Pennar Industries Limited (513228) Earnings Call Transcript & Summary

Good morning, and very warm welcome to everyone. Thank you for being on the call of Pennar Industries. We are happy to have the management of Pennar industries here today for question-and-answer session with the investment community. The management is represented by Mr. Aditya Rao, Vice Chairman and Managing Director; Mr. P.V. Rao, Joint MD; Mr. Shrikant Bhakkad, Vice President, Finance; Mr. Manoj and Mr. KM Sunil. Before we start with question-and-answer session, we'll have opening remarks from the management. Over to you, sir.

Thank you. Welcome to all the stakeholders of Pennar to the Q1 FY 2021 investor conference call. I hope that everyone is safe and well, and everyone is taking all necessary precautions for the pandemic. I will first have an overview and my comments on the first quarter performance, post which our joint Managing Director, Mr. P.V. Rao, will brief you on the performance of the company. Our CFO, Mr. Shrikant Bhakkad, will then provide details on major financial metrics. And post this, we will open up the call to questions from our investors. So for the first quarter, we saw the company bear the brunt of the COVID pandemic with enforced lockdowns at all of our factories, engineering centers and at our customers, allowing us to perform only at about 30% of our pre-pandemic revenue levels. A substantial fixed cost base and high levels of working capitals saw us bear a higher post operating profit cost than operating profit that we had. So we generated a net loss of INR 34 crores. Now the entirety of this impact was foreseen, as per plan, so to speak, and we have tracked very close to our assumptions for quarter 1. As we guided you during the last conference call, we expect Q1 to be negative, we expect Q2 to be better and we expect Q3 to be better than that. We can improve on that projection a little bit. During the quarter, we've initiated steps to ensure that the company's liquidity remains strong and profitability is achieved in the quickest possible time frame and that our growth strategy is revised, keeping our long-term objectives unaltered. After ensuring that our new COVID protocols and processes can protect our employees and our stakeholder's safety, there may be achievement of profitability and reduction of working capital to 2 months as a paramount concerns. And we are glad to comment that from July, we have reachieved profitability, and we have done this without retrenching a single employee. The challenge now for us is to get back to the level of profitability we had prior to the pandemic and to then exceed that level, of course. We believe that this will be achieved within this financial year. And to do that, there are 2 areas of focus for us. Firstly, we want to ensure that all of our business units turn profitable in the next 3 months. This will push up the cumulative profit for the company. As of right now, about 60% of them -- we have 11 various business units in the company. Six of them are profitable and the remaining 5 are not. Ensuring that we invest in projects that will create new revenue and operating profit is the next initiative we have. And we are consequently making investments in automotive BIW in our U.S. markets, tubes and engineering services. So the total CapEx we'll commission this year will be around INR 75 crores. And we are quite confident that the combination of our addressable markets recovering and new CapEx will allow us to regain our pre-pandemic monthly profitability in this financial year itself. On the working capital front, we have initiated a company-wide exercise to reduce all business units to 2 months of working capital. Over the next 2 quarters, I believe that this will result in a dramatic change in our capital efficiency and will allow us to reduce our interest cost without impacting revenue. Now we generally do not give guidance, but considering the special nature of our circumstances, on behalf of the management, I would like to guide us to a quarter 2 which is substantially higher in terms of revenue and a positive net profit. On one other note, the Board has also decided to offload any unused land assets in the company. Consequently, the company has entered into an agreement for sale -- to sell 5 acres of unused land that we have, at a sale price of about INR 120 crores. Now in conclusion, I'm confident that the worst is behind us, and the rest of this financial year will see sustained growth in our profitability and in our capital efficiency, both of which are our guiding lights. On that note, I would like to hand this over to our GMD, Mr. P.V. Rao, for his comments.

