Pennar Industries Ltd Q1 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Nilesh Shah - Arrow Investments - Analyst : Hi, Aditya ji and Shrikant ji. Congratulations on -- hi, great numbers. Congratulations. I have two questions. The first question is with regard to the Raebareli plant. So what is that plant coming up for, for which product category? And what is the CapEx involved in setting up this plant? And did we have this plant already on our books or did we make a fresh purchase towards it? So total cost towards the Raebareli plant, that is one. And the second, I would like to know the input cost that are in cold-rolled steels that is right now. If you can throw some color on what the trajectory of the input costs that are going to happen for the coming year. There's only two questions I have.

Question: Nilesh Shah - Arrow Investments - Analyst : Thank you.

Question: Nilesh Shah - Arrow Investments - Analyst : No, there was that -- on the cost pressure, input cost pressure, are we seeing any marginal cost pressures on the input materials of steel? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 10, 2023 / 6:00AM, PENN.NS - Q1 2024 Pennar Industries Ltd Earnings Call

Question: Nilesh Shah - Arrow Investments - Analyst : All right. You just gave an indication in your speech about 3.8% as our margin. So how sustainable is this going forward for the year? For the quarter we had 3.8% or something. I think you mentioned 3.8%.

Question: Nilesh Shah - Arrow Investments - Analyst : Thank you so much. Then just the last point, in terms of what is the current order book size that we have to be executed over the next quarter?

Question: Nilesh Shah - Arrow Investments - Analyst : Okay. But this is for the next quarter, coming quarter to be executed.

Question: Deepak Poddar - Sapphire Capital - Analyst : Hello.

Question: Deepak Poddar - Sapphire Capital - Analyst : Yeah. Thank you very much, sir, for the opportunity. Sir, so I have few queries. So you did mention in your opening remark that you are letting go revenue with lower margins, right?

Question: Deepak Poddar - Sapphire Capital - Analyst : So I mean, so how do we see the growth then? I mean, are we compromising on the growth part or how do we see then the growth that we kind of envisage this year?

Question: Deepak Poddar - Sapphire Capital - Analyst : So on that year basis maybe, what mid-single-digit to high-single-digit growth would be the range we might be looking at, right?

Question: Deepak Poddar - Sapphire Capital - Analyst : I was trying to understand the revenue front. Profit growth obviously should be higher because you did mention that PBT margin should be higher on a YoY basis, right?

Question: Deepak Poddar - Sapphire Capital - Analyst : So a high single digit is a fair estimate, right, I mean, in that range.

Question: Deepak Poddar - Sapphire Capital - Analyst : Understood, right. And secondly, I was looking for some parts on your railways business scaleup. Because if you see, I mean, railways are giving a lot of order rate. And our order book of INR110 crores looks very small in the kind of orders they are giving. So are we looking to scale up this railway business or do we have the capability to do that? So any kind of thought process in that area would be helpful.

Question: Deepak Poddar - Sapphire Capital - Analyst : Okay. But what is the reason for that, sir?

Question: Deepak Poddar - Sapphire Capital - Analyst : Okay, understood. And then my third question is on your PAT. I mean, we have -- I mean, had the aspiration of 5% PAT margin rate. So what is the sort of timeline we are looking at in terms -- to achieve those sort of margins?

Question: Deepak Poddar - Sapphire Capital - Analyst : I mean, one to two years would be a fair range. I mean -- REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 10, 2023 / 6:00AM, PENN.NS - Q1 2024 Pennar Industries Ltd Earnings Call

Question: Deepak Poddar - Sapphire Capital - Analyst : Understood. And under your other income, I mean, it has been quite volatile rate. I mean, how do we see that? I mean, in some of the quarters, we get, what, INR2 crores, 3 crores of other income. And some of the quarters, we get like INR10 crores, INR12 crores of other income.

Question: Deepak Poddar - Sapphire Capital - Analyst : Understood. But what is the nature of this other income? I mean, how much would be the interest income and what is the nature of that part of this other income?

