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Pitti Engineering Ltd
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Ladies and gentlemen, good day, and welcome to Pitti Engineering's Q4 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference will be recorded.
Joining us today on this call is Mr. Akshay S. Pitti, Vice Chairman and Managing Director. 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. Over to you, sir.
Good evening, and a warm welcome to you all for the Q4 and full year FY '24 earnings call. Before we open the floor for the Q&A session, I will briefly touch upon the highlights of the year gone by.
Our [indiscernible] CapEx in Aurangabad facility is on target. The enhanced capacity of 72,000 metric tonnes per annum, they will be commissioning by September 2024. We have concluded the previously announced acquisition of Bagadia Chaitra Industries Private Limited on 6th of May 2024. With this, we have now gained access to both the facility and the strategically important South Indian market and the end-user industry, which we previously did not serve.
The Scheme of Amalgamation with Pitti Castings and Pitti Rail was duly approved by the NCLT convened meeting of equity shareholders and unsecured creditors of the respective companies. A joint petition has been filed with NCLT, Hyderabad bench and the same is reserved for hearing on 7th of June 2024. The Board has approved fundraising of funds not exceeding INR 360 crores through issuance of eligible securities in one or more branches subject to approval of members at the forthcoming AGM.
I'm happy to inform you that we have received the addendum to our incentives for investments in the Aurangabad facility. Consequently, we have accounted an incentive amount of INR 30.45 crores through quarter 4 FY '24.
On the sales volume for quarter 4, we have achieved 11,435 metric tonnes as compared to 9,591 metric tonnes in quarter 4 FY '23, higher by 19.22% on a Y-o-Y basis.
Total revenue for Q4 FY '24 was INR 359.32 crores, up by 36.5%. EBITDA for the quarter was INR 48.64 crores, compared to INR 40.56 crores in the previous year, registering a growth of 19.9%. PAT for the quarter stood at INR 40.36 crores, higher by 62.5%.
For the full year, the sales volume of 42,305 [ metric ] tonnes when compared to 36,297 metric tonnes in FY '23, up by 16.9%. Revenue for the full year stood at INR 1,249.81 crores as compared to INR 1,117 crores in FY '23, up by 11.79%.
Net profit grew for the full year by 53.3% to INR 90.20 crores. The net debt for the year stood at INR 428 crores. The order book and schedule stands at about INR 800 crores. We have also provided an investor presentation along with a detailed performance report for your [ personal ]. I would now like to open the floor for the Q&A session.
[Operator Instructions] The first question is from the line of Balasubramanian from Arihant Capital.
Congratulations for a good set of numbers. My first question is regarding this Bagadia Chaitra Industries acquisition. And sir, like when we can expect around INR 300 crores top line in this acquisition company. And we earlier mentioned around 10% kind of margins, like I just want to understand what's the rationale for this acquisitions and further, why those company promoters sold the company, any specific reasons for that?
I can't comment on why the promoters sold that company. That is something that they can answer. As far as the expectation from the company going forward, in terms of tonnage, that company has achieved about 14,000 tonnes of steel for FY '24. For FY '25, we are targeting about 16,000 tonnes of sales in the subsidiary company.
In terms of margins, we expect the margins there to increase on better utilization of raw material between the 2 companies, the parent company and WOS. I have explained this in detail in the previous conference call on the rationale of the merger. So I think you can know -- refer to the minutes from that call, which can answer the remaining queries on this particular point.
Okay. Got it sir. Sir, we have seen our clients like ABB, Siemens, so they have posted a good set of numbers in this quarter. So what kind of opportunities and what kind of order inflows we are seeing at the current point of time?
Broadly, we are seeing good growth across all the end user segments. Obviously, railway has continued to outperform all the other segments, both domestically and internationally. But I would say, renewables also is performing very well. So all the other segments that we track are performing very well.
Okay, sir. Sir on the export side, our contributions are around 35% to 40% in that range. So what kind of opportunities we have, one of our key client also expanding into metro side for new planned to cater international market. I just want to understand every player is talking about metro opportunities on the export side. So like what's your view on that -- on the export side. What kind of opportunities we have especially on the railway side?
