Shilchar Tech. — Q3 FY24 earnings call

Call held 6 Feb 2024

Management summary

Shilchar Technologies reported robust Q3 FY24 results with significant revenue and profit growth driven by strong demand, particularly in the renewable energy sector and exports. The company is aggressively expanding its manufacturing capacity from 4000 MVA to 7500 MVA by mid-2024, funded entirely by internal accruals, to capitalize on the sustained demand. Management expressed confidence in maintaining healthy margins due to efficient operations, a strong export focus, and no debt.

Highlights

  • Q3 FY24 Revenue (including other income) stood at ₹121 crores, marking a 72% YoY growth.

  • Profit Before Tax (PBT) for Q3 FY24 was ₹34.84 crores, growing 119% YoY.

  • 9M FY24 total revenue reached ₹300 crores, up from ₹191.90 crores in the prior year, representing 56.3% YoY growth.

  • The company is undergoing a two-phase capacity expansion, increasing from 4000 MVA to 7500 MVA by July 2024.

  • A turnover of ₹800-900 crores is targeted within two years with the expanded capacity.

  • The order book as of January 1, 2024, was ₹355 crores, with 40% exports and 60% domestic.

  • Domestic margins are 15-20%, while export margins range from 30-50%.

  • FY24 turnover is projected to be ₹400-420 crores, utilizing 100% of current 4000 MVA capacity.

Key financials

2 periods

Q3 FY24

  • Revenue
    ₹121 Cr
    YoY +72%
  • PBT
    ₹34.84 Cr
    YoY +119%

9M FY24

  • Revenue
    ₹300 Cr
    YoY +56.3%

What they filed

Q1 FY27: revenue down 15.1%, net profit down 48.8% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue131 154 232 159 171 +31%170 +10%152 −34%135 −15%
EBITDA41 43 71 52 54 +32%52 +21%32 −55%22 −58%
Net profit33 35 55 41 46 +39%42 +20%28 −49%21 −49%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Guidance & targets

Capacity

  • Phase 1 Capacity Expansion Capacity · April 1, 2024 · High confidence 5500 MVA

    From 4000 MVA today

    We had already started phase 1 expansion which is going on in full swing and it is plan to be operational from first April 2024, so this phase will increase our capacity from 4000 MVA to 5500 MVA.

    — Mr. Alay J Shah, Managing Director

  • Phase 2 Capacity Expansion Capacity · July 2024 onwards · High confidence 7500 MVA

    From 5500 MVA today

    we have already started working on the phase 2 expansion which is a much bigger expansion than the Phase 1 expansion and this will increase our capacity from 5500 MVA to 7500 MVA.

    — Mr. Alay J Shah, Managing Director

  • Capacity Utilization (7500 MVA) Capacity · FY2025-26 · High confidence 100%
    It normally takes about 2 years for 100% utilise the capacity so I think FY 2025-26 we should be able to get 100% capacity

    — Mr. Alay J Shah, Managing Director

Revenue

  • Turnover with 7500 MVA Capacity Revenue · in two years · High confidence ₹800-900 crores
    We expect the turnover of around Rs. 800 to Rs. 900 crores in two years.

    — Mr. Alay J Shah, Managing Director

  • FY24 Turnover Revenue · FY24 · High confidence ₹400-420 crores
    this year we will end up with a turnover of around Rs. 400 to Rs. 420 crores that is the 100% full capacity

    — Mr. Alay J Shah, Managing Director

Capex

  • Expansion Cost Capex · both phases · High confidence ₹30 crores
    The expansion will cost approximately Rs. 30 crores including both phases and this is from the internal accruals. We are not borrowing any money for this

    — Mr Alay Shah, Managing Director

Margin

  • Margin Maintenance Margin · at least one year · High confidence Maintain current levels
    We are confident that we can maintain the sort of margin that we have so as of now... I mean I cannot say anything you know beyond that we are very confident for next year where will be able to maintain this margin.

    — Mr. Alay Shah, Managing Director

Order Book

  • Export vs Domestic Mix Order Book · next one year · High confidence 40% export, 60% domestic
    Whatever orders we have is 40-60 so 40% is for export 60% for domestic.

    — Mr. Alay Shah, Managing Director

Risks & concerns

  • Competition from new market entrants

    medium

    Management acknowledged that new players might enter but highlighted high entry barriers due to the critical nature of transformers, stringent quality standards, and lengthy approval processes.

