GMM Pfaudler (NSE:GMMPFAUDLR) Q2 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to GMM Pfaudler Limited Q2 FY 'twenty seven Earnings Conference Call. 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. Please note that this conference is being recorded. I now hand the conference over to mister Robin Kanavar. Thank you, and over to you, sir. Thank you, and good afternoon, ladies and gentlemen. A very warm welcome to all of you into the q two and h one FY twenty seven's earnings call of GMM Pfaudler Limited. The earnings presentation was uploaded on the stock exchanges yesterday and is also available on our website. Hope all of you had a chance to go through it. From the management today, we have with us our managing director, mister Bharat Patel, our group CEO, mister Gregory Gathaus, our group CFO, mister Ankit Najah, our company secretary, mister.

1:03 We will give you a brief overview of the performance of the company. After which, we will get into the q and a. Before we begin with the overview, a brief disclaimer. The presentation that was uploaded on the stock exchanges and also on our website, including our core decisions that will happen now, currently, we have certain overview statements regarding our business prospects and profitability, which are subject to several risks and uncertainties. The actual results could materially differ from those in such forward looking statements. I will now hand over the call to mister Tata Patel, our MD, to provide you with an overview of the performance. Over to you, Tal. Thank you, Raveen. Good afternoon, everyone, and thank you for joining us to discuss our Q2 and H1 FY seven.

1:52 Before we begin, I would like to wish everyone a very happy and prosperous Diwali. May the festive season bring happiness and success to you and your families. I am pleased to report that GMM Pfaudler continued to demonstrate strong business momentum during the quarter. We recorded the highest ever quarterly order inflow in the company's history, crossing INR 1,000 crores for the consecutive quarters and reaching INR 1,200 crores with strong India order intake of about INR $4.83 crores also being the highest ever and more than doubled sequentially. This reflects the strength of our technology, customer relationships and market positioning. The performance was broad based with all four business divisions contributing to order growth.

2:41 These orders are coming from investments being made in pharmaceuticals, especially in CDMO, peptides, petrochemicals, fertilizers, defense, energy, minerals. While the external environment remains challenging in certain markets, our diversified portfolio, strong order pipeline and established technology capabilities provide a solid foundation for growth. On sustainability, I'm pleased to share that Crystal has awarded GMM Pfaudler an ESG score of 61 for FY 2026, placing us in a strong category compared with a score of 50 in FY 2025, which was classified as below average. The improvement reflects the progress made in strengthening our ESG framework and integrating responsible business practices across the organization.

3:29 Restructuring. Let me turn to our broader transformation program. Our objective is to build a globally integrated organization with stronger accountability, simpler decision making, better resource utilization and a more competitive cost structure. We have made good progress in moving our four divisions towards a more integrated global operating model. This structure allows each division to focus on its business priorities while leveraging the group's technology, resources and capabilities. An important part of this transformation is addressing structural profitability challenges in certain European operations. Europe's chemical industry is going through a major reset with multiple plant closures and low investment in new large scale capacity. These conditions have particularly impacted and affected some of our European operations, where relatively high cost base is becoming difficult to sustain at current business volumes.

4:23 During H1 FY twenty twenty seven, our loss making European entities reported an EBITDA loss of approximately 43 crores, impacting the group's reported profitability. We are addressing these challenges through a restructuring program focused on key priorities: aligning costs with the current business volumes improving manufacturing efficiency and capacity utilization and establishing a more competitive European manufacturing footprint. We are progressively shifting our manufacturing activities to Poland, have completed the closure of the U. K. Facility and have implemented the workforce reduction measures in Germany. Europe continues to remain an important part of our technology and business platform. The objective is to improve its operating model and cost competitiveness while retaining the capabilities critical to our business growth.

5:13 Greg will provide more details on the execution of these initiatives and the operational improvements underway. At the financial and organizational level, our priorities include rationalizing our fixed costs, refinancing, debt reduction, group tax strategy and legal and during the first half, we have repaid approximately INR116 crores of net debt. Together these initiatives are aimed at improving our financial flexibility, strengthening the balance sheet and simplifying the group structure. Coming to our outlook, we remain confident in the underlying strength of our business. Our core operations continue to benefit from healthy demand and strong order inflows across divisions and geographies.

5:58 For FY twenty twenty seven, we expect revenue growth, double digit growth supported by momentum across our business divisions and the reported EBITDA margin of about 10% to 11%, including the loss making entities. In terms of our loss making entities, adjusted EBITDA margins are at 14% to 15%. To put it simpler term, 80% of our business is operating at EBITDA margins of 14% to 15%. This adjusted margin guidance reflects the underlying earnings potential of our core business, while recognizing the near term impact of the European restructuring program. Our focus remains on delivering the growth, improving profitability, strengthening cash generation, while building a more efficient and globally integrated organization.

6:47 Before I hand over to Greg, would I like to acknowledge the contributions of Mr. Thomas Kale, CEO, International Business and Mr. Alexander Pompner, Group CFO. We thank them for their contributions to the company and wish them the both the very best for their future endeavors. I would also like to welcome Ankit as part of the leadership team as Group CFO. With that, let me hand over to Greg, who will provide an update on business performance and take you through the operational restructuring program in greater detail. Thank you. Thank you, Tarek. Good afternoon, everyone. I wish you also a very happy Diwali and a prosperous New Year. As Tarek mentioned, we delivered strong revenue and order growth in Q2, building on the encouraging start to the year.

7:38 Business momentum remains healthy across our four divisions. Our consolidated order backlog stands at a record high of INR 2,446 crores, up 14% year on year, providing good visibility for the second half of FY 'twenty seven. Order intake grew by 17% year on year on H1 FY 'twenty seven, with nontraditional industries contributing 44% of the quarter's orders with India also recording a highest ever order intake of INR $4.83 crores and being more than double sequentially, driven by large orders in our HET business.

8:27 This reflects the progress we are making in diversifying our revenue base and reducing our dependence on traditional end markets. We are also seeing the benefits of our global operating structure through improved accountability, closer coordination and better alignment across divisions. Our focus is now on converting this commercial momentum into consistent execution, improved margins and stronger cash generation. I would like to now focus on our European restructuring program. As Tarek mentioned, certain European entities have been weighing on group profitability.