Thank you, Aditya. Good morning, everybody, and I welcome all stakeholders of Pennar to this call. As explained by Aditya, we had tough time during -- due to the this pandemic, and because of which our revenue has come down to -- net revenue is INR 166.2 crores compared to the net revenue of INR 537.8 crores in the corresponding period last year and EBITDA is INR 13.3 crores compared to an EBITDA of -- sorry minus INR 13.3 crores compared to an EBITDA of INR 55.2 crores in the corresponding period. So there is a PAT loss after minority interest of about INR 34 crores compared to the PAT after minority interest of INR 16.5 crores in Q1 FY '20. The reasons already have been explained by Aditya why we have come down by 30% in revenue and then why we have breached a PAT loss of INR 34 crores has been explained by Aditya already. And we have a healthy order book positions as of now. The order book as on 1st August for PEBS is about INR 513 crores, the water treatment solutions is about INR 57 crores, and the railways is about INR 192 crores. Engineering Services division has accelerate its performance and has recorded a 20% increase in revenue on a quarter-on-quarter basis. So as informed by Aditya, the Board has approved to sell the extra land, what we have in Patancheru, that's about 5 acres to a consolidation of INR 20 crores, and we are going to sign the agreement of sale -- sale deed very soon. And we have plans to -- as explained in the last meeting itself, we have plans to expand abroad. So we have a company called Pennar Global in the U.S. and we are now setting up steel products business there. And we are in the process of setting up a PEB, metal buildings and steel structures business. We are already in the process -- advanced stage of acquiring the company, existing company there. So we will be very soon appointing a CEO and then put a -- establish the business there, which we are expecting to start revenue in about 6 to 8 months' time. That's from my side. And I request Shrikant to brief on the financials in detail.

Yes. Good morning, everyone. In terms of net sales, we were INR 534 crores last year in Q1, where it is INR 162 crores, a decrease of INR 372 crores, predominantly account of the lockdown of almost 2 months that we had in April and May. The other [indiscernible] is INR 3.47 crores versus INR 2.58 crores. And this is predominantly on account of the treasury income that we have. In terms of employee benefits, INR 41 crores of cost has come down to INR 29.29 crores. And in terms of finance costs, more or less, we are same in terms of the Q1 versus now, predominantly on account of the LCs where we had these payments. And the finance cost generally consist of 2 things. One is on the interest cost and another is on the bill discounting costs. The LC cost is approximately half of it and then rest of the amount is predominantly on the bill discounting part of it. So this resulted due to the pandemic and lower revenue. This has resulted in INR 45 crores of loss. Now on account of the tax impact, it is -- the PAT is INR 34 crores. We are able to reduce our receivables by almost INR 40 crores from March to now and inventory close to around INR 20 crores. We have a good liquid with us on account of reduction in the current assets. We are standing on good liquidity with us and this will be used to increase our revenues in the coming quarter. The gross profit ratios and other things have been healthy. There is no decrease in terms of gross profit ratios. With this, I call the -- I hand over the mic for further questions by the investor community.

[Operator Instructions] The first question is from the line of Vikram Suryavanshi from PhillipCapital.

Yes. Sir, how is the situation now, particularly in terms of [ education ], PEB orders in terms of mobility of products or -- so you can give some idea of this lockdown on PEB?

Yes. On PEB, I will defer to Mr. P.V. Rao for his comments. Our Railways orders remained quite strong, close to about INR 200 crores. Solar, our order book has been extremely strong, higher than it has been pre-pandemic. We continue to look at solar as a sector that is doing quite well and we expect that to continue. Our other projects-based businesses are our water treatment projects and environment treatment projects, and the order book there also is quite strong at about INR 60 crores.

INR 57 crores.

INR 57 crores. I apologize. So on PEB?

