Pennar Industries Limited (513228) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Q2 FY '23 Earnings Conference Call of Pennar Industries Limited hosted by PhillipCapital India Private Limited. 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 the guarantees of future performance and involve risk 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 India Private Limited. Thank you and over to you, sir.

Thank you, Stephen. Good morning and very warm welcome to everyone. Thank you for being on the call of Pennar Industries. We are happy to have with us management of Pennar Industries here today for question-and-answer session with 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; Mr. Manoj, Head Corporate Affairs; and Mr. 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 opening comments. Over to you, sir.

Thank you. I hope my voice is clear. If not, please do let me know. Firstly, my thanks to the moderators. I would also like to begin by welcoming all of our stakeholders who are on this call today. Thank you for joining us for the Q2 FY 2023 financial results conference call. So the structure of the conference call will follow our standard format where I will start with my commentary on our financial results. I will then cover our profitability, liquidity and growth metrics. Following this, our CFO, Mr. Shrikant Bhakkad, will present an overview. And after that, we will open up the call to questions from all of you. So let me start off with my overview. For the second quarter, we recorded net sales of INR 834 crores, our EBITDA was INR 61.8 crores and our PBT was INR 21.53 crores. Now this is substantial growth over our performance on a year-to-year basis. What's driving this growth is many of our BUs scaling revenue and the consequent impact of the operating margin flowing down to PBT. On profitability, the Q2 PBT was INR 21.53 crores at a margin of 2.58%. Our cash PAT was at INR 31.9 crores, which is at a margin of 3.84%. We're targeting further improvements on our PBT percentage and value over the next few quarters. Next we'll talk of liquidity and our working capital. We have reduced our working capital days from 78 days at the end of Q1 to 76 days at the end of Q2. Our annualized ROCE for Q1 was at 18.5%. And for our targets: by the end of the financial year, we are looking at 75 revenue days of working capital by March 2023 and 20% ROCE to be achieved by the end of this financial year. Lastly, I'll speak of growth, our revenue and profit growth drivers for the next quarter specifically. Our BIW division has achieved profitability and will continue to improve its margins. Our subsidiary in the U.S. continues to perform well and grow its revenue and profitability. Our PEB division in India has generated a large order book and is projected to dramatically improve its profitability. Based on these growth vectors, we would once again confidently project a high growth Q3 on a year-on-year basis. We are currently expanding capacity at our PEB business unit at Ascent and also in our Industrial Components business. I would like to conclude my initial overview by thanking all of you again for your time and attention. As always, we will continue to focus on sustainable revenue growth, profitability growth, liquidity and overall capital efficiency. I look forward to answering any questions that you have for me. And with that, I'm handing this over to our CFO for his comments.

Thanks, Aditya. Welcome to the shareholders on the second quarter of our FY '23 earnings call. The key metrices. Revenue has increased from INR 551 crores to INR 834 crores, which is up by 51%. EBITDA by 42% and PAT has increased almost double in terms of what we were there in terms of last year Q2 FY '22 numbers. Taking you through the details of the presentation. Increase in the employee benefits and depreciation expenses on account of the U.S. business and the BIW business that we have added in the current year. In terms of balance sheet numbers, the change in CBF to property, plant and equipment is 1 of the predominant change that you can see whatever the capitalization that we have done in the first quarter for the BIW plant. Cash and cash equivalents and the bank balance has increased to above INR 100 crores now. We are sitting on a cash and cash equivalents of close to INR 102 crores. Increase in borrowings is in line with the increase in revenue. The metrics that you have to see in terms of the finance cost and the reduction of the working capital is imminent enough and the overall numbers for the finance cost has reduced. Interest as a percentage of net sales is now below 3% overall for this quarter and we would continue to see that the interest and the finance costs do not increase above that. With the increase in interest rates, that seems to be a challenge, but our endeavor would be to make it below 3%. Cash flow before working capital changes is close to over INR 134 crores. And the cash and cash equivalents per se has increased from INR 37 crores to INR 86 crores. So with this, I hand over to the moderator for the Q&A session.

[Operator Instructions] The first question is from the line of Riddhesh Gandhi from Discovery Capital.

