Pitti Engineering: Q4FY23 Concall Notes:
• Capacity Utilisation – 74%, industry std is 80% because machines need maintenance and if you push beyond 80%, machines deteriorate rapidly.
• Blended EBITDA/tonne – INR 42,290
• Net Debt – 225cr earlier 290cr
• Guidance: EBITDA/Tonne to be 45k in coming quarters at full utilization after capex or machine setup is done (not mentioned the quarter)
• Working capital days may not improve any more here on. About 75days. Debtors and Payable days will be same.
• Traction motor and railway components business will outperform in FY24. Power gen and renewable energy will see very good growth.
• Installation of new machines is expected to be done in Q3 and completion will be done by year end.
• Capex: Hyderabad is going through modernization capex and the lamination facility will be moved from there to Aurangabad and machining capacity will be installed there. After that there will be a pause on capex.
• Export: North and South America are the two leading regions and contribute 75-80% of exports sale. Remaining 20-25% goes to central Asia.
• Debt: Net debt should rise modestly after the capex is done, but after that it will come down significantly over the next two years.
• Order book: Order books are created for two quarters as steel prices changes frequently. Out of the total order book, 200cr is executable beyond 1 year. Order book fluctuates as customers don’t give orders beyond 2 quarters except for some indstries like Power Gen, windmill, exports where order book is for 6-9 months. Also, steel pricing volatility fluctuates the order book value.
• Capacities are and will be setup based on the customer forecast for next 2 years.
• Top 5 clients contribute 60% of the sales.
• Export order book is booming. Never seen this kind of traction in the exports. Majority of our exports go towards North and South American railways and mining. Both of these segments in those regions are going through transformation, modernisation, and upgradation. So for the next few years, we see quite strong order flows from our export lines.
• Export products are very high value added products and more machined, so exports contributes disproportionately to profitability.
• 1800cr of topline can be achieved at full capacity utilisation after new capacity comes online (this fig may change based on the steel price, so 72000tons (58000 at 80% capacity) will be the max volume. It should max out by FY25-26. For machining, where margins are high, 6.5lakh hours are max capacity and this should be maxed out by FY25.
Future Business Growth Triggers from different sectors:
Vande Bharat:
○ Getting orders from 6-7 players who supply to Vande Bharat as well. In the final stages of approvals to supply machine components. Commercial supply is coming from only one players as of now, as rest others are in proto and development phase.
○ Each train requires 32 motors and each motor needs half a ton of lamination. So total 16 ton of lamination for each train. For machining, there is a whole variety of components where they are getting approved.
Windmill:
○ In Windmill, Pitti makes the generator part where stator and rotor is needed. Main customer is Siemens Gamesa. Pitti also does the machine components like pedestals, to keep the fan rotor and gen rotor aligned.
• Pump Hydro:
○ Two projects going on here. Greenko and JSW.
EV:
○ EV related products are in commercial supply with a couple of customers, rest are in the development phase.
○ This line of business can grow 25-30x in next 2-3 years because the base is so low. Last year company did, 1-2 crs for this segment and can do 25-30cr of revenue from here alone on one order, if they get two orders, it would be 40-50crs. This will happen when customers start making their own motors rather than importing it.
Opportunities in Future/Growth drivers
• Machine components business including fabricated, cast parts.
• Growth and modernization of the railways in India and North and South America. There are adjacencies here as well.
• Capex cycle
This should drive growth for next 3-5 years
• Pitti has 8% of the market share and the industry is currently fragmented. Next competitor is half the size of Pitti.
• Vision is to become a integrated player for all the motor related components such as lamination, machining, shafts.
• Company aims to grow revenue 7-8x in next 10years
Please excuse any typo.
Disc: Invested.
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