Pennar Industries Limited (513228) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Pennar Industries Q2 FY '25 Earnings Conference Call hosted by PhillipCapital (India) Private Limited. This conference call may contain forward-looking statements about the company, which are based on 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 (India) Private Limited. Thank you, and over to you, sir.

Thank you, Siya. Good morning, and very warm welcome to everyone. Thank you for being on the call of Pennar Industries Limited. We're happy to have with us management of Pennar Industries for question and answer session with the investment community. Management is represented by Mr. Aditya Rao, Vice Chairman and Managing Director; Mr. Shrikant Bhakkad, Chief Financial Officer; Mr. Manoj, Vice President, Corporate Planning; and Mr. K.M. Sunil, Vice President, Investor and Media Relations. Before we start with the question and answer session, we'll have opening comments from the management. Now I hand over call to Mr. Aditya for opening comments. Over to you, sir.

Thank you. On behalf of Pennar Industries, I would like to extend our appreciation to all of our stakeholders for joining today's investor conference call for the second quarter financial year 2025. Your involvement means a great deal to us and we're genuinely grateful for your ongoing interest and support. Agenda today will cover -- we'll start with an overview of our quarterly performance. As usual, we will highlight key metrics such as revenue, profit before tax, working capital management and our strategic growth initiatives. Following this, the Chief Financial Officer, Mr. Shrikant Bhakkad, will provide an in-depth presentation on our financial results. After his presentation, we will open the session for questions from all participants. So let me start with the [ execution ] summary. For quarter 2 fiscal 2025, PIL reported a total income of INR 753.53 crores and an EBIT of INR 36 crores. The decline in revenue of around 8%, partly expected, and our PBT [indiscernible] grew by 20%. We recorded a cash PAT of INR 44.3 crores. However, we're expecting a flat quarter due to replacement of older revenue with newer high-margin revenue, which has been a trend for the past few quarters. The decline was because of delays in commissioning of our Raebareli plant and also in converting our U.S. order book to revenue due to the U.S. election. Both concerned, we've already achieved a high capacity utilization in PV in October and have seen a dramatic ramp-up in our U.S. revenue in the current quarter, and order backlogs across the board look very strong. appropriately equipment order backlog also has increased to a record high. So we're confident and projecting a very strong Q3 and Q4, allowing us to record our highest-ever sales and our highest-ever profitability and cash generation in this financial year. Our crudes continue to be PV India Ascent, which is U.S. PV business, process equipment, engineering services, tubes and hydraulics. Let me move to profitability. Our PBT of INR 36 crores was achieved at a percentage of 4.82%. As we've guided, we expect margin expansion to continue as higher margin [indiscernible] revenue continues to scale. Our current working capital days as of September 30 has seen an increase by 3 days to 77. This is primarily because of increased inventory holding in anticipation of higher Q3 sales. There's a lot of order booking that came in September, and in order to cater to that, we had to increase our working capital. We expect to get back to 74 days very soon within the next 2 months and have a goal of 72 days March 31. That concludes my overview of our financial performance. I would like to hand it over to Shrikant for a more detailed financial analysis. Thank you so much.

