Pennar Industries Limited (513228) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q2 FY '26 Earnings Conference Call for Pennar Industries 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 the 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 Vikram Suryavanshi from PhillipCapital. Thank you, and over to you, sir.

Thank you, Meghna. 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 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 with the opening comments from the management. Now I hand over call to Mr. Aditya for opening comments. Over to you sir.

Thank you. Good morning and thank you for joining us for Pennar Industries Q2 FY '26 Investor Conference Call. This is for the quarter ended September 30, 2026. We are delighted to have this opportunity to share our recent performance and also provide an update on the strategic direction driving our continued growth. As an overview of the agenda, we'll begin with an overview of our quarter 2 results. We highlight key metrics, including revenue, PAT, working capital and our primary growth engines. Following this, our CFO, Mr. Shrikant Bhakkad, will provide a detailed financial review. We then move into a Q&A session to engage with you and all of your questions. So, performance snapshot for the second quarter, we're pleased to report we had strong growth this quarter. Revenue rose by 22.24% to INR 919.6 crores, and our PAT grew by 20.1% to INR 32.28 crores. This reflects our continued momentum across many of our growth vectors, and we are quite happy with what we've generated this year -- this quarter. For the key revenue growth drivers in the PEB division, despite our earlier labor supply constraint, which briefly impacted our margin delivery in this quarter and something I alluded to on our last conference call, the division delivered solid double-digit revenue growth. With these issues now fully addressed, we are well-positioned for a very strong Q3, backed by improved capacity utilization. Ascent, our U.S. subsidiary has delivered strong double-digit growth in both revenue and profitability. The order backlog also has expanded to USD 51 million, setting a stage for sustained double-digit growth in revenue and PBT through the remainder of the fiscal year. The acquisition of Telco also puts us in a very good spot for sustained revenue growth in this business, and we expect to see this building in, in the next few months. For our Body in White division, we secured significant new orders from Hyundai, [indiscernible] Ashok Leyland and Stellantis. Capacity expansions are coming online in the coming quarters. Expect this business to robustly contribute to our revenue and an upgraded growth outlook. Engineering Services, our structural engineering business continued to perform very strongly. BIM growth, building information modeling was a little more modest. So, we strengened our sales and business development teams in the U.S. to support further expansion. Again, we expect healthy double-digit growth in revenue and PBT for this revenue stream. Hydraulics, the order backlog has increased as of October 2025 despite global headwinds of U.S. sanctions, which impact not a lot of revenue, about 2% of our revenue. However, we are proactively expanding our presence in domestic and European markets, especially in Germany. And this segment, while modest revenue contribution remains on a stable path, and we have identified this as a key revenue growth vector. Minimal impact for the next few quarters, but over the medium-term, they should add a lot to our revenue and profitability. Boilers and processing equipment saw a significant rise in order backlog. We are now at INR 126 crores. With strong execution plans in place, we are very certain of robust revenue growth in Q3 and Q4 also. That makes this a major growth lever for the rest of the year for us. So, for the next 2 quarters this will be a key driver. Profitability and margins our Q2 PAT margin stood at 3.56%, slightly muted as the revenue mix continues to shift towards higher-margin businesses. We expect this positive trajectory to get better. Our capital efficiency ROCE is at 21.7% and return on equity is at 12.2%. Again, confident of enhancing these returns over the next few quarters. Working capital days at 76 days, timing-related impacts primarily because of some of the issues that we had mentioned, lower-than-expected revenue in certain divisions as well. Stronger Q3 projections, especially in PEB and other key segments as we have a full quarter of the issues that prevented full execution from impacting us it should result in notable improvement in capital efficiency. This concludes my performance overview for quarter 2. I will now hand over to our CFO, Mr. Shrikant, who will walk you through the detailed financials. Thanks again for your continued interest and support.