PEB, as I told you, we have an order backlog of about INR 513 crores. So yes, inquiry levels for the last 3 months have, to some extent, come down. But we are confident that because of the boom in e-commerce business, we are confident that the orders will flow in the time to come. But in my opinion, to reach pre-pandemic level, it will take time, maybe 6 to 7 months' time, it will take, in my opinion. So -- but we are positive on that. So with the new initiative of setting up a unit in the U.S. So definitely, to some extent, that can be addressed, the shortfall, that's what's going to happen in India. That's going to happen in the U.S. We're going to have a facility which up and running in the last -- next 6 to 8 months' time. And by the time, India also will catch up and reach the pre-pandemic level. That is our expectation.

Okay. And sir, in India, which are the prominent sectors where they are seeing demand for PEB right now? Is it like -- are we seeing that we'll have seen here something what -- peaking like for other industries? And U.S.A., in fact our earlier thought process was like we will outsource designing part and most of this designing part of this PEB structure to advantage of our employee cost differences. But how -- what will be the size? Because I -- what I heard from this call is that we also look at the manufacturing of component in U.S., so what would be the size and scope of that venture? So if you can give some color on that.

Yes. See, in India, if you look at the sectors that are still placing orders on us or potential sectors like pharma, e-commerce business and then fertilizers business and then sectional steel by Reliance -- companies like Reliance, et al, where they build these towers, Jio towers. So they are still alive, and orders are pouring in for us. And as explained by Aditya, solar module mounting structures, we have the highest backlog, even compared to the pre-pandemic level also. So that is very well poised for a good growth in the time to come. And yes, we are expecting another 6% to 8%, even in the industrial buildings also. There will be some demand increasing in the consumption of different products, and people will start expanding the existing units and starting the new areas. So we are hopeful on that. With regard to the U.S., yes, the PEB market is intact, even in during the pandemic time also, because we keep inquiring about the PEB companies in the U.S. Because we are -- as it is, we are working for one big PEB company for engineering services. So we keep track of their market potential as addressable market and all. So we are hopeful that because we want to start PEB, we want to have sectional steel, and we want to have components business also there. So we got a good deal in acquiring some old company and are in the process of establishing, and we are very, very bullish on the U.S. entity growing up and then starting its revenue in 6 to 8 months' time.

[Operator Instructions]

I'm sorry. Just to clarify, the INR 75 crore capital expenditure plan include the acquisition in U.S.A. also?

Yes. So that is inclusive of INR 75 crore CapEx and inclusive of BIW project of our U.S. investments and our engineering service investments, yes.

And last question from my side is how is this outlook on [ tube side post BS-VI norms ] and to what extent we are still impacted?

Could you say that again? We couldn't...

How is the outlook on the tube segment or particularly demand from auto segment post BS-VI norms? And to what extent it has -- we are seeing the recovery?

Tubes is scaling up well. It is still not back up to its peak performance, but it has turned profitable as a business unit. And we further expect with our tubes, IOR investments as well, we expect that volume to climb back up. So we are quite bullish on tubes for the next few months.

[Operator Instructions] The next question is from the line of Marshall Michael from -- an individual investor.

Sir, question. That -- how do you see the growth prospects over the next 3 years? As in capability-wise, how is the company positioned? And what are your targets in terms of top line and margin, over the next sort of 3 years, aspirationally? And secondly, this current level of order book, are you comfortable with it? In terms of annual sales, this translates to around sort of 4 months of sales. Is it a normal level? Because, let's say, PEB business -- please correct me if I'm wrong, but contracts normally would be -- execution contracts would be 8 months to 12 months. So with the current level of order book, are you comfortable with the current level of order book?

