Pennar Industries Limited (513228) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q3 FY '25 Earnings Conference Call of Pennar Industries 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 risks and uncertainties that are difficult to predict. [Operator Instructions]. Please note that this conference is in recording. I now hand the conference over to Mr. Vikram Suryavanshi from PhillipCapital (India) Private Limited. Thank you, and over to you, sir.

Thank you, Muskaan. Good morning, and a 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, Chief Financial Officer; Mr. Manoj, Vice President, Corporate Planning; and 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 the call to Mr. Aditya for opening comments. Over to you, sir.

Thank you, Vikramji. Warm welcome to everyone joining us today for Pennar Industries third quarter investor conference call for the financial year ending March 2025. I am grateful for the opportunity to speak with you on our performance and on our growth plans. I'll first speak on the agenda overview. As always, we will begin with our Q3 performance. We will cover revenue, growth, profit before tax, working capital and our strategic growth initiatives. Post this, Mr. Shrikant Bhakkad, our CFO, will provide a detailed analysis of our financial results. After his presentation, we will open the call to a Q&A from all our participants. Let's start with an executive summary of our Q3 performance. Q3 2025 saw us growing our revenue, PBT and cash flow by double digits. Our net sales grew by 12.75% to INR 839.7 crores. Our PBT grew by 20.29% to INR 39.78 crores, and our cash PAT grew by 11.18% to INR 47.72 crores. Let's talk about revenue growth. This trend in revenue and profit growth will continue with our growth vectors now starting to scale. Currently, our PEB India business, our U.S. Metal Buildings business, Process Equipment and our Body in White vertical are projected to grow well over the next few quarters. And this will have the impact of bringing our revenue up. Please let me know if any of you find it hard to hear me. Working capital, we are currently at 79 days in terms of revenue days. Our stated goal is to reach 60 days in the medium term and 72 in the short term, and we're working on to realize these goals. In conclusion, this completes my remarks and our Q3 performance, I would like to hand the call over to our CFO for his detailed analysis. Thank you.

Thanks, Aditya. Welcome to the shareholders and investors for the third quarter FY '25 earnings call. Key matrices. The total income has grown from [Technical Difficulty] to INR 846.45 crores from INR 750.88 crores, up by INR 95.57 crores. In terms of percentage, it is 12.73%. PBT has increased to INR 39.78 crores, up by 20.29%. We are at now 4.74%, up from 4.44%, which is up by 30 basis points. And PAT has increased to INR 30.46 crores now to 3.63%, up by 22 basis points. Revenue has grown in diversified engineering business as well as the custom designed building solutions and as a result, our blended revenue has grown by 12%. With our continued focus to improve margins and cut down the sales with a lower margin, you see increase in the profitability of each of those businesses as well. The Diversified Engineering revenue for Q3 FY '25 is at INR 415.6 crores compared to INR 380.6 crores, up by 13%. And the Custom Design Building Solutions increased from INR 387.89 crores to INR 441.29 crores, up by 9%. We are happy to inform that our Raebareli plant is now functional and started contributing to our revenue Q3 FY '25. And as we grow, this will further get scaled up. We expect that it will reach its peak capacity Q1 FY '26. PEB India has increased the order book. Now it is at INR 800-plus crores. And PEB U.S., it is at USD 50 million-plus, and we are confident that revenue will increase in the coming quarters. The other income includes deposits income, income from mutual funds, [ road tax ] incentives, exchange fluctuation. In terms of employee benefits. In Q3 FY '25, it is at INR 89.95 crores compared to INR 71.63 crores. The increase is on account of increments, bonus and the increase in the headcount and recruitment at our Raebareli plant. In terms of finance costs. Consolidated Q3 FY '25, we are at INR 31.26 crores compared to INR 31.47 crores. There is a decrease by INR 21 lakhs. This is on account of better working capital management compensated by an increase due to our long-term borrowings. Total borrowings for the company is now at INR 1,195 crores when compared to INR 1,092 crores in March. Interest to net sales for Q3 FY '25 is at 3.72% versus to 4.23% Q3 FY '24. So there is a decrease in terms of the overall interest to net sales as a percentage, and we now stand at 3.72%. Depreciation and amortization has slightly reduced due to the decrease in the discontinued operations, whatever the businesses that we have sold, and slightly increase in account of U.S. on account of the new plant and machinery. Tax has increased to 23.43% from 23.28% predominantly due to change in the mix of our supplies at U.S. subsidiaries. Please note, present tax is at 21% and sales tax varies from 5.7% to 25.6%. We expect the consolidated rate to be between 25% to 26%. Overall analysis. Revenue has increased on all our business stream and our geographies in India as well as the U.S. Due to increased revenue, there's a corresponding increase in PBT and PBT margins. We continue to maintain this. With this, I hand over the call to the moderator for questions-and-answer session with the investor community.

[Operator Instructions]. The first question is from the line of [ Ishmohit Arora ] from [indiscernible].

Sir, my first question is that in spite of a new plant commercializing, when do we expect to see some bit of operating leverage coming into play because our operating margins are still at 10%?

So do you mean EBITDA?

Operating leverage, basically. When do you think, basically, our EBITDA margins will start increasing as the new plant is commercialized?

Right. So you would -- what I would guide towards is a long-term sustained trend and improvement of not just our EBITDA, but the contribution margin of the variable, yes, EBITDA margin, PBT and PAT margins. So that is a trend we've been on and that will continue. We expect as our revenue scales and all the revenues added at an operating margin which is higher than our average that keeps falling down to EBITDA, so you will see our margins will increase consistently, and that's the trend that we've been on for the past few quarters. So methodically, it will continue to increase.