Just wanted to understand you had indicated on some of your earlier conference calls that FY '23 would be the highest actually in PAT that you guys have ever done, which historically I think was around INR 90 crores odd. Are you guys still in line to do that? And if you could also then throw some light on the order book?

You have 2 questions. One is on our projected PBT for the financial year. We typically don't give guidance, but I think you are right in that on previous conference calls I'd indicated that this financial year will be our best ever. We will stick to that projection. What was your second question, sir?

Was on how the order book is looking compared to how it looked last quarter and also if you could throw some light on the kind of profitability you expect from this order book and if it is higher? And if you could throw some light on that.

Okay. So when we speak of order books for us, we have order book based business verticals in Ascent our U.S. subsidiary, our railways business in India, our preengineered building business in India and our solar business unit. All 4 of these business units are seeing very high expansion on their order booking. Ascent's order book has increased to about USD 45 million and it could be higher. I think it could be even higher than that if they wanted it to be. But considering that the raw material prices are falling, I think they want to make sure that they don't bite off more than they can chew. Railways order book also is increasing. It was traditionally at INR 120 crores, but we are seeing improvement in that in the last quarter. Our PEB order book is also at highs that we have not seen for a very long time, we have INR 600 crores in open order book right now. And our solar business also is doing quite well. We have recently gone public. We have given out a press note on some of our order booking about a month ago. So order booking across all of our verticals remains strong. I don't see a decline in any of our order book based businesses from an order booking or revenue point of view.

Got it. And just like given all of the actually volatility in RM, how do we think about how we hold inventory and potential risks we have of that and how we're mitigating any sort of inventory risk?

So there's 2 ways to do it. One is that we have pass-through contracts where there's raw material price escalations, raw material linked contracts so that our selling price effectively gets adjusted if the raw material price increases or it gets adjusted downward if it declines. Most of our BUs are doing this because it helps us lock in a margin range -- an operating margin range that will make sure that we know what our profitability or operating margin is going to be. That's 1 way to do it. The other way to do it is we get into arrangements with our raw material suppliers because they're a larger buyer of certain commodities such as steel and other material, we can work with suppliers such as JSW and Tatas to have quarterly contracts or project-based rate contracts and that allows us to ensure that raw material price volatility does not impact our profitability. The third way is to sit on a substantial amount of inventory, which we also do, and this allows us to make sure that we don't have issues from a margin point of view. So the combination of all of these 3 things make sure that pass-through of pricing increases or declines for that matter and holding inventory and negotiating quarterly and project-based contracts with suppliers of raw material.

Got it. And sir, the last question I had was around the leverage. Obviously as you grow, your working capital would also potentially slightly increase. Are you guys comfortable with your existing level of leverage or I mean how do you think that's been adjusted or do you cater earnings with how the EBITDA, materially it can obviously imply the leverage also goes it?

Mr. Gandhi, could you -- I apologize, I got part of your question. But could you repeat your question? You're saying -- was your question...

Sir, how do you think about the leverage levels in the business right now? Are you comfortable at these actually levels? Do you expect to reduce it over the next year or 2? How should we be thinking about the debt levels?

If you're looking at leverage as in debt to equity, I'm not happy. We are at 0.7. I would prefer that, that number be 0.5 and we are working towards that and the best way to do that is to ensure that we don't increase our debt levels and we make sure that we hit it. But if your question was regarding operating leverage, there's a tremendous amount of that that's possible. Our operating margins are at 15% our net profit, our cash profit margins are 4% or 5%. I think there's a lot of rationalization on fixed costs that can happen as they bring in more scale. So from -- I won't call it economies of scale, but purely operating leverage should have the potential to add 100 basis points to 200 basis points to our bottom line. So I wasn't sure if your question referred to operating leverage or...

It was financial leverage, but you've answered it and you've answered the other one as well. So it's fine.

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

Sir, we have seen strong growth in custom design segment of our business, but the EBIT margins were quite low. So what was the reason for impact on profitability in custom design business or which were the verticals where we have seen impact if you can explain?

So the custom design business refers to our PEB business and what has happened is we have set our costs or our -- I think a little bit of this is the last question. Our fixed cost in our PEB business are high. The schemes coming in now. So as of right now, we project a 5% PBT not PAT, but PBT in that business to be achieved in this financial year. That will help bring up the margin profile of that business. But I agree with you that the margin that we are getting from it right now based on the current PBT is lower than it should be.