So I'll answer the first part of the question. And then on the order book, as relevant to solar and railways PEB, Mr. P.V. Rao will elaborate and give you the picture. So as far as our aspirational growth targets are concerned for the next 3 years, our current base case assumption is that over the next few quarters, we increase our capacity utilization as our addressable markets come back in a gradual manner, boosted a little bit with our CapEx initiatives in sectors which are doing quite well, such as solar, such as engineering services and, of course, our U.S. markets. So from a revenue point of view, I think in this financial year, obviously, we will -- we will not be -- because we had a lull in the first quarter, second quarter's better, but still less than what it was in the second quarter last year, it would be difficult for us to achieve the revenue that we had last year. But I think with Q3 and Q4, looking the way we are -- the way we're projecting it right now, I think the key metric we have to look at is when do we reachieve the revenue and profitability that we had before this started -- before the pandemic and the lockdowns and all of this started. And we believe that will be within this financial year, probably in the fourth quarter. Post that, I think we just reestablish -- because by that time, we think by the calendar year, middle of next year, definitely, there is hope that there's some amount of vaccine that comes around. If not a vaccine, there's definitely a better treatment options and certainly some amount of herd immunity, perhaps. But certainly, nobody is saying that the situation will continue as it is with depressed addressable markets, depressed consumption activity indefinitely. So our base case is that our addressable markets recover to a large extent by the middle of next year. And the investments we are making allow us to grow quite quickly over the next few years. So we have a 5-year plan, a strategy plan. We think the cause of this pandemic has been to delay the entire plan by about 9 months. So our goal will be to keep growing at double-digit rates over the next few years. And hopefully, in a few -- a couple of quarters from now, 3 quarters from now, we can begin the task of putting -- of reachieving everything that we -- that what we were at before this started. And then our growth plan, reestablish itself. That's our base case right now.

With regard to the PEB, yes, because of this pandemic, though we have a good order backlog, there are some projects on hold. It is true that there are some projects on hold because of various reasons. And -- but we expect that they will come back to us to continue with the projects by around November, December. That's what we are expecting. And we currently are about roughly about INR 30 crores revenue in PEB, only PEB if you look at it. And we try to -- as soon as we get the release of those whole projects and all, we will definitely reach the pre-pandemic level. So -- but it will take time, right? I would think that it's likely 6 to 8 months' time to reach pre-pandemic level of revenue in PEB.

And the order book to -- in Railways and other businesses we have is -- we are okay. We are satisfied with it. It's all right.

[Operator Instructions] The next question is from the line of Forum Makim from Equitree Capital (sic) [ Equentis ].

Hello? Yes. My question was, are we doing any work on the defense space?

We are, but I would be hesitant to share a lot of those contracts are bound up there, executed through our subsidiary, Pennar Enertech, the joint venture that we have. And I believe that the -- I can -- certainly, I show you the subsidiary is doing well, and revenues are scaling up, but I will not be able to share individual order details.

Okay. Okay, sir. And what will the debt leverage be at Q2?

The overall debt is about INR 484 crores. I say 400 and..

INR 484 crores, yes.

Go ahead, please. Yes, INR 484 crores.

[Operator Instructions] The next question is from the line of [ Dilip Sahu ], an individual investor.

Yes. Am I audible?

Yes, [ Dilip ]. Yes.

This is a question to the management regarding the clarity of the next 3 to 4 years. As an investor, I must say I'm quite confused in terms of -- there's so many divisions consuming so much of capital, giving so little risk-adjusted return. And in the last 3, 4 years, we have tried many things. We have tried to get into retail, we thought solar business is not good, then now we certainly think the solar business is turning around. Now we are getting in the U.S. and I think committing a lot of capital. Can you tell me -- and there are so many divisions, there are double-digit divisions for a company, which is not so many business lines with so many diverse requirements. Can you give me an idea about where you are going to commit capital? Is it going to be domestic? Is it going to defense? Is it going to be water? Is it going to be U.S.? Where are you going to commit capital and what is the criteria to decide to fund or not to fund? You have talked in the past about capital efficiency and focus and being very rigorous about returns. But somehow, even without COVID, that hasn't really happened. So as an investor, I must say, I'm quite disillusioned with the way things have happened. Yes. Can you please comment on this?

