WPIL Ltd – Global Water Pumps

Q3 FY ’24 Concall notes

Financials (Q3):

• Revenues: INR 431 crores (35% QoQ).
• EBITDA: INR 70 crores (5% QoQ), Margins: 16.24%.
• PAT: INR 535 crores (Inclusive of INR 493 crores from woodshed business).

Financials (Nine-Month FY2024):

• Revenues: INR 1,073 crores.
• EBITDA: INR 196 crores (19% YoY), Margins: 18.3%.
• PAT: INR 194 crores, PAT Margins: 11.13%.

Operations:

• Rutschi sales concluded, strengthening balance sheet.
• Project revenues rose from INR 130 crores to INR 214 crores QoQ.
• Domestic segments performed robustly.
• International growth expected in South Africa and Sterling, Australia.

Outlook:

• Continued project revenue momentum.
• Steady domestic order book.
• Anticipated international growth in key markets.

International Order Book Decline (45%) and Rutschi Impact:

• 45% decline attributed to exclusion of Rutschi’s long-term contracts.
• Order book, excluding Rutschi, remains strong and well-positioned globally.

Overall Order Book Strength:

• Robust order book in all three major business segments.
• Domestic product and project orders are solid.
• Focus on addressing challenges related to execution improvement.

Nuclear Sector Involvement Post-Rutschi Exit:

• Full exit from nuclear business associated with Rutschi.
• Continued domestic production of certain pumps for the nuclear sector (excluded from Rutschi transaction).

Performance Comparison Q3 FY24 vs. Q3 FY23:

• Minimal growth, earnings declined.

Management Explanation:

• Year-on-year flatness from Dec 31, 2022, to 2023.
• Foresees a robust Q4 with expected growth.
• Attributes flat performance to a remarkable jump in the previous year (INR 1,000 cr to INR 1,800 cr).
• Anticipates sustained growth, though not as significant.

EBITDA Margin Fluctuation:

• Q3 international EBITDA margin dropped from 22% to 11%.
• Attributed to revenue shifts, not margin challenges.

Revenue Impact Clarification:

• Emphasizes that margin drop results from revenue fluctuations, not reduced profitability.
• Suggests considering nine-month and yearly figures for a more accurate assessment.

EBITDA Performance and Guidance:

• Q3 standalone EBITDA: 19%, nine-month EBITDA: 17.64.
• Indicates stability across product and project divisions.
• No significant project ramp-up to maintain EBITDA and contractual commitments.
• Emphasizes the critical importance of maintaining EBITDA margin.
• Benchmark figures for guidance: 17.64 standalone, 18.27 consolidated.

Execution Capacity and Future Growth:

• Identifies growth in domestic and international product segments.
• Improved project performance with an INR240 crores run rate.
• Resolved supply chain challenges.
• Anticipates growth with a robust order book.

Post Rutschi Exit and Plans:

• Plans for capital deployment in inorganic expansion.
• Exploration of opportunities within and outside India.
• Focus on opportunities within the company’s core expertise.

Project Execution and Revenue Decline:

• Improvement in project execution noted in the current quarter.
• Overall nine months show a decline in revenues.
• Order book stands at INR3,800 crores (3500+ project, 260 product)
• Average project completion time: 24 to 30 months.

Management’s Explanation:

• Two aspects of project work: supply side and construction side.
• Last year witnessed a ramp-up in the supply side, contributing to good revenues.
• Lower supplies in the first half due to market challenges, now picking up.
• Major rebound in construction this year, expected to increase quarter-on-quarter.
• Emphasis on execution before booking more orders.

Q4 Project Execution and Growth:

• Expecting better Q4 project execution compared to the previous year.
• Targeting improvement on last year, aiming for around INR900 crores.

Pump and Accessory Business:

• Decline noted in the current quarter and a 6% growth on a nine-month like-to-like basis.

Management’s Insight:

• Segment has a strong order book and good execution.
• Anticipates growth, though not as high as last year.

Unallocable Expenses and Tax Rate:

• Sharp rise in consolidated unallocable expenses in the nine months.
• Effective tax rate for nine months closer to 30%, up from 25.6% last year.

Management’s Clarification:

• Unallocable expenses increase due to specific regrouping in consolidated figures.
• Tax rate influenced by capital gains tax for a transaction.

Proceeds from Rutschi and Future Plans:

• Priority was debt settlement, freeing up INR650 crores cash with INR150 crores in borrowings.
• Focus on growth opportunities, primarily utilizing available cash.
• Considering reversing holding or fixing leakages in minorities at Holdco level if growth opportunities are not realized.

Current Strategy:

• Primary target is growth, exploring interesting ideas and markets aggressively.
• Fixed deposit rates are favorable, cash is effectively parked.
• Will review strategies if growth opportunities are not effectively utilized.

Profit Margin Decline:

• Operating margins dropped from 19.2% to 16%.
• Main raw material: steel; prices stable.
• No specific reason for the decline.
• Middle East crisis, Suez Canal blockage affecting Italian business’s supply chain in Europe.
• Some missed dispatches last quarter will shift to the current quarter.
• Nine-month EBITDA margins at 18.27%.
• Assured decline not due to costs or revenue.

Future Outlook:

• No expectation of further margin erosion.
• Positive environment, anticipates improvement.

User Industries and Growth:

• Domestically, industrial segments like steel and oil and gas are contributing to the growth.
• Municipal segments are strong due to focus on Jal Jeevan and Swachh Bharat missions.
• Internationally, oil and gas markets in Australia and Italy are robust.
• Strong presence in municipal water supply markets, especially in South Africa’s mining industry.