And what would be, this BIW plant what we have started, annual revenue potential at full capacity? If you can give some idea about in terms of potential in that business.

So as I've mentioned, we are continuing to invest in our BIW business. As of right now, the business is at about INR 120 crores plus on an annual gross sales run rate basis so INR 100 crores plus on net sales. We expect to double that by the next financial year and our PAT margin would obviously be much higher than that.

The next question is from the line of Deepak Poddar from Sapphire Capital.

Sir, I just wanted to understand in 1 of the questions of the previous participant, you maintained that this year will be the highest profit in the company's history, right? So which our previous best was about INR 90 crores PAT in FY '18. So I just wanted to understand in the first half you have done about INR 30 odd crores of PAT so that effectively means you would do at least INR 60 crores of PAT in the second half as per our expectation. So sir, I just wanted to understand what will drive that change in the second half? I mean somewhere it has to be revenue or somewhere it has to be margin improvement. So some understanding on that would help that. What would drive the doubling of profit in second half versus what we have achieved in the first half?

Okay. So what is going to happen over the second quarter and -- I'm sorry, third quarter and the fourth quarter and what we're already seeing is a further expansion in our margins. Post the pandemic there were some business units who we gave some time to resurrect their financial balance sheet, the P&Ls and the cash flows. That has now happened. So we are slowly but surely climbing the margin ladder. So that will ensure that our margins are much higher. I do want to point out 1 thing. In the year that you were talking about, there were some significant onetime expenses. So when I talk of us hitting our peak profitability, it would be around that number, but I would ask you to take that into account as well look at our actual PAT after taking those onetime expense into account. But I think the fundamental question you're asking is will we see this doubling. And we are very confident that we will continue to see dramatic expansions in our bottom line in Q3 and Q4.

Okay. So sir, that will be driven both by margins and revenue growth, right, I mean ideally?

It will be driven by revenue growth. It will be driven by margin growth. Both, yes. What's growing right now is the high margin business. So as this differential revenue at a higher operating margin comes in, a lot of that operating margin goes directly to PBDT or PBT frankly that matter. So we don't have a lot of CapEx, we don't have a lot of depreciation coming in. I would also pay some attention to our PBDT, our cash profit or our PAT less depreciation if you want to look at that. That's shown even more substantial and strong growth from a value point of view because our depreciation is quite heavy. It's never been this high. So on an overall basis we are generating cash, our working capital margins are improving, our ROCE is improving most importantly. The combination of all of this plus margin expansion will make sure that we hit our goals for this financial year.

Fair enough. And you did mention about this one-off expense, what is the quantum of that expense?

I will get back to you on that. I don't have the exact number with me, but I will make sure to get back to all of our investors on that.

Understood. And what's the split of your revenue between first half and second half? Generally second half is much better, right, for us.

Usually the second half is substantially better than the first half. Our weakest quarters tend to be sadly in the Q2, Q3 period. Q4 tends to be our strongest quarter.

The weakest is the second quarter and third quarter?

Most of second quarter, a little bit of the third quarter.

So second half, generally we do what 60%-40% I mean 2H versus 1H. 60%-40% or 55%-45%?

I would hesitate to give you a number exactly like that, but I think a good benchmark would be 60%-40%.

60%-40% is the right benchmark. And then my final query is more on the medium term. I think we have been speaking that our overall goal is to have a net profit margin closer to 5%, right? So any kind of rough range we have that with the time line we are looking at maybe 1 to 2 years or earlier? Any understanding we can have on that?

Understanding on what, sir, exactly?

So this 5% PAT margin, by when we would like to achieve that actually?

Okay. Our goals are to hit -- let me unpack this a little bit for you. So the way we think in the company is on PBDT because lot of our depreciation is as a cash item, it's not an actual expense so we tend to think of that and then divert that down to PAT. As of right now we are at about 6.5%, 7% on a PBDT basis. In order to achieve 5% on a PAT basis, we need to take that up to around 10% and we have plans in place to achieve that over the next 1.5 years. We think this would add -- there's a certain fixed cost increase that we'll get in a year and we had substantial increases from last year to this year primarily because of our U.S. subsidiary, but then they're more than repaid in terms of their own margin growth. But the answer I guess I would like to tell you is that if you add revenue at a contribution that's higher than 15%, then the equation works out well and that's what we're doing.

