Isgec Heavy Engineering Limited ($533033)

Ladies and gentlemen, you are connected to Isgec Heavy Engineering Limited Q4 FY '26 Earnings Conference Call. The conference call will begin shortly. Please stay connected. begin shortly. Please say connected. Ladies and gentlemen, good day, and welcome to the Isgec Heavy Engineering Limited Q4 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mahesh Patel from ICICI Securities. Thank you, and over to you, sir.

Yes. Good evening, everyone. On behalf of ICICI Securities, I would like to welcome you all to the Q4 FY '26 Earnings Conference Call of Isgec Heavy Engineering Limited. Before we proceed, let me remind you that the discussion may contain forward-looking statements that may involve known or unknown risks, uncertainties and other factors. It must be build in conjunction with the business risk that could cause future results, performance or achievements to differ significantly from what is expressed or implied by such forward-looking statements. From the management today, we have with us Mr. Aditya Puri, Managing Director; Mr. Kishore Chatnani, Joint Managing Director and CFO, and Mr. Sanjay Gulati, Joint Managing Director and Head of Manufacturing units. Without further delay, I will hand over the call to the management for brief opening remarks, which will be followed by Q&A. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone, and thank you for joining us today. We appreciate your time, your continued interest in our company and the trust you placed in us as we continue to build for the long term. We value these conversations because they allow us not only to discuss our performance, but also to explain how we are executing our strategy, responding to the market environment and positioning the business for sustainable growth. FY 2026 performance. Q4 loan revenue grew 16% and PBT grew 48% year on year. The full year performance requires additional context. And I would like to highlight a few points before we move to the question-and-answer session. On a stand-alone basis, revenue grew by 4.2% to INR 5,229 crores. We acknowledge that this is below our 78% guidance given in 1 of our earlier calls, Q4 recovered strongly. Stand-alone PBT of INR 455 crores grew 17%. I want to be transparent about its composition. About INR 80 crores of the PBT is in form some items related to the Philippines business. These are LP&L items, but they are not operational earnings from our core business. Adjusting for these items, the underlying operational PBT was approximately INR 375 crores, broadly in line with the prior year on an operational basis. On the margin front, manufacturing EBIT margins for the financial year are 12.46%, within the 12% to 13% range we have guided for 3 consecutive years. The project business EBIT margin for the financial year is 4.58%. Exports revenue during FY '26 has increased to INR 1,169 crores, which is about 22% of the total revenue, up from INR 532 crores in the previous year. Export revenue more than doubled year-on-year, and we expect this increased level of exports to continue. The dividend for the year is INR 6 per share, up 20% from last year, reflecting our confidence in the strength of the stand-alone business. Consolidation financial highlights. There is a change to be noted in the accounting for the Philippines business in our consolidated financials. Earlier, this business is classified as assets held for sale. Given the uncertain international business scenario, it is difficult to estimate when the business can be sold. Accordingly, this business is no longer classified as assets held for sale and in the consolidated profit and loss statement is shown as part of continuing operations. Consolidated EBITDA is INR 671 crores, about 19% higher than last year's INR 566 crores. Consolidated PAT for FY 2026 is INR 154 crores, about 25% lower than last year's INR 204 crores. Let me briefly outline the key reasons for the reduction in consolidated PBT. The consolidated depreciation of INR 278 crores includes catch-up charge on Philippines assets reclassified from held for sale to continuing operations. The year-on-year increase in depreciation alone was INR 104 crores. The ethanol plant in the Philippines has started trial production in 2024. Commercial production for the current sugarcane season commenced on 17th December 2025 using sugarcane as feedstock and concluded on 20th April 2026. Thereafter the plant has been operating on purchase molasses and feedstock. The ethanol sales started on the 25th of March and is running smoothly. The commercial operation of the ethanol plant in the Philippines marks an important milestone and that we are committed to delivering although after significant delays. Let me come back to the consolidated financial highlights. The consolidated net borrowing position has improved substantially during the year. Net borrowings as on 31st March 2026 are INR 476 crores compared to INR 836 crores last year. I will now talk about the ongoing expansion of capacity at our manufacturing plants. We are investing in capacity additions across most of our manufacturing product lines. Progress remains on schedule with only minor adjustments. In addition, the Board had a meeting in the day before yesterday approved a further investment of INR 25 crores to expand capacity at our Muzaffanagar steel casting plant. Capital expenditure during the year is INR 153 crores. With this capacity buildup underway, let me now turn to our expectation for FY '25 (sic) [ '27 ]. FY '25 (sic) [ '27 ] Outlook stand-alone. Looking ahead, on a stand-alone basis, we expect FY 2027 revenue to increase 10% to 12%. The opening order book for the year is about INR 7,000 crores after excluding 2 orders worth about INR 550 crores that were canceled during the year. In the first 2 months of the current quarter, we have booked new orders totaling INR 1,400 crores. Order execution is progressing well. Some of the new product production capacity will also come online this year and contribute to this year's revenue. Current geopolitical developments have not affected existing order bookings. However, we are seeing increasing in several input costs, including steel forgings, castings, chemicals and certain imported materials. Gas shortages have raised fuel costs; however, there has been no disruption to manufacturing operations. Export and import logistics have increased and transit times have also lengthened. As of now, most of the increased costs are expected to be absorbed through normal contingency provisions. Looking ahead, the inquiry pipeline and order booking outlook remains strong in both domestic and export markets. The weaker Indian rupee should support improved realizations on further export orders. We recognize that the broader environment may continue to present both uncertainties and opportunities. We are taking steps to mitigate the risks and convert the opportunities into tangible benefits. Thank you again for joining us. Let us now begin with the question-and-answer session.