Thanks, Aditya. Welcome to shareholders and investors for the second quarter FY '26 earnings call. Total revenue was INR 906.5 crores from INR 747.61 crores, up by INR 158.9 crores, which is 21.26%. EBITDA has increased from INR 81.18 crores to INR 94.43 crores. PBT has increased from INR 36.05 crores to INR 40.92 crores. PAT has increased from INR 26.87 crores to INR 32.28 crores. Explaining the details of it, revenue from our customer design building solutions has increased by 31.9% from INR 353.13 crores to INR 456.72 crores. The increase is predominantly on account of our capacity addition in the [indiscernible] unit, which has become functional and also started yielding growth. And also in the U.S., there is an increase in the building capacity that we had. Because of the combination of the India revenue and as well as the U.S. revenue has grown, the overall PEB sector, which is the custom design building solutions has grown by 31.9%. Revenue from our diversified engineering continued its growth with a modest growth of INR 46.26 crores and the overall 12.47%. India order book as well as the PEB U.S. order book are healthy. The other income includes predominantly on account of exchange fluctuations, income from mutual funds, both tap incentives and collections of old receivables, which we have written back in the past. Employee benefits has increased by INR 14.93 crores in stand-alone and overall sorry grown by INR 1.8 crores and predominantly on account of subsidiaries by INR 13.02 crores. Overall, our finance cost has increased by INR 6.42 crores in stand-alone INR 7.23 crores in the mid subsidiary which is reduced INR 2.8 crores. The increase on account of additional revenue and the increase in the CapEx that we had during the current year. The overall finance cost as a percentage of revenue is at 3.76% as against our plan of 4%. We have guided to 4% and it is within the range. If you get into the details, the working capital has slightly increased, and we are hard at work to get this back on track. So, with the efforts that we will additionally be putting in, we will see the working capital improved. We have also had increased slightly on account of Telco acquisition that we had carried out during the current year and due to which the increase in the long-term borrowing [indiscernible] in more details. In terms of depreciation and amortization the overall increase is INR 1.94 crores at a consolidated level. Standalone, it is at INR 1.81 crores and subsidiary INR 0.13 crores. The other expenses are predominantly increased at consolidated level by INR 27.38 crores in stand-alone by INR 13.74 crores and [indiscernible] by INR 14.13 crores. In stand-alone increase is because of the certain things that we have alluded in the last quarter on account of the higher wage settlement that we had and the higher contractor expenses that we had. That is one of our reason for the gap in the margin. For the combination after the labor force is deployed and with our increase in revenue, we are confident that we will be able to jump back in terms of our profitability and margins in the coming quarters. Tax is lower due to the credit that we have received on closing some of the adjustments in the earlier year. We continue to guide to consider the consolidated rate of 25% to 26%. Overall, revenue has increased in majority of our business, which is PEB India as well as the PEB U.S. and our subsidiaries in India and U.S. Due to the increased revenue, there is a corresponding increase in PBT and the PBT margins for the quarter. As with the balance sheet, I will roughly touch up on certain balance sheet points during the quarter. Changes in assets are on account of increase in PEB by INR 102.54 crores and increase in [indiscernible] by INR 72 crores, inventories by INR 55 crores and debtors by INR 107 crores. Overall, there has been an increase in terms of the long-term assets as well as the working capital assets that we have. And there is a decrease slightly in terms of cash and cash equivalents and other remaining assets. [indiscernible] down on each of these numbers PEB increase has predominantly come in our subsidiaries, which is INR 118.04 crores. That is predominantly on account of Telco acquisition which we had. Now we had the Telco acquisition which have been consolidated in our present results and the comparative numbers between the last year and this year looks different on account of this acquisition. The increase in majority comes in buildings by INR 48.69 crores and plant and machinery by INR 71.82 crores, which is on account of acquisition. PEB continues to grow with our expansion that we are doing at Sadashivpet, Chennai and Tarapur. Inventory has increased by INR 46.22 crores. In stand-alone, this has increased on back of order backlog increase and account of increase in revenue that we had during the current year. Debtors have increased also on account of the growth that we had in the last quarter on account of increase in revenues. Overall number of days wise, we are higher by 2 days than usual. We are hard at work to get some of this old stuff collected at the earliest. Investment increase is on account of increase in the JV investments that we have carried out for the plan that we have alluded earlier. Cash and cash equivalents, there is no change. Coming to other current assets. The overall increase is INR 48.96 crores. This is on account of certain investments that we are doing in -- for our BIW projects, for our upcoming [indiscernible] as well as the Hyundai project. And we have given certain advances to the vendors, hence, there is an increase in terms of other noncurrent assets. Coming to liabilities. Change in liabilities are on account of increase in borrowings by INR 185.1 crores and increase in trade payables by INR 77 crores. The long-term liabilities from banks and NBFCs has increased by INR 41.37 crores. This is predominantly increase at subsidiaries, and that is also on account of the long-term debt that we have taken in our subsidiaries amounting to INR 62.057 crores. And this is offset by a decrease in stand-alone entities where we had a repayment of INR 20.7 crores for the quarter. So overall, long-term liabilities with a combination of the Telco increase, there is an increase. Otherwise, overall, there is a decrease that we had. Short-term borrowings have increased in stand-alone as well as in our subsidiary balance sheet. The predominant increase in stand-alone is because of the higher revenue that we had and the growth plan that we are intending to carry it out. And in terms of subsidiaries, because of the acquisition that we had carried out and because of the working capital, which has got transferred, there is an increase in terms of the short-term loan. Increase in trade payables in stand-alone as well as consolidated. Overall, the equity has increased by INR 71.36 crores, and we are happy to inform that equity and reserve surplus has crossed the INR 1,000 crores mark as of September 30, 2025. In terms of free cash flows, we had a good continued free cash flow, the amount of INR 119.47 crores, and this is including the working capital changes that we had. And the amount used in the net investing activities is INR 212.22 crores. That is on account of acquisition of Telco, as we have alluded and the capital advances that we have given. The amount from this has been used for financing activities, which is for short-term and long-term borrowings that I've explained earlier. With this, I conclude my presentation on the financials, balance sheet aspects, segment as well as the cash flow. We are happy to hand over back to the room and for the investor community for their questions and answers.