[Operator Instructions] The next question is from the line of Arvind Joshi from [ Batalia Advisors ].

I just wanted to get some additional insights on how our verticals like defense and railways are evolving. This could be a multiyear opportunity now. Any special effort being taken on asset allocation, planning, strategy, et cetera? I'd love to hear that from you. And I'm also very keen to know what exactly is going to be our contribution in Vande Bharat especially considering the kind of major involvement we had in Train 18 and also any business updates on wagon orders.

Railways business unit -- I mentioned the growth vectors we have. I mentioned that Ascent in U.S., PGI, our PEB business, BIW and our Industrial Components business continue to be growth vectors. Railways, as I mentioned, our order book is increasing and also to your point, we are 1 of the suppliers of Vande Bharat components and there's substantial order book inflow coming in from that. But we have taken a call as an organization to not focus on businesses which have only 1 end customer. So though we supply to ICF, MCF and others; ultimately the owner of all of this is the Railway Board. So I am not including railways in our rapid growth plan. We will get orders and it's more opportunistic to an extent, but we are not focusing on railways or Vande Bharat or wagon orders and we're not investing in that as of right now. There are other companies which are doing that and we are paying attention. But as of right now other than an increasing order book and improvements in our revenue and profitability for that business unit, I don't have anything to share. We don't have a railways growth plan, which is 5 years in the making, no.

And sometime back you had mentioned there would be some positive news coming on the export front for the railway business. Any updates on that?

No, sir. I don't think we've been successful in triggering anything of that nature. The vast majority of our railways revenue is domestic. We have a lot of exports in the company, but they're primarily in preengineered buildings, our hydraulics business, engineering services, even our BIW is entirely export oriented; but not railways.

Okay. And we still have some engagements with Bharat Dynamics for some shell components and all that. Any improvement in the engagement with Bharat Dynamics and defense in general?

So that is a small business. It is in our railways business unit. But again it is at this point not material enough to move the needle. I mean really for us from a gross sales point of view if we're looking at INR 3,000 crores, INR 3,500 crores this year, our goal really is for us to take that number to INR 4,000 crores next year. We are not going to get that in the defense sector. So it will continue to be targets of opportunity. It will be 1 BU. It will be the CEO of that business, Mr. Dayasagar. It will be a level of [indiscernible] So these are not sectors we're focusing on right now.

Okay. And any catalysts you see around that would make you change your mind on railways or you're very clear no more serious look at the business, whatever comes comes?

I think we are going to hard and we have already hard jerked the company more towards private sector CapEx, private sector fixed capital formation and exports. Railways is none of these things right now. Now if Bombardier and if other railway companies were able to entice Alstom, were able to enter in a stronger way and to my knowledge Alstom has exited India the railway business. So unless that happens, unless we see dramatic international opportunities, I would not focus on it. But on the aerospace front, as you know, we have made an acquisition in France last quarter. I have high hopes for that, but it will be premature now. Next quarter I will share our plans in more detail. But we're setting up our team there, we're setting up our addressable markets, we're going to work on scaling revenue there. But that's better, that has nongovernment revenue, private sector revenue, many customers, high margins, sustainability and not whims and fancies of the Railway Board. I apologize, I don't think I should say that. I think we are very -- we are moving away from 1 customer businesses.

[Operator Instructions] The next question is from the line of [ Soniya ] from Dalal & Broacha.

In this quarter we have reported other income of INR 15 crores versus INR 3 crores last year so it's a huge jump. So can you share what does that include?

Yes. The other income includes certain provisions that we have written back from the earlier years and predominant amount has come from the exchange fluctuation gain that we have. So out of that, 60% is exchange fluctuation, close to around 20% is provision for writeback and the balance is other income that we have regularly.

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

Congratulations on a very good set of numbers particularly in revenue growth. Am I audible?

Yes. Please go ahead.