Welcome to the shareholders and investors on the second quarter FY '25 earnings call. [indiscernible] in Q2. Total income of INR 753.53 crores from INR 820.04 crores. On gross margin, there is an improvement by 357 basis points from 38.27% to 41.84%. EBITDA has reached about 10% and it is 16% up from 9.35% on quarter 2. PBT was about INR 36.05 crores, up by 21.26% at 4.82%, and PAT at INR 26.87 crores was 3.6% and up by 20.17%. In terms of revenue, as you are aware that we are exiting the low-margin businesses with our continued focus to improve on the margins and cut down on the sales of lower margin businesses, you see the increase in the profitability of the businesses. Revenue has scaled up. In terms of [ metricals ] perspective, revenue has relatively not grown in terms of the lower-margin segments, [indiscernible], due to the [indiscernible] collections. We expect that the -- now that the elections are over, the revenue will start increasing and the revenue will also keep the growth in the coming quarters. The divested [ additional ] revenue for Q2 FY '25 was at [ INR 416.36 crores ] compared to INR 433.56 crores, it happened that solutions is at INR 356 crores and [indiscernible] revenue in the order book in the India has increased to INR 800 crores, and [ PEB ] to 54 million, and we are confident that the revenue will go up in the next quarter. [indiscernible] it will start contributing to our revenue from the second quarter Q3 FY '25. In terms of other income, it includes [indiscernible] income from mutual funds, incentives, [indiscernible] collection of [indiscernible]. [indiscernible] expenses [ PPF ] INR 81.11 crores compared to INR 77.67 crores and [indiscernible] on account of manpower that we have recruited [indiscernible] for our other growth initiatives. In terms of the financials, because already we get INR 37.69 crores and compared to INR 39.87 crores. [indiscernible] sales and acquisition [indiscernible] the first quarter. [indiscernible] reporting of the company is now at INR 1,190 crores and then compared to INR 1,092 crores in the last 3 years. This is -- there is an increase in case of our [indiscernible] as well as the working capital. [indiscernible] is not INR 2.8 crores. The working capital model has decreased because we expect all money for the inventory, and we expect this to [ rationalize ] in the coming -- the next 2 quarters. Overall, in terms of investments [indiscernible] where we guide to, it's now at 3.7%, and CapEx is 3.67%. This increase of 3 basis points is predominantly on account of higher working capital increase that has seen. We expect it to lower, and our target is to somewhat 3.75% once we start calculating the interest for the [indiscernible]. The [indiscernible] has increased from INR 16.6 crores to INR 17.4 crores on the front of the capitalization that we have in [ subsidies ] and in standalone PBTs. PAT has increased from 24.79% to 25.31%, predominantly due to change [indiscernible] at our U.S. subsidiary assets. [indiscernible] we guide you to a [indiscernible]. We expect the consolidated rate to be 25.5%. Overall, in terms of revenue, [indiscernible] an increase in profitability due to the better margins in our boiler division [indiscernible] other entities, and our profitability will go up due to the margin expansion that we are planning for our [indiscernible]. In terms of the balance sheet numbers, the change in assets or account of [indiscernible] Non-tenant assets predominantly [indiscernible] business by INR 134.16 crores versus a transition of our corporate office [indiscernible] dispute over the next 3 years and it or in canon. So overall, there's a good collection that we have seen and that we also keep increasing these investments and the cash and cash equivalents. The cash and cash equivalents has grown by INR 20 crores and investment in a very part INR 7 crores. Other [indiscernible] INR 13.32 crores is on account of the CapEx advances that we have given to our [indiscernible] in India [indiscernible] that's at least INR 2 crores. Coming to liabilities, [indiscernible] liabilities on account of high borrowings, and other certainties by INR 34.97 crores. [indiscernible] by INR 12 crores. Change in liabilities, [indiscernible] amortization of lease liabilities. And advances from the customers we have achieved [indiscernible], the profit that we have for the quarter 2. That concludes on the balance sheet analysis In terms of cash flow analysis, the operating cash flow before the working capital as that consolidation has been INR 157.98 crores when compared to INR 7139.59 crores is attributable predominantly on [indiscernible] operating activities, which is positive at [indiscernible] crores. Investing activities, INR 90 crores we have invested and financing activities INR 9 crores. process over in cash and cash equivalents by INR 20 crores. That concludes my analysis on profit, on balance sheet and the cash flows. The last thing that I would like to inform, our order book of PEB has increased [indiscernible] INR 810 crores, and [indiscernible] has increased to 54 million. This concludes my analysis on the [indiscernible]. We'll be happy to answer your questions.

Thank you very much. We will now begin with the question-and-answer session. [Operator Instructions]. We have the first question from the line of [ Hash Butra ] from Arc [indiscernible].

My first question is in line with the earlier con call guidance of PBT about 7%. What is the expected time line which we see? And what are some levers, if you can explain?

So the 7% PBT would be achieved as our higher-margin revenue scales up. These tend to be our margins of our business in the U.S. cent industrial components and hydraulics here and also engineering services and metal buildings here. So as you've seen, there's been a 200 basis point expansion over the last 2 years. So something similar the next 2 years. So over a 2-year time frame, I think internally, we have a more aggressive target. I think getting to 7% PBT is what happen also.

And then my second question is in line with the [indiscernible] as we have already guided to exit our low-margin business. First of all, [ exactly] what are those low-margin business? And same, like what is the expected time line to exit them?