9:13 Our priority is to bring the cost base in line with current business volumes, improve operational productivity and establish a more competitive manufacturing footprint. These measures are intended to create a leaner operating structure while maintaining the quality, technical capabilities and customer service standards required by our business. The focus is to improve productivity and ensuring that our cost structure is aligned with business requirements. A key part of our restructuring is the progressive transfer of selected manufacturing activities to Poland.

9:59 Poland offers a more competitive cost environment and provides an opportunity to develop a scalable manufacturing base for our European operations. This will allow us to improve manufacturing economics, optimize capacity utilization and better align production costs with customer requirements. Over time, we expect Europe to have a rationalized operating model with India and Poland being used as low cost manufacturing hubs while due to retain its strategic technology and business capabilities. The transition is being implemented in a phased manner with due consideration to quality, operational continuity and customer commitments.

10:52 Our restructuring program focuses on consolidating our European manufacturing footprint. We have closed our U. K. Facility and implemented the workforce reduction plan in Germany. The European restructuring program is ongoing. As these operations across these operations, our objective is consistent: address structural losses, reduce fixed costs, improve capacity utilization and establish a more competitive operating model. These actions are necessary to reduce the drag from loss making entities and improve the quality of the group's earnings. And we expect FY 'twenty eight to be an important year for the benefits of our transformation program.

11:40 The expected improvements are across five key areas. For number one, four global divisions are our four global divisions are fully established, clear ownership of growth and profitability in each business. The second is reduced European drag where the restructuring benefits begin to show up in group margins. The third is our group overall group initiatives, which gained traction, cost efficiencies and a greater use of low cost manufacturing sites to support profitability. Number four, stronger earnings conversion with lower financing costs from our refinancing and debt reduction programs and a simpler legal and tax structure.

12:32 And number five, a strong order book, including the record backlog that we carry, which carries us with momentum into FY 'twenty eight. We expect the benefits of these initiatives to start to come in from FY 'twenty eight onwards. The structural exercise aimed at addressing the underlying issues in our operations rather than providing short term relief. With strong order momentum across our divisions and a more competitive operating model taking shape, we believe GMM Pfaudler is positioning itself for improved profitability and sustainable growth. Overall, we remain confident in the long term potential of the group and the progress that we are making.

13:26 With that, I would like to hand over to Ankit to take you through our financial performance and the factors impacting profitability in first half of our fiscal year. Ankit? Thank you, Greg. Good afternoon, everyone. Let me also wish you all a very happy and prosperous Diwali. As discussed, we continue to see encouraging business momentum, support flows and healthy revenue conversion. Alongside this, we are making progress on our operational and financial transformation initiatives. Let me now take you through our financial performance for the quarter and first half of FY 'twenty seven. Order intake during the quarter was a record INR $11.98 crores, up 36% year on year and 19% on a sequential basis.

14:20 This reflects healthy demand across our technology portfolio. Order intake during the half year was a record high of INR 2,204 crores, up 17% year on year. Consolidated revenue for the quarter stood at INR $10.65 crores, growing 18% year on year and 15% on a sequential basis. For H1 FY 'twenty seven, revenue stood at $19.89 crores, representing a growth of 17% year on year. This performance reflects healthy order inflows and continued conversion of our order backlog into revenue. Moving to EBITDA performance and margins. EBITDA for the quarter stood at INR 110 crores on a sequential basis, improving by 18%, which was supported by across our businesses.

15:14 Reported profitability continues to be impacted by certain loss making entities within the group. Excluding these loss making entities, Q2 EBITDA would have been about INR 139 crores, a margin of 15.9% compared with the reported margin of INR 10.3. For H1 FY 'twenty seven, reported EBITDA stood at INR $20.04 crores, a margin of 10.2%. Excluding the loss making entities, H1 EBITDA was about INR $2.47 crores, a margin of 15.2%. This reflects the underlying strength of our core business and the improvement in operating performance across the group. While the loss making entities and certain transformation related costs continue to impact reported profitability, we remain focused on addressing these challenges through cost optimization, operational efficiencies and broader restructuring program.

16:12 We expect the benefits of these initiatives to become increasingly visible towards the end of FY 2027 with the fuller impact accruing from FY twenty twenty eight onwards. Our gross margins in the quarter have reduced because of the impact of loss making entities, which Greg spoke about, and we are making restructuring efforts towards them, and we were still able to improve our EBITDA margins on account of operating leverage on top line growth, which demonstrates the strength of our business. Profit after tax for the quarter stood at INR 35 crores compared with INR 38 crores in the corresponding period last year and 59% sequentially. For H1 FY 'twenty seven, reported PAT stood at INR 57 crores, up 20% year on year with a margin of 2.9%, which has already surpassed the FY 'twenty six full year profit.

17:11 Improving the conversion of EBITDA to PAT remains an important financial priority. We are working on improving operating profitability, reducing finance costs and optimizing our overall capital structure. Alongside operational improvements, we are progressing with several important financial initiatives. Our priorities are focused on three key areas: one, group wide refinancing and debt reduction. We have made good progress on our group wide refinancing program with the objective of strengthening our capital structure, improving financial flexibility and reducing during H1 FY 'twenty seven, we repaid approximately INR 116 crores of net debt, and we remain focused on improving cash generation and managing working capital with discipline.

18:06 As the refinancing program progresses, we expect lower finance costs and reduced foreign exchange volatility, which should support improved earnings and greater predictability in our financial performance. Strengthening our balance sheet remains a key priority. We continue to focus on debt management, cash flow generation and disciplined working capital management. Group strategy and legal entity simplification is another important objective. We have made good progress with our group wide tax strategy and legal entity simplification initiatives as shared in the last quarter. The objective is to create a more efficient group structure, optimize tax arrangements across jurisdictions and simplify the management of our international operations.

18:52 We are on track on these initiatives, time lines, which will also help in streamlining transactions, improve tax efficiencies and support better capital allocation across the group. We are also pleased to report that Crystal has maintained our credit rating at AA- with a stable outlook. Collectively, these initiatives are expected to improve our financial flexibility, reducing finance costs and strengthening the group's overall financial position. Moving on to the performance of our business divisions. Let me take you through the four divisions. Corrosion Resistant Technology revenue of INR 500 crores during the quarter, flat year on year and up 7% sequentially.