Question: Deepak Poddar - Sapphire Capital - Analyst : And so sir, I have one final question, if I'm allowed to ask. So how do we calculate ROCE? I mean, because you said that FY23, we had ROCE of about 20%. But if I see your debt and equity in FY23, our total capital employed is about INR1,450 crores. So I'm getting ROCE of about 10%, 11% for FY23. So how do we calculate ROCE of 20%? So what do we exclude in capital employed?

Question: Deepak Poddar - Sapphire Capital - Analyst : Okay. Okay. Because I mean, ideally, we take, what, debt and equity, right? So that is about INR1,400 crores, total employed -- REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 10, 2023 / 6:00AM, PENN.NS - Q1 2024 Pennar Industries Ltd Earnings Call

Question: Deepak Poddar - Sapphire Capital - Analyst : Okay, understood. Fair enough. Okay, yeah. I think that's it from my side. All the very best to you, sir. Thank you so much.

Question: Keshav Garg - Counter Cyclical PMS - Analyst : Sir, I want to take from the previous participant's question about return on capital employed. Sir, I don't know why you are taking out current liabilities. The actual -- the calculation should be total assets by EBIT, EBIT divided by total asset. We should add debt plus our net worth and minus whatever cash that we have. So it should come to around INR1,263 crores for FY23. And on that, sir, the EBIT is basically INR235 minus the depreciation of INR60 crore, which is around INR169 crores. So the return on capital employed is actually 14%. And that is the normal way of calculating across companies.

Question: Keshav Garg - Counter Cyclical PMS - Analyst : Yes, sir. And sir, so why have the margins declined quarter on quarter from 10% to 8%? I'm talking about Q1 versus Q4 and, sir, despite the increase in scale of operations.

Question: Keshav Garg - Counter Cyclical PMS - Analyst : And sir, if we look at like you mentioned that the aspiration is to reach 5% net profit margin and that too in the -- let's say, in the short to midterm of, let's say, over the next two years. Sir, but if you look at our current net profit margins, they are approximately 2.8%. So that means we are almost talking about doubling the net profit margins in the next two years. So you think that that's a reachable goal? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 10, 2023 / 6:00AM, PENN.NS - Q1 2024 Pennar Industries Ltd Earnings Call

Question: Keshav Garg - Counter Cyclical PMS - Analyst : Sir, that is very reassuring. And sir, lastly, sir, we are doing share buybacks every year, and that's really great. Sir, and last year, we did in September '22. So one year is about to get over. So I hope that we again do some share buybacks, sir, especially considering the great plan and the bright future that we are projecting. So that's the request from all the shareholders.

Question: Keshav Garg - Counter Cyclical PMS - Analyst : Sir, and one thing, sir, is SEBI is phasing out open market buyback. So this is the last open market buyback. And henceforth, from next year onwards, we can only do a tender offer wherein a premium needs to be paid over the market price. So you can just keep that in mind. Thank you.

Question: Keshav Garg - Counter Cyclical PMS - Analyst : Thank you very much.

Question: Chirag Shah - Nidara Capital - Analyst : Good afternoon, sir. Can you hear me?

Question: Chirag Shah - Nidara Capital - Analyst : Yeah. Congratulations on a good set of numbers. Sir, I have a couple of questions around the PEB business. Is there any seasonality that you see

Question: Chirag Shah - Nidara Capital - Analyst : All right. Sir, one more question on PEB. So is it possible for you to give the revenue, Q1 FY24 versus Q1 FY23, the EBITDA margins and the order book comparison compared to last year? So we get some idea on --

Question: Chirag Shah - Nidara Capital - Analyst : Okay. And sir, say, compared to last year, is there more positivity in the sector? Or how do you see the growth spanning out for the next one year or two years?

Question: Chirag Shah - Nidara Capital - Analyst : Okay. Okay. And sir, specifically with respect to India, how do you see the margins improving with new capacity coming on and your order book fill up?

Question: Chirag Shah - Nidara Capital - Analyst : At the PAT level.

Question: Chirag Shah - Nidara Capital - Analyst : Okay, all right. Thank you so much, sir.