    Analyst acknowledged

  • Raw material price volatility

    low

    Management stated there is no shortage of raw material, it's plentiful, and prices have either come down or stabilized post-COVID.

    Analyst downplayed

  • Capacity underutilization impacting margins

    low

    Management stated that underutilization would not affect margins because the company has no borrowing costs.

    Analyst downplayed

Q&A highlights

3 direct
Margin sustainability and competitive advantage Direct
I think we do better in terms of margin compared to our competitor because we do lot of exports of Transformers... Another reason for the better margin is that our plant is very very efficient and we do manufacturer Transformers in a very efficient manner. This push our margins. The third thing is that we don't have any finance cost so we are not borrowing anything from the banks...

Clearly explains the structural reasons behind the company's superior margins (exports to developed markets, operational efficiency, debt-free status), which is crucial for investor confidence in margin durability.

Realization per MVA and product mix Direct
So it varies from Transformer to transformer. Now if you are talking about the substation or distribution transformers, the cost is very low and easy to manufacture. Whereas, the renewable energy transformers are very difficult to manufacture. They have multiple output and lot of other requirements which we need to take care in design and manufacture.

Clarifies why the company's realization per MVA is higher than general industry averages, attributing it to their focus on complex, high-value renewable energy transformers rather than standard distribution transformers.

Long-term demand drivers in North America Direct
Innovation or same renewable resources renewable is also going in full swing as well as the you know replacement of whole Transformers which were installed in mid 50s and 60s they are also being replaced and that has also generated lot of demand for distribution Transformers.

Provides insight into the dual drivers of demand in their export markets (North America) – both renewable energy growth and the replacement cycle of aging infrastructure, indicating sustained demand beyond just new projects.

2 min read 6 chapters

Detailed narrative

Robust Q3 FY24 Performance and 9M Growth

Shilchar Technologies reported a strong Q3 FY24 with revenue (including other income) of ₹121 crores, marking a 72% year-on-year growth. Profit Before Tax (PBT) surged by 119% to ₹34.84 crores for the quarter. For the nine months of FY24, total revenue reached ₹300 crores, a significant increase from ₹191.90 crores in the corresponding period last year, reflecting robust demand and efficient execution.

Aggressive Capacity Expansion to Meet Demand

The company is undertaking a two-phase capacity expansion, increasing its annual manufacturing capacity from the current 4000 MVA to 7500 MVA. Phase 1, which will boost capacity to 5500 MVA, is expected to be operational by April 1, 2024. Phase 2, further expanding capacity to 7500 MVA, is slated for completion by July 2024. This expansion is fully funded by internal accruals, with an estimated cost of ₹30 crores, and management projects a turnover of ₹800-900 crores within two years from the expanded capacity.

Superior Margin Profile Driven by Exports and Efficiency

Shilchar Technologies maintains a healthy margin profile, with domestic margins ranging from 15-20% and export margins significantly higher at 30-50%, depending on the transformer type. Management attributes this to a strong focus on high-quality exports to developed markets like North America and the Middle East, an efficient manufacturing plant, and the absence of finance costs due to being debt-free. The company is confident in sustaining these margins for at least the next year.

Strategic Focus on Renewable Energy and Specialized Transformers

The company's sales are predominantly linked to the renewable energy sector, particularly solar and wind industries, accounting for 80-85% of domestic sales in Q3. Shilchar specializes in complex, oil-cooled transformers for these applications, which command higher realizations per MVA compared to standard distribution transformers. This niche focus, coupled with strong design capabilities, allows them to avoid direct competition with large multinational players and government utility projects.

Strong Order Book and Positive Demand Outlook

As of January 1, 2024, the company's order book stood at ₹355 crores, with a current export-to-domestic order mix of 40% to 60%. Management anticipates continued strong demand, especially from the renewable energy sector, driven by government targets of 35-40 GW annual installations. They expect to fully utilize the expanded 7500 MVA capacity by FY2025-26, projecting an FY24 turnover of ₹400-420 crores based on 100% utilization of the current 4000 MVA capacity.

No Significant Raw Material or Regulatory Headwinds

Management confirmed that raw materials are plentiful with no shortages, and prices have stabilized or decreased post-COVID. They also clarified that there are no specific government subsidies or regulatory support for the transformer segment in India, indicating that their growth is market-driven. The company also stated that entry barriers for new players are high due to the critical nature of the product and stringent approval processes.

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