Pennar Industries hosted a conference call on Nov 10, 2023. In the conference call the company was represented by Aditya Rao - Vice Chairman & Managing Director. 

Key takeaways of the call

Fall in revenue in Q2FY24 was  is in line with its  stated intent to replace its low margin revenue with higher margin products and services.  The  water EPC, solar EPC and Retail revenue which together was over Rs 100 crore in Q2FY23 has been replaced with higher margin and sustainable revenue business verticals such as pre-engineered buildings division, tubes division, process industry equipment business and body in white.

Despite the combination of increase in high margin revenue stream and exit from non growing revenue streams, the company does project revenue growth for FY24. Moreover the revenue for FY24 will be its highest ever revenue in absolute terms.     Expect revenue to keep growing from its current base.

On profitability front as while the company replace lower margin revenue and also scale  its PEB, hydraulics, engineering services, and PGI businesses, the margin continue to witness improvement. 

Consolidated PBT was up 38%YoY in Q2FY24 and this is as per its forecast, and the company is confident of further profit growth in the remainder of the year. Consolidated EBITDA margin is at 9.35% and better revenue mix and growth in revenue to facilitate EBITDA margin increase. 

PEB – Revenue of Pre engineered Building in India and Ascent Building (step down subsidiaryü in USA)  has increased during the year. Commissioning Raebarele plant by Feb 2024.   With this the company will reach a revenue run rate of Rs 88 crore/month for PEB from current about Rs 72 crore/month. The order book of PEB India is Rs 550 Crore and Ascent is USD 40 Million.  For that new plant the company is  ramping up the order book. 

Expect revenue continue to increase and sustain the growth momentum for current fiscal. Q3FY24 standalone revenue will be better than Q2FY24 and Q4FY24 revenue will be better than Q3FY24. The growth verticals will be hydraulics, high dia pipes and Body in White Components and Systems. 

U.S. pre-engineered building market and the tubes market are much larger than its Indian market.   So, there is no reason for any long-term non-growth of order book.

US market will keep growing as there is demand and the company is investing in capacity to capture the opportunity in the market. The company is expecting several large order closure soon in USA.

The company is in advanced stages of phase two and phase three of its CAPEX plans in the U.S. Most of the investment has already gone in and an additional investment of about USD 1.7 million is to be spend.  So, within the next couple of quarters,  the US capacity will go up and   consequently, its revenue and profitability also trending up.    

Tech Pennar (Engineering  services)  is doing quite well and the company expects a revenue of Rs 70 crore for FY24 from this vertical. The revenue of this business is expected to cross Rs 100 crore in next 2 years. This is high margin business.

Boiler business sales breached 100 crore run rate. The business can grow at multiple growth rate.

Profit in subsidiaries has continued to increase over the last year, and with higher revenue coming in the future quarters, it expect this to further grow.

QoQ decline in PEB India order book in Q2FY24 is largely as the company was forced to declined some orders by itself as its PEB order book right now is vastly in excess of its revenue generation.  With incremental capacity coming on stream including the new plant at Raebareli  it will be ramping up its India PEB order book.

Net margin continue to increase as higher margin products/business contribution increases.  As the hydraulics, higher dia pipes and BIW are high margin businesses and with their contribution to topline  increasing the margin will also improve. Working to improve the standalone net margin to more than 4%.