Right. And sir, just a second question is that I think we saw an announcement that you are entering solar panel manufacturing. So what is the rationale behind it? Because from upfront, it seems to be a very commoditized industry, and we were actually exiting all these low-margin businesses and now we've entered another one.

Okay. Yes, I think it's important to provide our narrative on this. So as you have rightfully said, we have picked 6 verticals for the scale within Pennar. These are hydraulics, our pre-engineered building business in India and in the U.S., body in white components business, tubes vertical and also our engineering services vertical. Last one is process equipment. So these together will drive Pennar's growth in the next few quarters, in the next few years, and we believe there's enough gunpowder, large addressable markets, low market share. So our ability to grow revenue should be quite good and consistent revenue, profit growth and margin expansion with working capital efficiency being under control is the trend. That's the plan that we have. Now, however, that leaves aside a lot of these, what we call, the legacy revenue streams, legacy businesses. It includes our solar business, our water treatment chemicals business, water EPC business and several others. What we decided to do is one thing to do would be to just stop those revenues and we, in effect, done that. But I think there's also a better way for the company to realize some value. So this is our return to realize value out of our IP, out of our prequalifications, out of our presence in the sector and even the human resource and human capital we have in these businesses. So we incorporated a JV. We have tied up -- partnered with Zetwerk for this. Zetwerk has majority, and what we are doing is transferring our know-how, our assets, our customers and our order backlogs into that business vertical, and that business will be run separately. And over time, a decision can be taken on how we would want to do it. But effectively, this is a mechanism for us to realize value out of our capabilities and prequalification and assets that we have rather than just have value destruction where we just stop those revenue streams because the fundamental nature here is to maximize value for Pennar. So without any substantial investments with only a transfer of our existing capabilities and assets if we can realize better value out of this and it would be at a place where we have minority shareholding then it makes sense for us to do this. So that's the rationale behind this. You mentioned solar modules as a commoditized business. I would -- in my opinion, it's a scale business, but we are now a minority investor in the joint venture, one which would be guided by Zetwerk as a majority partner. We are a major investor. And our hope is that as that company scales, Pennar realizes value, and we hope to replicate this model for other businesses which are not being prioritized. We don't want to grow them in Pennar, but we do want to realize the value. That's the rationale behind this.

And sir, what will be the capital invested from our side into this business?

INR 18 crores is the capital investment.

The next question is from the line of Karthi from Suyash Advisors.

A couple of questions. One is in your U.S. business, a, how is your supply chain structured, given the changes being proposed, especially with reference to Mexico, Canada and some of these other countries?

I'm sorry, I apologize. Could you -- your voice was a little muffled. Could you repeat that question?

Sir, I wanted to ask you how is your supply chain in the U.S.A. organized? Do you see an opportunity to increase sourcing from India because of the changes proposed in terms of duties? And based on whatever data you have today, what would be the advantage that may accrue to you from this proposed change?

So our supply chains typically do not -- and for the vast majority of it is already localized. So for our India revenue streams, most of the procurement is in India; our Europe revenue streams, most of it is in Europe; and for the U.S., almost entirely, it is in the U.S. We are not looking at the supply chain arbitrage. I think the way the world is going, I think duties, tariffs, all of that will remain the dominant standard by which the supply chain efficiencies, which were there earlier will not be there in the longer term. I think we're much better served localizing supply chain [indiscernible]. So in that trend, I think, in India for most of our procurement is in India, some special grades, special kinds of components we do have coming in from China, and that will continue. But there, possible from a -- I would say, our target would be more than 70%, 80% for it to be local. In the U.S., it's a much higher number. We only buy in our -- for our U.S. revenue streams, a vast majority of it is U.S. based.

So you're referring to both the engineered buildings as well as the tubes side?

I'm sorry, could you say that again?

I was saying, you are referring to both the engineered buildings as well as the tubes businesses, right, in U.S.A., I'm specifically referring to U.S.-based?

I mean I'm talking about the entire revenue stream. So the U.S. is -- let's say, it's about $100 million-plus revenue vehicle for us, the vast majority of that supply chain will be U.S.-based. In India, for example, let's say, we are at 300 million, right, or let's say, about INR 2,500 crores. The vast majority of that will be India-based.

Right. The other question, and I'll join back in the queue, would be in terms of -- I'm sorry, I lost track of what I was saying, so let me get back in the queue and not waste time.

Okay. Yes, please do join back when you have your question ready. We'll be glad to answer.

Next question is from the line of [ Aniket ] from [ ABN ] Capital.

Congratulations on a good set of numbers and the progress you've made over the last few quarters on your strategy. My first question is, sir, can you tell us in this quarter, what is the percent of revenue that is from, what we might call as, deprioritized or sort of old business that you sort of want to wind down?

I understand. I request [indiscernible] answer the question. We do have that exact number.

Yes, we have 65% from our prioritized business and from non-prioritized business, it is 35%. And as the time goes up, this will continue to decrease the non-prioritized businesses.

Got it, sir. And our thinking would be to take it to 0 in the next 2 years? Is that a fair time line or would it be faster or slower?

For the next 5 years, yes, it would drop to 0, one way or another.

But in 2 years, sir, do you think it goes down to like 10% just from -- just approximately what's your directional sense?

We do have an internal projection, but you should expect substantial declines year-on-year on this. So I can't give you a number for what it will be at 2 years, but it will not be at 35, it would be substantially lower than that.

Understood, sir. Got it. And secondly, sir, can you quantify how much did Raebareli contribute this quarter?