[Operator Instructions] The first question is from the line of Shubhankar Gupta from Equitree Capital.

Am I audible?

Yes, sir you’re audible.

So first question is that -- I'm not sure about -- I think Shrikant said that the growth for PEB has been around 5% to 10%. Am I right?

No, 30%.

30%. And PEB division is about 50% of the business. That's correct. Around roughly...

Could you say it again?

I'm saying that PEB is roughly 50% of the business, right, roughly 48% to 50% of the...

About 45% from a revenue standpoint, yes.

Okay. 45%. And overall, the sales has grown by around 22%, right? So that would be 45% into 30%, which is around 14%, 15% and remaining is the growth from other sectors, which means the other segments are not growing as well. Is my understanding lacking there?

I think your voice is a little muffled, but if I can paraphrase what you said is you took the 40%, 45% revenue run rate and you multiply the PAT growth with that and then said that the PAT growth which came from PEB is about 12%. And we -- yes, I think that's an assumption you can make, but for us, we don't necessarily provide segmental revenue breakup in that sense down to PBT. But yes, it's not an unfair assessment, but obviously, the actual, actual numbers can -- there may be moderate variations on what you said, but that's the general trend, yes.

Got it. Aditya and also like -- so there are peers, right? And not the listed peers who are revealing numbers for multiple segments as well. So, I'm not clear on why don't we reveal the same? Like is there a specific reason as to why we don't do that?

Could you say that again, sir? I mean your voice was muffled. Your question -- you said the listed players who are -- I mean, our competitors. And your question is?

Who are giving the segment, yes. For example, let's say, Interarch or EPack Prefab, they have multiple segments as well. So, they are revealing all segmental splits. So, I'm not clear as to why we don't reveal the same.