So we decided to focus most of our capital and manners on effectively 5 businesses. So that includes us reducing our revenue and -- in some business units. These business units are typically our water treatment and environment business, our chemicals business unit. Our Aerospace business unit is another vertical which has seen a reduction, and also across steel and across railways, and the solar EPC, solar MMS, our module business. So there's almost, I would say, seven, eight revenue streams, which have been removed. So the impact of that is a reduction in the overall revenue of the company, whether or not growth in other verticals by close to about INR 1,000 crores. However, because the other verticals are also growing. The ones we want to scale are scaling up. It is a plus and a minus, and overall this year we will have a plus, as we did last year as well for that. So over the next year, we will be able to fully vacate these revenue streams.

The next question is from the line of [ Sashil Jabili ] from Crown Capital.

So just wanted to understand now that Raebareli plant will be operational from this quarter, so how would it impact the margin? How -- the extra cost will be factored in for it, like have we already hired employees? Just like -- could you give us some color on how the economics of the plant will look, like utilization levels, [indiscernible], what the revenue contribution can hit?

So the commissioning of the Raebareli plant effectively increases the production capacity by about 25% to 30%. Due to a combination of factors that actual revenue growth in PD for this quarter is projected to be higher than that. So effectively, the impact on margins is a fair amount of operating leverage at [ Cadnum ]. So we do expect to see margin expansion. We expect to see profit expansion as well. The fixed cost that is added on has already been added on, and we don't anticipate any other massive increase in fixed cost.

Fair enough, sir. And sir, with regards to interest costs, like so I think your -- just to be -- just to confirm, you're saying around 3.75% of the revenue, roughly. Like we'll be in this range [indiscernible] now, correct, sir?

Yes, 3.75% interest [indiscernible] is what we would like to pay you to.

Okay. And sir, any kind of revenue guidance that we could have for FY '26 and the margin guidance for the same?

Could you say it again, sorry?

So any kind of revenue guidance for H2 and FY '26 in revenue and margin guidance?

I think you will see revenue growth and profit growth and margin growth over the next -- as you've seen over the past 3, 4 years. That trend will continue, because we're really just continuing along that path. So we will not be able to give you an exact number or a percentage. But as a guide to a previous question, I think at least a 200 basis points, 300 basis points improvement over the next few years is definitely what we are targeting.

We'll take the next question from the line of Vivek Kumar from Metasearch and Advisory.

Can you throw light on this -- Pennar's outlook on U.S. because now that Trump has won, it comes more clear, and also PEB business here, because the concrete are reporting really good numbers. So if you can throw 1, 2 years outlook on these two, Pennar PEB U.S. and India.

[indiscernible] sort in India. PEB India is, as Shrikant mentioned in his presentation, our order books are a record high. We are scaling that up further. With increased capacity expansion has already come in in October with our Raebareli plant, we have seen a revenue increase in that. So we are quite confident this year will be obviously our highest ever in sales in pre-engineered buildings. But for the medium term, I think growth is factored in now with this, with our current positioning. PEB U.S., yes, Trump has won, but we don't make our strategy plans on short-term political developments. The longer-term picture is that we have a strong -- we have our highest-ever order book in the U.S. as well. That too, is projected to grow. We are undertaking capacity expansion. I believe this quarter is quite good. We did have muted Q3, but that's just because of temporary, as you said, because of the elections and other issues that tends to [indiscernible] a little lower. But I take comfort in that orders were going strongly. And our market share being small means that we will be able to scale that business quite well. So we are very bullish on PEB U.S., what [indiscernible] have said. We are very bullish on India. Both the order books are very strong, growing stronger, and capacity coming on and has come online in both, giving us high confidence in revenue and profit growth in both verticals.

Okay. So over the next 2, 3 years, you feel most of our revenue lines should be firing, right? As what happened in the last 4, 5 years in a sustainable manner. Most of I'm not saying real line of revenue.

I'm sorry, you said over the next 2, 3 years...?

See, if you compare the last 2, 3, 4 years, and we and you assume I agree that [indiscernible] nothing [indiscernible]. But over the next 2, 3 years more sustainable growth in terms of more revenue streams sliding up should happen, right? I think it looks like that as of now. Can I assume that?

You a little distortion, but -- I think, let me repeat the question and understand that is the question. Over the next 2 to 3 years, we'll have sustainable revenue growth and profit. Is that the question?

Yes. Yes, but with more revenue, more product lines sliding up, not just from one. So vis-a-vis what happened in the last 3 quarters, we have [indiscernible] a lot of revenue lines.