Yes. Firstly, thank you for the question, sir. It is very well put. Let me try to answer it in a way first that describes our thought process on how we structure ourselves, one; and how we allocate -- make capital allocation decisions. I think a description of those 2 things will address some part of your question. So the way we are structured right now is the company broadly gets divided into 3 verticals. Our product-based businesses where we manufacture various components and products and systems, primarily steel-based. That is one part. Second would be projects where we execute projects, such as preengineered buildings, such as water treatment projects and also solar projects. And some of the steel is a substantial part of it, like it is in PEB, the 45% of the cost of steel and in some, it isn't. The third aspect of services where we provide engineering design services and that can cover structural engineering, which is primarily steel and perhaps civil also and civil engineering as well. But also mechanical engineering design and other things. So broadly, we look like a diversified engineering company, hence, the vast diversity in terms of revenue streams. Now while we pocket ourselves into those 3 pockets -- into those 3 sectors, so to speak, the individual business units in the company are obviously massive because each calls for a different kind of market sector. But the asset base that we use to cater to all these sectors is very similar. So the production processes, the capabilities we use includes things such as roll forming, fabrication and design. So if you combine these 3, 4 capabilities, that defines everything that we do. So I understand that we come across quite often as a company that's focusing on a lot of things, but really the same capabilities chasing market opportunities and the market opportunities, when we try to give a little more detail, we tend to describe it across 11 verticals as opposed to our ability to deliver profitability, I would not comment on the last 1 year, 2 years, but if you were to take the medium-term into account, I can comfortably say that we have absolutely delivered revenue growth, profitability growth. And capital efficiency. Yes, I think that is something that we do define ourselves to have as a very important priority for us. And I think you are -- I would have to agree with you that we have not obviously met expectations over there. So we would work on that. And I think we have decided -- in our Board meetings also, we discuss about capital efficiency being a very important metric. And going forward, we will make sure that -- that we refocus on that and make sure that we reach a certain ROCE and only then do we. But it hasn't been heavily deficient on overall basis, either. So that's my answer as far as how we structure ourselves is concerned. Now how do we decide whether to invest in a business or don't invest in business? We do a check on whether we are -- have a competency in that business. Do we have capabilities? Do we have competency? So when we say defense, it's a defense PEB or it's a defense hydraulics order or it's a defense tube order. It is not that we are making something else which we've never made before. I mean as I said, our capability set determines what markets we get into. And we try to describe those markets. It looks like we are being very diverse. When you say pharma, we say, well, whether we make a building for the pharma sector or whether we make a building for the defense sector, it's a building. So in that sense, our capital allocation strategy is we deploy capital into CapEx -- into working capital, only if we feel that there's a sustained market opportunity that exists over there. Unfortunately, what has happened is it in some of our sectors, some of them like solar, the market view has been extremely volatile. And unfortunately, that does result in us giving you a volatile picture. But if you were to take COVID out, on the revenue front, on the EBITDA front, on the PAT front, I must respectfully disagree with you, there hasn't been that much volatility. Sure. We are not as capital-efficient as we want to be. That, I would agree with you, but not on the other metrics. So going forward, we will continue to invest in our capabilities which remain the same. There'll be no newer capabilities, which are dramatically different from what we have, which will be invested into. And we'll try to constrict our communication to these 3 verticals, products, projects and services, so that there's less confusion and there's less ambiguity in this. But on the capital efficiency front, I will -- we continue to take that as a priority. And by next quarter, we will hopefully give you some metrics to which you can hold us accountable, such as a minimum of 20% ROCE on any capital that we employ. And hopefully, we will be able to give you those commitments. And that's my answer to your question, sir.

Yes, yes. Thanks, Aditya. That's a very satisfaction answer. My second and last question is, I think we all know that we are in very difficult cycle. There is a confluence of a lot of negative factors, not only COVID but also economics and stuff like that. But we all live in the hope that the cycle will turn and hopefully, next 6 to 12 months, the cycle of return. My question is when the cycle turns, how ready we are to take advantage of the changing scenario, and which is one business -- I just want one business where you think you will bet the house, and you'll make a real success of that one business. I'm not talking about structural steel or in terms of geographies, I'm talking about one focused business where you think will change the fate of Pennar Industries for next 3 years? Can you just tell?