The exports overall is continuing to remain strong despite headwinds in the end markets such as Europe and U.S. Our exports remain strong. In addition to that, our indirect exports, the products that we supply to these entities in India and then they export it to their parent markets, also is remaining robust.
Got it. Since fund raising of INR 360 crore what kind of [indiscernible] they are going to use those funds? Like we already mentioned peaked up that is expected around INR 450 crores. But this fund will be utilized for the debt repayment or further growth opportunities?
See funds are targeted to be raised for multiple purposes, including further opportunities, organic and inorganic growth as well as reduction of debt.
The next question is from the line of Prathamesh Dahake from Motilal Oswal.
Sir, am I audible?
Yes, you're audible.
Sir, wanted to check up on 2 brief things. Firstly, [indiscernible] on order book of INR 800 crores, just type of how much i.e., has it grown or reduced? What are the execution time lines? Can you also give us some color on spread by sectors, spread by geography. How much of spread is domestic? And how much of it is exports?
The exact numbers, I think we can get you if you send a request in writing. I knew that at the top of my hat, I think about 25% to 30% of the order book is export side. The remaining is on the domestic.
In terms of execution time lines, this would be about INR 200 crores, which is more than 1 year forward and remaining is applicable within the year.
Okay. And spread by sectors, if you could give us a brief idea?
So we track a lot of sectors, so the exact of the top of my hand, I don't think I can do that right now.
Okay. Okay. Understood. My next question is around incentives, right. So what type is generally seen as, we account the incentives for a year as incentive receivables in our balance sheet and realize it in the next quarter of the next financial year. But this time, it looks like you have accounted it in our P&L in the last quarter itself. Has something changed? Or was it sanctioned earlier this time?
No. If you recall, we've already accounted one tranche of incentives in the [indiscernible] quarter. So this time, we have got the second addendum. So if you go back to our original Aurangabad incentive, we have invested around INR 180 crores. The first eligibility certificate, which we have received for INR 103 crores, that amount of execution over 7 years, which was about the INR 14 crores per year that we normally book.
Then for the expansion in Aurangabad facility which was to the team of another INR 65 crores worth of incentives. For this, the addendum was pending to be received from the Government of Maharashtra last financial year itself. Due to certain other reasons in Maharashtra that did not come in. Now we have received the addendum and therefore, so with incentive amount for 2 years, FY '23 and FY '24 for the enhanced value of the incentive, which is INR 65 crores, which will be accounted within the next 4 years, for which 2 years we have accounted in quarter 4.
Understood. So if I were to see, there is another INR 220 crores, which will be -- which is -- you could say, will be expensed or amortized over the next 7 years until FY '23 -- [ FY '23 ] as incentive?
Just to give you a breakup on this, for the next 2 years, we'll account roughly about INR 30 crores per year with this the original incentive claim would be finished. The current ongoing expansion, including what we are planning over the next 2 years also will be far eligible for the incentive scheme. This amount is expected to be somewhere between INR 300 crores to INR 350 crores based on actual spend in the facility. That amount would be realized over 9 years.
Starting from?
Starting from '27.
'27, 9 years, FY '35, '36?
Yes. It will be on the actual investment rate till FY '27 divided by months starting FY '27.
Okay. Roughly INR 27 crores to INR 30 crores. I mean from FY '25 till FY '35, we can expect average 30 years -- INR 30 crores of incentive per annum, right?
Yes, I think that would be correct. Yes.
Okay. Understood. My next question was, let's say, if you were to look at Pitti on a stand-alone basis, there is a plain machining revenue and there is more [indiscernible] assembly revenue. Can you give us a broad split as to how much has just been machine vanilla revenue and the motor assembly revenue? How much it is?
So if you take plain vanilla machine revenue, which have not -- which are basically of components and not going into any other motor comp [ SLV ] that should be in the vicinity of about INR 90 crore.
INR 90 crore, at least. And how do you see the split going forward? I mean we -- from the investor presentation, we are aware how much metric tonnes has been sold. But then how do we see the -- since we are adding machine capacity, how do you see the plain machining component increasing in the next 3, 4 years versus the motor business going ahead?
We are working internally to take out a proper metric in which auto business rises and I hope to have that at the end of this quarter.