So effectively, our growth drivers -- more product lines, yes, but what is existing. They're not going to be doing anything new. [indiscernible] pre-engineered buildings, hydraulics, process equipment, engineering services, tubes. All of those have large order books and a lot of potential. I mean the market leaders and all of those are 2x or 3x our size. So our ability to grow market share is -- I'm very, very confident about that. So all of those are firing up and scaling, right? It's not just PEBs which will have our highest ever sales. We will also have highest ever sales in our boiler business, process equipment business. We'll have highest-ever sales in our engineering business. So we are projecting good things across the board. It's not just in one -- it wouldn't have been one revenue stream. But PEB is a big revenue stream, I agree, that's [indiscernible].

So any comment on working capital, your target working capital? In terms of number of days? As [indiscernible]?

It's 77 right now, but it's a temporary aberration. If you look at the last few quarters, we've had these quarter spikes where you are getting a prior revenue, which is what Q3 and Q4 look like. So you will see a little bit of spike, but by end of the year, we want to get back to 72 days. Already it's probably already down to -- it's not at 77 days, it will be down. It's just a function of what revenue is.

The next question is from the line of Puneet Singh from Counter Cyclical Investments.

So I would like to first understand what the capacity utilization strategy across the plants. And with the new plant coming in, I mean, what is the additional revenue potential from the new plant?

So our peak capacity utilization, it's about 2,000 tonnes, so that's about INR 300 crores that can be added. We're also expanding capacity in our current plants. So the overall revenue growth potential for PEB would be higher than that number. [indiscernible] is capacity utilization increases. And peak is 100%, we typically look at 70%, 75% availability of operating efficiencies. So on that metric, I think what's on the table is a revenue growth of over INR 300 crores. And that's for PEB. You wanted a larger capacity utilization picture, correct, sir?

Yes. I mean, I want to understand with our existing capacity, what is the revenue potential, maximum revenue potential.

The maximum revenue potential in the pipe? Let me answer as best as I can. As I mentioned, with the revenue verticals we are actively getting out of, right? So in that paradigm, the ones which we are continuing to grow or trying to grow right now, that revenue potential would be, at our current capacity you have available, would be about INR 5,000 crores from the revenue side. But we will obviously be expanding that with additional capacity expansions.

Sir, what kind of additional capacity are we coming up with apart from the INR 300 crores that you mentioned? And what is the time line?

In pre-engineered buildings?

Yes.

Okay. Pre-engineered buildings, the U.S. are adding [indiscernible] and capacity. We will be looking at another plant in the west of India, both catering to both PEB and structural and higher structurals and high-value structurals. In the U.S. also, we are looking at expanding to a new plant, which should also give us metal buildings and high-rise structurals. So the combination of all of these plants coming online, the time line is about a year.

And sir, what is the CapEx and, I mean, maximum revenue potential from these 2?

Typically, the industry works at an asset clip of about 6 or 7. In order to realize our growth potential it's necessarily for us to make these investments. So overall CapEx for all everything that I mentioned would need to be finalized. But as of right now, I don't have a number for you on exactly what -- we have to finalize that. But it won't substantially change the debt-equity picture. It's something that we've always done. We always expect to expand capacity, we continue to do it. Exact number for you on all of those projects, I don't have right now.

Historically, we have been at about 8% to 9% EBITDA margins. So I mean, what kind of margins are we targeting, EBITDA margin are we targeting then? I mean, what gives us the confidence to, I mean, improve upon these margins, because numbers that we have historically been at? And what would be the main drivers of expansion in our margins?

So we are already above 10% EBITDA, they're about 10%, and that sustainably been the case for the last 2 or 3 quarters. I don't believe we are going to dip back down. I don't see that on the horizon right now. From a future margin expansion, what gives us confidence is simply that the revenue that is being added was growing is at an operating margin that is far higher than our current EBITDA margin. And the absolute peak of your EBITDA can obviously only be your operating margin. This tremendous operating leverage, we now will be duplicating so much of our cost as we expand these business units, includes PEB, includes PEB U.S., includes our engineering services business as well. So it's a lot of high-margin businesses growing and that revenue coming in. The impact on whatever additional operating margin you bring in falls directly down to [indiscernible]. So that is our confidence that our EBITDA will grow and EBITDA margins will go up.

Sir, my last question would be regarding the growth or what kind of CAG are we looking at for the next 2 to 3 years? In FY '24, we had about 3,100 crores while you mentioned that the market [ earning ] potential is 5x here. So I mean by when do you envisage us to be seeing 5x in your opinion as far as the current market demand.

