Pennar Industries Limited (513228) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q4 and FY '22 Earnings Conference Call of Pennar Industries Ltd., hosted by PhillipCapital (India) Private Ltd. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vikram Suryavanshi from PhillipCapital. Thank you, and over to you, sir.

Thank you, Margaret. Good morning, and very warm welcome to everyone. Thank you for being on the call of Pennar Industries Limited. We are happy to have with us 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. Shrikant Bhakkad, Vice President, Finance; Mr. J. Krishna Prasad, Chief Financial Officer; and Mr. Manoj, Head Corporate Affair; and K.M. Sunil. Before we start with the question-and-answer session, we'll have opening comments from the management. Now I hand over the call to Mr. Aditya for his opening comments. Over to you, sir.

Thank you, Vikram. So there's -- before I start off, there's a lot of static on the line. I hope what I'm saying is audible. Could you confirm that it's audible and there's no static? I'm not sure if it's on our end or your end?

We can hear the static, sir, but your audio is also audible. So if in case it gets worse, we will let you know.

Okay. Please feel free to interrupt any time I'm not legible or audible. Firstly, thank you to the moderators, to all our stakeholders. I welcome them to our quarter 4 and financial year 2022 financial results conference call. Thank you for joining us, and I hope you and your families are all safe. Our standard format for our conference calls is the following; I will first address us on the company's financial performance for the quarter and for the financial year. I will provide an analysis of our performance and what we expect in the coming quarters. As has been the case for the past few quarters, my analysis will focus on profitability, liquidity and growth. Post my address to you, our CFO, Mr. Shrikant Bhakkad; and Mr. Krishna Prasad will present their analysis of the numbers, their commentary on our performance for the quarter and for the financial year. So with that, I'll get started. For my initial comments for the financial year ending March 31, 2022, we recorded consolidated net sales of INR 2,266 crores. For the fourth quarter of this financial year, we recorded consolidated net sales of INR 692 crores. A consolidated PAT for the financial year was INR 42 crores, and the consolidated PAT for the fourth quarter was INR 16.7 crores. We also generated a cash PAT on a consolidated basis of INR 96 crores, and our cash PAT for the fourth quarter was INR 31.7 crores. This represents very high growth in our PAT for the financial year, due to the previous year being a pandemic year, so they may or may not be comparable. Furthermore, the fourth quarter last year had a special item, namely the sale of our land assets. And as I mentioned on my last conference call, if we are comparing quarter growth, we should take that into account. If we account for the land sale and other onetime items we recorded, growth in our PAT also on a quarter-on-quarter basis of about 20%. Now on a sequential quarter basis, which is Q3 of the financial year 2022 to Q4 of the financial year ending March 2022, we recorded a PAT growth of about 56.1%. On my last call, we had given the following guidances as management. We promised double-digit growth in PBT from Q3 to Q4. We promised working capital days reduction from around 100 days to 90 days, and we committed that we would commission a BIW project in Chennai and achieve a target PBT. I'm glad to report that we have achieved or exceeded all of these projections, and for the next quarter, we again expect PBT to have strong growth of at least double digits. That's quarter-on-quarter, Q1 last year to Q1 this year. And we will further seek to improve our working capital usage from where it is right now, which is around 80 days. Correct me if I'm wrong Shrikant, to around 75 days over the next 2 quarters. On growth, we will further improve our BIW plants' capacity, revenue and profitability and the overall company's PBT percentage further. Our goal will be to achieve and maintain a ROCE of 20% for the financial year. Our growth vectors now currently are, as I said, BIW capacity expansion, are Ascent -- our subsidiary in the U.S., Ascent, their capacity expansion and our module plant capacity expansions. Once commissioned, these projects will strongly contribute to our PBT growth for this financial year and for the next financial year. In conclusion, I must take the time to thank all of you for your support in the past few quarters. We've embarked on a new journey post the pandemic with a vision of evolving into a strong engineering company, which through our manufacturing and engineering design solutions, we enable our customers to boost their productivity and their growth. We will continue to focus on sustainable revenue and profitability growth, liquidity and capital efficiency as our guidelines, as we implement our growth plans. Thank you. And I hand over the line to our CFOs for their analysis.

