Pitti Engineering Q1 FY27 earnings call

Pitti Engineering is benefiting from three key growth drivers: China Plus One opportunity, shift of manufacturing from Europe to India, and electrification. The company observes customers increasingly looking at India as an alternative manufacturing base, particularly in Mining equipment, Data Center generators, and specialized industrial applications. Rising energy and labor costs in Europe are prompting a shift of manufacturing to India, creating both direct and indirect export opportunities for Pitti. Electrification is also driving structural demand for electrical steel laminations across energy generation and consumption.

For Q1 FY27, Pitti Engineering reported revenue from operations of ₹529 crores, a 16% YoY increase from ₹457 crores in Q1 FY26. Adjusted EBITDA grew 14% YoY to ₹89 crores, maintaining a margin of 16.8%. Adjusted PAT stood at ₹32 crores, up from ₹26 crores in Q1 FY26. Total Lamination and assembly volumes reached 19,200 tons, marking a 19% YoY growth, with higher value-added assemblies growing faster. Total Casting and Machine Components volume increased by 4.2% YoY to 3,191 tons. Capacity utilization improved across key segments: sheet metal to 73% (from 70%), machining to 86% (from 82%), and casting and fabrication at 72%.

The company has commenced operations from its previously announced ₹150 crores Capex, which expanded sheet metal capacity to 108,000 tons and augmented Casting and Machining. Pitti is currently progressing with a ₹290 crores investment for a Greenfield Casting facility in Hyderabad, with ₹60 crores already incurred. This facility is expected to be commissioned by Q1 FY30, with 30% of the investment allocated to infrastructure and 70% to plant and equipment. Looking beyond FY27, the company plans for a fully owned facility in Bangalore, estimated at ₹200 crores, plus another ₹200 crores for equipment, totaling ₹400 crores in future Capex, which could support a top-line of ₹3,000-₹3,300 crores.

The revenue mix in Q1 FY27 was diversified, with Traction Motor and Railway Components contributing 28%, Power Generation 15%, Industrial and Commercial Applications 12%, Mining, Oil & Gas 10%, Special Application Motors 9%, Data Centers 5%, and Renewable Energy 3%. Data Centers, primarily for power generation, are a strong near-term opportunity, with demand from customers like Cummins, Marathon, and Nidec. The company is also seeing strong visibility in railways, metros, mining, and off-highway equipment. While automotive presence is limited, Pitti is actively exploring opportunities in this sector, particularly with electric mobility.

Despite an improved product mix, margins remained largely flat in Q1 FY27. Management attributed this to higher manpower costs associated with the new Capex, stating that margins will improve as operating leverage kicks in. The net debt stood at approximately ₹491 crores as of the last quarter end, with a potential for ₹25-₹30 crores in working capital rationalization. Finance costs were impacted by a Forex charge of about ₹3 crores due to the West Asia crisis, contributing to the interest and bank charges of ₹19.6 crores.

The company's previous incentive from a ₹220 crores Capex is now exhausted, with ₹70-odd crores still pending receipt from the government, expected within 9-12 months. For the new ₹400 crores Capex, Pitti is evaluating whether to claim the state government incentive this year or next. The strategic decision is to defer claiming the incentive this year to maximize net cash flow, as claiming it now might prevent recovering a large portion next year, depending on government approval for a 9-year plan.