[indiscernible] The orders are there for the taking. We are not constrained by the market. Our market share is so low that we could literally expand our order books substantially. Our job will be very simple: increase our order backlogs and our scheduled customers, increase our asset base, thereby increasing our revenue, and because the revenue is coming in from a high margin, that takes up the overall margin. So that's actively a point. You will definitely see high growth. Our plan is obviously sustained double-digit growth. The only reason this year you would have seen a little less muted growth is because of the exit of old revenue streams. So that's a long deal and it goes away. And as we grow, it becomes a lesser and lesser proportion of our overall sales. So we're not concerned here. Put another way, I think if Raebareli come online at least a quarter earlier, which is what we had initially anticipated, we would not have had any revenue fall off at all, quite frankly. So that is [indiscernible]. Q3 onwards, we have strong revenue growth. So Q4 also, we will project that. And next year also, we will continue to be on the spot. So the combination of large addressable markets plus increasing our capacity utilization and our market share will result in revenue growth and sustainably higher revenue growth. So that's our base case business model. It's been working out for the last 3, 4 years, and I see no reason it won't work for the next 3, 4 years.

And is it realistic to view over 20%, 25% growth? Or when you say high-double digit, we are talking about something in the mid-teens or, I mean, in that range?

We will achieve the highest growth percentage we can. But I think at this point, I can commit to double-digit growth.

The next question from the line of Ronit Arora from SOIC.

I just had one question, sir. When it comes to the second half of the financial year, now that our plant is kicking in, do you think that we're starting some bit of operating leverage come in to play in the [ H2 ] business?

Could you say it again, once the plant has been commissioned H2 or [indiscernible]?

Do you think that we'll see some bit of operating leverage start playing out in the H2 of this financial year when it comes to looking at the operating margins of the company?

Absolutely. I think in several businesses, as our new capacity comes on it -- as I mentioned, it's not just our Raebareli plant, it's other plants as well, other capacity as well, we do expect that operating leverage comes. And as I mentioned, all the revenue value add at a high enough operating margin, all of them also, right, your EBITDA or PBT, frankly. So yes, whatever has been happening for the last 20 or so quarters, we'll continue to have it, which is that revenue increases, because it's increasing at a higher operating margin, that drops down, our fixed costs won't drive anywhere near that quickly. Our fixed costs typically tend to increase a single-digit percentage per year. So the overall effect on our margins is expansion of our contribution, EBITDA and PBT.

And sir, second question is that currently on the balance sheet I see there's another fee of INR 128 crores capital work in progress. Is this related to the Hydraulics CapEx [ that you do ]?

So we had some CapEx in some revenue streams, our Body in White business revenue streams and others. All of that should get at coming to quarter -- it will be capitalized the next few quarters.

We'll take the next question from the line of Varun from Equitree Capital.

My first question is related to the -- some of the small businesses which you have exited and [indiscernible]. So where has that cash flow being used -- utilized?

Typically, the exit would mean now that we have sold those businesses, but that working capital has reduced. Working capital days has reduced, effectively flowed back into our -- and gotten into our other revenue streams, which we are trying to [ develop ].

Okay. And if you could guide on the overall debt [ increase ], it's been increasing even on the cost of debt. So all initial not declining or...?

Interest costs that Shrikant guided, what we use as a metric, is that it should be a certain percentage. That's how we price it out of, that's how we take it. And most of our working capital is noncash debt. This is not cash debt. It is something that's backed by our accounts receivables and inventory. So that is a part of the business, and that will continue to go up. As the revenue goes up, the noncash debt will go up. And the majority of our debt is that, LCs and BCs and others. So that will continue. As far as the interest cost is concerned, I think while we've had a reduction from the previous quarter to this quarter, it will also -- as revenue grows, 3.75% is what we intend to pin it at.

The next question is from the line of Ashit Sodi from Sauli office.

In this quarter, how much percentage was the low-margin business?

So our overall low margin business is now at -- it's still at about 30%. I don't have an exact number, we'll have to get back to you, but that's a ballpark number. And allow me to do our math, and we'll get back to you.

And what about the growth in your strategic areas, like how much percentage growth in different areas, if you can give us one [indiscernible].