Thanks, Aditya. Just to take you through the key matrices that we review every time for [indiscernible]. These are in terms of revenue, where it has gone up from the last financial year FY '21 to '22 from INR 1,525 crores to INR 2,265 crores, which is 48% increase. In terms of PBT from INR 3.65 crores, where it was INR 255.9 crores. Similarly, in terms of EBITDA, INR 131.49 crores to INR 148.49 crores. And in terms of cash, PAT from INR 51 crores to INR 95.75 crores. So those are the overall key matrices that we do for -- in each of the quarters. Taking you through the detailed analysis on each of those numbers. The net sales, as I said, has increased by 48.5%, but where as in -- if you come to the other income, other incomes are predominantly on account of separation that we have and there will be write-backs that are appearing there. The raw material, the COGS, which is generally called the raw material is at 61.86% in terms of the net sales, and while compared to earlier quarter, it was 60.31%. So overall, 150 basis points, there was an increase in terms of the cost there. This is due to the increased revenue and certain margin related things. Benefits cost has gone up. We have -- back to normalcy and all the employees and costs and things have started paying off. The finance cost is the next line item that you see; the finance cost, even though with the increase in the revenue from INR 1,525 crores to INR 2,265 crores, we were able to maintain the similar finance cost. This keeps up the point, that we are able to improve our working capital, in terms of number of days as well as in terms of the -- value-wise. Depreciation, more or less it stays flat, the increase in QC is on account of the capitalization of the Ascent subsidiary in U.S. In terms of overall PBT, there has been increase from 3.65% to 55.9%. Just to take you through a couple of balance sheet numbers, though the detailed balance sheet is available at your end, I just would like to glance on the certain aspects. If you see the net investments and the cash and cash equivalents that we have, we are at INR 120 crores, we are sitting in terms of this amount. Trade receivables, again, is one of the items wherein it has remained flat, even with the increase in the revenue, the trade receivables have reduced, which indicates that we were able to collect more the earlier amounts, whatever were there, and show the better picture in terms of our accounts receivable. Inventories have increased for the revenue that we are doing, or will be doing in the coming quarters. The revenue has slightly increased when compared to the earlier quarter. In terms of borrowings, we were able to reduce our term lending from INR 112 crores to INR 98 crores, repayments of close to around INR 14 crores. Trade payables, we are able to -- because of the increased confidence that we are able to give, we are having now [Technical Difficulty] better negotiate with our...

Sorry to interrupt you, sir, at the moment, the static is quite loud actually. So let me connect you on the alternate number, if that's okay? I would request participants to please stay connected. Ladies and gentlemen, thank you for patiently waiting. We have the management on the line with us. You may go ahead, sir.

Yes. This is in terms of borrowings, where we were -- last where I had stopped. So borrowings has decreased from INR 112 crores to INR 98 crores, that is a decrease of INR 14 crores in terms of long-term borrowings. While we compare to gross borrowings, they are at a flat level, even with the increased revenue that we have, and we are able to negotiate better and the trade payables have reduced -- increased from INR 442 crores to INR 543 crores. Just taking another few details for your detailed analysis. The cash flow from operating activities have increased for the current year, March '22, is close to around INR 200 crores. PBT comprised of INR 56 crores, depreciation comprised of INR 54 crores and the working capital -- operating changes in the working capital gets us additional INR 100 crores. This close to around INR 200 crores have been deployed in terms of fixed deposits and mutual fund, close to around INR 55 crores and the PPE in investing activities, INR 57 crores. The amount has also been used in financing these activities, the interest is close to 78% and there's a reduction in terms of term loan, INR 16 crores. So overall, this quarter has been better from the earlier quarters, in terms of top line and in terms of increasing our better working capital. A couple of points, like I said, one that you see on the CapEx, the BIW capitalization will come in this quarter. And we will -- this CapEx would result in further growth of the company. With this, I hand over back to the moderator.