That's a good point. So Interarch's primary revenue stream, to my knowledge, is PEB. They may have other moderate segments, which contribute a much lower percentage. But if you got to look at -- yes, the 45% of our revenue is that. And even those brands, like our PEB business itself is PEBS in India, Ascent and Telco now. So, there are 3 revenue streams, 3 brands that we operate. Now as it stands, all three brands are very well focused and on growth and all of them have had capacity expansion come in. So, the next few quarters, all 3 of them would do well. But if you were to go to the extent of providing the breakup from a segmental point of view, we would need to break our revenue and P&L into many more components than we traditionally have done. So, while this is something we are exploring, we need to find a better way to do it rather than give you PEB, give you, let's say, boilers and give you process equipment and engineering separately. So, we need to combine it into boxes, which are not more than 2 or 3 boxes. We're working on how we could provide that, but I do get what you're saying that 45% merits separating it out. We will discuss this internally and get back to you, sir.

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

Am I audible, sir.

Yes, please go ahead.

So first, I just wanted to understand, I mean, last quarter, I think we had some subsidiary -- some acquisition-related costs around INR 11 crores, right, Telco related...

Yes.

So has that gone away in this quarter or was there some impact this quarter as well?

There was a substantial impact of that, the acquisition cost. It straddled 2 quarters. So, the reason perhaps for some of our muted margins are these extraordinary costs that came in both in Q2 and also there's a little bit in Q1 as well. It is a substantial acquisition. And as Shrikant said, our total capital was about INR 200 crores. So now -- the rationale for making it is sound. And since the acquisition, our order backlogs have also expanded massively. So -- but it's all over now. There's no tailwind or there's no other acquisition costs to be taken into account. It's all been completely accounted for in Q2.

How much was that? Can you quantify that?

We will try to get you an overall thing, but it included things such as the cost of the investment banking fees and other charges which are there, getting the employees in preoperative. So a substantial amount of non-generic cost that came in, in the P&L. We'll get you that number in a bit. Right now, I don't have it. We have it...

And last quarter, I think the similar cost was around INR 11 crores, right, that you mentioned in the last call that legal cost and all, et cetera, was around close to INR 11 crores in the second quarter?

Overall, other costs for that. I wouldn't believe it is exactly to that extent, but we'll give you a breakup. We'll prepare that breakup and make sure it shared with all of our investors.

Okay. Okay. So, from third quarter, this third quarter onwards, you don't expect such cost to come, right? Would that be a fair assumption?

That's a fair assumption from third quarter onwards. So, the story that we've always had is that we've always had this margin expansion over the last 4 years. And that is something we've stated as something that's a key metric for us to continue to be -- we continue to perform on. So, this quarter, we -- not a massive amount, but we did have a PAT margin 3.59% to 3.56% along the line. So, about a 3 basis point decline. Now we want to go in the other direction. So, these extraordinary costs, a little bit of other issues as well that we are resolving during the quarter. I had spoken to our labor issues that we've had. All of that got resolved in this quarter. So, we took a little bit of a hit there, but all of that goes away in Q3. In Q3, you shouldn't expect to see any of these acquisition costs or any other significant expenses, other expenses.

Okay. So this labor and along with this acquisition, I think your reported PAT margin were close to 3.6%, right?

That is correct.

So what was the basis point impact you mentioned? I missed that because of all this, the labor shortage or the acquisition cost impact.

Those were some of the reasons. I mean it's some more [indiscernible] I may be oversimplifying to say that those 2 are the reasons. But overall, these onetime expenditures have brought the profit margin down a little bit, whereas our stated intent and our commitment to you is that we continue to grow margins quarter-on-quarter consistently, which is what we have done over the last 4 years. So it's what we had in this quarter, but we are quite confident that from Q3, we get back to PAT growth, percentage growth, not just value growth, but also percentage growth.