19:38 Order intake stood at INR $5.56 crores, up 11% sequentially and up 15% year on year. For H1 FY 'twenty seven, revenue stood at INR $9.66 crores, representing growth of 5% year on year, while order intake was INR $10.58 crores, up 19% year on year. Moving to PPT. The division reported revenue of INR $3.31 crores, growing 30% sequentially and 34% year on year. Order intake stood at INR $3.64 crores, which is flat Q on Q and up 85% year on year. For H1 FY 'twenty seven revenue for PPT was INR INR586 crores, representing growth of 29% year on year, while order intake stood at INR731 crores, up 74% year on year.

20:32 HET reported revenue of INR92 crores, growing to 24 sequentially and 38% year on year. Order intake during the quarter stood at INR $20.01 crores, which is up two forty eight percent on a sequential basis and 254% year on year. For H1 FY 'twenty seven, revenue was INR165 crores, representing growth of 17% year on year, while order intake stood at INR258 crores, up 306% year on year. PST reported revenues of INR142 crores, growing 8% sequentially and 57% year on year. For H1 FY 'twenty seven, revenues stood at INR273 crores, representing a growth of 51% year on year.

21:20 Order intake was INR157 crores for the first half, including INR77 crores in Q2. To summarize, while reported profitability continues to be impacted by certain loss making entities and transformation related costs, our adjusted margins demonstrate the underlying strength of the business. Our focus remains on improving operating performance, executing the restructuring program, reducing debt and strengthening the group's financial position. We believe the combination of improved operational efficiency, financial restructuring and disciplined capital allocation will support stronger earnings and sustainable value creation over the medium term, and we remain confident of delivering our FY 'twenty seven guidance.

22:08 Thank you. With that, I hand over. Thank you, Ankit. Ankit, you may now open the line for questions. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the touch tone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Sameer Thakur from Ambit Private Limited. Please go ahead. Yes, fine. Thanks. I hope I'm being audible.

22:54 Yes, go ahead. Yes, sir. Yes. Okay. Thanks. Yes. The first question is, what are the cost savings targets which you have for the European restructuring? Any target which you have in mind for the margins and all? And what would be the restructuring cost for this? Will that be taken this year or next year? So any color on that would be useful. So I think a couple of points here. We've mentioned that some of the restructuring work has already been initiated and completed. So of course, the big cost was The UK shutdown, which is now done. And then last year, we only had all the costs taken in in our Germany restructuring, the 40 plus employees that have been reduced. So that impact will start showing up in h two of this year and then fully for the next year as well.

23:43 There are other costs that we have also looked at in Europe. You would have seen that as part of our transition and reorganization, we now do not have a position of CEO international, and we obviously have a group level CFO, which is unclear. So that cost structure will also be saved. We are currently also reducing and restructuring our Swiss operations as well and that plan is under implementation as well. So some of those benefits we will see in the next financial year. We don't expect any large additional cost on the account of restructuring in Europe. The big one, which was related to the German restructuring has already been accounted for and fully in last year's numbers.

24:30 So we don't see most of the benefits will start to move. We don't see any major restructuring costs attached with this new restructuring program. Okay. That's helpful. Second question is on heavy engineering, very strong growth here. It seems like you are taking market share, if I'm not wrong. And what end markets you are seeing more traction with respect to chemical, thermal, nuclear? And also any export opportunities here or it's mostly domestic? Any color on Sure. So like you rightly said, the hedging business has done exceedingly well, not only last quarter, but the order intake has continued into this quarter as well. There was a large order from Africa that we received, which was basically spread over two industries, oil and gas, petrochemicals and fertilizer as well.

25:21 What has also been quite successful for us is our work in the nuclear sector. So the work that we have done with the Nuclear Power Corporation of India, with mega engineering, those are two areas that we believe will continue to be growth areas for us now with the new five new nuclear reactors plants, LNG and some other Indian companies have now been approved and that work will start as well. And then eventually, there will be private participation as well in this nuclear space. So we are quite bullish on nuclear. We want to continue growing our market share in this area. And because of the earlier work that we have done with them through HBO, the company that we acquired, we already have a good footing in that industry as well. Lastly, on the thermal power side as well, we have now broken up into this sector as well, which we believe will be an important sector for growth. We have received orders now for LP heaters and SP heaters, again, both critical to thermal power. Not many people in India qualified for these equipment, and we finally made a breakthrough. So nuclear and thermal power will remain a very important part of our growth story going forward for heavy engineering.

26:36 Okay. That's helpful. On the margins, the gross margins were lower than at least my expectations. Was it fair to assume that the gross margins in the backlog could be better than what we see in the P and L? Any commentary on that would be useful. Yes. So I think before I hand over to Ankit and then to Greg to talk about this, I would also just maybe take you back a little maybe six, seven months. So the backlog that we are eating into now right now, obviously, came at a time when the markets were obviously a lot softer, demand was slower. And hopefully, going forward, the backlog that we have in our hands today is obviously more profitable, right? We already see an improvement here in India in kraftliner prices. I think across the world, you'll see some of that. And then with the operating leverage kicking in with the volumes now being much, much higher, the Indian factory, of course, is full. Heavy engineering is booked out in Q2 of next year.

27:30 Our glass end business in India has really recovered well, and we expect the next half to be quite strong with more order intake and more shipment means we... Some of these initiatives like the cost reduction program, the shift, if we have more volumes, we get much better benefit. Right? So we will see some of that going through. And we believe that there is a possibility of upside when it comes to some of these, know, the operating kind of leverage that we will get. Maybe I'll hand it over to Ankit now, and maybe he can talk a little bit on gross margins and what we're seeing there. Yeah. So I called it out in my speech as well that gross margins were impacted by the loss making entities in Europe. But what we see, as Derek mentioned, this will improve over h two. We are confident that we'll come back to the gross margins that we have delivered over the last few years. So as we are moving ahead and as we are seeing as we are seeing good pricing that is happening because of market coming back, we are confident that we'll come back to the levels seen in the past.