Okay. And how much gross margins do we enjoy there in this plain machining business?
Plain machining business, the gross margin would be somewhere around 45% to 50%.
Okay. So Pitti Casting business is something which will aid the 45% gross margin business. Is it fair to assume that?
Yes, that's fair to assume that.
The next question is from the line of Naysar Parikh from Native Capital.
Am I audible?
Yes, sir.
So first question is on the order book. If you look at last year, March '23, I think you were around INR 825 crores. Now we are around INR 800 crores. So what is the reason we are not seeing growth there? And how do you see FY '25, if you just keep the merger and the acquisition aside, but just on a stand-alone organic basis, how should we think of FY '25?
FY '25, which -- I prefer to give you a volume projections that we're looking at. In terms of steel which is 42,000 tonnes in the last financial year. For the current financial year, on a stand-alone basis, that's looking at about 48,000 tonnes of steel. And at the WOS level, we are looking at about 16,000 tonnes of steel.
Okay. So it's 48,000 tonnes plus 16,000 tonnes is what you are looking at. And at the acquisitions you've done, the 16,000 tonnes, the EBITDA per tonne over there, after the material benefit that you will get and all the production that we do, what should we expect as the EBITDA per tonne over there on the 16,000 tonnes?
See, the benefits of the integration will approve over the next 12 to 18 months, at the peak -- at the end of the entire process, the EBITDAs over there should be, let's make we have [ INR 18,000 ] per tonne.
Okay. So that will be 18,000 tonnes. And for our 48,000 tonnes, should we assume we'll maintain this 42,000 tonnes that we are showing this quarter? Is that a fair assumption?
This will be going to a higher, it should be in the vicinity of 45,000 tonnes for the full year. Stand-alone basis.
Okay. Understood. Understood. And just on the...
We have the merger of the Pitti Casting also happening. So that will also aide the EBITDA number.
Okay. So that 42,000 tonnes to 45,000 will partly be because of Pitti Castings also.
45,000 is on a stand-alone basis without the benefit accrual from the merger.
Okay. Understood. Understood. Got it. And the order book, just one thing, can you give the volume terms this year and last year? What is the growth in volume terms?
Just one second. I don't have fully firm number with me, but it should be in the vicinity about 40,000 tonnes at the end of the last financial year.
And this year?
I'm saying for FY '24 end.
Okay. Okay. Understood. And just last thing, the railways, like you said, has obviously grown significantly. Is it still all exports? Is there some domestic component? And how should we think of this railway thing? How is the traction over here in that particular segment for you?
So on the railway side the Indian business is still maturing for us. If you see 40% of revenues on railway side tranches roughly about INR 500 crores of top line coming from the railway business for the full year. Out of this INR 500 crores of top line, roughly about INR 125 crores is the contribution from the domestic segment. The remaining is entirely export based. Do you see the export side remaining flattish over the next couple of years, while the domestic should grow more than 100% within the next 1.5 years.
Okay. And do we have like confirmed orders or some -- or is that something that we think we are still at the [indiscernible] tendering stage on the domestic side?
So on the Indian side of the railway business, we are basically on 2 sides. One, which we supply to the OEM own such as [indiscernible] so that is not tender based, we have to develop the product and they have to kind of pull out those products in the field with the Indian Railway. And then there are some city contracts. So that business is, I think, almost will be developed and will start contributing revenue in this financial year.
As far as the direct supply chain in Railways in considered, we have to go through certain field trial, which will be completed by October and we should start bringing on tenders from October onwards for commercial supplies.
And the EBITDA per tonne, would it be similar? Or should we -- I mean there could be some -- when we work with Indian Railways and the L1 and all that, will there be some kind of a compression there?
See, on the lamination side, EBITDA per tonne will be similar. On the machine components, what we supply directly to Indian Railways will be slightly lower in margins than compared to OEMs.
The next question is from the line of [ Sanchit Narang ] from [ Narang ] Family Office.
Am I audible?
Yes, you are, sir. Please go ahead.
Yes. Congrats on the good set of numbers. Sir, my first question is regarding EBITDA per tonne. If we see it from your presentation, the EBITDA per tonne is flattish instead of we doing the more percentage of machining. That is always margin accretive. So why is that?