So any aspiration? I mean, will it be possible to quantify, I mean, any aspiration in terms of your margins, PAT margin, I mean, by fourth quarter or by next year, where we want to see ourselves?

Our team and I will commit to both the value of PAT and the margin growing in Q3, that is something we have packaged in now. The exact value would be a forecast, and we don't really provide to us. So, my apologies.

Okay. Understood. And just one last thing from my side. In terms of growth, I mean, if you have to see growth over the next 2, 3 years, what sort of CAGR we might be looking at?

So what I can speak to is not a forecast for this year, but we are very confident of double-digit growth in revenue and profitability, as always said. If we can meet that title, double-digit is all the way from 11% to 19% or 10% to 19%, right? So, in order to give a little bit more clarity, I think we are upgrading our -- internally, we are discussing with the Board as well how we can make that a little bit cleaner. \ From my side, I think what we can commit to is that a floor of 20% is what you can expect. That's what we have discussed at the Board that we would want to communicate to our investors. On a profit basis, we are quite confident that, that we'll be able to bring in sustainably over quarter-on-quarter for the next few years.

Okay. A 20% profitability growth, is that what we might be looking at minimum?

That is correct. PAT growth, yes. And obviously, the major vector to do that is revenue growth and margin expansion.

The next question comes from the line of Harsh Shah from Seven Rivers Holding.

Sir just wanted to understand that the 35% growth in PEBS is after including the Telco acquisition, right?

No. Sir, Telco acquisition, we had no revenue recorded in that quarter. We completed the acquisition, but Shrikant perhaps you want to respond to it.

Yes. Overall, the increase in the revenue that we had is on account of predominantly the PEB India business and PEB U.S. business. PEB telco acquisition has been completed, and the addition is just last 2, 3 days kind of a thing is that included. We will -- overall, if you see, it is not significantly the changing the numbers on account of Telco. Telco acquisition and the revenue, we will start seeing from the next quarter. So Q3 full quarter, we will -- the flip side of it is Q3 full quarter, we will have Telco.

Yes.

Okay. So, Telco, you said the annual revenue run rate to the tune of INR 45 crores?

Could you say that again, please?

So earlier, you had alluded a certain amount of revenue that Telco does. What was that figure somewhere around INR 44 crores, INR 45 crores?

Annually, no, it will be way more than that.

For Telco?

No, no, it will be much more than that annually.

Okay. Okay. And sir, on margin sense...

Let me, next, we would -- conservatively, you can take over INR 100 crores per annum from Telco, just from Telco.

Okay. And what was the acquisition price, the consideration that you paid for this?

It was about $12 million, my apologies, $14 million, including at an enterprise value. Yes

Okay. Okay. Understood. And sir, in this quarter, our gross margins were off by 2%. So, any one-offs or anything that you would like to clarify on that bit? And what should we take this number going forward?

Sir, which margins did you say are off?

Gross margins, excluding the other margins.

Yes. So gross margins are off by that amount. It was a mixture of factors. Primarily, I think, as I mentioned in our last conference call, the labor issue that we had solved, but we solved it late in the quarter. So, some of that got packaged in. We did have to increase our labor costs. It's -- we typically depend on a fair amount of contract labor and a variety of factors concluded to make sure that we did not have the labor supply we needed. We have not solved for it, but some of the quarter got caught up in it. And we are sure that these are not recurring costs. So, an operating margin point of view, as with our PAT margin, you can -- we will be back to growth from Q3.

Sir, when you speak about labor issues, so did we overpay the labor to get the work done? Or did the revenue not come through in this quarter because there was labor shortage, and these revenues will come in the later quarters?

