Pennar Industries Limited — Q1 FY26 earnings call

Call held 14 Aug 2025

Management summary

Pennar Industries reported a resilient Q1 FY26, with double-digit growth in both revenue and profit. However, performance was significantly hampered by an unforeseen labor shortage that led to a revenue loss of ~₹100 crores. Management expressed strong confidence in a Q2 rebound, citing that the labor issues are resolved and the new Raebareli plant is ramping up. The company is also navigating a new 50% US tariff on its hydraulics business, which it aims to mitigate by redirecting sales to other geographies. Elevated working capital remains a key focus area for improvement in the upcoming quarters.

Highlights

  • Revenue grew 15.3% YoY to ₹845.67 crores, despite a significant labor shortage.

  • Profit After Tax (PAT) increased by 21.06% YoY to ₹31.96 crores.

  • EBITDA rose 19.12% YoY to ₹94.12 crores, with the margin improving to 11.13% from 10.77%.

  • Management quantified a revenue loss of approximately ₹100 crores in Q1 due to labor availability issues, which they state are now resolved.

  • Working capital days increased to 76, higher than planned, attributed to the lower-than-expected revenue.

  • The US business faces a new 50% tariff on hydraulics products, impacting ~2.2% of total company revenue; mitigation plans are in place.

  • The PEB (Pre-Engineered Buildings) division saw strong growth, with the new Raebareli plant commissioned. The PEB order book stands at ₹855 crores in India and $54 million in the US.

  • Management projects a strong sequential recovery in Q2, expecting to recoup the revenue lost in Q1 over the course of the year.

Concerns

  • US Tariffs on Hydraulics Business

Key financials

  1. Revenue ₹845.67 Cr +15.3%YoY
  2. PAT ₹31.96 Cr +21.1%YoY
  3. EBITDA ₹94.12 Cr +19.1%YoY
  4. EBITDA Margin 11.1%
  5. PBT ₹40.16 Cr +13.4%YoY
  6. Working Capital Days 76 days

What they filed

Q1 FY27: revenue up 2.8%, net profit up 9.4% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue748 840 906 846 907 +21%943 +12%925 +2%870 +3%
EBITDA75 72 92 86 81 +8%83 +15%105 +14%93 +8%
Net profit27 30 36 32 32 +19%34 +13%41 +14%35 +9%
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.

Segment breakdown

  • Custom Design Building Solutions (CDBS)
    25% Revenue Growth
  • PEB India
    ₹855 Cr Order Book
  • PEB US (Ascent)
    $54 Mn Order Book
  • Boilers and Process Equipment
    ₹110 Cr Order Book

Guidance & targets

Profitability

  • Tax Rate Profitability · Ongoing · High confidence 25-26%
    We continue to guide the tax at 25% between 25% to 26%, keeping the US federal and corporate tax into account.

    — Shrikant Bhakkad

  • Finance Cost as % of Revenue Profitability · Ongoing · High confidence 4%
    We have guided you to 4% as our net revenue cost, 1% predominantly from long term and 3% from our working capital.

    — Shrikant Bhakkad

Working Capital

  • Working Capital Days Working Capital · Long-term · Medium confidence 60 days
    We believe that the long-term potential steady state, that is about 60 days.

    — Aditya Rao

Capacity

  • Raebareli Plant Utilization Capacity · by end of this year · High confidence 80%
    Our goal is to hit 80% by the end of this year. We're quite comfortable that we'll be able to do that.

    — Aditya Rao

Revenue

  • Engineering Services Growth Revenue · in this fiscal · Medium confidence Healthy double-digit
    As I previously guided, we project very healthy double-digit growth in revenue and profitability for this business unit in this fiscal.

    — Aditya Rao

Risks & concerns

  • US Tariffs on Hydraulics Business

    high

    An upcoming 50% tariff on US sales of hydraulics products, impacting a revenue stream that is 2.2% of the company's total. Management is redirecting volumes to other countries.

    Management acknowledged

  • Labor Availability and Management

    medium

    A severe labor shortage caused a ₹100 crore revenue loss in Q1. While management claims the issue is fixed, it exposed an operational vulnerability in labor sourcing and planning.