[Operator Instructions] The first question is from the line of Digant Haria from GreenEdge Wealth.

Sir, 2 questions. Sir, first is you gave the guidance of 10% to 12% for the current financial year. Would -- so would it be like the project division grows at 5% and Product division grew at 15%? Or you just want to split it up into the division?

So the major increase is going to come from the manufacturing segment. So we're expecting -- so 10%, as you can see from 50 to 100, 10%, about INR 500 crores or around that much is going to come from the manufacturing segment. And there will be some growth as well, may be 3%, 4% for the project business.

Okay. Okay. And then my second question is, see, because of the world supply chain disruption and raw material volatility -- like do you think that is 4.5% margins in the EPC and around 12%, 13% in the Products division, is that at a significant risk, moderate risk? Any assessment you would want to give? I know it's too early -- but still, based on orders, do we have price variation clause in some orders or not, any such color you can give?

We are reasonably confident that 12% to 13% is going to be maintained. Obviously, it is the IT margins that we are talking about. There is some new capacity which is being added, it will lead to some depreciation, but there is a significant increase in prices of steel castings, forgings and many of the imported items, as Mr. Puri mentioned in his opening remarks. But we always carry some amount -- so we are formally hedged by way of back-to-back orders on our suppliers, which we place reasonably soon after we book our orders from our customers. Also, we carry some amount of contingency margins. So in the manufacturing business, today, we are confident on 12% to 15%. In the case of the projects business, we know the situation is uncertain. We know what's happened up until now, and we really don't know whether the -- when the war will end and when the situation will go back to what they were pre war, but we still think that we will actually be improving over that 4.5%. We should be closer to 5.5% for this FY '27. And that's based on the older orders close to completion, newer orders being booked at better margins and keeping enough contingencies for the newer orders that we are booking.

Okay. Perfect. 1 question to Mr. Puri is that on all the new developments, which are taking place this coal gasification and polysilicon to wafer, the solar technology is coming in India, like does Isgec have played in any of these new technologies, which India will need over the next 3, 4, 5 years?

So Isgec has a play in some parts of the value chain, it certainly has a play and we are keeping abreast of it and we are doing some work in some part of that value chain.

Any -- like have you won any orders yet or it's like too early to say? .

We have got orders for equipment which are used in these processes for these new technologies.

The next question is from the line of Kaushik Doshi from ICICI Securities.

Am I audible?

Yes, yes.

Sir, my first question is regarding the margin of the manufacturing business, sir, Q3 margins were exceptionally strong, while Q4 saw some moderation. Was this purely project driven? Or are there any cost pressures emerging in this business?

No, it's question of which orders actually got dispatched in -- in the case of manufacturing, as you know, our revenue is booked based on actual dispatches on the sale of wood method. So it's a question of which orders got dispatched in which quarter? And we should actually look at not on a quarter-to-quarter basis, but on an annual basis, and we are reasonably certain that 12% to 13% is what we have been doing for the past few years, and we will maintain that. .

Okay, sir. Got it. And sir, my next question is regarding the export. So export revenue increased from 14% to 23%. So is this a large jump due to the exhibition of the existing export orders? Or are we structurally gaining market share over there?

