Shilchar Tech.

Shilchar Technologies reported a buoyant demand scenario for transformers, driven by India's rising power consumption and significant capacity additions in renewable and conventional energy. The company successfully commercialized an incremental 3500 MVA capacity in August 2024, bringing its total installed capacity to 7500 MVA. This expansion is already yielding results, with a notable increase in production observed in September, contributing to both year-over-year and quarter-over-quarter growth in Q2.

Management is highly optimistic about future growth, targeting a turnover of 550 crores for FY24-25. Following the full utilization of its incremental capacity by FY26, the company projects a substantial turnover of 750-800 crores. This growth is expected to be sustained by strong domestic and export inquiries, with a commitment to maintaining a similar domestic to export revenue mix for the upcoming financial year.

The company currently holds a strong order book of almost 450 crores, which is expected to be executed within the next six to nine months. Management highlighted operational efficiency, low overheads, and absence of finance costs as key factors contributing to its consistently higher EBITDA margins compared to competitors. Export sales, which constituted almost 45% of H1 revenue, also contribute significantly to profitability.

Shilchar Technologies primarily caters to the renewable energy sector, with almost 60% of its sales coming from inverter duty transformers (IDTs) for solar and wind projects. Management noted that India targets 25-30 gigawatts of solar installations annually, creating a sustained demand for transformers, with a one-to-one correlation between installed gigawatts and required transformer capacity. The company's transformers for solar applications are typically around 17-18 MVA, 33 kV or 66 kV class.

With demand expected to remain robust for the next four to five years, Shilchar plans to make a decision on further capacity expansion in December or January. The company estimates it can install almost 25,000 to 30,000 MVA using its existing land parcel. While acknowledging potential price pressure from new industry capacities coming online in late FY25/early FY26, management believes strong demand will mitigate any substantial margin reduction, maintaining current margins for the next couple of years.

Despite industry-wide issues with CRGO imports due to BIS approval, Shilchar Technologies is not impacted, leveraging advance licenses for exports to ensure material availability, though prices have increased slightly. The company has also made a breakthrough in the European market, expanding its export focus beyond North America and the Middle East, where it has built customer trust over 10 years. Management noted that entering foreign markets requires significant effort and a strong track record.