Pennar Industries hosted a conference call on Aug 10, 2023. In the conference call the company was represented by Aditya Rao, VCMD.

Key takeaways of the call

Q1FY24 is In line with forecast. The revenue for the Q1FY24 under the products has increased from Rs 399.3 Cr to Rs 417.9 Cr, up by 4.66%  Railways and Body in white business unit have increased revenue.  Steel and Tubes to scale up revenue in coming quarters.

The revenue for the Q1 FY24 under projects has increased from Rs 286.7 Cr to Rs. 325.9, up by 13.64%  Pre engineered Building revenue has increased in India and USü  Step down subsidiary Ascent Building, USA has hit the revenueü  Need to realize the current assets of module mounting structuresü MMS and water EPC business resulting in increased finance costs.

Large dia tube   project construction is underway and that is expected to be commissioned in next few quarters.   New capacity is for product ranges that gives higher margin.   Hydraulic business can take large dia pipes as raw material.  Large dia pipe will be a growth driver for next 5 years.

The order book is about Rs 740 crore (Rs 600 Cr of PEB OB in India, Rs 110 crore of Railway OB and USD 45 million orders at Ascent of USA).   OB of boilers is Rs 130 crore.  The OB is to be executed in   3-6 months with railway order bit longer and PEB little shorter.

Confident  of FY24 revenue to be higher than that of FY23.  Expect double digit growth in PEB, BIW revenue will  be double in size, the company expects strong growth in industrial components. Railways will also see an increase in revenue.   The company focuses on revenue growth as well as profitability growth.    

Confident of significant improvement in NP margin in FY25 with change in revenue stream mix in favour of high margin business.  Confident of improvement in margin in next quarter and for full year as well. The company expects 5% PAT margin in next 3 years. 

The company has already exited low margin business such as Solar EPC, Solar MMS and currently in the process of exiting water project business.  The company wants to stick to businesses that are scalable and profitable with wide customer base.  Sees, PEBs, Hydraulics, BIW, Boilers, engineering services as strong growth driving businesses for the company.

PEB is big component of project business  of the company both in India and US.  Currently the margin of project business is lower than that of products business, but that will also change going forward. The company expects improvement in margin of project business and the company expects a PBT margin of 10% for US PEB business. In India the company’s largest PEB competitor (whose sales is 2.5 times that of the company) is having a PAT margin of 11%. So there is room for margin improvement in PEB business to high single digit or early double digit PAT margin and thereby improvement in overall project business.   

Raebareli project is for engineered building set up to cater  north Indian market.  In PEB business the product will be competitive only for about 700-800 km from the plant so this plant is required to cater to north India market.  Total capex is Rs 40 crore revenue increase will be good out of that project. The payblack period for this project is 2 years.

Hydraulics (large dia tube plant), aero space capacity and Raebareli plant will get commissioned by Q4FY24. Capex left to be spent is Rs 15 crore for current fiscal in both tubing and PEB business.  Already expanded capacity at Hyderabad plant.

BIW tooling biz which is once in annual got booked in Q4FY23.  This year also it will kick in by Q4FY24.

Railways business – The company is not seeing railway business of it as growth driver. The company continue to utilize the current asset block. And company will scale it at certain rate with investment going forward.   But not seeing  2/3 times growth in revenue in this business. Moreover the business size is determined largely by Railway Board and it is the defacto single customer despite the presence of several OEMs. 

Capital efficiency will be increased going forward on annual basis. Above 20% is always met and target to 25% ROCE is targeted in long term.

US PEB biz - Continue to scale as the demand is good and growing.  The US PEB order book is in excess of USD 45 million.    

Cold rolled –Not project reduction in selling price and not expect rise in input cost.  Looking to import steel.

OI includes lot of components such as interest income, forex income, scrap sale, write-back, incentive income etc. Interest income is Rs 2 crore in Q1FY24.