[Operator Instructions] The first question is from the line of Nilesh Shah from Arrow Investments.

Congratulations on a wonderful quarter. And am I audible again? So there's no static here. Am I audible? Hello? Hello, am I audible?

Yes, you are audible. I would request you to go ahead, please.

All right. So just one point I want to -- I mean I have a couple of questions. So the first thing I want to just highlight is in the audited results that you have shared yesterday on the exchange, there is a point #4, where you have bought equity shares of 50 -- I mean the number, I think there may be an error over there. 50 equity shares at INR 32 lakh, including transaction costs and tax on buyback. It's only 50 equity shares up to March 31. So can you please clarify on that?

See, this initial -- I am Shrikant here, I am just clarifying. Those are the numbers that are onetime stock exchange fees that we have paid to both the exchanges and close -- and the SEBI fees that we'll have to pay, mandatory before we stock off, some of the bankers who are arranging, those things are there. The cost of the investment is not that high. So they are onetime costs, which is appearing, that's the reason the amount is particularly INR 32 lakhs included there.

Okay. So INR 32 lakhs includes the transaction and SEBI fees on the buyback that we have going on, which is currently on?

SEBI and stock exchanges. SEBI fees of around INR 20 lakhs, INR 22 lakhs and stock exchange fees of approximately 5.9% each.

Right. Okay. Perfect. I understand. Got it. The second thing I had to clarify was, the total borrowing of the company is around approximately INR 645 crores. Is that correct? Total borrowings, including your other financial liabilities, I think will be INR 645 crores?

After the schedule B division, the other liabilities are now included in short-term borrowings. So the total short term as well as the long term put together is INR 587 crores.

INR 587 crores, all right. And our interest payment that is INR 78 crores?

Yes, INR 78.38 crores, correct.

Yes, INR 78.38 crores. So what is the rate? Because I was going through the last year's audited report and most of the rates are around 10% -- 9% to 10%. So why are we actually having such a high interest outflow compared to the total borrowings?

To explain you this, I think the LCDs and the discounting that we do, those costs also get added. It's not necessarily the short-term and the long-term borrowing cost that gets replicated. We are -- and apart from this, we give bank guarantees also, close to around INR 150 crores of bank guarantees also have been given, and the vendable discounting that we do with each of those vendors. So those costs also gets added.

Okay. So all those costs put together. But our average cost of finance is? The average interest that we have paid? INR 8.5 crores? Yes. So if I have to look at INR 8.5 crores even on INR 580 crores or whatever, this is a little substantially very high, the finance costs. I mean I just wanted to clarify as to why it is above 15%, nearly? 14% to 15% of our total borrowings? So maybe like you said, the lease liabilities and the LCs and the discounting, I think that is affecting the cost of finance? Yes. All right. Is there any way we are going to bring this down in the coming quarter as our working capital gets more better and efficient?

If you would have seen even with the increased revenue that we had with -- from INR 1,500 crores to INR 2,265 crores, we were not able to increase the finance costs.

I didn't get you, sir? We're not able to increase the finance costs. It's not gone up, you mean to say?

Yes, it has not gone up. And from earlier, it was 3.76% of our total net turnover. Our plan is to reduce this to 3.3% in the short term and 3% is what we would take -- yes. So interest cost as a percentage of sales will be around 3% to 3.5%...

Will come to 3%, 3.5% all right. Okay, fine. Thank you for clarifying. And one more question is on the net profit margin in quarter 4, it declined only 2.4% from 5.9% quarter-on-quarter. So I don't know why there is, in spite of an additional sales that we did comparatively, our net profit margin is only 2.4% for the quarter. And for the overall year, we are at only 1.8%. I mean it's just kind of very surprising to see that we are working at such low net profit margins. So can you give a little color and clarify on that? 5.9%, we have dropped to 2.4%, corresponding quarter in March?