So this quarter, it was not very high at all. To my knowledge, the revenue out of Raebareli would have been somewhere between INR 20 crores to INR 25 crores, sir. But we're now scaling up that business. I think you will see Raebareli hit high capacity utilization between Q4 and Q1, that is the current quarter and the next quarter. But irrespective of that, PEB is scaling. We also have capacity increases in our existing other 2 plants as well. So I think overall, what's going to happen is you will see strong high growth in PEB, and that's a combination of better capacity utilization at all of our plants. And Raebareli will come into it's own in the next few weeks -- a couple of months.

Got it, sir. And the last question, sir, if I may. We had talked about finance cost as a percent of revenue, around 3.5% -- 3.75% this year. Now with the rate cycle changing and so on, where do you think this goes in the next couple of years?

This target in terms of the overall finance was comprise in the interest on borrowings, which are from the working capital as well as from term loan. You can holockdown us accountable, as I've said in my earlier calls as well, at 3% on the borrowings for the working capital and 1% for the term loan. So it will be range-bound between 3.8% to 4%.

The next question is from the line of [ Rahil Shah ] from Crown Capital.

Sir, firstly, do you see any major impact on these U.S. tariffs and duties that they have been imposing on our business, howsoever?

No, sir, we don't see an impact at all. As I mentioned, the vast majority of our supply chains are localized. So we do not ship a lot of material for -- I mean let's talk about PGI journey in the U.S., which will be the most relevant because the tariffs are being imposed potentially by the U.S. on other countries, including India, reciprocal tariffs. The $100 million-plus revenue that we have there and one that is growing quickly as well with our order backlog is also doing quite well now, very, very little, maybe less than $10 million is supplied from India. So we do not anticipate any shock either to revenue or to our margins because of the supplies and tariffs.

Okay. And secondly, can you guide us in terms of your outlook for the next quarter and the next year in terms of revenue and EBITDA margins?

We don't provide guidance, sir, but I think we can commit that we will -- quarter-on-quarter, you're going to see revenue growth and profit growth. I think that's a trend that's been there for 4 years. But I think in the last 2, 3 quarters, we had maybe 1 quarter, which -- where we did not have growth because we decommissioned our legacy revenue a lot quicker. I think we're being a lot more smart about it. I think it's important for us to have revenue growth, profit growth, margin growth and also ensure that the deprioritized revenue streams are removed. So we worked out a model to do that. So I think we're quite confident in projecting revenue growth quarter-on-quarter and profit growth. So that's what I had to give you, and we have aggressive long-term plans. We certainly don't want to be in a place where revenue stagnates at any -- in any period of time. But over the next 4, 5 years, we expect to have sustained high growth in all of these metrics.

And what will be driving -- which verticals are you like relying on heavily, which will drive this growth for you?

So as I'd mentioned, our growth vectors are pre-engineered building line, body in white, process equipment, engineering services and hydraulics business. So in all of those businesses, our market share is small. Let me explain why that's a good thing in this scenario because if we were the largest market -- largest player, if we had market share of, say, 15% or 20%, it becomes difficult to scale revenue in that business at any rate higher than the market growth rate. However, in pre-engineered buildings in India, we are #4. And in the U.S., we are probably #10. In hydraulics, we are #6 in India. Globally, we probably are nowhere near the larger players. The same argument goes for process equipment, the same argument goes for engineering services, the same argument goes for body in white. The people we are competing against are all people with sometimes tens of thousand crores of revenue in the case of BIW. So the market is never going to prevent us on growing. Our job is simple: expand our market share from where it is right now, which is in some cases as low as 1.5%, 2%, but in some cases up to 5%, 6%. Get that up to maybe not even 10%, 7%, 8% and just build up the asset base to do that, and that will give us revenue growth, profit growth and we can do capital quite efficiently. So current gross revenue base of about INR 4,000 crores can be scaled quite frankly, indefinitely. It's not the market may do well or not do well, but our growth trajectory will continue to be there because of this dynamic: low market share; good market presence, however, from a capability standpoint, from a customer standpoint, combine that with an asset acquisition strategy; and, of course, generating profits, capitalization and you will have an automatic growth plan. So that's our base business plan, and we've been on the plan for the last many years, and [indiscernible].

The next question is from the line of [ Ashish Soni ] from Family Office.

Sir, regarding the solar business, so you are forming a joint venture, so is it like margin-accretive for us better than what we were doing earlier? I'm just trying to understand. And you said you might reduce it to 10% overall low-margin business, so do we want to like sell off to our joint partners? What's your thought process about other businesses?

So your voice was pretty muffled, but let me repeat your question and we can confirm if I've captured it. I hope I'm audible to you. So you'd asked about the solar business. How does that affect our margins right now, I assume you're talking about the JV because there is...

Correct. Correct.

Yes, I can answer that question. Yes. So the joint venture is set up to take to do solar modules, solar modules mounting systems, components and others, right? So this tends to be, let's say, a 5%, 6% PBT business -- PAT business globally, not very dissimilar from our net margins. But obviously, we don't want to stay at 5%, 6%. So because we have a minority shareholding, this doesn't consolidate line by line with our P&L and balance sheet. What effectively happens is after we report all of our numbers, there will be a line called minority interest and the power share of the profit will be added to that. So it will expand our margins. But obviously, I mean, I don't want to give you a picture that it is going to be tremendously valuable. But effectively, think of it as a way to monetize our capabilities. It's not going to add to revenue. It's not going to really add to our operating margins, but we do expect substantial profitability to come from it, but that's -- it just -- it doesn't impact our margins. It comes in as a minority interest for us. Does that...