So I had a couple of questions, one is regarding salary and wages and the accelerated hike in salary and wages. Last quarter Mr. Aditya talked that there is a onetime cost and the endeavor will be to reduce the salary cost and definitely not exceed the past average so whereas salary has grown more than the revenue growth. So that's one question, your comments on that? Second is regarding the BIW business. We invested around INR 70-odd crores for the current run rate of INR 120 crores, INR 130 crores per year. Is it enough or have we reached the peak capacity in BIW? And at INR 10 crores, INR 12 crores per month, is it a breakeven business now or you need at what price -- at what revenue you will make profit? That's the second question. Third question is regarding the order book. There were some news articles that NTPC had given a large order of 500 megawatts to Pennar. So this INR 1,160 crore orders that we have picked up in September, does it include or is it tender alone and order will come later? That's the third question.

Okay. Let me answer that. So the salary growth is entirely because of PGI. You're absolutely right in terms of saying that it's a onetime thing last quarter. So what has happened is a lot of our bonuses and variable costs in PGI I have also gotten recorded in this. The reason for that is we've had a change in our stat auditor and with that change, sometimes attribution changes do exist. But to your fundamental point that our fixed costs have grown further and faster than our revenue has not our profit, but definitely faster than our revenue, I think that's a very fair point. I think it's something that we are looking hard at. A lot of these are initial setup costs. We've just set up in Ascent and they're already doing a really good job. I think I'm at liberty to say that we are being very conservative in our estimates of our profitability there too. But there is method behind what we are doing on fixed costs. Let me approach it this way. We are continuing to look at it. We are going to work on rationalization. There has been an attribution difference, which has resulted in bonuses and variable costs, which typically were previously recorded elsewhere being recorded in our fixed costs. But overall I do think we have some work to do on rationalizing specifically salary growth and fixed cost. That's question number one. BIW, our CapEx our gross block is about [ 60% ] and at INR 120 crore run rate, that's an asset flip of only about 2%, which is not good. You're correct. This is base CapEx including some technology that we had to get in, obviously the plant itself. What is happening now is capacity expansion, which takes that gross block up from [ 60 to closer to 78 ] and when that happens, our revenue doubling would effectively improve the asset flip to closer to 3.5%. Still not good, but it is representative of what is seen in this industry. Margins of course jump tremendously and that's what we're looking at. So I think you had a question on whether the business unit is currently profitable. Yes, it is. But the PBT or the PBDT, let me talk of that, is hardly 3% or 4%. When we commission the next phase, you will see a dramatic improvement in our margins. But as of right now it is profitable, it is growing and we are hard at work expanding capacity so both the revenue to asset flip and the PBT margins improve. I will not be able to share individual order sizes because our customers explicitly request us not to do that. However, you are right, the INR 1,100 odd crores that we had declared is inclusive of this NTPC order that we have received. We've received their contract a few weeks ago officially as well so we will be executing that order. It's a profitable order. But yes, I'm not at liberty to share exact contract value.

I've got 2 more questions if I may ask regarding PEB business. As per the segmental revenue, INR 419 crores in the engineering building business and INR 16 crores is the profitability, which is around 4% with less than 1% PBT and it comes out almost like 50% of our revenue this quarter. So my question is is it purely an inventory issue or is it because of the U.S. operations? Can you just comment on this profitability of PEB business?

Can I get some clarity on your question? So you're saying is what an inventory issue that I mean you mentioned?

Our PED business, which is this year -- this quarter PEB business is INR 419 crores as per the segmental revenue disclosure and our profit was INR 16 crores so which is around 4% operating profit. So my question is what is the reason for such a low margin for the current quarter PEB business and what is the outlook?

Okay. I would attribute that, as I mentioned, to one of our previous questions. We are scaling up the PEB business unit and the PEB business only makes money after a certain point after the break even. But once you cross the breakeven point, even 10%, 20% increases in sales volume bring a dramatic amount of improvement to our bottom line. As I mentioned, we are targeting for our India businesses a PBDT of about 7% for our PEB business also and our U.S. business is above that. So we will continue to bring these in. I also want to mention at this point that for our U.S. subsidiary, which is also in the custom design building system space, we are being extremely conservative on our financial assessments until our audit is completed there. One of the reasons why I'm confident of hitting our profitability target for the year is that once the audit is completed, we expect to be able to bring in higher margins from there also. Be that as it may, what you can look for quarter-on-quarter is continued improvement in our PBT margins for our pre-engineered building business in India and in the U.S. That I can comment.