28:37 Okay. Thank you. That's helpful. If one more question I can squeeze in. Sorry to interrupt you, sir. We may request that you return to the question queue for follow-up questions. Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants, Please limit your questions to two per participant. The next question comes from the line of Kunal Mehta from Incred Equities. Very good afternoon, Tarek and team, and congrats on these amazing set of numbers and record order backlog intake. My first question is regarding that. The order backlog stands at INR2400 crores. And just wanted to understand what is the execution time line for the backlog and what are the margins that we have, you know, considered for the newer order intake that has happened in the last two quarters.

29:34 And also, if you can provide some color on, you know, are we getting more orders from the peptide side? And any sense on, you know, the defense asset recovery system that we got last year, are we expecting more orders in, you know, the new emerging teams like defense or data center, best and semicon, if you can provide some color. Yeah. Yeah. So let me start off in terms of the backlog. Like I said, again, we have strong backlog across all our divisions. So it's been really encouraging to see backlog improving across all divisions and geographies. This is critical for our success because it means that we are not seeing it in sports. We are seeing it across businesses, right?

30:19 So not only in India, but across The US, South America, Europe, we will have full of factories. And I spoke about Germany and the restructuring there. We expect h two to be at least and we won't lose money. And then next year, definitely, I think we will be in a position to make money in Germany. Right? So we are going from negative to positive just because volumes are coming back, and that's already in our backlog. So it's not something that we are expecting. We recently won another large glass line order just yesterday in Italy in the $2,500,000 So things are improving. There is some kind of investment coming back. And again, let me talk about the major areas that we are focusing on, you know, as a company. I think the biggest one for us today is pharmaceuticals.

31:11 Right? Because if you look at CRT and PPT, both these verticals are heavily dependent on pharmaceuticals and the order intake and the backlog that is being built today is because of the investment in pharmaceuticals. And when we talk about pharmaceuticals, we are talking about CDMO and peptides. And you mentioned peptides, and peptides has been a fantastic success stories for us. We've received already from Indian customers in maybe the last six months or so, maybe close to 150 gross worth of Yes. Audio from just peptides. Right? So this is only peptide. I was in Hyderabad on Friday to meet the owner of another Hyderabad company who has plans to invest huge amounts to just invest in the peptide and the manufacturing of peptide. Right? So peptide is going to be seeing a lot of investments.

32:02 We are well positioned because we have technology which has been supplied to and has been tested in Europe with companies like for many, many, many years. We have installations now in India up and running with global major API, you know, pharma companies. So it's not like we don't have a credibility. So people know us for peptides now, and this is definitely an area that we are trying to push on. Right? So pharma, CDMO, peptides is a massive, massive investment that is happening, and we are trying to piggyback on most of that, not only in India, but across the world. The other industries for us, again, like I mentioned, nuclear and thermal power continues to be another strong area for growth. Heavy engineering is focused on that. We are building capabilities, expertise. We've broken into. We've got new acquisitions in place. And now we are also seeing the export business in HGG pick up.

33:00 So The Middle East and Africa, like I said, is now adding to the backlog as well. So the export price is now becoming better. European, I spoke about Europe being tough, but there is one sector in Europe that is doing quite well and that's defense. And again, we have technology that we are catering to defense, right? So Europe has not built the GMP plant since the 1980s. We are seeing now that our product and our technology is going into NATO sponsored projects for TNT, for nitrocellulose, and that is something that we believe will continue over the next few quarters because we see the inquiries coming in. Right? So that's on basically the difference. In The US, again, we have semiconductors as a growth area because Edlon has high priority systems and tanks for for for fab and also for semiconductors or chemicals. Right? So, again, another growth area for us. And then lastly, we talked about our PPG business of mixing. We have critical minerals, metals and minerals as another growth area because people are spending money on rare earths, on minerals, going into data centers into AI.

34:09 Right? So as a company, we're trying to see, hey, what are the five or six growth areas that are really investing? What technology do we have as a group that we can cater to these technologies and really drive that growth. Right? So the focus that the verticals bring in now will kind of allow us to really jump on to some of these growth cycles very quickly like we have done with peptides. Right? We could have sat back and said, fine. We were happy with the first peptide order, but, no, we said this is something that we are doing well. Let's really be proactive here and really try and double down and grow this business exponentially. Right? So these are the multiple themes that we are playing out. And, again, like I said, if you asked us five years ago, 80, 90% of our business came from chemical pharma and from glass. Today, we are a global diversified engineering company, and that's what we are striving to become.

35:01 Of course, there is something as we go through some of the cleaning up, some of the restructuring as part of the process. And the last thing that I would just like to mention is that also from a control perspective today, with the leadership team now realigned and reorganized, we have control over some of these initiatives, and we're gonna drive some of these programs with much more kind of aggression that we need to do. And I think that's something that you will see throughout this conference call, the next few quarters as well. And eventually, when we come to the market at our Investor Day, a lot of the kind of discussion and the details will be around some of these cost structures changing over the next few quarters and how India and some of the low cost manufacturing becomes part of the global supply chain, right?

35:50 So that's where we are. And yes. Yes. Thanks, Fahad. That was a great clarity on the end segment. My second question is on this interesting slide I heard put up in the presentation for the restructuring of Europe, where UK facility was actually already closed in FY twenty five. But are we still facing some EBITDA loss there? Because I think we have shut down the equipment manufacturing over there, and it's just basically closed right now. So I'm just kind of surprised how that is still contributing to the EBITDA loss. So so when we say Europe, it it is a larger content and drive. So in UK, obviously, the restructuring was two years back, and it's a profit making entity now. This is all driven by Germany, which obviously we restructured last year, and we would be hopefully making even in the next few quarters.

36:47 Okay. So, basically, Germany and Swiss, that is... And and how fast can we, you know, switch the operations to Poland? Because Poland is emerging as a, you know, one of the hotspots for Europe and Europe for manufacturing. So current what is the current capacity of the Poland manufacturing unit? And what is the planned expansion in the whole next two years over there? Yes. So no doubt, to your point, Poland is a key strategic priority for us. As I mentioned earlier that during my opening remarks, we are really pushing that. We have already a lot of activity that's moving to Poland even in this first half of the year. We're expanding the facility at the moment. We expect that expansion to really come into the business at the end of this fiscal year, start of next fiscal year, where we can start to really benefit from that extra capacity in Poland.

