Release Date: May 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Pennar Industries Ltd (BOM:513228, Financial) reported a 23% increase in net sales for Q4 FY24, reaching INR822.8 crores.
- The company achieved its highest-ever annual net sales of INR3,130 crores and PBT of INR131.41 crores, reflecting a 33.5% growth in PBT.
- The PBT margin for Q4 FY24 stood at 4.76%, with expectations of continued margin expansion due to a shift towards higher-margin revenue streams.
- The company's working capital days improved to 76 days, with a target to further reduce it to 72 days in the coming quarters.
- Pennar Industries Ltd (BOM:513228) has a strong order backlog in key growth areas such as pre-engineered buildings, hydraulics, and process equipment, indicating potential for substantial revenue growth.
Negative Points
- The company faces challenges in collecting current assets from sectors it is transitioning away from, impacting working capital.
- Finance costs have increased due to higher interest rates, increased working capital, and term loans for growth capital.
- The profitability of subsidiaries remains flat due to increased raw material prices and lower revenue per metric ton.
- The company is experiencing revenue leakage from deprioritized business units, which may continue to impact overall revenue growth.
- There are concerns about the cyclicality of raw material prices, particularly in the US market, which could affect revenue and profitability in the short term.
Q & A Highlights
Q: What is our addressable market coming through railways? I see that railways order book is INR120 crores and how much of INR3,000-odd crores that we have done last year has come from railways?
A: The addressable market for the products that we make for the railways, which is primarily coach components and wagon components and subsystems, is about INR2,000 crores. Our revenue last year in that vertical was about INR250 crores. We expect some growth on that this year. More importantly, our addressable market itself has also grown, but railways is not one of the major growth verticals for the company.
Q: Coming to our debt actually in our books, so it's somewhere around INR780 crores. Could you please quantify how much it could be by the end of the year?
A: In terms of working capital, you have to compare the working capital as a percentage of the net sales. Our stated goal is that we will be at around 3.5% as a percentage of net sales. So we will be at around 3.5% of net sales. As revenue grows, working capital will go up, but there will be moderation in the current assets that we have, which are taking longer for us to liquidate as they're deprioritized from a BU perspective.
Q: If I remember last few quarters back, you said that there will be a multifold increase in the business that comes from the US side. How is the market, if you can please elaborate on that?
A: For our products in the US and services, we are currently at a 2% to 3% market share. Consequently, we are adding a lot of capacity in the US in terms of manpower, sales presence, DMs, and also production capacity. This will create over the next few quarters or the next few years, our US business is we probably expect it to be our fastest-growing business. And the margins there are also a lot higher than our India business.
Q: I wanted to understand what kind of ballpark peak revenue number you're expecting from the new capacity coming in the first half of this year.
A: The boiler plant will double revenue this year. We already have the order book to back that up and revenue right now is already at a 20% higher rate than what it was for the average of last year. So we referred it as boilers and process equipment now, and we are quite happy about the growth that's being and the profitability margins there are higher than the average for the company.
Q: Since we're in multiple business segments and you're looking at the high growth opportunities, how does Pennar get or gain more market share?
A: Our base plan is there are five specific verticals we want to grow and grow aggressively. And in those five verticals, our market share is very, very low. I mean there's nothing that crosses 10%, and most are quite frankly, below 5%. So we need to focus on fewer businesses, and we need to reach scale and get out of these subscale performance in those business. At the same time, we support the deprioritize BUs and make sure that their revenue is held stable, that profit is stable.
Q: On the PEB side, the current growth, are you a little disappointed where there are some challenges? And is this year panning out a little differently?
A: There's definitely a case to be made that there was a lost opportunity on the PEB side. But now there's good growth. Our goal is to be number two in India in the PEB space this year. I am near certain we will achieve that. Our order books are strong with the new capacity that's coming online, it opens up the north market for us. So yes, revenue growth won't be an issue. That holds doubly true for our pre-engineered building business in India.
Q: I wanted to understand, you have mentioned about 5% to 7% of PBT margin and 10% which peers get in next few years, right? So do we have any time line to it?
A: The last few calls, I think I should not have, but I think I had said that 5% would be achieved. I think for the last quarter, we were at 4.76%. So yes, I think we have come from 1%, 1.5% to 4.76%. So I think in a very broad sense, margin expansion, we know exactly where it's going to come from. So 5% shouldn't take very long, obviously.
Q: You mentioned that our ambition is to grow on a quarter-on-quarter basis, both on the revenue front as well as on the profit growth. Now this quarter, I think we had some other income, which was one-off -- a INR16 crores kind of other income. So how should we look at it?
A: Look at both, please, because other income may or may not come in. But even with or without other income, our revenue has to grow. That's what we are mapping out. In profit, I would say you take the net other income number because we do price in foreign exchange fluctuations into our model. We do have certain investments, which deliver, give some relief. It's not an extremely material number, but when we map out our profit targets, we look at the bottom line, which we report to you.
Q: Is it possible for you to break up our sales number between focus segments and defocus segments?
A: We don't have that attribution ready for you right now. But I understand why you're asking, and we will provide this from the next quarter. In fact, at the Board level also, we have taken a call to provide this breakup. So we will do that from the next quarter.
Q: What is the size of our PEB business in India?
A: Our revenue base last year was about INR780 crores. And this year, will be much higher. The order book we have right now for PEB business will be, I mean, it's supposed to be executed in the next five, six months, six to eight months, with a little bit of delays and others, it can trend to eight months, but it's not meant to address the whole year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