Yes. Other thing is whether you're going into solar cell or only modules. I'm trying to understand that also a bit because cell is a different ball game altogether compared to module.

So I think that's a call that we will take or rather Zetwerk and we'll have to take. But as of right now, there are no declared plans to enter the cell business. I think it's a much higher capital investment paradigm. And right now, we have -- we don't have plans for that really.

And you indicated your other low margin business you want to hive off like similar to this. So anything in progress or other low-margin business like water treatment chemicals or whatever right now in works, I mean, you might do something in next 2, 3 quarters?

See, we will continue to work on them and as and when these -- it would be premature to talk about them right now. But what I can share is, it's the model we want to use for all the other deprioritized businesses, realize value from our assets. And when -- as and when we complete these engagements with our other partners who will take the responsibility of growing these businesses from us, we will share that with you.

Sir, last question. CapEx plan for next year? And I think land sale do you want to consider that in the next 2, 3 quarters, something?

So our CapEx for next year, we have not yet frozen. Our budgeting is done, yes, but we do have to look at some long gestation projects, which come in -- which take about a year to implement. So we don't have a CapEx budget for last year for you. But this year, it was about INR 100 crores, I can tell you the number this year. And the profit is substantially higher than that even before the fourth quarter is closed. So we're improving our debt equity.

And land sale, and that's another question I asked?

And sale, we currently have nothing to share. But again, similar to realizing value, we have a large land asset bank, and we will look to monetize it as over time. But right now, we have nothing to share.

The next question is from the line of [ Keshav ] from [indiscernible] Investors.

Sir, in the prefab space, if I look at our recently listed Indian player, there've hardly any charges coming out of bank guarantees, they've hardly any debt on their books, very high turns on total capital employed with, they have a sizable contribution from customer advances. I couldn't find any data on retention money, but overall turns inclusive of everything is pretty high. So can you help understand what would -- could be the way forward for us? Can we match those metrics? How will that happen? Why isn't that not the case even at the scale we're at because we've grown pretty fast to the #3, #4 position?

I'm sorry, I did -- the voice again was muffled. I apologize, maybe there's something wrong with the connection line. But could you repeat your question, sir? And if possible, if you could do it a little more slowly, so we can understand. My apologizes.

Okay. So sir, in the prefab space, if I compare our business to the recently listed Indian player, I see that they don't have a lot of -- any charges out of bank guarantees, they don't have any debt on their books, their asset turns are pretty high on the overall capital employed. So I was just trying to understand what's the way forward for us if we can match those kinds of metrics, how will that happen? Because we're pretty close to the scale, and we've grown pretty fast, but we are incurring a lot of these charges that are making our PEBs business not as capital efficient?

I understand. So good question. So yes, the other listed players, specifically, for example, I think Interarch also has listed. They tend to have balance sheet, which don't have a lot of debt -- which haven't had a lot of debt. And the way we approach it is what is our working capital, right? And working capital can either be financed through debt or through equity. So if you look at Interarch's working capital, they tend to have about 45 days and for us, we are closer to 60 days. The treatment of bank guarantees and other financial instruments such as LCs may be different. It may show up not as debt. So that's something that we do have to be conscious of. It may be netted off before that for the other companies, and I wouldn't want to presume that, that is what they're doing. But we do know that this is an industry which calls for a certain amount of inventory to be held and a certain amount of accounts receivables. And of course, there is -- there are current liabilities, which offset that to an extent, including advances. So you are right in that we have historically not been an efficient capital deployer in the prefab engineered building space. Our working capital days were at 110, 120 also 3, 4 years ago. But over the last 3 years, we brought that down to 60 days, and we have every intention of reaching where our competitors are in terms of the working capital number of days. Now as to how that working capital is financed, is that done through equity, is that done through debt, through LCs and noncash? And it's primarily noncash. That's the statement of choice. I think what's important is we bring in enough scale so that at the PBT level, we match up, but whether we are using LCs or we're using equity to get back to finance raw material, to finance our other current assets may not be a higher return in the equation as for me. So I think we are hard at work to improve our operating margins. We're hard at work reducing our working capital days. The combination of these 2 things should bring our net margins into -- to my knowledge, I think some of our competitors are at 7% or 8%, and we are at 4.5% to 5%. So we will look to improve that. So we have about 100, 200, 250 basis point improvement to be made. And we know where that's going to come from, and we will go ahead and get those numbers. Now of course, this refers to the prefab preengineered space in India. Our margins in the U.S. are obviously higher than what our competitors in India have right now. So that -- there may not be a margin issue there in the U.S. or [indiscernible] working capital days in the U.S. is only 15 days, which is much better than any of our competitors here in India.

Sure, sir. So this improvement to 7%, what's the time line we are envisaging for this to happen?

So as I mentioned, if you talk specifically on the PEB space, it shouldn't take that long. If you're looking at the company as a whole blend also, I think our stated goal is to get to higher than 7%. We have 10% targeted. We will not promise you a time line in which we're doing it. But you will -- just look at what we have done rather in the last 2, 3 years, you would have seen our margins come up from 1%, 2%, 3% all the way at 4%, 5%. And that trend will continue. So as a matter over the next 1, 2, 3 years, you will see us meeting, call it, benchmark market rates in all of our businesses from a net profit percent -- margin point of view and that's something that we have planned for.

Sure. And sir, what's the reason for not being able to scale the tubes business, in general? Because we've been flat in 5 years from 2019 to 2024, and how should it fare going forward?