37:49 And we'll... In parallel, as as we mentioned during our opening remarks, we are moving very quickly to to realize cost reductions in Western Europe and and moving our operational activities to to Poland where where it makes sense. But at the same time, as we said, we're very careful in doing that. We have customer commitments. We wanna maintain a very strong quality in customer service. So it is a phased approach. But to your point, it is something that we're working very, very hard on to to realize quickly. So with this side, can we expect, you know, significant improvement in margins from, you know, FY twenty eight onwards? Yeah. So maybe, Ankit, do you wanna comment on margin improvement here? Yeah. So and your question is related to the European operations?

38:42 No. Overall margins. Yeah. Overall margins, see, as we have called out earlier, the objective on our endeavor is to show growth on a quarter to quarter basis. So if you look at Q1 versus Q2, there is an improvement. The objective is to keep growing. The second half of the year, as Tarek mentioned earlier, we see some of the savings coming in specifically for Germany and the other initiatives that have been taken. So we're confident we'll see that sequential growth on a quarter to quarter basis on March. Okay. Thank you so much. And I would just like to especially mention the, you know, improved communication. I'm sorry to interrupt you, sir. We may request that you return to the question queue for follow-up questions. The next question comes from the line of Sagar Shah from Spark PWM. Please go ahead.

39:30 Yeah. Thanks for the opportunity. First of all, happy to the entire team, actually, of GMM Pfaudler. Sir, my first question was to Greg as well as Farak actually related to our glass lining business, corrosion resisting business actually because we have seen the domestic chemical companies actually, especially giving out good numbers, especially in the Q1 as well as very encouraging even commenting Q2 of five twenty seven. So I wanted to check from your end that is the the... Are you getting some sort of sense in terms of new CapEx done by the chemical companies and that can lead to an order... Good order intake actually, especially in our CRT business because it is flat on a Y o Y business. That's why I'm asking. That is my first question. I'll follow-up with the second question to Ankit actually.

40:28 Sure. So on the CRT front, again, chemicals still remain subdued. We see sports of chemicals and mainly specialty chemicals. Agrochemicals, unfortunately, there has not been any kind of major revival. So it's still quite slow. If chemicals were to improve, that would be really bonus. So we're not building any kind of numbers, any kind of plans around the big revival in chemicals. And maybe I'll also maybe add here that the CRT business around the world is improving, right? And again, majority of that is still led by pharma. I know US, again, pharma investment in CDMO peptide companies like are investing in South America. We've had large government orders, again, coming from CDMO.

41:14 We've seen our China order intake in glass line actually improved, which where we thought China would be tough base for us, but we've seen the China factory will now have a full factory because suddenly China is buying more glass line reactors. And again, we will not really buy chemicals. There is some chemical in there, but again, it's farm again. CDMO is adding capacity in China. And in India, if you see over the last maybe two quarters, it's really mainly pharma, right? And Hyderabad pharma, DV, MSN, SaiLR, you know, these companies continue to act. Right? So that's the normal kind of data in India. And from whatever we speak to owners and management of these companies, they have plans at least for the next few quarters.

42:00 Right? So it continues to be a very exciting time. And then along with the CDMO play, we have this peptide play that is coming back online, and that's really picking in a lot of investment. Okay. Fine. Got you. So basically, demand will be largely led by pharmaceuticals slash CDMO and other inherent sectors within the pharma. Yes, exactly. Second question was to Ankit actually. Actually, in this particular quarter as well, our tax rate was relatively lower actually and that led to the Q o Q uptake. Actually, the tax rate was around 30%.

42:46 And last quarter, it was 45%. So as part of our restructuring program as well, I wanted to understand what will be our stable tax rate at least for FY '27 and to '28. And second, related to that was our finance cost. We have actually reduced our debt by a 116 crores in the in the section of FY '27. So now as part of this and what is the further plan to for reducing the debt since we are positive? And what will be the net reduction in finance cost due to the same FY '27 and FY '20? These these are my questions for Ankit. Yes. So on debt, what I can say is so these are two programs that we called out in Q1, right? One is tax restructuring and one is the refinancing.

43:36 On the tax restructuring, we have made good progress. And some of these initiatives have now started to show some from the... Color in financials. We have communicated timeline in terms of when these initiatives would kick in completely. And in terms of guidance on tax rates, as we had called out the last time, our endeavor is to be at the 30% or lower, and that is what we are targeting. So you'll see improvements quarter on quarter as we make progress on these initiatives. On the debt front, although we we paid debt, if you look at the quarter on quarter basis, there was some foreign exchange... Foreign exchange impact that happened, but we expect the interest cost to be lower than last year, and that is where we are at the point.

44:28 So sorry. I didn't get your point. So what will be the reduction in the finance cost? Sorry to interrupt you, sir. We may request that you return to the question queue for follow-up questions. Yes, sir. Maybe we can just finish this one. Yes, I think the question was that just... Can you repeat on the finance cost and how it's gonna impact this year and then again next year? Think that was the question. Yeah. So so as I said, there would be a reduction in finance cost because some of these initiatives that we are taking will help in removing some of the inefficiencies we have on the finance cost. Also, they have given timelines last quarter in terms of when we want to do it. But we are seeing good progress on both these initiatives, and and we'll keep sharing as we progress on these initiatives.

45:17 Thank you. The next question comes from the line of Nikhil Kanuria from Suniti Securities. Please go ahead. Yeah. Hi. Good afternoon. Am I audible? Yes, sir. Yeah. Go ahead. Firstly, I would like to congratulate the entire team for posting such a high order inflow. So my question is regarding the slides that you have given on PPT. So on page number 21, while you have given some plans as to how are you gonna do... Look at the conversion of AB to PAT. So just wanted to check what will be the priority over there and what could be the delta from each steps that you have mentioned over there. And on this next slide, the way you have given outlook for '27, if you can guide us some... If if you can throw some color on FY twenty eight numbers as well on the top end growth EBITDA and what sort of savings can be done from these three or four strategies that we are gonna deploy.