Lamination side also has gone up. So it is not just that we've done more machining. There's no [indiscernible] as well. [indiscernible] correlation with that.
Okay. Okay. And moreover, what I wanted to know that we being in a converter business, then the electric steel has raw material prices have drawn down, but our EBITDA as a percentage should have gone up, but it has gone down to 14%. Why is that?
For the quarter 4 or for the full year?
For the quarter 4.
So in quarter 4, we have certain raw material, when you say, transactions with regards to the Bagadia Chaitra because of that, we have higher sales, which will not be there going forward, it has become WOS. We are supplying raw material to the WOS which became a WOS with effective 6th May. So for the last quarter, we had actually sold some raw material to them, which comes in revenue.
And secondly, we have also accounted for other income, which is an incentive income, which is not added to EBITDA. The increase is also top line by about 10%.
Okay. And sir, what is the rationale behind raising funds as we have peaked our debt as well to the limit that you told in previous calls?
So we are still planning more growth in some of our strategic sectors. And we see that having that capital returns will help us going forward.
Okay. So we can expect a capacity expansion plan going forward as well -- from there as well what we have told for the past 2 years?
Yes.
The next question is from the line of [ Sanjeev Zar ] from DreamLadder.
I wanted to get an idea about the size of the components business by FY '27?
Firstly, if I just take the component business, we have certain components that we make, which go into the motor and generator side of the business. Then we have certain components that we make, which have nothing to do with the motor and generator side of the business. If I combine both of these today which is about INR 270 crores business for us. The stand-alone machine components, which are not going into any motor or generator SMB which is about INR 90 crores top line.
This combined business, we see at least about INR 500 crores to INR 700 crores over the next 3 to 4 years -- 2 to 3 years, 3 to 4 years.
The next question is from the line of Khushbu Gandhi from Share India Securities.
So my first question is on Bagadia Chaitra. So was it the acquisition [indiscernible] their revenue will be merged with our financials, right?
Yes.
Yes. So can you just give me an idea what was their revenue in FY '24? And what was their EBITDA per tonne or what was the margins over there?
The revenue was about INR 250 crores. Their EBITDA was about INR 14.5 crores, and EBITDA per tonne was about INR 10,500.
So sir, for the next year -- for FY '25, where do we see and -- how do we see the improvement in EBITDA per tonne in Bagadia. I know you have given a guidance that overall on a consolidated basis it will be improving to 15%. But if I see on a stand-alone as a Bagadia, how much improvement can we see in FY '25?
See on Bagadia side, one on the volume side, we should be going to the 60,000 tonnes in the current financial year. And on EBITDA, it is 20 to 18-month journey at the end of which, we'll be having about 18,000 EBITDA per tonne with that entity.
Okay. So in FY '26, are we seeing an improvement in [indiscernible], right?
The improvement will start from quarter 2 onwards. And over the next 18 months, we should be going about 18,000 EBITDA per tonne in that entity.
Okay. And so when you give us the guidance of the sales of 48,000 plus 16,000 metric tonnes on a consolidated. So from the 16,000 tonnes if you can split that majorly that would be coming from Bagadia. Any extra components which will be getting through Pitti Castings?
See Pitti Castings, [indiscernible] as you know, spending. We will not set any lamination business on Pitti Castings basically we get casting business for which we can do machine going forward.
So when do we expect -- are we expecting this model to be done at least in the first half from whatever days till now, which we have received?
We have received the [indiscernible] restricted approval from shareholders and creditors and the case is pending in front of NCLT and the hearing is 7th of June. On the time line, I can't give you anything beyond that.
The next question is from the line of Balasubramanian Arihant Capital.
Sir, in the Automotive segment, earlier, we are like plan to enter into IC part of the business with generator related products. And we also like supplying to 2-wheeler on the EV side, and I just want to understand, right now, EV is picking up. So what kind of order inflows or any thought process on in future in those segments?
On the EV motor side, even today, most of the motors are still imported from China, hardly any motors are being manufactured in India. So as and when the localization of the component takes place definitely we will be looking at that as an opportunity.