So tubes, we will have -- we are currently at a place where addition of capacities specifically in a large diameter tubing project, that is what is going to add capacity, that's what's going to add revenue and that's potentially what's going to add margins. It's a little bit of an outlier in terms of our overall business profile. If you see all the other businesses we spoke of whether it's preengineered buildings, body in white, hydraulics, engineering services, there's a good amount of either engineering or product development in the value stream chain. What those things tend to do is they tend to protect your margins. Now tubes is perhaps much more of a commodity business, right? So you need scale in order to be able to hit the higher numbers. And a lot of -- and the largest tube company I can think of, they tend to have hyperscale, EBITDA margins less than 10%, but they have really good capital efficiency. So they're doing a fantastic job growing their business in a capital-efficient manner, but margin is not a priority for them. So our rollout for tubes would have to be based on the high-margin niche market opportunities such as large diameter tubing, such as [ patient ] tubing. So it will take time to grow tubes. And I think as a company, we are going to be patient about how we are going to scale this business up. But the way forward is on large diameter tubing. And unfortunately, that's -- it takes time to get that CapEx done. So which is why I'm not using that as a primary growth vector in the near term. Medium term, we will be able to do what's needed in that business. But right now, I'm not guiding you to growth in our tubes business.

Okay. And thirdly, I just wanted to understand what the scale of our body in white business is currently?

Could you say that again, sir?

I wanted to know the scale of the body in white business currently.

So body in white business is currently comprise orders from Stellantis, Hyundai, Kia, we just added Maruti and a few others. From a revenue standpoint -- okay, we can't give you a segmental breakup, but how can I answer scale question? We expect it to be a INR 1,000-crore business potential exists in that business over the next few years, and we're already well above INR 100 crores in that business.

Okay. So sir, just I was trying to understand it from the capital allocation point of view because we, in the past, descaled multiple verticals. So what's the rationale for this foray? Because I assume the ability to penetrate the value chain is -- would be one of the metrics. So where we are currently and how confident are we that we'll be able to scale this business profitably?

Our confidence is being able to scale is high for -- even we had mentioned, and I won't react to the whole thing, but just low market share, good market presence from a technology capability, customer point of view and just add assets on that. So that's the model that we have seen for ourselves and globally seems to work out. So that is what it is. So our confidence is quite high and that all of our businesses are at a place right now where we are -- there's no business which we are trying to grow, which we are not able to grow. So that doesn't exist. It's really a question of us perhaps deciding whether we want to invest now, invest a little later in some other businesses. So once that plan is there, it's really a question of how much CapEx and how much are you deploying. So typically, all of these business as a blend come to about 5 to 6 asset multiples. So if you invest INR 100 crores, you tend to get INR 600 crores in terms of revenue as a blend of cost to all of these businesses. Some of them are lower like BIW is about 3 or 3.5 and some of them are a lot higher, like PEB tends to be about 7.5, 8. But as a blend, I think we will be able to hit those 6, 7 numbers from a CapEx point of view. And for our growth plans, which is double-digit scaling, we don't need to invest a lot, we don't need to raise massive amounts of debt. So our debt equity will probably come down over the next few years. And overall, as we said, as Shrikant has mentioned, interest costs as a percentage also remains stable. So we don't need -- I don't think we'll have a problem getting up -- getting the capital we need for growth. We should be able to get that done through internal accruals and a little bit of working capital debt.

Sure, sir, just follow-up -- a small follow-up. So the rationale to get into BIW business, body in white, were there any synergies involved because I'm just trying to wrap my head around...

Sir, you're not audible properly.

Your voice is very muffled. I don't know if it's on our side or...

Okay. Let me join back the queue.

Now it's clear. Could you repeat the question, sir?

Yes, yes. So I was just -- it was a small follow-up on the body in white business, where I wanted to understand if we had any synergies to the legacy businesses we've had? Because we've done solar and water EPC in the past and we are trying to -- or we've gotten out of them. So I'm still trying to understand because our prefab business is growing very handsomely. And otherwise, we have a few cash-generating verticals also. So just from an investor's point of view, like whatever -- we are in the right business as a company if we talk about body in white. If you can sort of talk about those things from a synergy point of view and our knowhow point of view?

Yes, I can address that. So the choices we have made about what businesses to grow, the vast majority of them and almost all of them is really about metal processing technology. So Pennar at its core has 2 strengths: Engineering, which includes design, detailing product development; and metal processing technology, manufacturing technologies. These include roll forming, fab, precision fab, machining, robotic welding, robotic assembly. So when you put all of these metal processing technologies together, based on requirements in big sectors such as automotive and energy and equipment, process equipment, you tend to get these revenue streams, these markets that you can build up. So BIW sits quite squarely in that. The base technologies in BIW are things like this hot stamping, something that maybe only 2 or 3 companies in India have. We also have other laser welding, laser assembly, some amount of automation technology. So putting all of those things together means that we've done a lot of the hard work in BIW. Scaling it, we believe, will be very, very easy, I think. There are BIW companies in India, which are over INR 10,000 crores. So I think getting from where we are right now to INR 1,000 crores over the next 2, 3 years, should not be a challenge from a market perspective, and they're quickly picking up customers. Stellantis was our only customer, and now we have 4. And we are quite confident that with the -- even with the change in with -- from internal combustion vehicles to electric vehicles, we are seeing a fair amount of interest. We picked up orders from TI for the tie bolt project as well for their electric vehicle project. So I believe our ability to scale this business is quite good. And most importantly, in reference to your question of whether it's a core capability, whether it ties in well? It ties in well with our other capabilities in metal processing and also in product development. BIW design, it is also a strong capability that we have, and we are currently executing body in white design projects also, not even necessarily manufacturing, but the product development for many companies. So yes, it's a core capability for Pennar, and one, I'm sure we'll be able to use to grow.

