Pennar Industries Limited — Q3 FY25 earnings call

Call held 15 Feb 2025

Management summary

Pennar Industries reported a solid quarter with double-digit growth in revenue and profits, driven by both its engineering and custom building segments. The management detailed a clear strategy of focusing on six high-growth verticals (PEB, BIW, hydraulics, etc.) while monetizing legacy assets, exemplified by the new solar JV with Zetwerk. While acknowledging execution challenges at the new Raebareli plant are now resolved, the focus remains on improving margins to match industry peers and driving sustained quarter-on-quarter growth through capacity expansion and market share gains.

Highlights

  • Net Sales grew 12.75% YoY to ₹839.7 crores.

  • Profit Before Tax (PBT) increased by 20.29% YoY to ₹39.78 crores, with PBT margin expanding 30 bps to 4.74%.

  • Profit After Tax (PAT) stood at ₹30.46 crores, with PAT margin at 3.63%.

  • Announced a strategic JV with Zetwerk for the solar business, with Pennar investing ₹18 crores as a minority partner to monetize legacy assets.

  • PEB India order book stands at ₹800+ crores and PEB U.S. at USD 50+ million.

  • Working capital days are at 79, with a short-term target of 72 days and a medium-term target of 60 days.

  • The new Raebareli plant is now operational, contributing ₹20-25 crores in Q3, with peak capacity expected by Q1 FY26.

  • Revenue from prioritized businesses constitutes 65% of the total, with the remaining 35% from non-prioritized businesses targeted for monetization or phase-out.

Key financials

  1. Total Income ₹846.45 Cr +12.7%YoY
  2. Net Sales ₹839.7 Cr +12.8%YoY
  3. PBT ₹39.78 Cr +20.3%YoY
  4. PBT Margin 4.7%
  5. PAT ₹30.46 Cr
  6. Working Capital 79 days
  7. Total Borrowings ₹1,195 Cr

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

Share of Revenue
₹856.89 Cr Total
  • Custom Design Building Solutions ₹441.29 Cr 51.5%
  • Diversified Engineering ₹415.6 Cr 48.5%

Guidance & targets

Working Capital

  • Working Capital Days Working Capital · short term · High confidence 72 days
    Our stated goal is to reach 60 days in the medium term and 72 in the short term.

    — Aditya Rao

  • Working Capital Days Working Capital · medium term · Medium confidence 60 days

    — Aditya Rao

Capacity

  • Raebareli Plant Peak Capacity Capacity · Q1 FY26 · High confidence Reach peak capacity
    We expect that we can increase the peak capacity Q1 FY '26.

    — Shrikant Bhakkad

Profitability

  • Consolidated Tax Rate Profitability · ongoing · High confidence 25% to 26%
    We expect the consolidated rate to be between 25 to 26%.

    — Shrikant Bhakkad

  • Finance Cost as % of Revenue Profitability · ongoing · High confidence 3.8% to 4%
    So, it will be range bound between 3.8% to 4%.

    — Aditya Rao

Revenue

  • Non-prioritized Business Revenue Revenue · next 5 years · High confidence Drop to zero
    For the next five years, yes, it would drop to zero. One way or another.

    — Aditya Rao

  • Revenue and Profit Growth Revenue · next 4-5 years · Medium confidence Quarter-on-quarter growth
    I think we can commit that we will, quarter-on-quarter, you're going to see revenue growth and profit growth... over the next 4-5 years, we expect to have sustained high growth in all of these metrics.

    — Aditya Rao

Margin

  • Overall Net Margin Margin · next 1-3 years · Low confidence 10%
    I think our stated goal is to get to higher than 7%. We have 10% targeted. We will not promise you a timeline... So, the matter of the next one, two, three years, you will see us meeting, we call it benchmark market rates in all of our businesses from a net profit percentage margin point of view.

    — Aditya Rao

Debt

  • Debt to Equity Ratio Debt · long-term steady state · High confidence 0.7
    I think 0.7 is what we would like to target. We are right now around there itself... So, long-term steady state, expect 0.7 from us, from a debt equity point of view.

    — Aditya Rao

Capex

  • New PEB Plant in Gujarat Capex · next financial year · High confidence Initiate project
    I believe our current plan calls for that to be initiated in the next financial year and it doesn't take long to complete.

    — Aditya Rao

  • New PEB Plant in U.S. (Ascent) Capex · next year · Medium confidence Come up
    Yes, we have planned that new plant to come up in the next year.

    — Aditya Rao

Risks & concerns

  • Execution risk at new capacity expansions

    medium

    Management admitted to underestimating local issues at the new Raebareli plant, a risk that could recur in future greenfield projects like the planned Gujarat and US plants.

    Management acknowledged

  • Lower profitability in PEB segment vs. peers

    medium

    The company's PEB margins (4.5-5%) lag competitors (7-8%). While management has a plan, failure to close this gap could impact overall profitability.

