Concall AI

Pitti Engineering Limited — Q2 FY25 earnings call

Call held 14 Nov 2024

Management summary

Pitti Engineering delivered strong financial results for Q2 and H1 FY25, driven by recent acquisitions and capacity expansions. The company provided optimistic long-term guidance for FY27, projecting significant growth in revenue and margins. While facing headwinds in the low-voltage motor segment due to price competition, growth in other diversified sectors like data centers and renewables is expected to compensate. Management expressed confidence in achieving its targets through operational synergies and ongoing capacity ramp-up.

Highlights

Consolidated H1 FY25 revenue grew 37.1% to ₹850 crores, with PAT up 105% to ₹57.38 crores.
Consolidated Q2 FY25 revenue reached ₹455 crores, a 48.27% YoY increase, and PAT grew 72.74% to ₹38 crores.
Standalone Q2 FY25 revenue increased 28.44% to ₹404.97 crores, with PAT rising 54.7% to ₹34.05 crores.
Consolidated net debt stood at ₹330 crores as of September 30, 2024, targeted to reduce to ₹200 crores by FY25 end.
Total lamination capacity is projected to reach 90,000 tons, casting capacity 18,600 tons, and machining capacity 650,000 machine hours by March 2025.
FY27 guidance includes consolidated revenue of ₹2,300-2,400 crores and an EBITDA margin of 15-16%.
The low-voltage motor segment's revenue contribution shrunk from 13.5% to 11.5% due to price competition, offset by growth in other sectors like data centers and renewables.

Key financials

3 periods

Headline

Consolidated Net Debt (Sep 30, 2024)
₹330 Cr

Q2

Consolidated Revenue
₹455 Cr
YoY +48.3%
Consolidated EBITDA
₹66 Cr
YoY +44.4%
Consolidated PAT
₹38 Cr
YoY +72.7%
Consolidated EPS
₹10.2

H1

Consolidated Revenue
₹850 Cr
YoY +37.1%
Consolidated EBITDA
₹124 Cr
YoY +59.8%
Consolidated PAT
₹57.38 Cr
YoY +105%
Consolidated EPS
₹16.04

What they filed

Q1 FY27: revenue up 15.7%, net profit up 16.7% against the same quarter last year.

₹ Cr · quarterly

Line item	Q2 FY25	Q3 FY25	Q4 FY25	Q1 FY26	Q2 FY26	Q3 FY26	Q4 FY26	Q1 FY27
Revenue	379	364	422	382	396 +4%	422 +16%	390 −8%	442 +16%
Expenses	320	303	351	315	327	351	315	369
EBITDA	59	61	71	67	69 +17%	70 +15%	75 +6%	73 +9%
Margin	16%	17%	17%	18%	17%	17%	19%	16%
Other income	26	6	3	7	22	6	4	1
Interest	19	13	19	20	19	21	22	22
Depreciation	19	20	21	24	24	25	24	26
Profit before tax	47	33	34	29	48 +2%	31 −6%	33 −3%	25 −14%
Tax rate	28%	27%	11%	40%	25%	29%	31%	16%
Net profit	34	24	30	18	36 +6%	22 −8%	23 −23%	21 +17%
EPS	9.60	6.45	7.96	4.67	9.45	5.77	6.01	5.53

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 Sales Volume (H1 Standalone)

30,598 tons Total

Lamination & Assemblies 24,962 tons 81.6%
Casting & Machine Components 5,636 tons 18.4%

Guidance & targets

Capacity

Consolidated Lamination Capacity Capacity · Post Aurangabad expansion · High confidence 90,000 tons

So consolidation capacity on lamination would be 90,000 tons.

— Akshay Pitti
Consolidated Casting Capacity Capacity · Post acquisitions · High confidence 18,600 tons

So on the foundry side of the business, we'll have 18,600 tons as a consolidated capacity.

— Akshay Pitti
Machining Capacity Capacity · By end of March (FY25) · High confidence 650,000 machine hours

Previously 547,000 machine hours → 650,000 machine hours

And the machining capacity will increase from 547,000 machine hours to 650,000 machine hours by the end of March.

— Akshay Pitti
Aurangabad Lamination Commissioning Capacity · By December (2024) · High confidence 72,000 tons

By December, it should be commissioned. We are under commissioning right now. So by December, the 72,000 tons will be commissioned in Aurangabad.

— Akshay Pitti

Volume

Consolidated Lamination Sales Volume Volume · FY27 · High confidence 72,000 tons

So on the lamination side of the business on a consolidated basis for FY '27, we should be looking at about 72,000 tons as our sales number.

— Akshay Pitti
Machine Components Sales Volume Volume · FY27 · High confidence 15,000 to 16,000 tons

On the machine components side, we should be looking closer to about 15,000 tons to 16,000 tons as sales number by FY '27.