You are correct in that there is an increase in some of our variable costing. The tune -- maybe give a little bit of detail would help. We have had to increase our labor cost by about INR 500 per tonne. Now from a basis point operating margin point of view, that's about 0.4% of operating margin potentially getting reduced if it applies across the board. It's a little more nuance than that. It doesn't apply across the board, but it is more than 50%. So, the overall impact on our margins per se might seem substantial at 30, 40 basis points. However, because we are able to bring this in, we're now also upgrading our revenue a fair amount, right? For all 3 of our PEB brands, which is PEBS in India, Ascent and Telco, all 3 are going to scale up quite strongly. So, combating that perhaps substantial increase in operating cost is scale effects and a much larger revenue. So yes, on operating margin, which is gross margin contribution. But by the time we come back to EBITDA, it's a huge positive. So yes, the answer is yes, short answer, yes. Longer answer, it won't matter. It's actually a huge positive for us because, it's not an extremely large increase. And what's fighting it is better operating leverage. And frankly, the scale impact, even if our gross margin didn't increase or change by much, just what falls down to EBITDA and PBT is much more from a number point of view and because the fixed cost is getting rationalized on a larger revenue base. So overall, you will continue to see margin increases in both -- in all 3 of our revenue streams.

Okay. And sir, because of these labor issues, did we lose out on any contracts because I mean, PEBS by nature is a very time-sensitive project. So, did we lose out of any project because a lot of our competitors did very good numbers in India? And I mean anything on that front?

I think in U.S., no, I think our order backlogs -- India also order backlogs have grown. Our India order book now stands at around INR 880 crores, and we expect it to hit INR 900 crores by December and cross INR 1,000 crores in the next few months. So not getting impacted from a customer point of view, we are able to go and get orders as we see -- as we need to. And filling up with additional capacity, we'll make sure that there's no challenge over there. But yes, when you -- if we see -- let's say, our capacity utilization is at 70%, and we need to get to 80%. And these are not exact numbers. I'm just giving you more of an illustration. That reduction does result in lower revenue, which we did see in Q2 and Q3. We would have had -- our growth would have been even higher, but for those concerns. And that obviously results in some amount of delay perhaps. So, we are quite sure that it won't impact on the medium-term. But short-term, yes, there's been some impact in terms of our ability to grow at scale, what we had alluded to. It just took us a little bit longer because of the unique nature by which we have our labor. Most of it is contract, so that affected us a little bit. We have since found strong solutions to that. We also invested a lot in automation as well at the other side of this. So, the major bottlenecks, which I include end plate treatment and surface treatment, short blasting and painting, all of those, there's been a heavy amount of automation that has been brought in along with other capacity increases as well. So, I'm confident that this issue is behind us. And with the strong order book, marry that with this and Q3, Q4 should be very good quarters for us from a pre-engineered building point of view and frankly, from other business as well.

So sir, stepping a couple of quarters back when we had mentioned that the focus will be on the core business, while the legacy business will keep on coming off. So, I mean -- and the legacy business is typically a single-digit EBITDA margin while our core business has much higher margins. So, as we go forward, do we still think that we can end Q4 at substantially higher margins, I mean, somewhere around 12%, 12.5%? Excluding the other income, of course.

Mr. Harsh Shah, sorry to interrupt. You have to return to the question queue for following question.

Yes. The question has already been asked, if you can just allow them to answer this one. The question has been asked.

To the moderator, ma'am, I understand. Please let's set a limit of 2 questions per caller. But since this question has been asked, let's go ahead and answer it because I think it's important. So -- and post that – Shah Ji, thank you for your question. With regards to margin expansion, as I had mentioned, it's a simple equation. As our scale increases and the scale comes in higher in the prioritized business units. I'm speaking not just of our pre-engineered buildings, but also our Bod in White business, our engineering services vertical, all of which are high margins, margin expansion is something that will happen. And as I mentioned previously, this is a trend that's been visible from the last 3 or 4 years, where we've doubled our PAT margins from the last 2.5 years. So continued increase on that will definitely is something as a team that we sign up on, and we will tell you that will happen. As to the older businesses, just like we've done with solar, where we created a joint venture. We want to find ways where we realize value out of these, shall we say, our legacy business units. They are still strong in revenue. They're still profitable. I think that to find good ways not for the company to realize value. We have -- what we have done with solar can be done with other business units. From time-to-time, we will be able to give you clarity on how we intend to achieve that. And we are working on it, and we are quite confident that over the next quarter or 2, we'll give you a lot of clarity on this. So, they will fall away from our revenue, yes. But overall revenue and profitability for Pennar, we are extremely confident that we'll continue to grow and scale. And the margin picture will continue to improve. Our modeling is quite strong on that.

