Pennar Industries is confident of seeing record revenue in FY15. Speaking to CNBC-TV18, VC Aditya Rao said the company is hoping to end Q4 FY15 wit margins of around 10 percent. The company is hopeful to see a capex of around Rs 50 crore in FY16.
The company received an order worth Rs 102 crore in November and has a major structural steel order from Kannur International Airport, Kerala. The overall order book of Pennar Industries stands at Rs 460 crore currently.
The company expects to reduce its debt to half by the end of this fiscal. The current order book of the company stands at around Rs 35 crore, added Rao.Below is verbatim transcript of the interview:
Q: The company has been winning orders over the last few months repeatedly, what was the total quantum of order wins in the October to December quarter and what is the pipeline looking like?
A: Of the six business units at Pennar Industries the three that do report a order book which is our Engineered Building Systems Subsidiary, our environment treatment business and our systems and project business. We have had a good quarter with good order wins across all three verticals.
Our current open order book for Pennar Engineered Building Systems (PEBS) is close to Rs 380 crore. Our order book for our systems and projects business has grown by a lot on the back of new solar orders and wagon orders and that would be close to about another Rs 60 crore and environment business is looking at a total order booking of close to about Rs 20 crore in the quarter.
Q: You have about Rs 460 crore worth of orders in the pipeline. What kind of margins these orders enjoy and what would it take your blended margins to?
A: Most of our order book-based businesses are at high margin. Our pre-engineered building business typically has a margin after variable about 20 percent that translates to an EBITDA of about 11-12 percent.
Our solar business would also have similar margins. Our environment treatment business would be at about 15-16 percent is what we would expect. Railways as such has always been a tremendous margin booster for us and our growth in Integral Coach Factory (ICF) and also the wagon business will ensure that we will continue to see margins scale up as a blend for the company.
Q: Considering the company’s outlook on margins is looking up what are you hoping to end FY15 with in terms of margins?
A: Without giving guidance, this financial year has been good and in fact we are well positioned right now to have our highest revenue ever – record revenue in this financial year.
The margin profile, if you look at the last two quarters we have been at about 8.5-9 percent and we would expect that on an EBITDA basis to grow further in Q4. We are targeting 10 percent on a blended basis for EBITDA.
Q: When we touched base with you the last time in August you had guided for FY15 consolidated revenues in the region of about Rs 1400-1600 crore with a 10 percent PAT growth. Would you maintain that guidance or are you looking to scale it up as we near the end of FY15?
A: On a consolidated basis the numbers that you have mentioned are pretty accurate. I would prefer to not call it guidance but that is where we are headed.
However, due to one of our subsidiaries exploring options as regards an IPO I will not be able to give you an exact number or to confirm some of the those numbers but the numbers that you have mentioned are our targets right now for the financial year; from August to now that has not changed.Q: It appears that your PEBS subsidiary – Is that your high margin business?
A: Our systems and project business would be our highest margin business, after that would be PEBS. However, in terms of sheer EBITDA contribution PEBS would be the strongest this year.
Q: How much does it currently contribute? What would you eventually like PEBS to contribute to your revenues?
A: Last year PEBS contributed close to 30 percent. The growth rate for PEBS currently exceeds the company’s growth rate so consequently, the revenue, the EBITDA and the profit contribution coming from PEBS to the rest of the company will grow. But with the rest of the companies, with our investments in railways, with our investments in our tubes divisions and our solar business also growing aggressively we would see that situation reverse over the next couple of quarters until we see the long-term stabilisation of about 25-30 percent contribution from PEBS in terms of revenue as well as profitability.
Q: Your debt equity is already quite low, any plans to retire the Rs 75 crore outstanding long-term debt that you have?
A: The long-term debt we have is not Rs 75 crore, we have about Rs 35 crore of long-term debt which is for a solar power plant that we have. We do have plans to reduce that by close to half by the end of this financial year. PEBS, the subsidiary has no debt and Pennar Enviro, the other subsidiary has no long-term debt.
Q: You spoke about the investments that you are making in FY16 what is the kind of capex or investments that the company has outlined?
A: We have actually started doing this capex over the last quarter or so. We now have additional capacity that has been brought in Railways, in tubes and in solar. By themselves that would give us the potential for a double digit growth in these businesses in the next financial year. This capacity is now online and we expect Q4 to benefit from this expansion as well.
The markets in all of these sectors are vast, our market share per se has a lot of room for growth in those sectors and we are quite bullish on the capital expenditure we have done in railways, in solar and in our tubes business.
Q: Any number for the consolidated investments?
A: We would look at about Rs 50 crore.
Q: For FY16?
A: Yes.
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