— Akshay Pitti
Consolidated Lamination Sales Volume Volume · Full year FY25 · High confidence 62,000 tons to 64,000 tons

So on the volume side for the full year on a consolidated basis should be about 62,000 tons to 64,000 tons.

— Akshay Pitti
Standalone Sheetmetal Volume Volume · H2 FY25 · High confidence 25,000 tons

So in H2, we would look to do about 25,000 tons from our own standalone basis sheetmetal.

— Akshay Pitti
Pitti Industries Sheetmetal Volume Volume · H2 FY25 · High confidence 6,500 tons

And at Pitti Industries sheetmetal volume should be roughly about 6,500 for H2.

— Akshay Pitti
Consolidated Casting Sales Volume Volume · H2 FY25 · High confidence 5,000 tons

In terms of casting sales, consolidated casting sales should be about 5,000 tons for H2.

— Akshay Pitti

Revenue

Consolidated Revenue (constant raw material) Revenue · FY27 · High confidence ₹2,300 crores to ₹2,400 crores

The revenue projection on a constant raw material basis for this operating level would be in the vicinity of 2,300 crores to ₹2,400 crores on a consolidated basis.

— Akshay Pitti
Consolidated Revenue Revenue · Full year FY25 · High confidence ₹1,900 crores to ₹2,000 crores

On the revenue side, along with Dakshin Foundries and demerger, it should be about ₹1,900 crores to ₹2,000 crores top line provided that the raw material prices is full.

— Akshay Pitti

Margin

Consolidated EBITDA Margin Margin · FY27 · High confidence 15% to 16%

And your EBITDA margin should be around 15% to 16% of revenue.

— Akshay Pitti
Consolidated EBITDA Margin Margin · Full year FY25 · High confidence 15.5%

And if that is the case, you should be looking at an EBITDA margin roughly in the vicinity of 15.5%.

— Akshay Pitti

Debt

Net Debt Debt · End of FY25 · High confidence ₹200 crores

Previously ₹330 crores → ₹200 crores

We estimate that our net debt at the end of the year should be about ₹200 odd crores.

— Akshay Pitti
Net Debt Reduction Debt · Implied by end of FY25 · High confidence ₹100 crores to ₹120 crores

So we see about ₹100 to 120 crores of net debt reduction taking place as a result.

— Akshay Pitti

Other Income

Incentive Income Other Income · Annual basis up to FY26 · High confidence ₹30 crores

So we are eligible for a 30 crores incentive on an annual basis up in FY'26, we have accounted 25 crores already. Remaining 5 crores is what we will account in 2 tranches...

— Akshay Pitti
Incentive Income Other Income · FY25 and FY26 · High confidence ₹30 crores

Okay. So FY '25 and '26 will be 30 crores? Yes.

— Akshay Pitti
Incentive Income (Phase 2) Other Income · FY27 for 9 years · High confidence ₹40 crores per year

No, the Phase 1 will be finished, then the Phase 2 will start. The ongoing capex, which will be capitalized by December, we are eligible to claim that starting for FY '27 for 9 years, that will be roughly about 40 crores per year.

— Akshay Pitti

Capex

Tool Room Capex Capex · Next 2 years · High confidence ₹40 crores to ₹50 crores

The only capex that we would be looking at would be to strengthen our tool room about 40 crores to 50 crores, that too over the next 2 years.

— Akshay Pitti

Market Share

Data Center Business Growth Market Share · Coming years · High confidence At least 2x further

In absolute terms, data centers, we see growing at least 2x further from here on.

— Akshay Pitti

Risks & concerns

Slowdown in low-voltage motors due to intense price competition and Chinese imports.
medium

The low-voltage motor segment, a commodity product, is experiencing rock-bottom prices and increased imports from China, causing its contribution to consolidated revenue to shrink from 13.5% (Q2 last year) to 11.5% (Q2 current year). Management stated this is offset by growth in other segments.

Management acknowledged

Q&A highlights

3 direct

Long-term outlook (FY27) for volumes, revenue, and EBITDA margin, and the changing relevance of EBITDA per ton. Direct

So on the lamination side of the business on a consolidated basis for FY '27, we should be looking at about 72,000 tons as our sales number. On the machine components side, we should be looking closer to about 15,000 tons to 16,000 tons as sales number by FY '27. And the EBITDA per ton would be a bad barometer going forward since you know the casting, machining and lamination now, which are very large parts of the overall business when compared to laminations. The revenue projection on a constant raw material basis for this operating level would be in the vicinity of 2,300 crores to ₹2,400 crores on a consolidated basis. And your EBITDA margin should be around 15% to 16% of revenue.

Provides comprehensive long-term guidance on key financial and operational metrics, and clarifies the changing relevance of EBITDA per ton due to business diversification.