So the billing is out of the existing orders and new orders. So we are, I think, increasing our market share. We are increasing our market share.

Let me answer that. So let me add to that, both for our manufacturer items, we have new markets, particularly for our presses in Southeast Asia, countries like Vietnam, Thailand, Indonesia. We have expanded our markets there, and we are getting good success. In the Projects business, as you know, we work largely in developing countries. And we have been booking orders in recent times in Africa as well as Latin America. And from what we can see today, the number of orders that we have bid for and which -- where we think that we have a high chance of success, I mean this -- our order book today is also about INR 1,450 crores as of today, means 31st of March, export order book, INR 1,450 crores. Mr. Puri mentioned that we have booked some orders during April and May. There also, there are some amount of export orders. But as far as we can see, firstly, our effort, as we have been mentioning earlier, where after COVID, there was a lull. But now our effort on looking more and more export orders has substantially increased. And we are getting good success. So I would expect the order book to -- export order book to go up in terms of percentage over the course of this year. The revenue all spot revenue of this INR 1,100 crores, INR 1,200 crores, I'm sure it's going to be a little more than that during the current year.

Got it, sir. And sir, if you could have into which organizations are contributing to the most revenue?

Pardon me, which -- I didn't understand your question.

Which geographies are contributing most to this?

Geographies.

So Southeast Asia and Southeast Asia, Africa and basically Southeast Asia and Africa.

The next question is from the line of Manish Goyal from Thinqwise Wealth Managers LLP.

Yes. I have a few questions. First, on the consolidated results, can you provide what is the expected credit loss number in other expenses? Because we have seen other expenses increasing significantly if you can give that number for consolidated. And as well as other income is also -- is much higher, so what is the nature of that? That was the first question. Second is on the segmental, if we look at revenue -- despite being the peak season, the revenue seems to be very low and the losses are much higher. So if you can give us more insights into the last quarter number? And how do we expect in FY '27? And can you provide numbers for Hitachi Zosen JV? What are the revenue and PBT numbers as well as the order book for Hitachi and order inflow?

I'll try to answer as many as I can remember, and then, you can remind you about the rest. Hitachi, the order book first. So the orders on hand as on 31st March 2026, are INR 753 crores. So their execution this year was very good, and I believe that their introduction in the next year is also going to be pretty good. In terms of the revenue and margins, revenue and PBT of [indiscernible]. For the full year, they had a revenue of INR 672 crores of the total income. Total income is INR 672 crores. And the profit before tax is INR 103 crores. Was there any other question about it?

How do you expect for FY '27, sir? .

We are expecting to do slightly better than this. So we are hoping that revenue could be closer to INR 700 crores. And this profit should be in the range of INR 100 crores plus.

Okay. Okay. And on the first question on the consolidated results, if you can give us expected credit loss number.

The other income has 3 parts. One part is interest income and net gain on current investments. The second part is certain government grants related to sales. The third part is certain foreign exchange fluctuations related to Eagle Press and also to the Singapore subsidiary. But some of these are actually -- so the product sales fluctuation is INR 103 crores, right about INR 50 crores of that should have been -- could have been -- I mean, accounting standards require us to classify what they are. But correspondingly, there is some INR 50 crores plus, which is in the other expenses, the classification [indiscernible] standard.

Are you referring to consolidate, sir? .

The price is consolidated.

Okay. So sorry, your voice was not clear. You mentioned INR 103 crores was pertaining to what, sir?

ForEx fluctuation.

And out of that INR 50 crores was pertaining to? .

Pertaining to this investments in the Singapore, which is actually classifying other expenses. So there is a corresponding increase, it could have been netted off as the accounting standards to allowed us to do that.

Okay. And sir, about performance of caveat biofuel in Q4, why the losses are so high in peak season? And how should we expect to going forward?

Started production, as Mr. Puri mentioned in his opening remarks on 17th of December. So we were running on sugarcane, so from the local area around us. And this was the first year when we were in full commercial production. Our capacity utilization was not really at the peak at the time, but that is not the reason at all. The reason is that we were making the ethanol, and we were storing the ethanol because we were required to have an Government Department of Energy allocation of biocinol for us to sell, so the allocations that we got are for April to June quarter and July to September quarter. So the -- while we were making the first dispatches started actually, we were supposed to discuss from 1st of April, but 1 of the customers actually picked it up from us from the 21st of March. So actual dispatches during that quarter were very little. So therefore, in terms of sales, there wasn't much sales in that quarter or in the financial year. Now, if you look at the profit for the full year profit or loss for the full year, as you can see, it is reported at INR 295 crores. Out of that INR 295 crores, INR 170 crores is depreciation alone. And INR 95 crores is ForEx variation, which gets netted off with Isgec because now we do not have any -- Cavite Biofuel doesn't have any loans from any outside parties. The third is the interest cost. So we are approving the interest on our investments, which is about INR 70 crores. And that leaves us with about INR 26 crores, which was the operational loss for the year in the sense the factory operated only for 3.5 months. And for the rest of the year, we had all kinds of expenses, including salaries, insurance, plant maintenance, et cetera, et cetera.

