 crores in the first half of the year FY '23. In the second half, we've actually seen a INR60 crores plus decline from that working capital level.

Now looking at the consolidated performance for the quarter. Revenue from operations was INR1,383 crores for Q4 FY '23 was INR1,182 crores for the same quarter last year, which is a 17% increase year-on-year. Net profit at INR78.9 crores for the quarter versus INR67.8 crores for the same quarter last year, which is a 16% increase year-over-year. And on a full year basis, revenue from operations stood at INR5,023.8 crores versus INR4,022 crores the prior year, which is a 25% increase. It's important to note at a consolidated level, we crossed the INR5,000 crores mark.

Net profit at INR331.7 crores for the financial year '23 versus INR170.9 crores in the prior year, which is a 94% increase year-on-year. As you know from previous quarters, we've adopted new reporting segments for our businesses, B2B, B2C and the financial services. Accordingly, I will share the financial summary in line with the new reporting segment at a consolidated level. Please also note that the prior year numbers have been adjusted to align to the new reporting changes that we've made.

Let us now look at the consolidated segment performance. For our B2B segment, the revenue for the quarter was INR1,000 crores, which is a 16% growth year-over-year. The segment PBIT stood at INR75.4 crores. For the full year, the revenue was INR3,582 crores, a 27% increase year-on-year with a PBIT of INR336.5 crores, which is a 65% growth year-on-year. As I mentioned earlier, these numbers reflect a onetime cost impact of INR28.1 crores in our B2B segment. So you will see the effect in the segment margins. Without this onetime impact, the full year segment PBIT has actually grown 79%.

B2C segment revenue for the quarter was INR271 crores, which is a 5% growth year-on-year. The segment profit PBIT was INR11.6 crores and for the full year, the revenue stood at INR1,071 crores with a profit of INR29.1 crores. For our B2C business, the highlight for the

Page 5 of 15