46:10 So... Yeah. So before I'm quick to answer this, let me also... So the company today, you should think about about in terms of improvement, there are two improvements. Right? So I would also just maybe Greg can say a few words here. We are talking about gross margin to EBITDA improvement. So that's one way that we would like to kind of highlight and speak about. And that's why we also shared with the investor community, the loss making entities because we want to be transparent and we want to also show you how we are planning to improve and make these changes over the next few quarters. Right? So calling it out is good from the perspective. Now it can be tracked, and, you know, we are also in terms of... We'll come back to you every quarter to see what improvements we have made. So the gross margin, we already started the industry leading gross margin of about 60%. So we're already starting at a very high point. We have good technology.

47:00 We have good brand. We have good loyalty and good customers. So that is a very heartening kind of a number to start with. So we have moved there to kind of reduce our cost structure, to improve efficiencies, to really improve gross margin to EBITDA as well. And then like Ankit spoke about, we have a few... An a lever between EBITDA and PAT as well that we are working on. Right? So all of these projects are ongoing, like Ankit said, the refinancing, the restructuring, we've given some timelines, we expect to be much faster on that. We had a progress quite well, and we will keep you posted on that. But before hand over, maybe Greg, I want to say a few words on gross margin to EBITDA, and then maybe Ankit can take over on EBITDA to cut. Yes. I think in line with what we announced after the Q1 earnings, the new organization structure is is no doubt helping us to improve from gross margin to EBITDA. And as you did, you know, as as we discussed, we moved from a regional organizational structure to now four global technology divisions.

48:05 And also when you think about it, we moved in terms of really aligning our support teams around those divisions. So with that brings a lot of opportunity to to streamline operations, to make productivity improvements, and really... Well, obviously, making sure we continue to strengthen and and improve our our our strong customer service. But there, in our new structure lies opportunities to to improve from gross margin to EBITDA. Yeah. On the result of that, two initiatives, just to give some direction, our last year, EDR was around 49%.

48:50 Right? So if we bring it down to 30% or lower, you can very well see how much would be the savings there on the five twenty six basis. From a financial perspective, if you have looked at our FY twenty six numbers, there have been certain notional losses that we see because of our current hedge structure, our intercompany loans, and that is what we are trying to do. Once we are able to do that, hopefully, some of these motional losses will not happen, and we will have clean finance costs that will be reported. So those would be the two additions that will happen to the PAD once these two initiatives kick in. Okay. So the thing is the... My question was about EBITDA to PAD. So I understand that the gross margin trajectory is still visible, and then it's happening to see that it is at the industry leading level. What I meant from the question is that you have given three levers about tax, about then refinancing and all of those things. And since these are long term kind of a thing like, say, one year to two year or maybe beyond that as well. So what can we build in, say, for FY '27, FY '28, some trajectory?

49:58 Because I understand that from 49 to 30%, it will be a huge saving, but this will not happen overnight. So say, for example, x percentage this year, x percentage that year. So maybe we can have a structured way as to how it is getting fizzled out. So that is what I was looking at. See, we have... As I said earlier, the guidance has been given on both tax and refinance tax. Obviously, you'll see improvements year on year. Last year, was 49. You'll see some improvement this year. And, hopefully, by FY '28, we'll be in the ballpark range of what we have been done within. Right? And on the refinance cost, like I said, it will keep coming down as the debt... I mean, as we look at capital allocation, as we have better cash flows, then there would be to reduce debt, and that is what we have done in quarter.

50:52 Okay. So maybe the way you have given for FY '27, if you can throw some light on FY twenty eight numbers as well, like, as to what can we expect. I'm... Let me know this might be a little early, but if you Sorry to interrupt you, sir. We may request that you return to the question queue for follow-up questions as there are several participants waiting for their turn. The next question comes from the line of Anil Shah from Insightful Investments. Please go ahead. Hi. Am I audible? Yes, Please go ahead. Yes, Yes. Just trying to understand a little bit more if on your if you could be a little bit more granular on your restructuring. If I understood right, you are saying the business scale of operations in some of these businesses in Europe and some of the plants is low.

51:39 But at the same time, you're mentioning that there's not going to be any extraordinary cost below the line item, which is likely to come through and most of the work has been done. So how exactly are we going to restructure? And how do we really see aggregate margins on the EBITDA side for the whole company as such moving? And you've talked about better margins in 'twenty eight, but even if you could say exit quarter, let's say, for 'twenty seven or the first quarter of 'twenty eight or the full year of 'twenty eight, what could margins be? Sorry, but I really need a little more granularity on what exactly are we doing with restructuring for these businesses. I understood the interest Sure, sure. So I think we have and we will provide clarity for sure. We will give you more clarity as we have the numbers from the, again, like I said, the Investor Day is planned shortly in the coming months. So obviously, we would like to come with a deal plan. But maybe, Ankit, you can just talk about in terms of how we see the levers moving and how the impact or how would they impact and in terms of any restructuring costs for this year? Yeah. So like like we mentioned earlier, the bigger restructuring costs are behind us, right? Germany was a big restructuring within last year. When we when we spoke about the Swiss man... Swiss restructuring, these are not major restructuring costs. There will be some amount, but those would not be very material.

53:07 And as as as you know that the demand in Europe has not been as per expectations. So the business model is now being driven to a place where it came to the current reality. So that is what we're trying to do. We are trying to convert our businesses in these European loss making entities to the current business realities. Yes. I understood that part. But to do it without incremental cost in terms of, you know, getting rid of the extra people and at the same time not telling me or not telling us exactly in terms of how margins because of this cost will obviously, the idea is to bring these losses down substantially and hence the overall margins improve because the rest of the company's margins already seem to be at 15%, 16%.

53:58 I'm still not able to get a clarity or understanding as to how we plan to do this. I fully understand that business operations there are not at the optimum level, but obviously the costs are at higher level. How do we plan to bring the cost down? Yeah. So I think some of these things have already been materialized. So there are laws in certain areas where you can reduce people to a certain number without having any kind of incremental restructuring costs. So we are doing that within those limits. These are not very large factories where we need to reduce 40, 50 people. Right? So for example, our Swiss entity is 30 people, but it's super expensive. So, you know, has... You know, even restructuring eight, nine, 10 people is a significant cost benefit for us. Right? So even though it does seem like large restructuring in terms of actual quantity of people, it's not that large. Right? Plus you've also seen the reorganization of the top management team, so that's gonna save us a good amount of money as well.