All of these revenue streams we have chosen for scaling are scaling well. I mean the picture you see that would not be a quarter-to-quarter picture, but what's happening on the cyclicality in these businesses. will hear a year-to-year basis. None of these business are degrowing. All of them are growing and all of them are growing at double-digit rates. And what -- in terms of PEB, there is a lot of competition in India as well as U.S. So are we seeing some market share challenges at least in these 2 markets, or in terms of scaling up the value of the order book is increasing, but is it the same pace as your competitors are doing?

You are correct that it is a competitive space. But I think that's a real advantages we have that our competitors are a higher market share. I think that as a #2 or #3 [indiscernible] right now in the market share point of view. But our growth rate seems to be higher and -- we are sure it's higher. So our goal is -- we are not targeting to be #1 in market share. That's not the way we see things. We want to be #1 in growth, and even that is not the case right now, that we are #1. But I'm quite confident that we have no impediments to growth. I mean the broadness of the center, even though that it is competitive, yes, for the broadness of custom-designed building system is so vast, whether it's factories, warehouses, commercials and even residential buildings, even high-rise buildings. It's a bellwether for the construction industry. So as long as there's that sector, the broad retail economy is open and doing well. The addressable market here will go up. And that's what's intended to happen. And we have good references, good capabilities, well over 50% of our order book is repeat customers. The people have given us orders that are giving us orders again. So I don't -- I'm not concerned. In the U.S., it tends to be - it's a little different. It's a lot more relationship based. So we have -- when we have our sales team in the U.S., it's quite strong. So our DMs, our district managers are people who have, in some cases, decades of experience in this industry. Not concerned of our ability to build up our order book, and that's been demonstrated by ourorder book going up as well. In fact, we have choosers of orders right now. We're not the -- we pick and choose which orders to take. So the market is not going to prevent us from growing other than India or the U.S. I don't believe that would be the case.

The last question, I think you spoke about $1 billion revenue aspiration. So where do you see it getting materialized in your [ plans ]?

I would not really guide you to when we will reach $1 billion, but I can tell you that our goal internally is to scale and scale powerfully over the next few years. We are very confident our best days are in the quarters and years ahead of us. So you will see us achieve that goal. And we have plan, we've done many exercises internally, and we are geared up to increase our revenue or profitability and quite confident that we'll be able to achieve those numbers.

One last question, I think, if I recollect, the low-margin business was about 45% in 2 quarters back, now you said 30%. So what is this 15%? Have you completed some of this -- exited some of these businesses completely? If you can elaborate on that, that will also help.

Yes. So some businesses have the order book done, revenue is done and it has gone to zero. For example, environment business is down to zero. Chemicals is almost down to zero. Retail is down to zero. Solar EPC is down to zero. So there are several cases where it has gone to zero. But there's some other businesses which are longer-term contracts, and it will take us some amount of time. But as you can see, it used to be -- I mean, for comparison purposes, this used to be, these businesses that we have exited used to be the majority of the business years ago. So over time, we brought it down from well over 50% to 50% to 45% to -- the 30% I can't confirm. but it's in that ballpark, it's not very, very different from that. So I think over the next year, you will see it becoming smaller and smaller. But we want to be a little methodical in this. We don't a rapid destruction also to take place. So some of these, we will also have strategic growth options. Nothing that we can comment on or describe to you right now. But what I can commit to is it will be a smaller and smaller portion of our consolidated sales. And what we are doing is what needs to go quickly and strongly.

And just last question, on the land bank that you have, I think -- so any plans on that [indiscernible]?

The land bank. As of right now, I have nothing to comment on that.

So do you have any aspiration in the next 1 or 2 years too? Because I think you're planning expansion, right? So [indiscernible] can you -- is Board thinking in the direction to divert -- use that instead of that...?

We are considering all of those options. So you're right in there's a land bank and there's no point of sitting on a land bank, we are not a real estate company. So we will explore all options. But as of right now, nothing to this. By nature, these tend to be and in the medium term or longer term, but we're not constrained in the sense that we are not able to implement our projects. But you are right in that it is absolutely a resource we can tap in order to fund our growth. And that is -- when we have something on that, we'll get back to you.

The next question is from the line of Philip Sao, Individual Investor.

This question is regarding our balance sheet. There are multiple moving parts in our business currently. We are trying to drive down almost 1/3 of our business, INR 7,000 crores to 0. And that it's now how do you take care of the receivables and CapEx. The second one is our quality of our new business is improving profitability, cash conversion [ cycles ], et cetera. And we are investing quite substantially in CapEx in our PEB business in India and U.S. So how does all that impact our balance sheet in next to early years? Are we going to look at -- I'm primarily looking at the gross debt, which hasn't moved much in the last 2 years. Can you give some idea about how our balance sheet is going to look like in the next 2 years?