The next question is from the line of Vikram Suryavanshi from PhillipCapital (India) Private Limited.

Sir, just a quick question, sir. What would be our long-term debt now? I think total is around INR 1,195 crore.

Yes. 237 is our long-term loan.

237?

Yes.

And inventory would be how much?

I'm sorry?

Inventory? Because I think the last few...

Inventory. Okay. Yes, it's INR 890 crores.

And I missed the total working capital days.

79. It's a little bit higher than we had wanted because we are ramping up for growth, so we have to acquire. But it's 79. Our expectation is to get to 72 quickly and 61. Right now, we are at 79 for the whole company.

Understood. And this solar, sir, what I understood because I clearly got our strategy to monetize the assets which are not focused area. But as a JV partner and as you rightly said, it is a scale business. So if that JV has to scale up, then there will be also capital commitment proportionally required from us as a partner or is there any way where we may not be investing or how that arrangement is there or will that Zetwerk will act as a supplier to many other companies where it may not scale up beyond a point. So it's just I'm not able to get a clarity in terms of when it is a scale business, how capital commitment will be from our side going forward?

We only have INR 18 crores of the capital commitment. We have no further capital commitments to the JV that is all that has been decided. But even that commitment itself puts us at the JV itself should generate well over INR 1,000 crores of revenue from that capital because it's not just us, Zetwerk itself is also putting capital in, and there's existing capabilities that both companies have. So it will be high in terms of revenue. It may not be massive from a profit margin point of view, but it will be profitable. Going forward, I think depending on the choices they make, either the company will raise or -- I mean, the JV itself will raise or there may be other partners who are brought in. We are not afraid of dilution. I think what's important is that the vast majority of Pennar's fund raising cash, equity debt, profit, internal accruals go towards growing than our Pennar Industries verticals, the 5 verticals that I've said. So we don't anticipate that -- we're quite certain in fact, I can make a stronger statement that the joint venture will not be a cash for Pennar, what -- we are putting in very limited amount of money. And even with that, we're realizing a lot from a value point of view. And the scale of it, Zetwerk and we will work with Zetwerk to scale the company. But they're not massive capital contributions that either one of us is looking to make out, frankly.

Yes. And in PEB, last quarter, we have seen a couple of execution delays from PEB business side. So how outlook is? Are we seeing that picking up or still there are some education delays?

For the sequential quarter basis, I think the current quarter, fourth quarter PEB is doing really well. Trend is expected to continue into Q1 of next year. I think as I had mentioned on the previous question, this is on the back of Raebareli capacity utilization increasing and capacity utilization in our other plants also increasing. We've increased a little bit of capacity at our other 2 plants as well. So yes, our order book is large right now. We need to do a better job converting it to revenue. Our customers also will not be happy if we just have a large order book and don't convert it to revenue. There's a lot of pressure on us to execute quickly, and we are hard at work to increase that. I have no doubt that you will see strong, high-growth in PEB quarter-on-quarter for the next few quarters, sequentially also. So we're in a good place. I think we just need to execute better.

Understood. And last question on engineering business, what was the revenue for 9 month, particularly what we do outsourcing for USA in terms of design engineering?

So we don't have that breakup right now, but I'll get that number to you.

The next question is from the line of [ Sunil ] from [ Tanish ] Investments.

Sir, just wanted to understand by any chance we are planning to reduce debt over a period of 5 years down the line, maybe after reaching a certain sort of revenue and margins?

Was your question, are we looking to replace debt? Is that was your question?

Yes. I'm asking are we any -- by any chance we are planning to reduce debt levels over a period of 5 years down the line considering the revenue growth...

Yes, as we discussed the long-term debt for the company is 237, our EBITDA is far higher than that. There's a lot of noncash debt which is going to be there with us no matter what we do as we grow. So to buy raw material, we have to give LCs. So our business model calls for that being there. So as Shrikant had mentioned, the risk management of this is that we make sure that our total interest cost doesn't -- and our total debt equity, right, both of those stay in control. So as long as it's around 3.75%, we are not concerned, which is a necessary part of our business model that we will have noncash debt, that we will have those working capital instruments, BGs and others. So we'll have to use them. And that will increase -- that will -- that is something that we need to be okay with. It's backed by a substantial amount of current assets. So we don't see it as an issue. So that is on the -- on our working capital debt. Now from a growth perspective, debt equity is something we have to watch for. I think 0.7 is what we would like to target. We are right now around there itself, maybe a little higher, but I think by the end of the year or in the next few quarters, it gets back to that. So long-term, steady state, expect 0.7 from us from a debt equity point of view and that includes all of it, obviously, right? I mean do bear in mind, a lot of this is noncash short-term debt, which is necessary. So it's not necessarily a bad thing, it's an indication of our revenue growth.

Correct. Yes. And just entering into the new business solar panel, by what period we'll do breakeven, I mean, a number of years we can think for putting the CapEx in [indiscernible].

We should have a very quick breakeven. We expect that assuming that the JV does INR 1,000 crores. And these are forward-looking statements, but I'm just broadly indicating you the capacity that we have and what we're able to see. So once that goes going and that should happen in the next few months, 5% is the expected profit. So if you take our share of that, then from a minority interest point of view, we should breakeven very, very quickly.

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

I have small questions, multiple questions. One is, are you looking at adding the plant capacity in PEB in Western India? And second, what is the status of the tube business?

