Kirloskar Oil Engines : FY 2023-24 Q1 Text Transcript

"Kirloskar Oil Engines Limited Q1 FY24 Earnings

Conference Call"

August 11, 2023

MANAGEMENT: MS. GAURI KIRLOSKAR - MANAGING DIRECTOR,

KIRLOSKAR OIL ENGINES LIMITED

MR. ANURAG BHAGANIA - CFO, KIRLOSKAR OIL

ENGINES LIMITED

MR. RAHUL SAHAI - B2B CEO, KIRLOSKAR OIL

ENGINES LIMITED

MR. ASEEM SRIVASTAVA - B2C CEO, KIRLOSKAR

OIL ENGINES LIMITED

MR. SMITA RAICHURKAR - COMPANY SECRETARY,

KIRLOSKAR OIL ENGINES LIMITED

MR. AMIT GUPTA - CFO, ARKA FINCAP LIMITED

MODERATOR: MR. DHIRENDRA TIWARI - ANTIQUE STOCK BROKING

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Moderator:Ladies and gentlemen, good day and welcome to the Q1 FY24 Earnings Conference Call of

Kirloskar Oil Engines Limited hosted by Antique Stock Broking.

As a reminder, all participant lines will be in the 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 '*' then '0' on your touchtone phone. Please note that this conference has been recorded.

I now hand the conference over to Mr. Dhirendra Tiwari from Antique Stock Broking. Thank you and over to you, sir.

Dhirendra Tiwari: Thank you very much. Good evening, ladies and gentlemen. On behalf of Antique Stock Broking, I welcome you to 1Q FY24 Post Results Conference Call of Kirloskar Oil Engines Limited.

We are pleased to have with us today Ms. Gauri Kirloskar - Managing Director; Mr. Anurag Bhagania - CFO and the Senior Management team of KOEL. We congratulate management team of KOEL for yet another strong performance during this quarter.

Now, I invite Ms. Gauri Kirloskar for initial remarks following which we will open the floor for Q&A session. Thank you and over to you, Ms. Gauri.

Gauri Kirloskar:Thank you very much. Good evening to all of you. This is Gauri Kirloskar - Managing Director of Kirloskar Oil Engines. Thank you for joining the call today. I have with me Anurag Bhagania

• CFO, Rahul Sahai - B2B CEO, Aseem Srivastava - B2C CEO, Smita Raichurkar - Company Secretary and Amit Gupta - CFO at Arka.

I will start with an overall business update and then Anurag will update you about the financial performance.

We have had a strong quarter. Revenue from operations for the quarter is at Rs. 1,265 crores, sustaining a 10% sequential and 33% year-on-year expansion on the topline. This quarter has marked a milestone with the highest sales ever recorded for both B2B and B2C segments achieving the best Q1 performance for international as well as distribution and aftermarket. EBITDA at Rs. 153 crores was up by 54% quarter-on-quarter and 48% year-on-year. EBITDA margin at 12.1% improved 350 basis points quarter-on-quarter and 125 basis points year-on- year. This performance is supported by robust prebuying activity within the power generation sector. When we exclude the impact of prebuy volumes for comparison, the revenue exhibited a 20% annual increase and nearly reached the levels observed in Q4 FY22. I am confident that this figure remains commendable given the historical trend of Q1 traditionally being lower than the preceding Q4 of each year.

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Our industrial business also incurred robust demand. The order book for our industrial division stands strong at the end of this fiscal primarily driven by substantial orders from the Indian Railways and Defense. The operational and business development aspects have seen significant activity during this quarter as well. I will give you an update on some of the key events.

First, the update on CPCB. There was a delay in the CPCB transition timeline two weeks before the earlier announced due date. This led to a lot of industry wide scrambling at the end of the quarter to first understand and then respond to the situation. We are confident that we are in a strong position as we are able to deal with the complexity of running both CPCB II and CPCB IV manufacturing line and managing the supply chain as well. We are also the first company in India to get our full range of 23 platforms of engines certified by ARAI for the CPCB IV emission standard.

At KOEL, we imagine a future in which internal combustion engines maintain their significance in providing power for various uses. The journey towards reducing carbon emissions and creating environmentally friendly engines will entail internal combustion engines utilizing cleaner and more ecofriendly fuels compared to conventional diesel engines or moving towards stricter emission norms within diesel.

With our in-house R&D efforts, we are designing our engines to be fuel agnostic. These platforms are not limited to single fuel source, but can operate efficiently and effectively on a diverse range of fuels. Here is a roundup of the recent developments and alternate fuel engines and our efforts to expand our product range this quarter. We now have a robust gas genset range as well as nodes that can run on ethanol as well as methanol. We also introduced Retrofit emission control devices for diesel generators ranging from 125 kVA to 1000 kVA.

Our RECD device stands out as an innovative technology capable of significantly reducing exhaust emissions that achieves an impressive 70% to 90% reduction in diesel particulate matter emissions and a minimum of a 70% reduction in other harmful pollutants like hydrocarbons and carbon monoxide. As state regulations become stricter, these RECD devices will be required to be installed on our already installed base of CPCB II gensets. We have also introduced Dual Fuel kits that we are distributing through our aftermarket channel.

From the product range point of view, I am very pleased to announce the OptiPrime series. This product is a twin engine power pack within the same canopy. The OptiPrime range will address applications that have variable power needs. It helps to reduce fuel consumption and carbon emission by almost 40%. This platform is available across our entire Power Gen range with both twin pack and hybrid options. We are excited with this launch as it also helps us mark our entry in the higher horsepower range with options up to 2000 kVA.