Yes. On the first part of your question, we remain well prepared to take advantage when addressable markets come back. The key metric we see is if we have liquidity and we have an ability to build up, then we will be very able to grow when the market grows. On that, I would give us a very high capability to immediately ramp up revenue, should the market turn around. And we expect a lot of -- this actually to practically happen next year, frankly speaking. We will have growth -- moderate growth over the next few quarters. But if some -- if we were to get to -- suddenly increase in size by about 30%, 40%, we absolutely have the ability to do that. From a liquidity point of view and from a manpower point of view and engineering talent point of view as well. But to answer your question, I will pick 2 instead of one, not the perfect answer to your question. I will pick railways and our precision engineering business, which is we call BIW, which is what we're investing capital into. I believe both of those can change the complexion of our company. They're both scalable universes. They can individually exceed the size of the current company right now. From a revenue point of view, and if we focus on them and give them the capital they need, which is our absolute intent, then barring short-term dislocations such as cobalt and general economic malaise, over the medium term, which I would define as 3 years, 4 years, 5 years, these 2 verticals, I believe, can dramatically improve it, and they look very good on the margin front. Both of them are in excess of 20% in terms of EBITDA. And they also look very good from a capital efficiency point of view, by extension, a 2-month working capital cycle, 20% EBITDA means that ROCE is very good. And more importantly, they're scalable also. They are -- we believe that they can each exceed, if done well, the size of the company right now. Different though it is. So that's -- those are the 2 sectors.

The next question is from the line of Vikram Suryavanshi.

Sir, what is the current cash level on book? And by when we can see conclusion of this, the land sale deed? That is my first question. And second thing, regarding 2-month working capital target for each business, if currently -- anyway, businesses are down, so working capital is under. Are these sustainable targets or even on expanded growth for next year or going forward?

So I think there were a few questions on that. And the first one, I think, was the cash position. So Shrikant, that is INR 80 crores.

Yes, INR 80 crores plus we have in terms of the cash that we have, which includes our investments as well.

And the working capital liquidity.

And the unutilized working capital.

And so that's as far as the cash flow is concerned, quite strong. We have a liquid cash for close to a year of our burn rate right now, which we're profitable now, so we don't need to worry about that, per se. Our working capital now has to be used for creating revenue growth. Now the second question, also the land sale. We expect that to be completed in the next couple of weeks in its entirety. I think the agreement for sale will be entered into post haste. It can be a few days from now. Completing the transaction completely by the time we speak next, I'm sure that all aspects of the transaction will be completed in all respects. That's as far as the land is concerned. What was your other question, sir, sorry, the second part of the question?

I think we answered that. How much of the cash on the P&L and how much...

There was something else, I think. Vikram, if you're there, sir, there was another point?

Yes. Is it audible now?

Yes, I can hear you.

Sorry for that. Working capital target for 2 months for each business, is that sustainable even on next month growth, next year or going forward?

I mean in this spirit of answering the question, which the previous caller had posed, I think it has to be sustainable. I don't think we can have a higher number than that. And I don't think it's realistic. And we are very clear, as well management, and our Board is very clear that we have to hit those numbers. If we don't hit those numbers, we have to take some tough decisions. So on -- from our side, I think we can commit you that, that remains a target, and we believe it to be realistic, it's not aspirational. We believe it to be realistic. A lot of our competitors do similar numbers. So maybe a little bit of stretch here and there, but I think we will draw the Lakshmana Rekha, so to speak, at 2 months to ensure that we remain capital efficient.

The next question is from the line of [ Swaminathan ], an individual investor.