I just -- if you are comparing the sequential quarter with the sequential quarter, there was a onetime exceptional item of INR 19.96 crores, which was sale of land. And apart from that, we also had some tooling revenue, which was there in March 2021. So if you remove that onetime profit and...

Onetime profit of INR 19 crores from the sale of land?

Yes. That was there in the last quarter. If you compare with March '21 to March '22, that's -- if you take out those exceptional items in terms of the tooling revenue, which is included as part of our normal income, post this removal, this number will be better. But it has actually increased.

Okay. No, our EBITDA is around 8%, 8.5%, but our net margins are coming to less than 2% for the year. I think the management should a little bit work on getting the net margins up. I don't know how to explain this, but I think it's a very, very low margin compared to the overall turnover that we do. And in terms of costs also, I've just gone through it. So there is one employee benefit expense, which has gone up to INR 208 crores from INR 136 crores year-on-year. I don't know why there has been a 50% jump in the manpower cost of the labor, employee benefit expenses? So if you can just -- that would be one of the last questions, please.

Yes. So let me unpack what you're saying. First, you're saying that our PBT is low. I agree and we are working on increasing it, and you will definitely see increases in the future. A lot of this has to do with a very high depreciation also for us. If you look at our cash profit, it's a PBT, for example, it's substantially higher at around -- so you will see this number work. I agree with you, that a company our size the capital we are using, we should have higher PBT percentages, and we can commit as management increasing them. As for your cost of the employee cost expense increases, that is because of our increase in our employment in the U.S. for Ascent. They started operations late in the financial year, in this current financial year -- sorry, FY '22, they started operations. They're doing very well, they have scaled up, but we can't treat that as preoperative expenses, all of those are to be expensed out, that's why our employee cost is higher. We, as the management can definitely commit to you, that PBT percentage, PBT value, our ROCE and quite frankly, our employee cost as a percentage of our sales, all will remain -- will improve and remain within boundary, within guidelines.

Okay, fine. Sorry, sir, just one more last thing, that like you just mentioned that we have these Ascent Buildings, which is now a subsidiary in the U.S., which is doing well. There is an export duty, which has come in the last week, 15% on steel, which is going. So how are we going to mitigate the impact of this excess export duty? Will you be able to pass these costs on to the customers there in the U.S.?

In terms of we dispatching from here for the purpose of Ascent, there is nothing. Ascent manufactures, has a plant in U.S. at Tennessee. They manufacture in U.S. and they sell to the U.S. customers.

Okay. So there is no 5% export duty impact to us? There is no impact of export duty of 15% on our sales to U.S.?

Yes. Yes. Yes.

Ladies and gentlemen, yes, sir.

Can you call the landline once again, because it seems to be rectified now.

All right. Ladies and gentlemen, request you to continue to hold, while we reconnect the management. Thank you. Ladies and gentlemen, thank you for patiently waiting. [Operator Instructions] The next question is from the line of Vikram Suryavanshi from PhillipCapital.

Yes. Sir, can you give some idea about how is the order situation in different segments, particularly PBS and other segments also, and outlook on that individual segment? And we have seen strong growth in projects also, so we had laid this growth in projects and some comments on how is the revenue in engineering services? So these were some questions...

So let me make sure I've understood all the questions, sir. One is on order books for our business divisions? The second is you asked for an outlook on Engineering Services?

Yes. And also projects also, what has led this strong growth within projects also, if you can give some idea about [Technical Difficulty]?

Could you say that again, your voice is not clear, sir, I apologize, but could you repeat that last part?

Yes. Project segments has also reported a strong growth this quarter, [Technical Difficulty].

Yes. Okay. I will be as clear as I can. I hope my voice is clear and my answer is clear. For railways, order book has stayed static at around INR 100 crores. Our order book for Ascent has increased dramatically to where right now we are sitting on close to $40 million in order book, and quite honestly, we can increase it to $50 million also. We are being very picky with the orders we're choosing. Railways order book -- sorry, our PEB order book in India is quite strong, it has increased to about INR 500 crores in the last quarter. And our order book for solar also is steady. Engineering Services has done well, both our Structural Engineering and our Automotive and Plant Engineering services verticals have scaled up well, and the fourth quarter is much stronger than the third quarter, and we expect this growth trend to continue. So we are quite happy with the performance of these business verticals.