Okay. Okay. So sir, how should we expect it for FY '27, sir?

So the plant is running. The season has ended on the 20th of April. We had obviously procure molasses from other sugar factories. And the plant is running. I think -- even today, it is running at 70%, 75% capacity, and we are expecting the capacity to be close to 85%, 90% for the rest of the year, except for maybe 1, 1.5 months when the rains are really excessive. The depreciation cost for a fluctuation, we really don't know for CPPI as a stand-alone unit? But depreciation this year was INR 170 crores. Next year, we expect it is going to be around INR 150 crores. So it so to that extent, depreciation as an expense. On an operating basis, it is cash positive. It is -- there is no operational loss to be funded. We don't expect to be we need to fund anything more there. And operationally, it's going to be -- I don't have a number to give you, but it's self-sustaining now. And I think that's what we would say.

Okay, sir. Okay. And interest cost of INR 70 crores is reflected in stand-alone, right, sir, because the loans are now deciding standalone?

I was talking about the standard balance sheet of Cavite Biofuel Producers.

Okay. Okay. Okay. Okay. So going forward, as you said, there are no third-party loans in Cavite -- so the interest of INR 70 crores what we saw in FY '26 will not largely repeat in FY '27.

It will repeat because this is now now -- the funding is from revenue.

[Operator Instructions] The next question is from the line of Shubham from ICICI Securities.

And my question is, in the previous quarter, management had indicated that around INR 300 crores of FSG related retention money was expected to be released in Q4. So could you please help us understand how much of this has been realized so far? And what is the outstanding amount as of today?

So more than INR 200 crores has actually been realized. And you can actually look at that in our cash position as well. You will note that at the end of the year. So we have -- we certainly have some borrowings. We don't have any working capital borrowings, as you know. We have volumes, which are online to Cavite Biofuel. But as of 31st of March 2026, there is INR 241 crores of cash, cash and cash equivalents in the banks and current investments, which we have. So -- and this is after funding about INR 150 crores of capital expenditure will be here from our internal approvals. What remains out of those FGD projects is, I think, INR 160 crores -- INR 165 crores, which is still remaining. We are expecting to collect some -- maybe 1/3 of that in June and the rest by August. .

The next question is from the line of Amit from Motilal Oswal.

Am I audible?

Yes.

My question is regarding your subsidiaries, investment TV limited and Bioenergy Holding. So there are losses in the first one. And second one also, there is a capital efficiency. So could you just elaborate on that?

Yes, you're right. So there is a -- what we call is capital efficiency is a negative net worth, I think. That's what their auditor has written, which our order has picked up in the report. If the company had external borrowings for external money owed externally, it would have difficulties. But now this is all part of the group, whatever borrowings with has are given by us. You can think of it as shareholders loans. So to that extent, there is no difficulty for that company or for the group as a whole.

The next question is from the line of Digant Haria from GreenEdge Wealth.

On if you could just elaborate like which sectors are seeing good demand or good traction because we're operating around 15, 16 different sectors. If you can just give us like where does the outlook look really promising. And especially like how do you see India ethanol also? Because it had a very bad year last year. And how do you see this year going ahead given the crude oil price rising? And yes, that's the first.

So we have orders from the sugar industry. We have orders from power, oil and gas and automobiles. All these sectors are doing well. All these sectors are doing well. Fertilizers, we cater to a very diverse group of industries. And at this point of time, except for maybe something like paper, which is not doing too well and also new ethanol plants, not too many of them are coming up. So besides these 2 sectors, we have from a very wide range of industries and we have a good healthy order book across the list.

Okay. sir, 1 question is that, say, around 1.5 to 2 years back, we started pivoting from long gestation projects to shorter gestation. This is our public division. Sir, now like -- now do you -- like whatever goals you would have started that it will improve our working capital, it will help us churn the order book much faster, you are able to do -- you feel that we have achieved that goal and we will continue this way of working in the project division? And that will lead to that 5.5% kind of margins, which we are thinking that what FY '27 can probably give?