Yes, we are looking to add capacity in Gujarat, that is a stated goal for pre-engineering. Pre-engineering and structured steel, yes, we are looking to add. That's question answer number one. Your next thing was on our tubes business, sir?

Yes, sir.

Yes. It's stable. I think there's growth vectors that are possible. The large diameter project conclusion will bring about revenue growth.

About -- in this quarter, means when we are expecting the ramping up the capacity in steel?

It will not be in this quarter, sir. I think these are long gestation projects, so it will take us time to complete that project.

Okay. And sir, Gujarat plant when we are expecting to commission or setting up the plant?

I believe our current plan calls for it to be initiated in the next financial year and it doesn't take long to complete.

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

Yes. My 2 questions, sir. One is regarding this hydraulic business we are putting up in the U.S., is it the manufacturing or a trading firm? And what do you see the potential for that in the U.S.? And the second question, sir, is the recent 10% tariff in Chain will it throw us some opportunities for the tubes and hydraulic exports? And the third one, sir, regarding this Zetwerk what is it bringing to the table? Like it's brining in manufacturing plant or is it bringing capital? Like can you throw some light on this, sir?

Okay. I'll try to go through them in just as quickly as possible. So what we're incorporating is an LLC in the U.S., just step down is from a revenue standpoint, all of our hydraulics business currently is U.S.-based. So no change there in terms of -- it's just a structuring thing where we're putting it under an LLC for better revenue recognition, better audit purposes. It's a standard model when you have multiple revenue streams in the U.S. and we've just incorporated -- we just implemented that. So there's no new company in the U.S. The second question, the tariffs, as I mentioned right now, we don't anticipate that affecting us from a revenue or a profit standpoint or an operating margin standpoint in any way. All of our supply chains are heavily localized. There is some India to U.S., there is some U.S. to India, there's some China to India. And we will take that into our pricing and increase or adjust pricing as necessary and make sure that there's no revenue or margin impact. So -- but we don't believe that to be able to [indiscernible] the Zetwerk...

Regarding I was -- INR 1 crore after [indiscernible] any positive surprises that would come, sir, [indiscernible]?

Sir, sorry, your voice is very muffled, I apologize. We clearly have a problem with our line, but...

I'm asking for any positive surprises from these tariffs, not any negative ones, but are we expecting any positive surprises?

From the tariffs?

Yes, sir.

No, sir. No positive surprises. No negatives or positives is what I would say. And your last question Zetwerk, our module capacity of about 1.6 gigawatts comes online in a few months driving our revenue up, and we hope to have a good breakeven. Post that...

What is it bringing to the table, sir?

I'm sorry, sir?

What are they bringing to the table, Zetwerk?

Zetwerk is bringing -- both Zetwerk and Pennar are combining our order books, our production capacities, scaling up those production capacities and human capital in terms of teams, sales, engineering and manufacturing. JV also is an autonomous body. I want to be clear, it's a minority investment for Pennar. It's the majority Zetwerk-controlled entity, and they will consolidate all of their financials with Zetwerk with their main company.

The next question is from the line of [ Aniket ] from [ ABN ] Capital.

Just had a couple of sort of follow-up questions on the debt borrowing side. As you -- Adityaji, as you think about this business over the next 2, 3 years, right, and obviously, at sort of 3.75% to 4% of revenue as a substantial sort of cost item, do you feel there is an opportunity for us over time to be able to get better credit rating and then eventually sort of not need LCs or BGs and we can use commercial paper or working capital borrowing or something like that? Is that at all possible in an industry like this? And a bookkeeping question around that is what is the sort of margin cost of borrowing for you today?

Good question. We are right now at A, as a credit rating; and A1 for our working capital. We intend to ramp that up. We want to get to AA where commercial paper becomes possible. That's a stated goal. We're working with the credit rating agencies in terms of what they would like to see. And I think the part we outlined gets us there. So that is our goal to do that. And at that point of time, refinance for lower, which has an impact of also reducing interest, increasing our profit, which further improves our credit rating. That is something that just like our margins are improving, we've also been on a credit rating improvement. We used to be BBB and we've been able to get to A and A1, and we will look to continue to improve that. The usage of LCs and BG, I think if it's properly used, I think the credit rating agencies aren't bother too much by it. It's not the LCs that bother them. I think debt equity, gearing, leverage those are the things that we need to work on. And we know where they want us to be. And our goals are to reach those. So we do want a rating increase. We can't commit to this, obviously, in a certain time frame. It's an assessment that they will have to make, but we know what we need to do to move in that direction, and we are hard at work to achieve that.

Makes sense, sir. What's the current marginal cost of borrowing there, if you can share?

9.8%, as per Shrikant, sir.

The next question is from the line of [ Keshav ] from [indiscernible] Investors.

Sir, in the PEBs business, can retention money percentage overall come down going forward as our scale and credibility grows further or is it a given for the industry?

Retention should move down. You're talking about preengineered business, I assume?

Yes. Yes, sir.

Yes. So our retention used to be 10%. We are not -- unless it's a very, very good customer like a really large customer, we are looking at 5%, but our end goal is to make that 0%. How successful we'll be, I don't know. But I can assure you, our goal is to not let that number go above 5% again. So -- but yes, to some extent, it is the nature of the beast.

Okay. And sir, we've had provisions for bad debts to the tune of INR 10 crores to INR 20 crores every year. Would you be able to help with what the source of these debts would be and if we will be able to arrest this leakage also going forward?