    Analyst acknowledged

  • Stagnation in the Tubes business

    low

    The tubes business has been flat for five years. Management has deprioritized it as a near-term growth vector, mitigating the risk to overall company growth.

    Analyst acknowledged

Areas of evasion (1)

  • Did not provide a specific revenue number for the engineering services business when asked.

Q&A highlights

3 direct
Rationale for entering solar panel manufacturing via a JV with Zetwerk Direct
But I think there is also a better way for the company to realize some value. So, this is our attempt to realize value out of our IPE, out of our pre-qualifications, out of our presence in these sectors... this is a mechanism for us to realize value out of our capabilities and pre-qualification and assets that we have, rather than just have value destruction.

This explains a key strategic shift: instead of simply shutting down low-margin legacy businesses, the company is using JVs to monetize them with minimal capital outlay (₹18 crores), preserving shareholder value.

Asked by Ishmohit Arora

Capital efficiency of the PEB business compared to a listed peer Direct
So, you are right in that we have historically not been an efficient capital deployer in the pre-engineered building space... I think some of our competitors are at 7 or 8%. And we are at 4.5 to 5%. Yes. So, we will look to improve that. So we have over 100, 200, 250 basis point improvement to be made. And we know where that's going to come from.

Management directly acknowledged a key weakness (lower margins and capital efficiency vs. peers) and quantified the improvement potential, showing self-awareness and a clear plan to close the gap.

Asked by Keshav

Execution challenges at the new Raebareli plant Direct
I will try to be as transparent as I can on this. We underestimated the local issues we face. We have now solved for them... This was our first North Indian plant. It took us a little bit of time... But the hard work is behind us, the difficulties are behind us.

This provides a candid explanation for potential execution softness. The admission of underestimation and confirmation that the issues are resolved gives investors confidence in both management's transparency and their ability to learn from experience for future expansions.

Asked by Prateek

3 min read 6 chapters

Detailed narrative

Q3 FY25 Performance Highlights

Pennar Industries delivered a strong performance in Q3 FY25, with net sales rising 12.75% YoY to ₹839.7 crores and total income reaching ₹846.45 crores. Profitability saw a significant uptick, as PBT grew 20.29% to ₹39.78 crores, expanding PBT margins by 30 basis points to 4.74%. The growth was broad-based, with the Diversified Engineering segment growing 9.2% to ₹415.6 crores and the Custom Design Building Solutions segment growing 13.8% to ₹441.29 crores.

Strategic Shift: Monetizing Legacy Assets via Solar JV

A key strategic development is the formation of a joint venture with Zetwerk for the solar business. Pennar will invest only ₹18 crores as a minority partner, effectively transferring its know-how, assets, and order backlog to the JV. This move is part of a broader strategy to realize value from non-prioritized, legacy businesses (which currently form 35% of revenue) without further capital allocation, rather than simply shutting them down. The company's share of profit from the JV will be reflected as minority interest, which is expected to be margin-accretive.

Growth Engine: Focus on Core Verticals and Market Share Gains

Management reiterated its focus on six core growth verticals: PEB (India & US), Body in White (BIW), process equipment, engineering services, and hydraulics. The core strategy is to leverage their low market share (e.g., #4 in India PEB, #10 in US PEB) to drive growth faster than the overall market. The BIW business, in particular, is scaling rapidly, with revenue already above ₹100 crores and a potential to reach ₹1,000 crores in the next few years as the customer base expands.

Capacity Expansion Driving Future Growth

The company's new PEB plant in Raebareli is now operational and contributed ₹20-25 crores to Q3 revenue, with expectations to reach peak capacity by Q1 FY26. Further expansion is underway, with plans to initiate a new PEB plant in Gujarat in the next financial year and a new greenfield plant for its US subsidiary, Ascent Buildings, in the next year. This continuous addition of capacity is central to achieving the guided quarter-on-quarter growth.

Path to Improved Profitability and Efficiency

Management acknowledged that its PEB margins of 4.5-5% lag competitors who are at 7-8%. They have a stated goal to reach over 7%, with a 10% target, and believe there is a clear 200-250 bps improvement potential. On the balance sheet, the focus is on improving working capital efficiency, with a target to reduce working capital days from the current 79 to 72 in the short term and 60 in the medium term. The long-term debt-to-equity ratio target is maintained at 0.7.

Order Book and Outlook

The company holds a healthy order book, with the PEB India business at over ₹800 crores and the US PEB business at over USD 50 million. While declining to provide specific numerical guidance for revenue growth, management committed to delivering sequential, quarter-on-quarter growth in both revenue and profit. The outlook is bullish, with expectations of sustained high growth over the next 4-5 years, driven by capacity expansion and market share gains in focused verticals.

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