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Earnings Call Analysis
Summary
Q1-2025
Pitti Engineering's Q1 FY25 saw strong numbers with consolidated revenues reaching â‚ą386.71 crores, a 21.92% growth year-over-year. EBITDA stood at â‚ą56.35 crores, and PAT grew by 41% to â‚ą20.55 crores. The company completed its acquisition of Bagadia Chaitra Industries, contributing to these figures. New capacities in Aurangabad are on track, set to increase total capacity to 90,000 tonnes annually. They successfully raised â‚ą360 crores via QIP, strengthening the balance sheet. The company remains optimistic, aiming for stand-alone annual targets of 48,000 tonnes and consolidated targets of 63,000 tonnes for FY25.
Ladies and gentlemen, good day, and welcome to Pitti Engineering's Q1 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference call will be recorded.
Before we begin, I would like to mention that some of the statements made in today's call may be forward-looking in nature and may involve risks and uncertainties. For a list of such considerations, please refer to the earnings presentation.
I would now like to hand the call over to Mr. Akshay Pitti. Please go ahead, sir.
Good evening, and a warm welcome to the Q1 FY '25 earnings call. I will start with a brief overview of the performance during the quarter, followed by the Q&A session.
We completed the acquisition of Bagadia Chaitra Industries Private Limited on 6th of May, 2024, the financials up to date are consolidated for the period. Consolidated revenue for the quarter stood at INR 386.71 crores, EBITDA was INR 56.35 crores and PAT was INR 20.55 crores. Total sales volume was 14,992 tonnes.
On a stand-alone basis, the revenue for the quarter grew by 21.92% to INR 354.45 crores. EBITDA grew by 28.07% to INR 54.34 crores. PAT grew by 41% to INR 19.70 crores.
Sales volume was 12,411 tonnes, up by 24.63%. Q1 FY '25 saw the highest ever volumes, revenue and EBITDA for the quarter. Blended EBITDA per tonne was INR 43,785. In Q1 FY '25, we have also accounted for onetime expenditures related to the BCIPL acquisition amounting to INR 2.18 crores.
Installation of new capacities in our Aurangabad facility is in process and on track for commissioning by September. With this, our consolidated capacity will grow to 90,000 tonnes per annum.
During the quarter, the Board had approved the fund raise of up to INR 360 crores. I'm happy to note that we have successfully completed the same via QIP. These funds will go in a long way to strengthening our balance sheet and fueling our future growth.
A quick update on the merger with Pitti Castings. The approval of NCLT is expected shortly, and we hope to conclude the same during this quarter.
With a strong performance in quarter 1 and continued demand from almost all our customers, we have a very optimistic outlook for the rest of the year and hope to surpass our annual targets of 48,000 tonnes on a stand-alone basis and 63,000 tonnes on a consolidated basis.
I would now like to open the floor for the Q&A session.
[Operator Instructions] Our first question comes from the line of Balasubramanian from Arihant Capital.
Congratulations for good set of numbers. My first question is regarding the railway side, lot of railway players have given conservative guidance because lot of railway orders has been delayed. So just want to understand, we have exposure around 30% to 35% kind of business in railways. I just want to understand what kind of order intake we have and what kind of opportunities we have in coming years?
And sir, order book number is also not there in that PPT. Could you please share order book and short-term and long-term order mix? And what kind of order inflows we can expect in this year? This is my first question.
Firstly, regarding the railway business. As you know, majority of our railway-related business is export oriented. If you see last financial year, about 25% of our total revenue from railway was from domestic, 75% was from export. Our exposure to direct Indian Railways supplies is only starting now. So we are not seeing any degrowth in our order intake. In fact, we are seeing more orders on railways coming in going forward.
As far as the order book is concerned, like I mentioned, since we operate in a build-to-ship kind of a model to our customers, order book is not indicative of the strength of the business and its prospects for the current year. However, the total order book is around INR 1,000 crores as of date.
So what is the short term and long-term mix?
Long term would be about INR 200 crores. This is a depleting order, which is onetime in nature and not an industry standard. This number will keep coming down as you keep consuming that?
Sir, we have added a new segment for pumps, so what kind of work we are doing?
The pump segment has been added from the acquisition of Bagadia Chaitra Industries. A lot of their business at that company's level is for the agricultural pump set business. The major customer there is Texmo. And it's a good business. It's a good amount of ROCE.
Got it, sir. Sir, really this Dakshin Foundry, when we can expect the 3,300 metric tonnes, whether it is FY '26 or FY '27?
Balasubramanian, I've already answered these questions in the call for Dakshin. However, for the sake of reputation, they are already doing about 3,000 tonnes per annum of utilization. So they will continue at that rate.