You're talking about -- so we have significant buffers in place for that. We review these at the audit company level and at the Board level. And our current provisioning, right, which has been removed from P&L itself [indiscernible] is close to INR 90 crores, and that number will go up -- I mean, typically, we follow the ECL method, accepted credit loss method. So there's more than enough buffers within the company for any potential write-offs, and we don't expect anywhere near those write-offs. So there's enough -- ample security tiers in the company to safeguard our current assets like our accounts receivables, so we're not too worried about that at all.

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

Sir, it's regarding our capability in PEB taking larger projects, like which involve substantial design and engineering like a semiconductor plant, like is our PEB division capable enough to take such large order, sir?

We are currently undertaking orders for semiconductors -- for the Tata -- for Tata Electronics, we are building plants for them, which will -- which are in the semiconductor business.

The next one is regarding asset building, sir. So we said that...

Sir, I request you to limit your question, please.

Yes, go ahead, please, sir. My apologies. Go ahead, sir.

It's regarding asset building, sir. So we said that we are going to double our production capacity, like 1 year back you just said this. And now though the revenue has -- I mean, not the revenue, but the raw material costs have come down a little bit, not a little bit but substantially, so we are hovering around that INR 160 crore, INR 180 crore kind of revenue run rate on a -- like a quarterly run rate, sir. So are we eyeing for like higher run rates, sir, going forward because of this increased capacity? And also, you have said that you're going to come up with a new greenfield capacity in U.S., sir.

Yes. So let me explain this better. Good question, actually. So Ascent, as we have stated, is a major growth vertical for us, but the revenue has appeared stagnant. What has happened, in fact, is our capacity and our production has actually increased by a lot. In fact, our -- we've had double-digit growth in our production and capacity. However, the selling price has declined by a lot in the U.S. over the last 1 year. Now it's back on the way up. So you have a double impact now where you have capacity from there and raw material selling price also increasing. So you should -- you will look at -- you will see growth quarter-on-quarter in our U.S. business as well. Right now, we are projecting growth quarter-on-quarter.

And the other question is regarding the greenfield capacity, sir, which we are trying to eye.

What capacity, sir?

The greenfield capacity is U.S. regarding the PEB sector, you just said in the last con-call, sir. A new plant in Ascent.

Yes. We have planned that new plant to come up in next year. As in we have the clarity, we will be able to give you more details. But it would be in the similar range since we've added the capacity at Raebareli.

[Operator Instructions]. The next question is from the line of [ Rahil Shah ] from Crown Capital.

Sir, just 1 question. It's 2 parts there, please address them both. Earlier in one of the questions in the answer, you had mentioned that you're looking at a double-digit scaling. So can we expect a 25% or 30% CAGR for the next 3 years? And in one of the calls earlier, you had mentioned PBT margin of 7% can be achieved soon. Can we expect them in FY '26 or it will be later?

We will not be able to give guidance on our exact PBT percentage as -- and also the CAGR growth rate. What we have gone on record and what we're going to keep is double digit. Now double digit, obviously, is a very wide range. But yes, I think you can refer to our past for what's going to happen in the future. We have aggressive growth plans, and we believe that our capital investments will allow us to grow and scale. So the exact percentage CAGR growth and profitability and the margin at which it grows, you will see margin expansion, you will see profit growth at double digit. So do give us that leeway to adhere to those things. But yes, obviously, we would want it to be as high double-digit as possible.

Okay. And it will be sequential also, sequential growth will be there?

Yes. 100%.

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

I have a few question. You mentioned that the execution part was a challenge. So can you throw some light where the challenge is? Because the order flow is not a challenge, so I would want to understand where -- what challenges are you facing in terms of execution? Is is on the shop floor or is it on something else?

I'll try to be as transparent as I can on this. We underestimated the local issues we will face. We have now solved for them. So we're in a much better place than we were a few months ago. But we -- this was our first North Indian plant. It took us a little bit of time. That's -- let me put it that way. I mean I would like to be as transparent as possible, but I think that's -- those are the issues and we've solved them. The other issues of the pretty simple, like manpower-related, setting up SOPs for factors of production, and we tend to have those kind of issues. It just took us some time to than it's usually taken for us because we have -- we have 30 manufacturing plants and it was tough to do it. But the hard work is behind us. The difficulties are behind us. We're in a great place right now to scale Raebareli. All the factors of production in place, it's been loaded with a good order book and consequently, you will see very good revenue growth in PEB India in the next couple of quarters.

Okay. Got it. And just a follow-up, does this process or business learning path help you in your future plans as well?

I'm sorry, could you repeat the question, sir, it was muffled. We'll look at the audio, but if you could repeat slowly?

Yes. So the challenges that you faced currently in the North Indian plant would that be a template that you can use for your future new plants as well to overcoming initial challenges?

Yes, 100%. I don't think Gujarat will have the same problem because we have operated a plant in Gujarat before in Baroda. We have taken a lab plant on lease. So we did not have those issues. So we don't expect that this issue specifically that we faced would come up. But it will be -- there's learnings that's been -- that we had, and I'm sure we will be better placed for our next plant in North India.

The next question is from the line of [ Moksh ] from Aurum Capital.

I just wanted your clarification. Are you investing INR 18 crores or INR 80 crores in JV, regarding our recent past surplus?

Sorry, again, I request could you repeat the question?

Are we investing INR 18 crores or INR 80 crores in JVs, the solar...

1-8 crores and that's it.

As that was the last question for the day, I now hand the conference over to the management for closing comments. Over to you, sir.

Thank you to everyone attending the call. We have taken note of all the questions, and we will work to implement our plan and delivery growth and capital-efficient profitability. Thank you so much for your support and your guidance.

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