Great. The last question is regarding the French acquisition and we have actually made 2 acquisitions in Europe. If you can just throw some light is there some traction coming or what is the momentum in terms of customer engagement? And our services business surprisingly pleasantly -- as a pleasant surprise has gone up to INR 13 crores, INR 14 crores. Is it because of the revenue volume increase or is it because of the ForEx gain? Where is the momentum in services business coming from? Yes. That's my last question.

Okay. I will answer the question about our acquisition of Cadnum. As I've mentioned before, it's still early days. Please do give us the quarter, I will commit to giving a far more informative idea about where we're going. However, I can tell you right now we're very optimistic. We're setting the team up there. We're hard at work making sure that they have the assets necessary to grow and I am certain that they will add materially to our revenue and bottom line over the next few years. But I will request a quarter for us to communicate a plan to you. That's point #1. Point #2, you asked about our services business scaling up. It's a combination of both ForEx gain which exists and also the revenues in that business unit increasing from a year-on-year basis. Again we expect continued improvement in revenue in this business unit. It's already at a higher margin. We believe those margins are sustainable.

[Operator Instructions] The next question is from the line of [ Srivathsan ] from Spark Capital.

I'm relatively new to the company just wanted to get your thoughts. When you look at the disparate products and services, wanted to get your thoughts how will you bucket each of them purely from a free cash flow generation or a return on capital employed framework? And also the second framework I was looking at, how would you look at it from a competitive advantage where you would be a Top 2, Top 3, Top 4 player in the market? Just wanted to get your thoughts between the various products and services you operate and how will you look at on these 2 frameworks.

So one was diversity in our product profile and how we are going to bucket it and the other part of it was our focus on whether we look at ROCE or we look at free cash flow. Let me answer the first part first. We had as of last year 13 revenue streams of business streams or business units or revenue streams. We have cut that down to 10 through a process of merging these revenue streams into existing business units or by a process of exiting businesses which we think are not going to be able to be capital efficient or return cash over the long term. And this process will continue and at the Board level also, we are looking at having lesser number of units which can be larger in individual size as opposed to chasing multiple market opportunities, addressable markets, which maybe give you some amount of comfort that you will not have reduction or decreases in revenue because if 1 business unit is bad, other BUs can take up the slack. But what they will have is robustness in terms of long-term addressable market growth, which will help us scale Pennar further. So that's our thought process as far as diversity revenue stream is concerned. If we can get to 6 BUs steady state there, make sure each of them has a multi-thousand crore revenue opportunity, which means a multi ten thousand crore addressable market opportunity. That's what we're aiming for and we see I think most of the hard work on that has been done. It's a matter of time and we'll get down to lesser number of BUs, larger sizes and more sustainability in revenue. In terms of whether it's capital efficiency or free cash flow, we target a ROCE rose of 20% for our manufacturing business and a higher number for our services business. That will continue to be the guiding light for us. Cash flow generation is a little trickier. From an operating point of view, we do want all of our businesses to throw up cash. But in a positive working capital cycle when you do have substantial growth coming in, you do tend to have negative cash flows. So we have to balance our desire for growth along with our desire to have positive cash flow as well, both of which are important, neither of which can be made subservient to the other. So I think the stable response we have found is a certain amount of growth is healthy in a year from a revenue point of view and if you want more growth than that, then that -- those things should come from rationalization of working capital. We are a heavy user of working capital. If we can optimize that, then it could allow us to have growth and free cash flow. But over the long term, we would slightly be focusing more on cash flow than we would on heavy growth.

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

Aditya, great numbers in top line growth. I would like you to remind that on earlier occasions every time in the conference calls, you have said and maintained that you would be doing the best ever performance in the recent past for this year as well as for the next financial year. So one, whether you maintain that? 2, do you see the reduction in your loan which is currently at a high level? Listening to you your growth plans, it looks like that is not on the anvil as of now and until such time you have been growing well, do you think that is under control? So some plans of selling your surplus land, which I saw some time back you had liquidated to the tune of INR 30 crores, INR 40 crores or something. Do you have any plans of liquidating that and adding to your growth and as well as reducing your outstanding loan?