Yes. I just have a suggestion, sir. Regarding the segment reporting, you had just mentioned that you have around 11 verticals, 3 types of businesses and all that. But what is happening is all these engineering segments are being put into diversified engineering segments. So it hasn't really come out as to how much is solar or how much is railways. It will be better if you could just put this in the segment reporting or at least give it as a part of the investor presentation. That can go a long way. That's my only suggestion.

We understand. And I know we owe clarity to our investors, sir, that's very -- it's critical. And we are -- this is a moving target. We're working on this. We will also have discussions with you off-line to see what is the most appropriate structure.

The next question is from the line of [ Marshall Michael ], an individual investor.

Sir, one question is, how do you see the competitive intensity in the current scenario? And sort of logical assumption is that given the current environment, it would be extremely competitive. Hence, the question would be that are you targeting new orders at the expense of margin as in taking new orders at lesser margins? And this is obviously on the projects business. And if not, then what is the threshold margin that you -- or the cutoff margin that you keep when it comes to deciding whether to take up a project or not?

Thank you. So we have controls in place, which determined for each kind of business, what the market-determined operating profit is. And in spite of the obvious market turmoil and in spite of, obviously, there being a collapse in demand, we have not needed to compromise, and we have not compromised on that. I'm unsure what the reason for that is. I was fully expecting a lot of our EO heads to come back and say that, look, we need to reduce prices to get orders. But we have actually not done that. We were not needed to do that. Let me -- they have not come back to me and told me that. If you look at our gross profit numbers, they remain pretty much the same. Shrikant, what would you say that?

Yes, it's almost the same.

It's almost exactly the same. There is a slight decrease, perhaps but...

But there has not been substantial decrease in terms of the gross profit where we were prior to the pandemic and except -- and this is mostly of the orders. Only the decrease is slightly because of one of the higher profitable business has a lower revenue. That's the reason overall margin is decreased. Otherwise, there is no decrease in terms of margin from gross profit level from 48% to 39%.

Just one more question, if I may. Considering the competitive intensity, for Pennar Industries, what is the differentiator? What has been the feedback from clients? How do you stand out when it comes to past project delivery and fast track record? And sort of do you get any project awards on a preferential or a nomination basis? Has that ever been the experience? How do you stand out amongst competition in a very competitive industry, obviously?

I think our differentiators are that we -- and we have in-house a set of capabilities, which are quite difficult to get right completely. So a lot of our competitors will have roll forming capabilities. Some of them will have very good fabrication capabilities. But if you look at India, the combination -- and even I speak of us as value-added steel businesses, the combination of roll forming pressed and drawn components, blanking, fabrication, special grade material processing, there's only one other company that comes to mind to me other than Pennar in India, and that's TI. So I would say that would be for our for our value-added downstream steel businesses, that would be one of the key differentiators. In other businesses, it's other things, of course. If you look at us in our Railways business, for example, a very key differentiator is the fact that we have achieved the scale and the size that is necessary in order to output a wide variety of railway subsystem as opposed to some who tend to focus on anyone. So in a sense, I would define both the our broad range of capabilities and the ability to apply those to one order, to one customer as our differentiators.

Next question is from the line of [ Chandra Janyani ], an individual investor.

My question is actually, what's on the drawing board in terms of product and development for your hydraulics division? What is your aspiration for sales for this division in the next couple of years? Can we expect to get into subassemblies in the next 2 years? Is this division primarily export-driven? And is your business model in this division primarily of being a contract manufacturer to private labels?

Could you -- I'll try to...

Hydraulic division.

So Hydraulics is, while a good profitable division. It's primarily export-oriented. Yes, it's high margin. We are continuing investing capital to grow its size and scale, but the market opportunity is quite vast. So as we deploy more capital into it, others -- such as Repro and others will -- so we are also diversifying into customized cylinders, telescopic cylinders, which we'll have up by November. So while the size is small at about INR 30 crores per year, we believe this business can scale tremendously. So we are deploying capital into it. But as of right now, I don't have a projection for you for how long it would take for us to scale this business up. But we're quite excited about this. And it's primarily export-oriented. Did I cover all of your questions or...