And projects business sir, within that, how you are seeing the traction within different parts of the projects business?

Sorry, projects business versus, what was the question?

Sir, the project business, the growth is led by PEB or solar or enviro...

Projects business is Ascent and PEB primarily, also railways, but it's right now dominated by Ascent and PEB from our revenue value size.

Understood.

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

Yes. First of all, congratulations Aditya, for I think that's ticking pretty much all the boxes that we started 2 years back. Good set of results. My question is, if I compare the gross margin -- the margin of engineered products versus pre-engineered building project business. The margin of pre-engineered building has come from 9.5% from Q4 last year to 6.5% this year. My understanding was that, whereas for products, it has come down from 9.5% to 8.5% this year over last year. My understanding was that, the pre-designed engineering products margin will remain same or go up, considering the Ascent contribution, it hasn't happened. I can understand the raw material impact as well as the employee cost impact. But if you can give me some more light on how the trajectory of gross margin for pre-designed engineering building going to be, from current 6.5% for next 4 to 8 quarters? That's question #1. Question #2 is about the news article that came up today of railways placing a lot of INR 7,500 crores and Titagarh wagon. Is it good news to us, bad news to us? Does it mean that we'll get a contribution from here? Are there customers? Or is the railway pipeline opening up? That's the second question. The third question is about this Body in white. I understand we have complete order book for the capacity. So if you can tell us, you are going to capitalize this year -- this quarter, how is the ramp-up going to happen over the next 2, 3 quarters? Are we going to get to a full capacity by -- how fast it will happen? And so these are 3 questions. The -- yes, the fourth one is about this acquisition in France that I read, I think, in your PPT. What is it -- I think we had some discussions 2 quarters back, but has anything fructified, because you have given it you in the presentation? These are the 4 questions.

I will go one by one.. The margin profile for our pre-engineered Buildings division will continue to scale up. We've -- post the pandemic, we've taken our time to structure that business' growth well. It has been -- while the fixed capital formation picked up, I think we've been a little circumspect on taking orders on that. That time has now passed. Our order books are strong and good. And I can assure you that our EBITDA and our PBT for our custom design Building Solutions business, will continue to scale up over the next few quarters. Q1 will be better than Q4, and obviously, the average of last year will -- of this year will be much better than average of last year. That I can commit to. Wagon orders for Pennar, we are expecting some to come in right now. Titagarh would be one of our customers. What we make are wagon assemblies and CRF sections. If we get orders from them, then we can. But right now, we are optimistic. But as of right now, I have nothing to commit or say that this is our wagon order book for railways. We are still quoting on orders and hoping to get some good news on that. BIW, as you -- as I mentioned and as Shrikant had given you some clarity, we expect about INR 100 crores in revenue in this financial year from that business, and that will be at a high -- almost 7% PBT. So that's the profile in terms of what we expect for this financial year. We'll increase capacity and then try to boost that further. But as of right now, we are currently at a run rate of about INR 9 crores. So I don't believe we are overcommitting. This month, we should be doing on that much. Cadnum, which is in France, is in the business of providing automotive and aerospace products, high precision. We will be acquiring them. Hopefully, that acquisition will be completed in the next few weeks. We have submitted our agreement to the French courts. Everyone has agreed. We expect to start recording revenue of Cadnum in our financials from the next month, and we have high hopes for that business. It would be perhaps not right for me to project revenue profitability from that business right now. But what I can guide to is that, we're in advanced stages of completing the acquisition and starting revenue. In Q1 of this financial year, we'll start recording revenue, and it's a profitable entity, positive cash for generating entity, and once we have done our homework, we will project our plans for that business. I think those are your 4 questions, sir.

