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.
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