Our next question comes from the line of Sani Vishe with Axis Securities.
Congratulations on another set of strong numbers. I have a few basic questions, sir. So one is, could you throw some light on the decline in exports revenue compared to the earlier quarters? And similarly, we are also focusing on high value-added assemblies, which also have shown decline in traded volumes? So that's my first question.
Second is more of a bookkeeping question that EBITDA per tonne decline for BCIPL I understand it is because of some one-time expenses. So I just wanted to know whether we expect any repetition of such expenditure in the coming quarters? Or do we remain on track to improve EBITDA per tonne for the company -- for BCIPL?
So firstly, on the revenue, on a sequential basis, yes, exports are down. But if you see on a Y-o-Y basis, exports are up. For the same period in FY '24, export revenue was INR 91.96 crores. However, for the quarter 1, it's about INR 106.64 crores.
Secondly, coming to your third question, which is the EBITDA per tonne. EBITDA per tonne, again, is actually higher than the same period before last -- the same corresponding period of last year. And if I'm not mistaken, on a sequential basis also, it is higher than the previous quarter at INR 43,785 per tonne.
So for BCIPL, I'm looking at the presentation, the blended EBITDA per tonne stood at INR 7,204, which compares to the previous year quarter, INR 11,356. So is there a misunderstanding on my side?
See, in that, you also have to see two things. In the BCIPL side, there are certain accounting policy changes, number one, in terms of the inventory valuation. We have moved to a conservative method of accounting our inventory in that company post takeover.
Secondly, if you see the tonnage, the tonnages reported in this PPT are for the full quarter. It is very categorially written, it's for full quarter and not proportionate. However, the EBITDA taken is for the proportionate period. Therefore, the EBITDA per tonne comes down by about INR 1,200 per tonne. The impact of the inventory valuation is core INR 2 crores. If you adjust for that, the EBITDA in BCIPL on a stand-alone basis would have been about INR 12,000 a tonne.
Yes, makes sense. So I think we can expect it to around INR 12,000 or above that in the coming quarter?
See, once the consolidation benefits start, as we have only acquired it on 6th of May, over the next 2 or 3 quarters, we expect this number to go up to about INR 18,000 a tonne.
Okay, understood. And on the volume side, so what is the reason? I mean, give some color on why machine products volumes declined and high value added assemblies declined?
This is purely on the product mix basis. On a full year basis, it should still be higher than the last year.
We have follow-up questions from Balasubramanian from Arihant Capital.
Sir, per the balance sheet numbers as on this quarter, how much cash and debt level?
The net debt number as on end of period, 30th June, was INR 525 crores. However, post fund raise, the net debt picture as of 1st of August is down to about INR 300 crores post both the acquisitions.
INR 300 crores is for 1st of August, right, sir?
Sorry, 1st of August.
Okay. So how would the inventory levels -- inventory days -- if you could share some highlights on that working capital cycle side in this quarter?
So on the inventory number, we are at about INR 270 crores of inventory. Inventory days outstanding is about 70. DSO is about 60 and DPO is about 70. Working capital has come down to about 63 days, net working capital cycle.
Got it, sir. So sir, this INR 300 crores of net debt, so like how we can look at over the next 2 years, like we are trying to reduce further or like we are focusing on further inorganic growth opportunities?
See, as of this particular second, we are not looking at any additional inorganic opportunities in the current financial year. We have already done two and we'll be looking to consolidate these and integrate them into our business. Whatever cash flow that we generate, the free cash flow, should be going towards further reducing our debt only. Beyond that, we will look at our strategies for next financial year closer to the time, looking at how the integration of the existing acquisition goes.
[Operator Instructions] Our next question is from the line of Dharmil with Dalmus Capital Management.
Yes. So my first question is more on the operating metrics that you have shared in the PPT. So the lower value added has grown and the machining part and the higher value added declined. Despite that the EBITDA per tonne has increased for the stand-alone business. So any reason what is the particular reason for this?
The total operating leverage is up by 25%. So your overheads will be distributed better simply on that basis. And the product mix. So if you see the blended sale realization of the rotating electrical equipment, it's still up by 9.8% despite the decrease in raw material prices.
Understood. And secondly, in the standalone business, your other expenses used to be somewhere around INR 20 crores to INR 25 crores, which is now increased to INR 35 crores to INR 40 crores. So what is the particular reason or expense this other expenses have grown or will this remain the same for the remaining year?
Like I mentioned, there are certain onetime expenses amounting to INR 2 crores with the acquisition. And also a lot of the expenses for the full year is normally booked in the first quarter, certain of them. So the other expenses are higher by about INR 5 crores when compared to the previous quarter. INR 33.68 crores of the other expenditure during quarter 4. Sequentially, it's up by about INR 5 crores, in which expenditure on a onetime basis is about INR 2 crores.