If I may ask one last question, our employee cost since I think you are saying that, we are now choosing the orders from Ascent, which means that we must be getting into a steady state. Can I assume that this employee cost is going to be stable and it will not -- even though the revenue goes up?

I can commit to it being stable, with potentially some moderation also possible. But I can commit to no large increases in this. I would not even say 10% growth on that is on the cards. So around that number is what you should expect.

[Operator Instructions] The next question is a follow-up from the line of Nilesh Shah from Arrow Investments.

Just one clarification again on the Build360 retail stores that we were opening up, we opened around 7 to 8 stores over the last couple of years. Are we that more -- to open more stores across India or the franchisee route? Or are we actually not giving that business so much importance?

No, we are not -- I would be honest. That is one of the ventures we tried. We tried as managers, as entrepreneurs earlier, we try something, sometimes they work out well. We are holding a static at 8 stores, sir, and we have no plans now to expand that business. We don't believe it to be -- we have not been able to achieve the success we thought we would have in Build360.

So we are probably keeping it static and winding it down? That's what -- I mean last conference call, you had mentioned that you would like to come out of non-core businesses as well. So I think -- pardon me?

Yes, right now, also it's not -- there's not a lot of capital in that business. But as you have said, we will not be growing that business.

Okay. Okay. And just again, on the BIW, the Body in White thing. Can you give us a little color on the kind of customers we are working with?

Stellantis is a major customer. We're also trying to work with other auto majors. Since there's -- I'm not sure they would be okay at me revealing their name. Stellantis, I'm sure there's no issue, but other auto -- major auto OEMs, I can't say.

So we don't directly deal with auto OEMs, basically, like Mahindras or the Tatas or Hyundais or any one of the major OEMs?

Stellantis is a $70 billion global -- they own brands such as GE, then Citroen and Peugeot and others, and they are one of the largest automotive OEMs in the world. #3 or #4 to my knowledge.

So you had mentioned that looking at an order book of around INR 100 crores for the year, I mean, doing business of INR 100 crores, with a margin of around 7%? Correct?

Revenue sir, not order booking, but revenue.

We have the orders to do that.

All right, fine. Yes, I think -- yes, okay. Last question is again on the land sale that we had last year, we monetized around INR 19 crores. Is there any plans for any additional land sale that we may have for this year or coming years, that the company is looking to monetize?

Right now, I have nothing to share on that, sir. That would be the right way to put things. I can say that the company has very substantial land assets. We sold 5 vehicles. We have, I would say, we have hundreds of acres. But I think at this point, I can't comment on any plans. The Board holds all the discussions on this. But right now, we have nothing to communicate.

Okay. Fine. I think I had just one more, sorry, one more last question, if it's okay. It is on the buyback that is going on currently. I think there's a buyback that is in progress, and the company has been aggressively buying the stock from the open market. And just wanted to check the reasons why the company went in for a buyback, because we could have actually reduced our debt and liabilities by repaying this INR 40 crores towards reducing and profiting from our interest costs? So I understand you're trying to enhance shareholder value, but wouldn't it be better to repay back some of the debt and try to mitigate our interest expense? Because interest rates are on the rise upwards, and we are working with just hardly 2% margins. So if there is a substantial rate hike, we would again have a negative impact on our balance sheet and profitability?

So I think the decision to go for a buyback is predicated on a couple of things. First, you're right, that 2% is our PAT margin. But if you were to look at a cash PAT, you would find it to be different also, and that is the amount of cash the company generates. More importantly, our interest costs overall have not actually risen by a substantial amount. They may have, in fact, declined -- they've actually declined a little bit. So -- and also our debt-to-equity is not very high at 0.7, 0.8. So I don't see that as the -- at least that's our opinion. I mean some of these can be subjective calls. I think what's important for us is to -- if we are doing a buyback at a forward EPS times PE multiple. So the PE multiple right now we are at, it is 18%. So if we're doing a buyback at 7%, 8%, I think that is a worthwhile use of capital as well. Provided, we are not losing out on revenue on that. The opportunity cost of interest cost reductions would be less. That is my -- if you are not able -- if you're compromising on the revenue or business that you can do, that's because our ROCE is much higher than our potential capital cost, that's one reason. But all of these are judgment calls that we have to make. In our judgment since our EPS growth is on a steady track, and I think you can hold me accountable for what I'm saying, at least last 4, 5, 6 quarters since we've been -- since the pandemic time, we've revamped the way we do these things and I think you can hold me accountable for everything that's coming out of my mouth.