Okay, sir. So on the nonautomotive segment earlier, we guided around INR 500 crores of top line by FY '27. And like if still we are maintaining that or any further improvement expected.
Sorry, I didn't understand the question.
From the nonautomotive segment earlier, we guided around INR 500 crores of top line in the [indiscernible] -- FY '27 and any further improvement is expected like what is the [indiscernible] next 4 to 5 year's time frame?
Do you mean the machine component side of the business?
Yes, sir.
So on the machine component side of the business, we still maintain that we should look at INR 5 crores to INR 7 crores of top line from that business.
Okay, sir. Like right now, we have some extra land for this new [ appreciation ] company. So any further like CapEx expected or any maintenance CapEx expected in the next 2 to 3 years' time frame?
With the acquired company, we don't have any extra land. The facility in Bangalore, Bagadia Chaitra will be saturated. We will be looking at expansion there maybe in FY '26.
Okay, okay. Sir like, if you could share under clients mix side how much revenue is coming from maybe on the top of 5 clients mix or top 10 clients mix? Q4...
Top 5 clients will be about 60% of revenue. I can't give you the [indiscernible] order as the top 5 clients would consist of VABTEC, Indian railways, Siemens, and among others.
Okay. Got it sir. Sir with this -- after this 72,000 tonnes per annum, any further plans which you have mentioned around more than [indiscernible] tonnes of capacities available in the industry. And right now, the overall Railways and the entire CapEx is going on in capital goods sector. So any further like growth launch we have.
See with capacity that we are expanding would be commissioned by September and should be good for us over the next few years. We will be looking at expanding for business that we foresee in FY '27.
Got it, sir. Also, like that, if I'm looking at the volume side, like the value-added component side have seen good growth on the volume side. And however, the loose laminations are in single digit year-on-year basis. However, in assembled and value had a 24% growth. So we can expect that same kind of double-digit growth in value-added competence side.
See with the acquisition of Bagadia Chaitra we should be seeing actually on a consolidated basis, more on those going forward as well.
The next question is from the line of Prathamesh Dahake from Motilal Oswal.
Am I audible?
Yes, sir. You're audible.
Yes. So my first question is, I guess in fourth quarter FY '24, our volume contribution from value-added products moved to 79% when compared to 75% in Q4 of FY '23, which I guess must have resulted in 3% improvement in gross margins. But on an annual basis, the contribution from value-added products has increased from 75% to 76% in FY '24, but still the gross margin improved by 4%. What is the reason behind this? I mean, is there something like -- the products which are way higher in realizations have not been captured in terms of volume terms? Or is it due to economies of scale of [ RN]? What is the reason behind the same?
Yes, I think that the volume itself is assembled and value-added. So anything which is not in loose condition is typically improving into assembled and value-added. So not all SMBs are alike in terms of percentage of value add on to the product. Because the percentage of, if I may use a word, lower value-added SMBs because the higher value-added SMB was higher in the ratio towards a lower value-added SMBs.
Okay. It answers the question. There could be levels in the value-added segment as well.
Yes.
Okay. And you also mentioned that machining component parts would be INR 500 crores worth of business. So is it fair to assume that it will be achievable by FY '27 end?
Yes.
Okay. And if we were to look at the split of that INR 500 crores, how much of it would be motor related and non-motor related?
Yes. I think it would be about 2/3 nonmotor and [indiscernible] would be motor oriented.
Sorry, I was not able to hear, could you please repeat.
INR 200 crores would be non-motor and INR 300 crores would be motor oriented. If we look at today's numbers out of INR 270 crores, about INR 90 crores in non-motor and about INR 180 crores is motor oriented. The INR 90 crore non-motor oriented will grow to about INR 200 crores in the next 2 years and the INR 180 crores of revenue, which is coming from motor side and generator side of the business will grow towards INR 300 crores.
By FY '27 end right?
Yes.
Okay. So our plans around debt repayment? Do they change post the fund raise? Or how are your plans around it? I mean currently, we have INR 500-odd crores of total debt, I'm talking about total debt, what are your plans about how do you want to see the debt position as of FY '27 end?