So for the last 3 quarters, keeping aside the onetime expense, other expense should come down.
They should come down by a small margin.
Understood. And lastly, I mean the overall lamination industry in India has seen quite a growth. All the players have been seeing some growth as well. Now that, I mean you can...
Dharmil, I'm not able to hear you clearly.
Yes, is it audible now?
Yes, this is better.
Yes. The last question is more on the industry. And what we have seen is lamination industry in India has grown quite a bit for last few years. All the organized players has been part of that growth journey. Now we also see that the MNC companies are also taking up interest in setting up factories in India, either directly or through acquisitions. So any broad sense on how the competitive landscape is changing or how would that affect the company? Because recently, we saw -- we came across a news that one of the MNC companies is entering India.
Yes. So that was on the cards for some time, so it's not news at least to us, and there have been MNCs in India doing this work in form of Tempel Steel for the last 15 years. So it doesn't really change the competitive landscape. It gets more organized, which is much better for the industry as a whole. We welcome the addition of these MNCs and hope that they further drive up the consolidation of the industry.
Our next question is from the line of Sanjeev Zarbade with Dream Ladder Investments.
My first question was regarding the -- is there any further space available at your Aurangabad unit after completing the current CapEx?
Yes, sorry. In Aurangabad, we have actually added about 2.5 lakhs square feet of buildup area. We do not have any further area to add new buildings, but within the space created, we have enough runway to expand the capacity there up till 100,000 tonnes per annum, which is basically another 28,000 tonnes increase in the location.
And sir, related to this is any update on when you will -- tentative timeline when you can complete the current CapEx, the INR 198 crores CapEx announced for machining?
Sorry, I couldn't hear you clearly. The CapEx for machining, you said?
Correct, correct. Yes. What would be the completion timeline?
See, in that, the good part about adding the capacity in machining is, as requirement is there, we are able to add it. So we intend to finish this about 12 to 18 months from now, looking at the increased demand. We are not rigid on closing it on a particular date. We are going to keep it slightly flexible so that we don't incur the overhead cost of reexpansion without the revenue coming in.
Okay. Great, sir. And the last question, if I can squeeze in, was regarding the EBITDA per tonne. Can you throw some light on what kind of an average trajectory on EBITDA per tonne we can expect over the medium term?
So if you take on a stand-alone basis, we did about INR 43,785 EBITDA per tonne. If you adjust for the one-time expenditure related to the acquisition of Bagadia Chaitra, we are already somewhere around INR 45,500 on a stand-alone basis. With the addition of Pitti Castings, the merger, this number should grow to about INR 48,000 on a standalone.
We have follow-up question from Balasubramanian with Arihant Capital.
Sir, we have seen in this quarter employee cost and other expenses in terms of sales increase around 100 to 200 basis points. Post the consolidation of all the acquisitions, we can expect the normal levels of 8% kind of employee cost and 8% to 9% kind of other expenses in coming quarters?
We've had our increment cycle in the first quarter. And obviously, the numbers are going to grow over the next quarters on the sales line. So the employee cost as a whole will remain fixed at this at an absolute number. As a percentage of revenue, it really doesn't have much meaning as the revenue will change with respect to the raw material pricing.
Got it, sir. Sir, this recent acquisitions, this Bagadia Chaitra as well as Dakshin Foundry, these order executions are having any price clause, like in Pitti stand-alone basis, we have a price clause?
I'm sorry, but I'm not able to understand your question. If you can speak slightly slowly...
Sir, I'll repeat the questions. In Pitti Engineering on stand-alone basis, we have a price variation clause for 3 months. And some of the contracts, like wind and other contracts, we have some additional price variation clause. Like this recent acquisition companies, Bagadia Chaitra as well as Dakshin Foundry, any price variation clause on the execution of orders?
Yes. So both casting industry as well as the lamination industry as a standard have a quarterly price variation clause built into all contracts. Similarly, these two companies also have the same clause with all the customers.
Is there any lag, sir? Or is...
It happens on the 1st -- see the raw material prices on the lamination business are for a quarter, which is January to March. The sell price which we, as a supplier, built into our customer is from February to April. So while just for a quarter it is staggered by 1 month, the idea behind that is that your inventories can be consumed at the old rate. So that way, we do not incur any losses when compared to the increases or decreases in the market.
[Operator Instructions] As there are no further questions, ladies and gentlemen, we have reached the end of the question-and-answer session. And on behalf of Pitti Engineering, that concludes this conference. Thank you for joining the call.
For further queries or visiting the plant, please be in touch with Rama Naidu from Intellect PR on (992) 020-9623. Thank you for joining us, and have a wonderful day.