Our ROCE is basically around 10%. I think as of after updated yesterday's results, it's come to close to 10%, 9.97% exactly, in fact, the ROCE. So there is a conscious effort to actually take it up to around 15% or 20%. That's what we -- I mean we are trying to imply by this?

Our ROCE would be 15%. And if you look at our fourth quarter and annualize that, then it's even higher than that. But anyway, we can discuss that, I mean, these are statements of fact. They can't be debated. So we'll send our calculation, you can send as yours. I think the buyback is a good use of our money personally. But the decision, the Board has looked at all angles, and we believe that, we should make sure the company is on a firm growth path. We should make sure we have liquidity. We should make sure that if there's an opportunity at a low PE multiple, then reducing the equity of the company is a good option. That's the rationale.

Okay. And just to add up to the follow-up question by another investor just prior, the company is in talks to acquire an engineering and precision-based company out of France, the Cadnum thing. What is the kind of CapEx we are looking at for that?

It's very low, sir. I think only about INR 2 crores is the cash outflow we have right now.

All right. Okay. I don't know whether it will make a substantial impact on the kind of revenue and sales or profitability of the company, the acquisition?

Once the acquisition is done, sir, we'll give you detailed plans. But if I can, without numbers, if I can give you an idea, the idea is, we did exactly this in the U.S., and we acquired a company then scaled it up. That is the rationale behind this. It opens up the Europe market for us. If we replicate everything we're doing in India, in the U.S. and in Europe, those markets there are massive, and it will allow us to substantially scale our revenue and profitability. But it would be premature right now for us to say that Cadnum will allow us to do that. If you're saying, look, it's too small right now, feel free to not pay that much attention to it. Once we have our plans in place, we'll come back to you and tell you exactly what we intend to do with that. But it's a...

So it was just in the overall scheme of things, when we do INR 2,000 crores turnover, an acquisition of INR 2 crores doesn't make a meaningful -- I don't know, right now, maybe it may not. But as you said, going ahead, it may make a meaningful difference to our top line and bottom line?

We started PGI 4 years ago. We put barely any capital into it as well. And this fiscal, it will do about $70 million to $80 million in revenue. So -- I suggest we give it the time it needs. Let it cook -- everything will be in...

Investors -- are, yes, they are looking forward. And large investors, actually, like SAIF, Franklin and DSP and all over the last 1 year, have actually exited these businesses. I don't know why. SAIF for an investor for more than 10 years. And we acquired an investment in our company, and obviously, I think they were pained with that investment and they exited at a loss. So I was just trying to figure out the logic, as to why they would exit at INR 21 when they bought in at INR 42 and waited for 10 full years. So somewhere, I think the company needs to take -- this is just a suggestion. The company needs to take a conscious effort to get in quality investors on board, and kind of have more of investor interaction, so that investors are more comfortable with their investments in the company. Because all the big larger players have actually exited our company as an investment, and we need to get some quality investors back in the business.

Point taken sir. I don't have an argument with anything you said, everything you said is a statement of fact. We'll work to -- I think the best way I can serve my investors, and we as a management of the company can serve our investors, is to keep improving in terms of profitability, liquidity, capital efficiency, and the results will come. As to SAIF, I have a lot of respect for them. I think they're a great fund. As to the specific reasons for leaving, I can't speak to that. I mean they have their own way of [indiscernible].

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

Yes. 2 questions. One is regarding the investment for next 3 years. And if there is any further investment required in Ascent, as well as the railway CapEx we did, I think, around 1.5 year 2, 3 years back, is it complete? Or is it ongoing? So if you can tell us -- that's one.