55:00 So that is something that's built into... It's already gone. It's gone in pretty much h one. You'll see some of it's kind of in Q2 and then obviously for next year, won't have any of it, right? The German cost as well already done. We haven't seen any real benefit in these two quarters. You'll see some in Q3, more in Q4, but you'll really see a lot more in Q1 of next year, right? So that's where we are. In some cases, also, the cost structure is not justified because the orders have not come in, but in some cases, the orders are now coming in. So you will have also orders coming, which will obviously fill the gap and have full of factories, which means, obviously, you'll have better operating leverage. So it's a combination of multiple things that will improve. But but but just to clarify here, it is not far off to say as a company of 15% core business EBITDA margin is not something that is crazy.

55:56 Right? This is definitely achievable even in a down cycle. We are showing some of the strong entities. You see India numbers already here at 13, 14%, and it's not been a great half year in terms of shipment. H2 is going to be definitely stronger. So you'll see India margins also improve with better operating leverage, better cost coming in, economies of scale. So all that stuff will also happen. Sure. So, Parekh, can we go ahead and think of a 12.5% to 13% aggregate margin for next year, given what you just talked about as far as the European operations are concerned that some people will be let go, some businesses already being coming in both ways. So overall, should we think of 12.5% to 13% margins for next year?

56:45 So instead of giving you a number that is, I would say, wait wait a couple of months. The Investor Day is happening. We have a lot of data. You've seen over the last couple of quarters how we like to share more and more information with the street. We wanna be transparent. We will break this up to you and give you exactly what we need, how much savings will come from restructuring, how much is going to come from operating leverage, how much is going to come from other stuff. So just bear with us. You are in the right direction. It will improve. We are working quite hard to get to those levels. We also... You know, when we, of course, you know, we do... We are conservative, and I think we will do better than what we promised, and that's the goal. And, of course, you know, we have a lot of stuff going on. And I think some of the other, you know, initiatives that Ankit spoke about, we are really pushing them to kind of close faster than we planned. So we will see improvement there as well. So just bear with us. We hear you. I know what you're asking. I know that what you're asking is not completely off in terms of, you know, from your perspective, but just give us some time. We'll do it in a nice structured manner. We are coming. Most of the investor deck is ready now. We're just putting our final touches.

57:58 We have also seen a couple of changes in terms of the organization over the last few months. The new vertical setup is also we are learning. So we just need a little bit of time, and we will come back to the market. Sure. Okay. Thanks. All the best. Thank you. Yes. Thank you. The next question comes from the line of from Fin Avenue Growth Fund. Please go ahead. Hi. Thanks for your comments on the rate already in this quarter. I just wanted to understand what exactly are we doing on the defense side and, like, some orders we bought last year or so. What's the pipeline like in defense for this year and the next? So we do a couple of things for defense. So we obviously have acid concentration plants. So both nitric acid and sulfuric acid are highly corrosive acid that do quite well in glass line and tandelum construction.

58:58 And most TNT manufacturing plants or microcellulose plants propellants will need a large amount of nitric acid and sulfuric acid. So that's where we kind of get in there. We are responsible for building the acid recovery part of this defense establishment, but which is a large part of it. Right? So for example, the large order that we got from Bulgaria close to $30,000,000, that's really a lot of technology, a lot of kind of know how that goes into it. People will not give you an order of $30,000,000. A European NATO sponsor order if you don't have the capabilities. Right? So it is really solid technology that we have there, and that's why we've got that business. Similarly, we're talking to few other companies in Europe for the same kind of acid recovery concentration plant, which goes into producing TNT like the cellulose. Like I said, Europe has not built a new plant since 1980s, and I think they buy most of their exposures from China. So I think onshoring is something that, of course, I think they're planning.

1:00:05 And I think that maybe The US could be another opportunity in the future as well because there, I think the stocks are decreasing as well. So I think that could be a nice area for us to kind of also maybe focus on for the future. So sir... And also coming to the peptide side, how how big do you think is the opportunity, especially in India as well as all of the peptide effects coming globally? What what do you think is, like, a part of we can capture this? So if you can be started on peptide, I can talk for hours, but I think it's a it's a once in a generation drug. Right? So I think what we are seeing is only the tip of the iceberg. I think from everything that I... People that I speak to, doctors that I talk to, I mean, in Bombay here, my doctor says that Munjaro is throwing like water. Right? So every person over the age of 45, man or woman coming in, they're going to be on GLP ones or peptides. Right? So do I know the answer? I know that maybe there's one company in China that does 100,000 tons. Right? Maybe India is half of that. Is that, you know, how much is global capacity?

1:01:14 I probably think there's a shortage, and I know that nobody else can put it up as fast as India and China. We expect the European companies to add that kind of peptide capacity. It's gonna take them four, five years before they get something up and running. Right? So I think India has an advantage in terms of speed. I know how quickly we supply the last batch of, you know, peptide reactors. So I know speed and timing is critical for success in peptide. And even the new projects that we are discussing, speed is again going to be quite critical. So peptide is going to be... And again, peptide is not only GLP one. It's, you know, skincare, shampoos, food, everything. So I think there's a lot of benefit, you know, longevity now. People are talking about even vaccines and cancer vaccines and stuff. So peptide, I think, has a strong life.

1:02:06 Okay. And one last question, if I could squeeze. So I have a question on the agron business. What's the addressable market you're catering to there? And what is the opportunity size? Not exactly in the quantum, but, you know, broadly, what the opportunity size there and what what kind of growth we could see there in the add on business? So look, for anyone, it has several end markets that it's catering to. I mean, we... We've talked about nuclear already. We've we've talked about... They also have defense as well applications. They are working in in semiconductor space where we're seeing a lot of activity, and they also have the traditional chemical and and space as well. So Edmont is is part of our our growth ambition that we have.