[Operator Instructions] The next question comes from the line of Rahul Kumar from Vaikarya Funds.

So just on U.S. PEB segment, Shrikant, if you can answer the gross margins and the EBITDA margins have declined. So, what drove that? And what would be the outlook over there?

I think what we have alluded to it earlier and explained it in detail, the margins have fallen predominantly on account of labor increase cost that we had. This increase has impacted our margins. And while now that this problem is solved, we will have expansion in margins in the coming quarters. Does that address your question?

Actually, I was asking for the U.S. PEB segment.

So I think our U.S. PEB segment operates at a gross margin of about 30%, but it can fall as low as 28% and go up as low as 32% rather than a commodity price issue, that's more because of the nature of the jobs that we are executing, if the secondary to primary ratio moves around a little bit. So, think of it as a range bound 28% to 34%. But I do want to say that while that looks on paper like a massive swing, when you get to the EBITDA and the PAT margins, that's remarkably stable. So that is something that we are quite confident of being able to retain. I would say, and Shrikant, I request you to elaborate on this, but we're not seeing any decline in margins. If anything, I think we will do better from a PAT margin and a PBT margin point of view in our U.S. business, specifically for Ascent and Telco.

Okay. Okay. No, I was asking, I think for this particular quarter, I think what I see is there is some compression in the margins. I just wanted to understand what actually drove this.

So I think from an overall operating margin point of the gross margin, as I mentioned, instead of our usual 30%, 32%, we would have seen 29% approximately. Not something we're very concerned about. I would strongly guide you to look at our Ascent and our TGI margins on – do look at it on an EBIT or a PBT basis or maybe even a PBT basis. That is what we monitor, and we tend to fill up our order backlog accounting for that. So, in that perspective, the 200-basis point move that you alluded to, these are natural swings that happen based on the nature of the jobs that we are undertaking. But what we are quite confident of is that at the EBITDA level and at the PBT level, you will not see that happen. I do understand what you're saying 200 basis points seems like a massive swing, but not really something that we take into account. We don't try to fix our gross margin at a certain level because the nature of the job’s changes.

Okay. Okay. And for U.S. only, the -- I think what I see is the order book actually has declined quarter-on-quarter from $54 million to $51 million. So, I mean why was that? I mean, how is the order flow environment now?

Every half year, we tend to do a little bit of pruning on our order backlog. So yes, you see a decline. But overall, our active order backlog has actually gone up. In fact, the month of October was one of our best order booking months ever. So again, not something we're concerned about. We have no concerns from an order backlog point of view in the U.S. It's quite strong. And there's a lower down order booking order called active order backlog, which is all the clearance are in place, and our customers are effectively saying, please ship as soon as you can. Engineering is done, short runs are done. So that puts us in a very good place to quickly turn that around. Not an issue. The $54 million to $51 million is just -- and it's something that the quarter end picture. Right now, it's actually well above $54 million, and we expect that trend to continue. Overall, we expect to book about $10 million a month going forward as well. So that's something that we have that's reasonably well baked in. There's new DMs that have been added and the addition of Telco, in fact, boost that up a little more as well. So, no concerns there. I don't think we have an issue on order backlog. And the active order backlog is healthy and our ability to push revenue out is quite strong.

Okay. So, you do expect traction in the revenues as well for the U.S. PEB segment for next 2 quarters?

Yes, 100%.

Even though it's seasonally sort of a weak quarter, but still?