Asked by Dipak Saha

Decline in high value-added assemblies and explanation of sales breakup, including side trim coils. Direct

So earlier the weight of child part and shaft will be bunched into the high value-added assemblies, we have tried that out and segregated it. That's why you see in quantitative terms in the prior period, it might look like a decline. But if you see this breakup that we have given, there's a Y-o-Y increase only taking place... The site trimming coils are if you take the big coil, which we used to buy from our steel suppliers... So we cut it to the size that we require for our lamination and the side trims... Those used to be sold in the market. These are the coils that we are now selling in the market, selling to Bagadia and they are using it as raw material, thereby their profitability is improving.

Clarifies a potential misinterpretation of reported segment data by explaining a reclassification and details how the company is monetizing byproducts (side trim coils), which contributes to improved profitability.

Asked by Akash Singhania

Slowdown in low-voltage (LV) motors due to price competition and market churn. Direct

So the prices of those motors continue to remain at rock bottom and therefore, the customer expectation on pricing also remains. We are seeing a lot of import possibilities from China, the raw material prices have kind of fallen off in China, and that typically affects this segment because this is more of a commodity, like I mentioned. If you see the consolidated revenue about 13.5% of revenue last year, Q2, it has shrunk to 11.5%... At a broader level, the competition is intense... There is a market share moving from customer A to customer B and that's kind of causing a lot of churn in the whole in the LV space.

Identifies a specific segment (low-voltage motors) facing significant headwinds due to price competition and Chinese imports, explaining the resulting market churn and its impact on revenue mix.

Asked by Mayank Chaturvedi

3 min read 6 chapters

Detailed narrative

Strong Q2 & H1 FY25 Financial Performance

Pitti Engineering reported a robust Q2 FY25 with consolidated revenue of ₹455 crores, marking a 48.27% year-on-year growth, and a PAT of ₹38 crores, up 72.74% YoY. For the first half of FY25, consolidated revenue grew 37.1% to ₹850 crores, with EBITDA increasing 59.83% to ₹124 crores and PAT more than doubling by 105% to ₹57.38 crores. Standalone performance also showed significant growth, with Q2 revenue at ₹404.97 crores (up 28.44%) and PAT at ₹34.05 crores (up 54.7%).

Aggressive Capacity Expansion and Integration

The company is in the midst of significant capacity expansion and integration efforts. Consolidated lamination capacity is projected to reach 90,000 tons, with the Aurangabad facility contributing 72,000 tons and expected to be commissioned by December 2024. Casting capacity will expand to 18,600 tons, and machining capacity is set to increase from 547,000 to 650,000 machine hours by the end of March 2025. These expansions are bolstered by the recent acquisitions of Bagadia Chaitra Industries and Dakshin Foundries, and the merger of Pitti Castings.

Long-Term Outlook and FY27 Targets

Management provided a clear long-term vision for FY27, targeting consolidated lamination sales of 72,000 tons and machine components sales of 15,000-16,000 tons. The revenue projection on a constant raw material basis for this operating level is estimated to be in the vicinity of ₹2,300-2,400 crores. Furthermore, the company expects its EBITDA margin to be around 15-16% of revenue by FY27, indicating confidence in sustained profitability improvements.

FY25 Full Year Guidance and Debt Reduction

For the full year FY25, Pitti Engineering expects consolidated lamination sales volume to be between 62,000-64,000 tons. Revenue, including contributions from Dakshin Foundries and the demerger, is projected to be ₹1,900-2,000 crores, assuming stable raw material prices. The full-year EBITDA margin is guided at approximately 15.5%. The company also aims to significantly reduce its consolidated net debt from ₹330 crores as of September 30, 2024, to about ₹200 crores by the end of FY25, driven by cash accruals and inventory reduction.

Incentive Income and Strategic Capex

The company is eligible for an annual incentive income of ₹30 crores up to FY26, with ₹25 crores already accounted for. A new incentive claim for Phase 2 of the Aurangabad project, starting from FY27 for 9 years, is estimated to be approximately ₹40 crores per year. Strategically, Pitti Engineering plans a capex of ₹40-50 crores over the next two years specifically to strengthen its tool room, highlighting continued investment in enhancing value-added capabilities.

Diversified Market Performance and Low-Voltage Motor Headwinds

Pitti Engineering is experiencing strong demand across several key segments, including data centers, which are projected to grow at least 2x further in the coming years, as well as renewable energy, mining, and locomotives. However, the low-voltage motor segment is facing intense price competition and increased imports from China, causing its contribution to consolidated revenue to shrink from 13.5% in Q2 last year to 11.5% in Q2 this year. Management noted that growth in other diversified segments is effectively offsetting this pressure.

This is an AI-generated summary of a publicly available earnings call transcript.

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