ISGEC Heavy Engineering hosted a conference call on Nov 17, 2021. In the conference call the company was represented by Aditya Puri, Managing Director; S K Khorana, Executive Director and Company Secretary and Kishore Chatnani, CFO.

Key takeaways of the call

Order intake in Q2FY22 and H1FY22 was Rs 849 crore (down from Rs 1396 crore in Q2FY21) and Rs 3215 crore (up from RS 1922 crore in H1FY21). Order book as end of Sep 30, 2022 was Rs 7518 crore up from Rs 6761 crore as end of Sep 2021. OF the order book about 20% is product orders and 80% are project orders.

Order pipeline is 10-15% higher compared to corresponding previous period. Export order pipeline also looks good.  Power, O&G, all metals, cement, fertilisers and railways are the segment/industries that are to drive order inflow growth in near term.  

Lower order intake in Q2FY22 is largely as the company consciously took order that fall only within its comfort levels. Lot of EPC contracts price bids could not open in time and delayed.   So it is a conscious decision to have quality order in Q2FY22.

Of the order book about 40% is from Government & PSUs and these orders have PVC clause. So rest of the order book is on fixed cost and exposed to volatility in commodity price. The impact of higher commodity prices to continue for some more quarters especially in case of non PSU long gestation orders.  Orders taken in Q2FY22 are on new commodity prices plus some contingencies. Expect FY23 to be a normal year in terms of EBITDA Margin.

Profit in Q2FY22 was hit due to commodity price inflation, time and cost overrun in EPC due to Pandemic; rise in freight and logistics cost and employee cost that stood normal this quarter in relation to lower in corresponding previous quarter.

Next 30-45 day we start construction of Philippines factory and complete it soon. The construction was impacted by covid pandemic in Philippines.

The company is renegotiating of fixed price contracts with customers but it a case/customer to customers and cannot be an assurance of increase.

Beginning Q4FY22 the export order intake will pick up as travel restriction to various countries are eased.

No FGD order booked in Q2FY22, but there are some enquiries for air pollution equipments which may get finalised soon going forward.

STO and margin in Q3&Q4 the will be better than Q2/H1FY22   due to better overhead recovery. 

Pressure parts that account for 15% of boiler orders are manufactured in house and rest 85% is outsourced and here also the margin not passed on.  

Hitachi JV was impacted by deferred shipment of one large order as the customer could not arrange for shipment of it. Expect positive EBITDA in case of Hitachi JV.

Philippines plant loss is due to exchange loss and higher cost, salary cost are charged to p&L and not capitalized. Negative revenue is largely due to forex variations.  Once plant is completed the cost will be absorbed.