I will now talk about the standalone revenue breakup. The B2B segment with the topline of Rs. 1,095 crores booked 11% growth quarter-on-quarter and 36% year-on-year. Of the total B2B

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revenue, Power Gen revenue was Rs. 603 crores, industrial was Rs. 232 crores, distribution and aftermarket was Rs. 175 crores and international business was Rs. 86 crores. Our international business marked a growth of 29% year-on-year. The B2C segment with the topline of Rs. 160 crores registered 5% quarter-on-quarter and 15% year-on-year growth. Within B2C, the KOEL Water Management Solutions business recorded revenue of Rs. 134 crores and Farm Mechanization recorded revenue of Rs. 26 crores. Coming to the consolidated performance, the revenue for this quarter was Rs. 1,543 crores, registering 30% growth year-on-year. We booked profit before tax of Rs. 170 crores which was 54% higher year-on-year.

Regarding Arka, we are progressing as per the plan. The loan book for the quarter was at Rs. 3,656 crores. The net profit for the quarter was Rs. 16 crores, registering 4% growth year-on- year. In summary, it is a great start to the year for KOEL with a strong Q1 performance. We believe we are progressing well on our strategic growth path.

I will now take a stop and hand it over to Anurag.

Anurag Bhagania: Good evening, everyone. Thank you, Gauri for the updates on the business side:

I will now run you through the "Financial Performance" for standalone and consolidated businesses:

As you will see from the numbers, Q1 was a very strong quarter for KOEL, though these numbers were on the back of strong onetime prebuy volumes of CPCB. As I would like to reiterate that even without this prebuy, the topline was 20% higher year-on-year. This is now 4 quarters in a row that we have crossed Rs. 1,000 crores in revenue. During the quarter, we were also able to take price actions due to increased demand resulting in improved margin rate for the quarter.

Coming to the financial performance, I will start with the standalone performance first:

Review of Q1 FY23 "Financial Performance" standalone revenue from operations was Rs. 1,264.7 crores in the current quarter as against Rs. 953 crores for the same quarter last year, which is a 33% increase. EBITDA at Rs. 153 crores in the current quarter versus Rs. 103 crores for the same quarter last year, which is a 48% increase year-over-year. EBITDA margin stood at 12.1% for the current quarter versus 10.8% for the same quarter last year. Net profit was at Rs. 103.2 crores in the current quarter versus Rs. 64.6 crores for the same quarter last year registering a 60% increase on net profit.

We ended with a strong cash position as well. Net cash and cash equivalents at the end of the quarter stood at Rs. 300.4 crores versus Rs. 210.4 crores in the end of the previous quarter. Our working capital, which was trending adverse for the last few quarters, has started to show signs

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of softening. In this quarter, we were able to reduce our net working capital to about Rs. 99 crores versus Rs. 133 crores at the end of the previous quarter.

Let me now look at the consolidated financials, the performance for the quarter. Revenue from operations was Rs. 1,543.4 crores for the current quarter versus Rs. 1,191.4 crores for the same quarter last year, registering a 30% increase year-on-year. Net profit at Rs. 125.5 crores versus Rs. 82.1 crores for the same quarter last year generating a 53% increase year-on-year. Looking at the consolidated segment performance now, please note that the last year's numbers have been restated to align with the changes in the segment reporting.

The B2B segment revenue for the quarter was at Rs. 1,105 crores at a consolidated level, which is 35% growth year-on-year. The segment PBIT stood at Rs. 132.4 crores, reflecting approximately 75% increase year-on-year. Please note that the B2B performance has an effect of a prebuy for CPCB IV+ transition. If we take that effect out, the topline was Rs. 982.9 crores, which is still a 20% increase year-over-year. B2C segment revenue for the quarter was at Rs.

1. crore, which is a 4% growth year-on-year, but the highlight is the segment PBIT was at Rs. 17.4 crores up almost 15% year-on-year. Financial Services segment revenue for the quarter stood at Rs. 128.2 crores, reflecting a 65% increase year-over-year and segment PBIT at Rs.

1. crores, there is a 4% increase year-over-year.

	We have provided additional details of our segment and business wise performance to the
	investor presentation that we uploaded on our website. If you read through them, the standalone
	sales has business unit breakdown and it is in line with the way we have structured internally.
	Exports are mostly managed in the International business group within the B2B segment.
	However, please note that exports also happen directly in other business units and are recorded
	in the respective business units. Therefore, when you look at the total standalone sales, we have
	also broken down the sales into domestic and exports to provide additional clarity. Similarly,
	our segment wise consolidated performance slides also show domestic and export breakup at
	each segment level.
	To conclude, I would say this quarter we continue to deliver a very strong performance. Our
	outlook for the quarter is cautious as well as optimistic as the strong prebuy demand is not
	expected to continue. However, we remain positive about the growth outlook due to our ability
	to expand our product portfolio and offerings to serve the customer needs across new
	geographies. These elements are pivotal to our 2X-3Y strategy and as a team, we are
	continuously working towards realizing these market opportunities.
	With that, I hand it back to you, Amit.
Moderator:	Thank you. We will now begin the question and answer session. The first question is from the
	line of Renu Baid from IIFL Securities. Please go ahead.

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