Pennar Industries Limited

Q4 FY24

Financials

• The diversified engineering revenue for FY ’24 is at Rs. 1,641 crores compared to Rs. 1,511 crores, up by 8%. And similarly, for our custom design building solutions, it is up by 5.24%.

Business

• PEB orderbook at 750 crores and Ascent at 44 million dollars.the current PEB orderbook is meant for the next 6-8 months only and more revenue will come.
• TAM of PEB in india: 7000 to 8000 crores
• Other income includes the earnings that we have from deposits, income from mutual funds, incentives, exchange fluctuation and a large amount is due to the collection of our old receivables.
• Salaries have increased but expected to stay relatively flat or increase slightly
• Finance cost is high because of fuelling growth and being stuck in the wrong businesses which is causing working capital to extend. The impact due to interest rate is 73 basis points and due to higher working capital close to Rs. 142 crores. As a % of net sales the * finance cost is higher but they expect it to come down by the end of the year but moderately increase in the next 2 quarters.
• 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 which we will be.
• US business has a different taxation and works on state so it can vary a bit but blended we can assume 23-24%
• Peak revenue without the addition of asset base can be 5000 crores.
• To answer your question, the gross margins for our pre-engineered building business in India, margin after variable is about 18%. The market leaders get 28%, 30%. So, we are hard at work trying to get that up. In the U.S., we get a substantially larger number, it’s closer to 30%. And it can move higher than that as well.
• For PEB in the US, it is man driven and you need people called DMs. So if you are increasing capacity and aiming for growth: you hire more of them.Our total manpower in the U.S. right now is over 200 plus. The factory staff is 169 plus DMs, everyone and others combined engineering staff, all combined goes well over 200. But for us to grow, as I said, we are continually adding new DMs

Outlook and expansions

• PEB, both in India and in the U.S. will grow on the back of our new Raebareli plant having been commissioned.
• In the U.S., CAPEX is underway, and our order backlogs have also grown quite well. So, we expect to see substantial double-digit growth in revenue and profitability in this financial year from our U.S. business as well.
• So, for our products in the U.S. and services, we are currently at a 2% to 3% market share. So, there’s a lot of potential for us to grow. Consequently, we are adding a lot of capacity in the U.S. 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 U.S. business is we probably expect it to be our fastest-growing business. And the margins there are obviously also a lot higher than our India business. So, we intend to focus on U.S. revenue and profitability in addition to our India businesses.
• After the plant, boiler revenue will double this year and it’s good because the PBT margins are around 5-7%. Moreover, the industry standard for margins is even higher at around 10% so they will catch up to that soon in a few years.
• We have a 5-year plan to, shall we say, make most of our businesses, the current size of the entirety of our business. So like 5x their revenue
• we have commissioned and commissioned plants and plant expansions in Hyderabad, in Raebareli, in Trichy, also in France, but that is a small number, it’s a few crores and also in the U.S. So, all of these are growth verticals.
• US PEB capacity which is to be doubled will happen this year
• PAT margins will reach 5% this year or next year and that means PBT of 7% or so.
• Expecting quarter on quarter improvement for the next few years
• US business can do 35 million per quarter but it all comes down to adding DMs and capacity.

my thoughts: Extremely bullish guidance. Will be interesting to see how it does. I had modeled by thesis with low double digit revenue growth but it can surely do mid- high teen growth.
Valuations provide good comfort lets see!
Worried about working capital being overly stretched though