We have currently not finalized our CapEx plans for the year, sir. So at this point, we will be unable to communicate what our CapEx outlay for the year is. But we don't intend to increase our debt profile or anything. So whatever -- we'll eat what we can. So what free cash flow we generate, we'll use that.

Sure. Yes. So that leads to the second question, that if you are having INR 100-odd crores of cash profit, and I'm sure it will go up, if the margin goes up, you will have crore, INR 400 crores of cash in the next 3 years. So what is the direction? Is it debt reduction, or is it buybacks or is it dividend? So that's question #1. The second question was regarding the services business. If I remember, when we acquired the company, I think, [ beans ] online or something, the revenue was around INR 2 crores, INR 3 crores. We are doing, I think, INR 5 crores now after 3.5 years. I understand that there has been some realignment, but is this going to be a substantial portion of our total revenue? What is the plan for it?

Yes. Sorry, I just wanted to understand you -- are you talking about BI, building information modeling acquisition, which we had made and the revenue from that? Is that what you're asking?

Yes. You have shown some INR 5 crores of revenue in the PPT, which is really small compared to a 2005 and that kind of revenue. So I'm just -- my question is, in the services business, is going to be a mover for our revenues and bottom line?

So in my view, I see the future of Pennar as being precision engineering and precision design as well. So our entire design engineering work that we do right now, would on a per year basis, reach about structural engineering to about INR 50 crores. And the PBT on that would be about 20%. But PBT, there's no depreciation really on those things. So I believe that this is a business we should scale up. I believe this is a business we should do better in, and it ties in well with what do we engineer, right? We engineer the BIW automotive components, which lines into our BIW manufacturing. We engineer buildings, which gets into our pre-engineered buildings range as well. We engineer plant engineering and other systems as well, which we don't have a manufacturing component for that. But these are good industries to be and they are large market sizes and we can consistently over time, grow these businesses. So I'm quite happy with the progress they are making. And I'm quite sure that this year, we are at INR 50 crore run rate, it will start contributing quite significantly to our bottom line. There's a reason I say that I'm aggressive about our PBT. The reason I'm saying that next year, we'll have our highest ever PBT. I had committed that in the last conference -- few conference calls. So on everything, we will make progress. Tell us where the issues are, we'll focus on that. But largely, the story I want to tell you is, engineering services, precision manufacturing, high-margin businesses, higher PBT, good ROCE, is that there are targets and we'll get closer and closer to them. That's our intent.

That's absolutely clear. My question was about the growth Aditya. INR 30 crores to INR 50 crores in 4 years or year -- I mean is there some focus in terms of leadership team and sales, or is it just riding on the existing sales team of a project business?

Okay. Sorry, I thought I understood your question differently. You're asking, sir, about the growth rate for that vertical?

Correct. Correct.

It will be quite high. I would project double-digit growth rates for that vertical in this financial year compared to last -- FY '23 versus FY '22, double-digit growth.

Okay. Fine. And the capital allocation, considering that we don't have any major investment plan?

Could you well -- I think, as I said, we have plans to increase our BIW capacity, our module capacity and also Ascent will go into Phase 2, which is their growth plan. So -- but we will not be -- we will do this with the limits that we have. We are not going to allow a massive increase in our debt or anything like that, is what I'm trying to say.

Thank you. As there are no further questions from the participants, I now hand the conference over to the management for closing comments.

Thank you for the questions. We have taken note of everything that you have said, on the factors you want us to improve on, and we will make sure that we make consistent progress on that. From my takeaways for the call, I have to keep monitoring the PBT percentage, make sure that an increase is going to happen, improve our cash generation further, and also give more clarity on some of the bets we are making, in terms of our Cadnum acquisition and others. But thank you for the questions, and thank you for your feedback and candor.

Thank you. On behalf of PhillipCapital India Private Limited, that concludes the conference call. Thank you for joining us, and you may now disconnect your lines.