You are right, we have growth aspirations, and that's going to take capital. And it is going to take our properties, and an increasing profit is one source. The other source is debt, and the other source is is [indiscernible], effectively. We are primarily working capital heavy and working capital noncash weak. So the debt we need to grow from a capital point of view or a CapEx point of view isn't very, very high. So even if we want to invest INR 10,000 crores over the next 3, 4 years, that's something that will be more than adequately covered by our profit, where it is right now, and our growth as well. It will be covered. Our long-term debt, so to speak, is only a small fraction of our thing, and this is projected to increase by not that much, either. So we're not too concerned about that. There's also significant resources within the company where if we see the debt/equity inch up beyond that, and we've done this in the past as well, when we sold about or land parcels for a fair amount of capital inflow into the company. So there is substantial land assets in excess of about close to 400 acres within the company. Much of -- some of that is prime land. These are resources we can tap. So I'm not concerned for a debt/equity increasing beyond control. But to give you a metric, I think we are right now at debt/equity 0.7 bps. So we don't anticipate it ever growing above 20%, for example. So there are levers we are using. And from an interest cost point of view, what we guided to, 3.75% is what we will want to use as the metric. That is what we want to be at. Our current growth plans do not call for a dramatic expansion of our debt or our leverage. And I do not believe you will see us have a debt/equity substantially different from what it's at right now. And do bear in mind that this debt/equity includes mostly -- vast majority is working capital at over 80%. And the majority of that is noncash. So [indiscernible] our quick assets are quite positive. Also our -- I mean our credit rating is one other aspect that plays into it. We want to target an expansion of our credit rating. We are at A right now. We want to get to the pluses. And I think it's important for us to monitor that carefully, and we are going to continue to do that.

Where I was coming from is that a very healthy balance sheet and cash in the books gives you strategic opportunities that the way you have bought back, at INR 30 and INR 40 2,3 years back. Those kind of opportunities when they come, as and when they come, that opportunity can be utilized if you have a healthy balance sheet. That's where I was coming from. Whether it is buyback or acquisitions, because we are in a cyclical business and there are business cycles that we will go through, now maybe positive and sometimes maybe negative. Cash in the books gives us leverage to achieve those opportunities. But I understand where you're coming from. And I think we are saying that we are not going to mutilate the balance sheet and we'll be careful about our -- our balance sheet. That's good. The second question is this boiler business. The -- what quality of customers do we have in this business? It looks a lot like the SME sector to me. So what is the receivable health in this business?

Our receivables is extremely healthy. I think our working -- in fact, it's probably best in class from a working capital point of view as well. Inventories are [indiscernible] but receivables, that's to my knowledge, that's a non-issue. Do you have the number of days for boiler...?

[indiscernible] is good in terms of receivables, hardly 2 to 3 days. We get almost every money in advance, and then it's only entry in accounting by the time [indiscernible] bank [indiscernible] back into the business. So in terms of boiler business, for the [indiscernible] quality is [indiscernible] there have been no [indiscernible] as far as the boiler business unit is concerned. In terms of inventory, [indiscernible] because it takes time for the boilers to build it over a period of time. [indiscernible] have enough [ bank of ] inventory which is sort is usual in this business.

And from a customer profile point of view, all of our customers are the same thing -- the same customer [indiscernible] for example, the process industries, power plants, cement plants, sugar plants, those tend to be our customers for process equipment, the boiler business. So there's a high overlap, and all of these tend to be the larger companies as well. Right now our product ranges, we're broadening it a little bit. We're not where the max is right now. But I think the new management team has also come in recently. I think our aspirations for the business are quite high. And order books are strong, and it's not unstructured, it's not SME, it's [indiscernible] the workinng capital is very healthy [indiscernible].

Great to hear that. My last question is regarding the U.S. business. We are kind of going through a operating [indiscernible]. Our setup has grown up quite substantially in terms of expenses but our revenue seems to be coming down for last 4 or 5 quarters, and you've given regions. So as we go forward, our order book has gone from $30 million to some $54 million now. So as we go forward, how do you see the profitability of U.S. business? And can you give some ballpark on how next year is going to look like for the U.S. business, because it has been quite topsy-turvy for the last 2 years. That's why I'm asking about next year's view.

