The Chairman’s address in the Annual Report provides an opportunity to apprise regarding the growth and profitability of Pennar.
“I will be addressing each Business Units’ (BUs) specific performance bestowing Pennar’s growth and details pertaining the growing share revenue of the organization. The final part of the address will be dedicated to addressing our Vision to evolve into a strong diversified engineering company and our expected growth trajectory for the next few years.”
We have surpassed all previous records and have hit new heights in terms of sales and operating profit in the consolidated entity Pennar Industries during the financial year 2017-2018. We achieved Total gross revenue of Rs.2,043 crores and EBITDA of Rs.221.79 crores.
Our EBITDA margin for the year is 12.43%. We achieved a cash profit of Rs.107.01 Crores during this financial year.
The revenue and profitability consolidates the performance of four BUs and three subsidiaries.
Rail Wagons & Coaches
- Industrial Components
General Engineering and Automotive components
- Precision Tubes
Electro Resistance Welded and Cold Drawn Welded tubes
- Steel Products
Cold Rolled Steel Strips, Formed sections &
Solar MMS Components
- Pennar Engineered Building Systems Limited (PEBS)
Custom Designed Building Systems and Solar MMS systems
0 Pennar Enviro Limited (PEL)
Process Engineering Plants and Specialty Additives manufacturing
- Pennar Global Inc. (PGI)
The Railways vertical is expected to grow aggressively. We are increasing capacity at our Chennai and Hyderabad plants. The capacity increase includes new capabilities in laser welding and cutting, expansion of current capabilities and setup up a SS tube production line for railway interiors.
The Solar vertical has enhanced due to growth in India’s grid connected solar power capacity. Around 7000MW of solar capacity was added to India’s energy grid in this financial year. We provide Module Mounting System (MMS) components to our customers who are primarily Solar players. With new capacities added at our Patancheru and Isnapur plants we expect this vertical to continue showing promising results. The implementation of GST however has removed one specific advantage that Pennar had in terms of the ability to pass on MODVAT excise credit on the sale of MMS. Prior to the implementation of GST the excise duty levied on Solar MMS products was zero and the current GST applicable rate is 18%. Nevertheless, I believe our strong manufacturing capabilities and our ability to deliver scale in solar MMS component supplies will ensure that our revenues from this vertical will touch new heights.
Our Tubes division provides precision engineered ERW and CDW tubes majorly in India. The division has succeeded in adding new capacities and scaling revenue. For the last financial year the division recorded revenues of Rs. 212 Cr, a growth of 37.24%. We intend to continue building capacity in this vertical in ERW as well as downstream CDW capacity. The company has expanded into international business. In the next financial year we will commence production on our new stainless steel tube line. A combination of capacity expansion in ERW/CDW, investments in stainless steel tube and international markets will allow us to double our revenue over the next few years.
The Industrial Components BU services the automotive and general engineering sectors. We manufacture a range of pressed components and hydraulic systems. While this BU has not seen much growth in the past financial year we are hopeful that it will allow us to bring in higher growth.
The Steel Business unit comprises of cold rolling and roll forming operations. This year, we added special grade cold rolling. In the current financial year, these additional capacities will result in substantial improvements in revenue and profitability.
Pennar Engineered Building Systems (PEBS) is a subsidiary of Pennar Industries, providing custom designed building solutions in India and the US. The subsidiary has been one of our most successful initiatives since its inception and has quickly grown to achieve gross revenue of Rs.601.05 Crores, representing ~35% of Pennar Industries’ consolidated revenue and has rapidly expanded the structural engineering services which services metal building and structural fabrication companies. With GST implementation, sectors such as warehousing, building construction and the capital goods sectors are expected to grow strongly over the next few years, PEBS has cohesive capabilities to take advantage of these opportunities. We expect some of this volatility in prices - with the consequent effect on our margins - to persist in this financial year. However, the subsidiary has a strong order book, very low leverage and new growth initiatives that will ensure growth in the next few financial years.
Pennar Enviro(PEL) provides water treatment and other process industry solutions including design, procurement, manufacturing and site execution. The company has grown rapidly over the past few years and has recorded gross revenue of Rs.121.21 crores for this financial year. With in a range of technologies including desalination, effluent treatment and recycling, demineralization and instrumentation, PEL is well placed to continue to grow revenue and profitability over the next few years
Our vision at Pennar is to continually invest in capability and capacity expansions. We are constantly on the lookout for growth opportunities and once we reach market share of 10% for increasing addressable market size. These investments have to meet certain boundary conditions such as an ROCE of over 20% and an EBITDA margin.
We have identified several projects in this financial year that gives growth in our overall revenue and profitability. In this financial year, we look at completion of the following projects:
- Tubes ERW and CDW Expansion.
- Hot dip galvanizing and strip galvanizing.
- Heavy fabrication facilities.
- Light gauge building system.
Since all these projects are at an EBITDA margin, which is higher than our current margins, they will - once implemented - boost the overall margin of the company. Pennar Industries is a diversified engineering firm that has a large addressable market. Our low debt levels combined with our ability to invest and grow shows returns over the next few years. I am glad to have had your backing and look forward to your continued assistance and support.