1:03:01 We we are seeing a lot of growth, particularly in in The US for the end loan business in in all those areas I mentioned. And so that that remains quite a big focus. Obviously, it's part of the CRT technology division, and and they are putting a lot of emphasis on making sure that we're growing. We have opened up a a new facility there in in The US that is to cater towards the existing demand, but also future demand that we believe will will be coming in the... Over the coming quarters and years. Yeah. So I think that I think what Greg said that even though, you know, you think about Edlon and what you will know Edlon or high priority systems for semiconductor industries, they also do a lot of work with the nuclear space, which is driving growth for them. They do these lining for these drop boxes. They do some work for defense as well. So again, some of these things are...

1:03:57 You know, we have been now with the focus and each CEO having the economy right in his own or her own own strategies. There is definite push up. For the first time, we have brought in somebody as the head of head law on a recent hire in the last quarter, who comes from with twenty six years of industry experience. Right? So that's gonna be another, you know, kind of a positive for us to have somebody with a strategic mindset to really see where can Edlon be, not just, you know, in six months, but really two to three years down the line. Can it double, triple? Right? Can it go global? Can we bring some of those technologies back to India and really target the next growth of semiconductor here in India, which we all know about. Right? So all that work is going on. And with the CEOs in place now, with that focus on accountability, you will see a lot more strategic kind of direction at the vertical divisional level.

1:04:50 Understood, sir. Thanks. Thanks. And also good on the team that we're disclosing so much information and how we plan to, you know, to clear also the exceptional items and everything. Great great one from the team. Thanks. Yes. So it's good to get good feedback as well. I think we met with maybe 60, 70 investors over the last quarter. We'll keep meeting. If there are areas that we can provide more transparency, we will be happy to do so. Again, we are open book. There's nothing to hide. So I think we do want to be a little bit more proactive when it comes to information so that you guys can track it and also sometimes maybe hold us accountable for some of these things that we are planning to do. So happy to hear that and happy to continue sharing. Absolutely, sir. Congrats.

1:05:37 Thank you. Due to time constraints, we will take the last question from the line of Saurabh Patwa from Quest Investment Management. Please go ahead. Thanks a lot for the opportunity, sir, and a great perspective shared on during the call. So just wanted to so we have a coming out from last three very difficult years. How do you see, sir, while you have highlighted a lot of these things by answering some of the questions which you just did, how do you see the next three years, especially in the context of changing product mix? And what kind of margin profile, both at growth and EBITDA level for the new lines that you new product lines, which you have added in the last two, three years?

1:06:24 And also, what kind of cycles they are? Like, how much these will be, like, say, like, the order book would be in or are they, like, some of these are, like, more longish from that perspective? So yes, so this is Yes. The on that yes, go ahead. Sorry. Go ahead, Gareth. Yes. And secondly, is there any scope of acquisition that you think would you may still need to add from the perspective of adding capabilities given these kind of the new businesses which we are now embarking on? I would like to buy a peptide company, but Jokes aside, I... From an acquisition perspective, there's no plan right now. There's a lot of work to happen. But at the same time, we keep seeing meeting, talking. So that's an ongoing process.

1:07:18 Again, if an acquisition has to make sense, it has to make sense from the perspective of growth. It has to be growth and high profitability. The last thing we want is to buy a company where we have to restructure and then worry about growth. Right? So it should make a lot of sense. And we've been through a phase where we acquired companies. We've done that. That's been some have worked out well, some have not. So we know what exactly to look for, and that's something that probably will be driven completely out of India with Greg, myself, and maybe the CEO is trying to be responsible. Right? So no no no plans as of now, but, again, like, all good companies, we continue to meet. In terms of where this company can be maybe in three years, I think maybe you heard me a lot. So maybe it would be nice to get a perspective from Greg and Ankit. They've come out. I mean, Ankit is the the most newest person here, but let him kind of tell you what he's seen and, you know, what he expects, and maybe then we can just close out. Yeah. Yeah.

1:08:15 So from from a from a long term perspective, I think the company is at a cusp of transition. And the company used to operate in a different manner in three years back to your point right now with the book structure and with the new CEOs. We see a lot of opportunity. And I think, hopefully, the market stays or improves, we'll see more growth. So the objective is to lay down a structure which helps us to grow over the next few years. What I've been talking about is what I've seen and I've been there for around five, six months. The energy of the organization is very good. Everybody's working towards a common objective. We are market leaders in a lot of categories.

1:09:03 There is customer stickiness, customers like us. And now we're trying to make this more robust in terms of how we want to go ahead. So a lot of work is happening, and we keep sharing things, and that is what we have been trying to do. Like, David said, we have been a little more proactive in terms of sharing things and holding ourselves accountable in a lot of things. So our endeavor is to keep showing progress on a quarter to quarter basis as we move ahead. On the product mix change impacting the margin profile, the growth and... At the gross and EBITDA level? So as you're aware, our strategy is diversification, right? We were a plus line company, especially catering to Shanghai Chemical.

1:09:54 We are seeing the progress on the non traditional sectors. This will continue to grow because the three businesses where we need to grow much faster, which is PPT, HDT, PSD, you'll see much more growth. So our share in the nontraditional sectors will keep growing up. And and over a period of time, our dependency on chemicals and will keep reducing that we have seen in the past. Yeah. May... And may... Maybe just... Just add from my side. Yeah. Let's do the... From echo right here. Yeah. As you say, just maybe from my side and just to echo what Ankit said, I think there is a, you know, there is a tremendous energy that we have together as a management team. There is very sharp focus on what are the priorities. You're seeing that in what we've shown in Q1 and now Q2 with more information that you're being provided. So as I mentioned in Q1, but also in Q2, I do believe that the news organization setup that we have, which, you know, if you take take... As you said, the last three years, particularly with the chemical downturn, has been a challenge.

1:11:07 But obviously, come opportunities, and we see a great opportunity now with the new structure, the new alignment across the businesses globally and the fact that we can really take that momentum, and you're seeing it in the initiatives that we're talking about. And so we look forward to continuing to improve the business day over day, quarter over quarter, and we'll keep sharing with you that progress along the way. Thank you. Ladies and gentlemen, we will take this as the last question for today. I now hand over to mister for closing comments. Over to you, sir. Thank you, Allan. Thank you, everyone, for joining us today. It was a pleasure interacting with all of you, and we look forward to many such interactions during the course of the year. Take care, and see you soon.

1:11:59 Thank you. On behalf of GMMPFAUDLR Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.