Key takeaways of the call

Sales for quarter ended Sep 30, 2018 was Rs 452 crores (up from Rs 373 crore in Q2FY18) and the PAT was Rs 25.5 crore (down from Rs 26.5 crore in Q2FY18). The domestic compressor business grew by 22%yoy and the steady sales performance of it is on the back of sustained demand for compressors. In Q2FY19 all segment Construction & Mining, Industrial, Railways and water well has registered growth. The international business performance was satisfactory. Revenues from international operations were augmented by F.R. Pulford & Son Pty Ltd (of Australia), the newly acquired entity.

Lower EBITDA for the quarter was largely due to two factors higher employee cost and other/fixed expenses. About 45% of the increase in employee cost is in India and 40% is increase in US. Secondly of the Rs 14 crore increase in fixed expenses in Q2FY19 over Q2FY19 about Rs 5.3 crore is operation related (travel, repairs & maintenance) and balance was due to one off expenses, accounting issues and timing issues. Accounting issue are largely of policy of written off of R&D materials. Onetime expenses are largely towards consulting charges in US & India including recruitment expenses in both US & India. The timing issue is repair and maintenance expenses.

One-time expenses will continue for a quarter and half. H2FY19 will see recurrence of one off expenses to the tune of Rs 4 crore.

Pulford registered a sale of Rs 126 million in first 2 months and it is not to the satisfaction or expectations of the company. Hope the performance will improve going forward.

The Company's automotive business grew by 4% in line with domestic auto industry growth, compared to the corresponding quarter in 2017-18. On YTD basis, the division has registered a 9% growth over H1 of 2017-18.

Not likely to achieve zero debt status by end March 2019.

Capex for FY19 will be about Rs 60-65 crore and this includes the balance investment in motor plant. Motor constitutes about 30% of the cost of the compressors and the new motor plant will manufacture efficient motors upto 45 kW.

The company is on track to its target revenue of USD 495 million (USD @ Rs 65) by 2022-23. Initiatives at US are part of this. The company will start expand in Europe market from next fiscal onwards. Australia business will also see expansion.

Outlook for Q3FY19 - Indications from the markets are that demand for compressors will continue to improve in the coming months and the company is confident of capitalizing on the opportunities. Margins may be under pressure in the short term due to rising exchange rates, impacting commodity prices.

Construction & Mining is however slowing down as there are some headwinds in road sector with lower outlay, awarding and high risk perception of the sector further squeezing liquidity. In Industry automobile started showing signs of slowing down.