Jyoti Automation to be debt-free by 2025: Parakramsinh Jadeja

At the end of the first half of the current financial year, the debt-to-equity ratio stood at 3.2 times, down significantly from the 10.2 times recorded at the end of FY24.

Jyoti Automation is targeting a debt-free status in two to three years, potentially by 2025. In an exclusive conversation with Moneycontrol, Jyoti’s chairman and managing director Parakramsinh Jadeja said the company’s debt-to-equity ratio is expected to hit 0.25 percent after the public offering that opened on January 9. At the end of the first half of the current financial year, the debt-to-equity ratio stood at 3.2 times, down significantly from the 10.2 times recorded at the end of FY24.

Jadeja expects the outgo on interest, which presently stands at Rs 90 crore, to decrease by a substantial Rs 50-55 crore once debt is reduced following the issue.

Despite having a diversified customer base of 12,000 clients, the CMD acknowledges the concentration in the company’s top customers, which he aims to balance in two to three years. Expansion plans include aerospace, electronic manufacturing services and electric vehicles.

Edited excerpts:

How different is your business profile from peers like Elgi Equipments, Lakshmi Machine Works, Triveni Turbines and TD Power System? What's your USP?

We are fully integrated into a metal cutting machine manufacturing company. So, our USP is that we are into metal cutting for industries like high-end manufacturing, aerospace, defence and EMS (electronic manufacturing services). Some of our rival players are not fully into machine tools, they are into a different industry too.

The company plans to allocate around Rs 475 crore from the net proceeds to repay borrowings. How much will the debt figure and interest expense come down by?

The debt-to-equity ratio will reach 0.25 percent, and the company aims to be completely debt-free in the next two to three years there. Say, by 2025.

The company’s interest expense was close to Rs 90 crore and post debt reduction, this number would come down by Rs 50-55 crore.

What debt-to-equity level are you comfortable with? How would you fund your future requirements?

We have a robust order book for the next three to five years. So in the near term, we are not looking for any debt requirement. We have enough to generate the cash to fulfill the next growth cycle. Internal accruals are going to meet our requirements for the next three years.

Talk about your growth strategy. What kind of utilisation are you looking at?

Today our plant has a capacity of 4,400 machines a year and with some of the balance capex, capacity will reach to 6,000. We are looking at a close to 90 percent utilisation rate in the next two to three years. This year, the utilisation rate is expected to be around 70 percent.

You just turned around profitable with Rs 15 crore profit after tax for FY23. In the first six months of this fiscal, the number stood at Rs 3 crore. You think your profit could be higher this year?

On a standalone basis, the Indian business has never made losses. The losses have come particularly from our subsidiary company in France and that too a passthrough. During COVID, all the aerospace companies were passing costs through, almost two-thirds of the world’s aircraft were grounded for more than two years. We have come back from that. Things started improving in FY23. And with this utilisation, this order book execution, we will be seeing much better numbers in 2024 and 2025.

Help me understand your overseas subsidiary’s performance in fiscal 2023.

Last year our subsidiary did close to Rs 130 crore in revenue with a plant utilisation of just 20 percent. Based on our orderbook today, out of Rs 3300 crore worth of orders, Rs 1,900 crore is only in aerospace and defence at the subsidiary level. This is a large manufacturing cycle. We are looking at utilisation of close to 60-65 percent this year, full utilization will come next year.

Your previous two financial years’ losses have been attributed to factors like fixed finance costs. The other concern is the long working capital cycle and fixed expenses. How do you intend to resolve that?

We are dramatically improving the long working cycles because so far, we have been working on up to 200 variants of a model. Now, on the same SKUs, we are doing multiple times business. In our RHP (red herring prospectus) too we have mentioned that we are looking at bringing working capital requirement down from 280 days 160-175 days within two years. We can maintain the cost very well on that. And utilisation will come. The fix asset turnaround also will be improving. The cost will also improve there. And financials—we already mentioned that we are improving drastically this coming year with the IPO proceeds.

Let's also talk about your EBITDA margins, which have doubled from 5.5 percent in FY21 to nearly 11-odd percent in FY23. In the first half of the current fiscal, the numbers have inched up to 15 percent. What’s the sustainable range?

This H1 number of 15 percent is on the back of utilisation at 50 percent. So things will improve further. There will be room for much more improvement. Operational leverage will come in in the second half. We are working with numbers upward 15 percent if the execution pace picks up.

Let's also talk about your segment-wise breakup in a little more detail because that's essentially where the alpha is expected to come in from. So out of five—aerospace, auto and auto components, general engineering, dies and EMS, which you're of course bullish on—which one is more margin accretive in nature?

Aerospace and defence. As a strategy, EMS is going to give us volume. Businesses in the segment are growing at a great pace. And we are working with world-class companies and are looking at much more business in that space.

Your revenue mix has improved from 36 percent to 47 percent between FY21 and FY23. Do you expect that to now come down and perhaps get more contribution coming in from aerospace, which otherwise was dull in the last few years?

Even in a growth situation, aerospace and defence are going to contribute close to 40 percent. If you look at our orderbook today, it's close to 58 percent aerospace and defence orders. EMS is 8-9 percent of the orderbook. Naturally, once we execute this orderbook, the numbers will be completely changed.

We wish to be balanced. Like auto/auto components, we would like to have close to 25-30 percent there. And let's say 40 percent for aerospace and defence, and close to 30 percent for EMS. That's the wish list.

Let's talk about your dependence on 10 customers, and you must have got that question enough and more that your concentration is a little higher. And for the last six-month period, it has increased to 40 percent from 20 percent. 

We have a very diversified customer base, more than 12,000 customers, and their capex cycles change every year. Sometimes, one customer invests in a big way; the next year, another does. So we will have a list of the top 10 customers there. But largely, we are seeing a forward direction in the next two to three years. This will be focused on, let's say, 8 to 10 customers and close to 20-25 percent of business.

Talk about your growth strategy.

We have three clear-cut strategies. We would like to expand in four categories. One is aerospace and defence, the second is EMS and the third is electric vehicles.