Yes. Yes, you did. My second question is actually relating to your new railway plant that you're putting up in Raebareli. I'm guessing you're doing the CapEx for that in stages, like you're doing it over a period of 3 years. Once this plant is fully operational, what kind of revenue can you project from this plant? Is it capable of doubling your railway revenues like to INR 800 crores to INR 1,000 crores?

No, it wouldn't double it, but I think it can increase it by about -- what does it say?

INR 300 crores.

About a 20% increase, sir. The initial capacity that we are setting up will result in that increase. The products also would be similar to what we're already doing is is that the addressable market increases by a lot. We can supply to MCF, RCF and others. And specifically companies -- EC Blades is the company, we're trying to compete against there. And they are larger than us in Railways. So I'm quite optimistic that the addition of this plant will result in a very substantial addressable market increase, which would drive, at a minimum, 20% growth, but probably more than that.

Right. And my last question, Aditya, is history suggests that the downturn has proved to be the best time to invest in substantial CapEx. And you wait for the cycle to turn. Are you a believer on this? And secondly, is it okay to say that over the next 2, 3 years, you would have put in substantial CapEx to double the revenue of this of this company over the 5 years?

I'm -- don't take this the wrong way, sir, but I have now come around to the view that the pandemic, horrible as it is, has actually been -- and please don't take this the wrong way, it's -- I think it's been a good thing for the company. I think it's forced us to take a very strong look at ourselves to make decisions, we would not have taken otherwise. I can comfortably commit to you that we are going to redouble, refocus our efforts completely on capital efficiency. I think where we are standing right now, it is important for us to never go into a shell and say, we're not going to deploy capital. Opportunities exist. Opportunities are still coming up. I think we have to force ourselves to recognize where the opportunities are, which we have done, we know exactly where to put our money. I think we should deploy capital. If you're -- using a racing analogy, when you're braking and you're taking a corner in a car, you accelerate through the turn at the peak. I think that's where we are right now. We have made half the turn. And at this point, now, it's time for us to deploy capital smartly, wisely, not waste money. This is our Investors' capital. This is our shareholders' capital. When we are sure that this will result in a revenue and profit increase, we should go ahead and deploy. In answer to your question, doubling from -- I would not use now because now it's easy for me to answer. But even if you look at where we were about -- or, let's say, February -- Jan, February, before the pandemic started. I am absolutely confident we will double the sales number. And obviously, consequently, the profit number. On that within the next 5 years. I think we will do it substantially before that.

I have a last question again. My question is actually relating to this new subsidiary that's been opened, this Pennar Global Metals. By metal building components, do you mean the primary frame, the secondary frame, the grades, the [ pylons ], et cetera, is that what you're going to supply?

No. So Pennar Global Metals would be for our tubes' CDW sales in the U.S. So technically, we worked on -- worked with companies like Salem, [ Kerry ] and others. So we believe there's a possibility for us to generate in excess of $10 million in sales just from our CDW tubes products. So we want to enter that business. Consequently, we've added a value-added plant, a small plant, it is not heavy CapEx at all, it's sub-$1 million. And we have invested in that, and we think that this will allow us to better sell our 2 products, for which we have a substantial amount of capacity. That's been our global metals.

Aditya, is there an opportunity for you to export the PV components from India to the U.S.? Like predominately companies like Cornerstone Building brand media products. Are you willing to supply the metal building components from here to there? Is there a cost in manufacturing in the space compared to India? Is it cheaper in India for you to send it from near there?

There is. But so Cornerstone is a company we do a lot of other work with. So I won't comment specifically on supplying to them, but yes, building components in the U.S. remains substantial possibility.

[Operator Instructions] As there are no further questions, I now hand the conference over to the management for closing comments.

Thank you very much, all of you, all the stakeholders for participating in this call, and to the best of our ability we have answered the questions already posed by the investors. And thank you very much once again.

Thank you.