You're absolutely right. So the order book is very high. The last quarter, the revenue hasn't been very good. We are very confident that revenue -- because even this quarter, sales are quite strong. October was very strong in the U.S. I do want to give you some -- a little bit more clarity on this also, sir. This year, for example, we actually moved more [indiscernible] than last year in the U.S. What did happened was the raw material prices in the U.S. actually fell by a lot more than it did in India. And because of that, you're seeing some declines in that. Be that as it may, our operating margins are quite strong. We get upwards of 28%, plus 32% on our U.S. order books in metal buildings. What is there right now is quite strong. And while we are ensured from any raw material price movement to impact the margins, I think our point of view, it's been a little -- as you said, the last 2 quarters hasn't done what we expected it to do. But that's in the rear view mirror, and we are quite confident that this year, and we use the calendar year of the year for the U.S. you should absolutely expect growth next year because of the new capacity that's come online. Our production capacity has gone up, and I'm not going to say that Trump is the reason. But whatever the reason, I think we see very healthy uptakes now. And I have no doubt that this year will be good and next year it will be great for -- this quarter will be good and next year will be good for our U.S. business.

Thank you, all the best. And have hopefully a better half compared to the earlier, the H1.

The next question is from the line of Pete Cha, an Individual Investor.

I have two questions. The businesses which we are closing, have we made any serious attempt to sell them, which is -- seem to be the order of the day [indiscernible] between the EPC solar in the [indiscernible] what you're making. So that's one part of the question. And also, what [indiscernible] other than restrain on your working capital, the resettlement of labor to plant and machinery and the lag thereon. Does it generate some revenue, the best scenario, when you are able to sell them, the last scenario, when you are able to sell the -- break them down and still save some revenue. That's one question. The second question is, my friend always maintains about your company, but you also have a software part of your business for the engineers. So what are the steps that you take to clear it up? Which has the potential to surprise us all?

Thank you, sir. So as you said, several business units have closed. We have undrawn the order books and revenue streams for those businesses. And we are looking at strategic options. The Board is looking at them. Once we have something to share, we will be able to share any information we have on that. But you are right that there's a lot of value in those revenue streams. We may have decided to discontinue them, not because they are not profitable, but because we have to choose. So we don't have infinite capital. So we have to focus on a few businesses, all of them correlated and growing. So, to the other businesses, there are options available to us. We are discussing them, and we'll come back to you on that. I mean we -- necessarily, we could only do that once we had moved our majority of our revenue to other revenue streams, which are growth business, which is which is going to happen this year. So even definitely will give you, as and when the options develop, clarity on that. But you are right, that is the course we should take. We should not look at value destruction, for example. So that is on the BUs that are closed. Then the second question -- I want to make sure I understood, are you talking about our digital [indiscernible]?

The engineers that you employ, I may not be very -- may not have the clarity, but the engineers that you deploy for the structural design and other stuff, has also a significant part which perhaps has only fantastic margin -- perhaps has the margin, possibly the best margin number since you -- if I heard you right in the past.

So those businesses currently comprise our structural engineering of our body in [indiscernible] information modeling and other revenue verticals that we have. There are about four revenue streams in that currently, that is about INR 60 crores, INR 70 crores. We expect that to grow quite well. It is one of the verticals we intend to grow quite quickly. And as you yourself said, the profit margins in that are quite high. And we are -- it is structured regular growth that's coming in for those businesses, because it's effectively addition of people, customers and design care and detailing knowhow and engineering knowhow. That's a gradual process. We're comfortable with the [indiscernible] gradually grows, but it will grow and it will continue to be high-margin sustainably. So we're happy with what our management team has accomplished in that business over the last 2 years. I'm sure it will continue to grow in scale. And it will continue to [indiscernible].

And I must compliment you that whatever you make promises in all your conferences, you keep them. And that's a great credibility that you have.

Thank you. As no further questions, I would now like to hand the conference over to Mr. Vikram Suryavanshi for closing comments.

We thank the management of Pennar Industries for giving us an opportunity to [indiscernible] the call and taking time out for the interaction with the investors. Any closing comments, sir?

Thank you for the opportunity and glad to have the opportunity to present our quarter and our future outlook to our stakeholders. Thank you so much for all of your support. We will work hard to implement our plans and grow Pennar.

And thank you all for being on the call.

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