See from now till FY '27 end, there's a lot of time and it all depends on what kind of inorganic and organic growth opportunities we see going forward. The net debt picture will be dependent on a lot to do with that. The fund base is just one part of it.
Okay. Okay, but then I guess in one of our previous Con Calls you had mentioned going -- the ambition of net debt zero by next 2 years. So the plans around that execution still remain the same?
Unless and until we see something dramatically changing, we are committed towards that plan?
Okay. Understood. I had a couple of small housekeeping...
A great opportunity on growth whether organic or inorganic, we will obviously prioritize that over the previous target of being net debt free.
Okay. Understood. I had one last housekeeping question. So in our current balance sheet, what is INR 64 crores of other noncurrent assets and INR 116 crores of other current assets sitting on our books?
Those are the capital advances for the ongoing CapEx.
Okay. And INR 116 crores.
INR 116 crores will be the capital advances.
Okay. And INR 64 crores are the other noncurrent assets.
This would be to [ tools ], [indiscernible] and fixtures which are repeats. Invested incentives that we are supposed to receive from the government.
And how much would those be in those INR 64 crores receivables -- incentive receivables?
Out of INR 115 crores of -- I'm going as per first question -- answer of yours. The other comment I said is about INR 115 crores, of which, [ INR 50 crore ] is industrial incentive yet to be received from the government. INR 48 crores was accounted last financial year, most of it is not received till now, will be received by somewhere around November or December as per the pattern. And the remaining are basically your GST and other those kind of things, they are the other noncurrent assets.
INR 64 crores breakup in -- what would that be?
INR 115 crores are breakup.
And what about the INR 64 crores of other noncurrent assets?
That would be INR 62 crores the capital advances remaining are deposits with government bodies and [ electricity ], et cetera.
Okay. So maybe once the CapEx is done, that will also come down, right?
Yes. That will come down once the CapEx is down.
So whole of CapEx, [ 17,000 ] metric tonnes of sheet metal and the machining hours will be done by September.
The sheet metals are to be completed by September, but machining hours will still take a little bit of time to commission.
What -- I mean -- by H1, how much, -- how many machining hours can be expected?
By H1 end about 600,000 machines hours will be commissioned.
Okay. And the rest by next H2?
Yes, next by December.
The next question is from the line of Karan Kamdar from DRChoksey Finserv Private Limited.
It's a great set of numbers. So from the previous question, I think I got a part of my answer. So what I was looking at is a change in working capital, which is a hit of INR 134 crores in the cash flow. So I think a bigger amount of it comes from the other current assets and the other noncurrent assets. Would that be correct?
No, it's not just that the big change in working capital also comes from the fact that the [indiscernible] creditor if you see year-over-year, have reduced dramatically. This is because we are changing actually our performance strategy. Earlier, the performance is to happen from vendors [indiscernible] contract is on a calendar basis not on financial year basis. So now we are trying to align our purchase contracts with the financial year. So as a result, in quarter 1, we took a lot of materials out of contract period. And now we are building the regular contract wherein we have the [indiscernible] financing the materials not on cash basis basically.
Hello?
Mr. Kamdar, are you on the -- can you hear us.
Sir the current participant seems to have dropped from the queue.
We will proceed to the next question, which is from the line of Pratik from CCIL.
Good set of numbers. So of first all congratulation to you. So my question is actually, as we are expecting the revenue to start coming from September onwards for the CapEx, and we are raising INR 350-odd crores for the some growth purpose for [indiscernible] nonorganic growth. So by FY '27 or mid-FY '28, what could be the max top line that we could expect?
In terms of finance I can guide [indiscernible] on the revenue opening because the revenue is subject to raw material price changes. We are targeting, including the [indiscernible] about 80,000 tonnes of sales by FY '27.
We have the next question from the line of Naysar Parikh from Native Capital.
[indiscernible]
Sorry to interrupt, sir, but you are not audible.
No, I was just continuing the question asked previously. So on the working capital, can you please complete that what you were saying?