Yes. So as Mr. Chatnani had just said a few minutes earlier, that the margin is going to be slightly higher in the EPC business. And one of the reasons contributing to this is that the old projects which had gone on for years coming to an end. And also the fact that the new projects are of shorter duration and the uncertainties involved over there and the risks involved over there because of the time factor are reduced considerably. .

Okay. So what we can see in FY '27 will be more like the new way of doing this project business, right? Because we'll have lesser working capital and probably better margins, right?

Right, right.

Okay. Okay. Okay. And then lastly, on the export part, we are -- you said that we are doing a lot more exports to Southeast Asia and Africa. But in these countries, like are we taking enough head of the currency risks, which may happen -- or because a lot of companies in the past have faced either receivables issue or currency risk when you're dealing with at least some of the African countries.

So we normally work with confirmed letters of credit. And these are denominated in dollars or euros, and we take forward covers against them. So now for exports, I know where we've taken forward covers, it may work against us, but it's a hedge and a risk that we don't want to leave -- we want to leave exposed. We want to cover that. So we are covering our foreign exchange risk, and we are working to confirm that in credit.

Also in most export orders, the way we agree with the customer on the billing breakup and the payment schedule, we are normally running a cash surplus on the project. We try to run the cash surplus project. So that -- I mean that's basically the caution to be taken or -- we appreciate what you are saying that there is a risk in working in these geographies. And because -- but we have enough experience, as you know, now over many, many years. So we do plan for those contingencies. [indiscernible] with any customer in Africa. I don't recall it.

Got it. Got it. I really appreciate that you're doing the con calls regularly and giving all those detailed breakup, and I wish you will continue doing that.

[Operator Instructions] The next question is from the line of Mahendra Jain from Way2 Capital.

Sir, as our deal regarding the Philippines plant, as the deal was already done, so can you share at what price it was done? And in the case now, as you have mentioned that this is now a continued asset. So are we not looking in a shorter term like a 1- or 2-year deal to be happen? Or are we not right now interested to do that? Can you share a little light on that, sir?

So the deal that was done was actually we reported it in detail in our disclosures to the stock exchange, also in various terms. I don't really want to repeat those numbers at this point of time. But that did not go through because that customer was not able to arrange their funds. They had some problems of their own, which unfortunately impacted us because they could not pay. Now, we are running the plant. It is always understood that a running plant, which is demonstrating performance is easier to sell and easier for anybody else to buy. So we are even now looking for buyers. We have some strong conversations going. But we don't have a specific party at this point of time with whom we are deeply engaged. We are engaged with certain parties, but there's no specific letter of intent or something which at this point of time. And the accounting standards require us to review the situation every time. And also because -- as Mr. Puri said, the international situation is a bit fluid. So for us to say that we are going to be doing it in the next few months, that situation is not there for us to say it and account for accordingly, while we do expect that it can happen within the next 1 or 2 years that we mentioned, but the accounting requires us to run it as a continuing operation.

Sir, as you said from April onwards, our -- I mean, ethal -- I mean we are stocking ethanol, and we will be able to sell post-April per government policies. So are you looking, sir, for at least 10% to 12% return on our investment or what EBITDA we will make out of that one, 2027-'28? Any idea on that, sir?

I did mention that we are running it on a cash profit at the moment. So we have a little bit sold between April and May, 4.35 million liters of ethanol. So I said that we started manufacturing in December, and our allocations from the government -- because in Philippines, the government allocates a quantity for each factory, how much they can sell. And that's based on their assessment of how much we are producing. And then once we have that allocation, then we go out and engage with the petrol company, the oil companies in Philippines. So there are a number of large oil companies in Philippines, none of them have any refining capacities. They have basically blending capacities. They import all their petrol as well as diesel. So we have got contracts now with 6 of them, I think. And they have this contract, the lift is happening very nicely. The sale is happening very nicely. The payment collection is happening perfectly. So the cash flow is running very well. The profitability, as you said, EBITDA, et cetera, so that is going to -- I did mention that capacity is ramping up has also happened to about 65%, 70%, and it's going to ramp up further. But I don't have a number to give you on the EBITDA at this point.

[Operator Instructions] Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to the management for closing comments.

Thank you very much, everyone, for attending the con call, and wishing you all the best. We will again talk to you soon. Thank you.

Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.