    Management acknowledged

  • Elevated Working Capital

    medium

    Working capital days are high at 76. Management attributes this to the revenue miss but acknowledges it needs to be brought down, which is critical for cash flow and profitability.

    Both acknowledged

Q&A highlights

3 direct
Quantification and reason for the significant jump in 'Other Expenses' Direct
The total increase is INR37.13 crores at consolidated level... in stand-alone by INR26 crores, which comes through higher erection expenses, subcontract expense and spare consumables... The balance INR11 crores increase is coming from our subsidiaries, which is on account of legal and professional expenses, which are related to acquisition.

This question directly addressed a major P&L variance, revealing that the cost increase was linked to both the operational labor issues (subcontracting) and one-time acquisition costs, providing clarity on margin pressure.

Asked by Nitin Jain

Impact of the Q1 labor shortage and management's plan to prevent recurrence Direct
I think we have lost close to INR100 crores in revenue in Q1 because of that... We should have planned for this earlier, but we have now put in place process so that the accessible labor pool for us is much wider than it was by a factor of 2 or 3, frankly... this issue is now in the rear-view mirror.

This was the most critical operational issue of the quarter. Management quantified the large impact and admitted it was a 'miss', while detailing corrective actions, which is crucial for assessing future execution risk.

Asked by Shubhankar Gupta

High working capital and debt levels Direct
in this quarter, because of we anticipated higher revenue, so we expand our current assets accordingly. When we did not have the revenue that we expected, the percentage of our working capital as a proportion of our revenue went up... we are right now at about 76 days. We believe that the long-term potential steady state, that is about 60 days.

This question addressed balance sheet stress. Management directly linked the high working capital to the revenue shortfall and committed to bringing it down, setting a clear long-term target for investors to track.

Asked by Mayank Agarwal

2 min read 5 chapters

Detailed narrative

Q1 Performance: Growth Tempered by Major Labor Headwind

Pennar Industries reported a 15.3% YoY revenue growth to ₹845.67 crores and a 21.06% YoY PAT growth to ₹31.96 crores. However, this performance was significantly below internal targets due to an unexpected labor shortage, which management quantified as causing a revenue loss of approximately ₹100 crores. The issue, stemming from a seasonal migration of contract labor, has reportedly been resolved by diversifying labor sourcing. Management is confident of a strong sequential rebound in Q2 to make up for the shortfall over the fiscal year.

Segment Drivers: PEB and Body-in-White Show Strength

The Pre-Engineered Buildings (PEB) division was a key growth driver, with the new Raebareli plant now commissioned and expected to reach 80% utilization by year-end, adding a potential ₹300 crores in annual revenue. The PEB order book is robust, with ₹855 crores in India and $54 million in the US. The Body-in-White (BIW) segment has also secured new clients like Hyundai and Ashok Leyland, with ongoing capacity expansions expected to boost its revenue contribution significantly in coming quarters. The Boilers and Process Equipment business also has a growing order book of ₹110 crores.

Navigating US Tariffs on Hydraulics

Management highlighted a key external risk: a new 50% US tariff on certain products, set to be effective August 27. This primarily affects the hydraulics business, which constitutes about 2.2% of Pennar's total revenue. Management stated that while the initial 25% tariff was manageable, the 50% level makes the US market challenging. Their mitigation plan involves actively redirecting volumes to other established markets like Europe, Canada, Australia, and New Zealand, and they do not expect a significant overall impact on the company's revenue or profitability targets for the year.

Focus on Working Capital and Balance Sheet Efficiency

Working capital days increased to 76, which management acknowledged was higher than planned. This was a direct result of building up inventory for an anticipated revenue level that was not met due to the labor shortage. Consequently, finance costs were also slightly elevated at 4.16% of revenue against a target of 4%. Management committed to improving this, guiding for a reduction in Q2 and stating a long-term steady-state target of 60 working capital days.

Strong Outlook for Q2 and Beyond

The management's outlook for the upcoming quarters is very positive. They guided for an 'exceptionally strong' Q2, with significant sequential growth over Q1. This optimism is based on the resolution of the labor issues, the ramp-up of the Raebareli plant, a strong order book across key verticals, and new client additions in high-growth segments. With the exception of a seasonally muted December quarter in the US, the company expects to see sequential quarter-on-quarter growth for the next 2-3 quarters.

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