Yes. So see, we have an annual contract, which was based on a calendar year with our vendors, vis-a-vis, our financial year. Basically Jan to December instead of March to April -- sorry, April to March. So in the last quarter, we did a lot of purchases outside of contract to allow us to realign these contracts to a financial year basis. So a lot of these procurements are done on cash among spot purchase basis. Therefore, our some creditors have reduced when compared to the year ago basis while the inventories have increased to provide further change in working capital structure into [indiscernible] fulfillment structure. Going forward, this will completely change once again. We go back to the old system, wherein we have creditor days payable, which is in the vicinity of about 100 creditor days.
Okay. So there's just a one-off, right?
This is just one-off. This is actually realigning the structure so that we can get efficiency on the balance sheet going forward.
Got it. Got it. Okay. And just one more question was on the machine parts business that you -- what is the margin that we make on that business in this year? What was the margin we made? And as we scale up that to 500, is the scope where we can do high value add and kind of get better margins?
Based on cushioning components, our gross margin are in the vicinity of about 40%, 45%. And that margin was actually much higher than the overall company's average margin if you see. Going forward, the components that we are targeting will be the similar margin profile.
The next question is from the line of [ Abhijeet ] from [indiscernible] Asset Management.
As there is no response from the current participant we will move on to the next question, which will be from the line of Akash Singhania from AART Ventures.
Akshay, congratulations on good numbers. My question is on EBITDA per tonne, which is around -- for the last 6 quarters, if I see, it has remained constant at around 42,500. So normally, I was expecting some increase. So can you give us some color why it has remained stagnant for the last 6 quarters?
So nothing much has changed in the business in the last 6 quarters. What will change in the next couple of quarters will actually give you the increase which is the machine component business increasing significantly the acquisition of the entity in Bangalore, which will help us in better material utilization and better economies of scale going forward. So all those positives are yet to accrue and has been accrued, the margins will increase.
Okay. And as you mentioned, around INR 45,000 per tonne for FY '25. And if going forward for the next 2, 3 years, should we see a steady increase from INR 45,000 to...
See, on a stand-alone basis, we would be at about 45,000 EBITDA per tonne in this year. This is without considering the WS and without considering from amalgamating companies. The consolidation that WS will actually pull this number down as we are at a much lower EBITDA total margin. So an stand-alone basis again going forward, if you see for 45,000, we should be moving to the vicinity of 48,000 over the next 2 years after that as further economies of scale and better operating leverage kicks in.
The next question is from the line of Karan Kamdar from DRChoksey Finserv Private Limited.
Yes. I got dropped earlier. So I just wanted a little more clarity on the working capital part, where you were saying that you're realigning the financial year and the calendar year. So I wanted to understand how that would benefit us and what kind of benefits would accrue to us by doing this change.
If you see typically our purchase contracts are calendar dates and now we are moving into financial year. This will help us better align our procurement to our financials. So due to switch, we have to do a lot of purchases in quarter 1 on a cash and carry basis because the contracted structure in which we have credit available. Therefore, in quarter 1, the [indiscernible] creditors have gone down dramatically when compared to the average history of -- average creditor days in the history of the company? This will not be continuous going forward. Now that we are into the financial year and the contracts with the suppliers have been aligned as such, you will go back to booking on a credit basis rather than a cash and carry basis. Therefore, funds raise creditors will increase, and the overall working capital become more what you said -- more working capital be released basically in the September.
So we will go to a cash conversion cycle of FY '23?
Yes, it will be better than FY '23. This has been done to improve it further.
The next question is from the line of [ Abhijeet ] from [indiscernible] Asset Management.
I'm audible?
Yes, you're audible, sir.
So my question was regarding the expansion and its time line, which has been answered. So can you shed some light on how long will it take for optimum utilization?
So the optimum utilization of 80% can be achieved by FY '27.
Okay. And the other question was regarding the funds raise since we are raising fund for growth opportunity plus debt reduction. So can we expect debt reduction in FY '25 -- by the end of FY '25?
It depends on the fund raise, right? Whether the debt will reduce or not.
The next question is from the line of Sanchit Narang from Narang Family Office.
Just a follow-up. What is our capacity utilization guidance in terms of tonnage in Pitti stand-alone going forward in FY '26 and '27?
So for FY '25, we are doing 48,000 tonnes as a target for FY '26, it will be about 54,000 tonnes and then with the peak utilization of 58,000 tonnes in '27.
[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.
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