So I think there were 3 questions asked. One is on the performance for this financial year and for the next few financial years. The other was on our current debt levels and our comfort and how that plays in considering our growth plans and CapEx. And the third point was whether we would be willing to use sale of our land to reduce either our debt burden or to even finance CapEx. Those are the questions as I've understood them. I'll answer them one by one, sir. From a performance point of view, you are right and I will stand by our statement and I don't think I'm overpromising. I do believe that this will be if not the strongest year, one of our strongest years. There's always ambiguity. But from what I see on the table right now, we will have a very, very strong year in terms of both cash generation, in terms of profitability and also critically how we're going to be positioned in the last quarter for the next financial year. I think we have become vastly more profit focused and cash flow focused than we were historically. We are making tough choices in terms of liquidating businesses which don't make sense to us from a long-term point of view, returning that capital back. So consequently, we're seeing improvements in ROCE and also a reduction in our working capital number of days. I mean 2 years ago we were at 120 days, now we're at 76 days and further improvements also will come in. So that from a performance point of view I can comment. Our long-term debt is at INR 110 crores. Our overall net debt is INR 672 crores. This for a company with gross sales and I use gross sales because that's what debt finance is and working capital finance is. For us to have gross sales of INR 3,000 cores, INR 3,500 crores, maybe INR 4,000 crores is I believe not inappropriate. The number that we do look at for you to judge what I can guide you to is our total interest cost as a percentage of our sales. I think that's a very important metric because it measures what you're actually doing with that capital, whether it be CapEx or OpEx. So that we have articulated that our desire is to maintain a number -- I mean we were at 3.3% last quarter, this quarter we are at 2.96%. We will keep it around 3%. You should guide me -- I mean I would love to know your thoughts. But from an analysis we've had with -- we talked to smartest people we can find and we think that 3% is sustainable for our business model. And as long as our margins continue to improve, our operating margins continue to improve and we are able to scale, that combination will result in PBT and PBDT percentage increasing. It also keeps overall debt in control because if your debt increases, but your revenue doesn't or revenue doesn't increase in the same metric, then this number tends to go up. Since you're predicting stability in this number, I would request you to give us your thoughts. We don't need to do it in this forum, but I would invite your commentary on that. But that's what we're thinking. When we think of debt, we think of it that way. From a land sale point of view, as you're right, we have sold substantial land assets. I see us as an engineering company, as a manufacturing company so we are not a real estate company so I also don't believe there's a lot of sense in having expensive land and running revenue generating assets on top of it. However, this is a decision for the Board to take. There's also a certain periodicity on when we want to do this. But I can assure you what we're not going to do is divert a lot of our CapEx into land purchases or anything like that. That is absolutely not going to happen. We will look for -- wherever we set our factories up, we will look for land that is cheap, that is cost effective and make sure that the overall return on capital employed is justified. Our existing land assets the Board has to take a call. As of right now we have not articulated a strategy, but I think we've shown intent the last time we sold, I think it was about 1.5 years ago when we sold that land asset. So we're not looking to build up our land assets if that's the question.

Yes. So Aditya, I'm very new to investing and attending to conference calls so do forgive me if I do not follow the protocol. But let me share a story of a South India based company, I will not take the name for obvious reasons. About 7 years back they had a parcel of land, which was being sold for something like INR 160 crores, which would have retired all their debt. Which they hung up on not selling it, which resulted into -- because of INR 20 crores or something is what they were not getting. So the very obvious thing which I thought to an outsider that the power of compounding in the period is lost on companies and they invested something in the U.S. where they're incurring a loss. I would say that please have a look at it. In case those land prices are not going to increase any further, it makes immense common sense to sell and retire a bit of your debt or put it in your CapEx, you will grow far faster. Take a call on that. We have some wisdom, I thought that is a very smart thing to do.

I thank you and appreciate your candor and what you have said makes absolute sense to me.

All the very best. We are a long-term investor and I see my old age with your company.

Thank you. Ladies and gentlemen, we take that as the last question for today. I now hand the conference over to the management for their closing comments. Over to you, sir.

Thank you so much, sirs, for your time and attention again. We will continue to make the improvements we're going to make. All that we have shared with you information. Please let us know if there's any more clarity required in the interim. But we are hard at work to closing the third quarter as per our commitments to you. Thank you again for your time.

Thank you. Ladies and gentlemen, on behalf of PhillipCapital India Private Limited, that concludes this conference. We thank you all for joining us and you may now disconnect your lines.