Pennar Industries Limited

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.

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.

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.

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.

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.