Pennar Industries Limited ($513228)

Ladies and gentlemen, good day, and welcome to the Pennar Industries Limited Q4 and FY '26 Earnings Conference Call. [Operator Instructions]. 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 the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vikram Suryavanshi. Thank you, and over to you, sir.

Thank you, Avirav. Good morning, and very warm welcome to everyone. Thank you for being on the call of Pennar Industries Limited. We are happy to have with us the management of Pennar Industries here today for question-and-answer session with the investment community. The management is represented by Mr. Aditya Rao, Vice Chairman and Managing Director; Mr. Shrikant Bhakkad, Chief Financial Officer, Mr. Manoj, Corporate Planning; and Mr. K.M. Sunil, Vice President, Investor and Media Relations. Before we start with the call, on 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 so much, Vikram. Good morning. Thank you to all of you for joining us for Pennar Industries Q4 FY '26 Investor Conference Call for the quarter and for the financial year ended March 31, 2026. We are pleased to have this opportunity to share our results for the closing quarter and for the financial year, and we'll also walk you through full year performance direction that carries us into FY '27. Let's begin with an overview of our Q4 and full year FY '26 results. We'll highlight key metrics including revenue back working capital and our brand growth engines. Following this, Mr. Shrikant Bhakkad will present a detailed financial review. We'll then move to a Q&A session to engage with your questions. So we're pleased to close the year on a strong footing. For the fourth quarter, our total revenue increased to INR 933.7 crores, and PAT grew by 14.9% to INR 41.04 crores, reflecting continued margin discipline and operating leverage, even as our revenue growth in some segments moderated during the quarter. For the full year FY '26, we delivered our strongest financial performance to date with our highest ever revenue and our highest ever profitability. Our total revenue grew to INR 3,666 crores, and our EBIT expanded to INR 401.32 crores. And EPS for the INR 10.29 as opposed to INR 8.84. PAT grew 16.22% to INR 138.83 crores. Let me speak about our key revenue growth drivers. In our PEB India division, Q4 capacity utilization is now at 70%, and our current order backlog also has increased to INR 810 crores. The business had faced some headwinds in the financial year due to some labor concerns. Labor issues have now been resolved, and we do not believe we will have a recurrence in the medium term of this issue. Inventory levels were reduced compared to the previous quarter as well. On the back of an expanded order backlog, we are confident of strong growth in this financial year in this business unit. PEB U.S. next delivered under the quarter of very strong double-digit growth in revenue and profitability. It was anchored by sustained demand across data centers, warehouses and industrial end markets. The current order backlog stands at about 63 million when you include in structurals. PEB U.S. remains a strong growth contributor, and we expect continued momentum through FY '27 as Business Structural continues to scale in continues to contribute to the overall revenue. Engineering Services continued to outperform through Q4, PIM and Structural Design growth are the major drivers. We have started AI-assisted design and detailing in our operations, and we're seeing a lot of value benefit. For FY '26 as a whole, we have delivered healthy double-digit revenue and PBT growth in this segment. And our U.S. sales investments, which is effectively building up our robust sales infrastructure in the U.S. during the year, I think, has positioned us well for accelerated growth in FY '27. For Hydraulics, order backlog is about INR 34 crores increase from INR 22 crores, the last time we spoke. The U.S. tariff impact has now moderated and customers have started placing orders. We are exploring European markets for customer expansion and new business opportunities. This segment remains on a stable path with contribution to revenue growth, modest contribution. Boilers and process equipment, building on our strong order backlog, we have now increased the order to INR 145 crores, and we have secured our highest capacity 100 tonne per hour and 80 tonne per hour WHR boilers. Further, we secured new orders in hot-water generators With the order pipeline, we are entering FY '27 with this will be a very major growth lever for the company. Let me now move to profitability and margins. Q4 PAT margin stood at 4.44%, which is an improvement over 3.9%, reflection of ongoing mix shift towards high-margin businesses. This is something I guided to several times over the last few quarters, last few years, and it is well in line with our trend to have higher and higher PAT margins over the next few years. For the full year, PAT margin came in at 3.83% compared to 3.7% in FY '25. As the revenue mix continues to shift towards higher-margin businesses like PEB U.S. and Engineering Services, we expect this positive trajectory to strengthen further, even through 2027. ROCE for financial year '26 stood at 20.23%, and the ROE stands at around 12%. We remain focused on enhancing both return metrics, both ROCE and ROE are very important metrics for us. And as the performance scales, these 2 will will improve further. Capital allocation discipline and tighter working capital management are the principal levels here. Working capital currently stands at 82 days. There has been some increase in this, and we are focused on reducing working capital days to 75 in the next few quarters. Shrikant will have a more detailed narrative on the why of 82 on how we're going to get back to 75 and lower in the next -- in the short term. So that concludes the performance overview for Q4 and the financial year. We are exiting FY '26 with a stronger balance sheet, expanded order backlogs across our priority businesses and operating discipline has delivered consistent margin expansion. Strategic direction is clear, focused capital deployment into businesses where we have the clear to play right in and were supported by disciplined working capital and decision making at every level. We're confident of our trajectory of delivering a good high-growth FY '27 to you as well. I'll now hand over to our CFO, Mr. Shrikant Bhakkad, who will walk you through the detailed financials. Thank you to all of you again for your continued interest and support.

Thank you, Aditya. A very warm welcome to all our shareholders and investors joining Q4 FY '26 earnings call. Let me take you through the key financial highlights and I'll go slowly on this number so that we are clear on each of the numbers. Key metrics in terms of Q4, total income increased to INR 933.7 crores, an increase of 20.65%, a 2.6% overall increase. EBITDA has increased from INR 98.95 crore to INR 114 crores, an increase of 15.7%. And PAT has increased from INR 35.72 crores to INR 41.04 crores at 14.91%. For the full year, the total income has increased to INR 3,666 crores, an increase of INR 403 crores and overall 12.33% increase. EBITDA for the full year is at now INR 401.32 crores and at 15.51%. In terms of PAT, we are at INR 138.83 crores. Taking you through the details of the financial results. Revenue from operations at the consolidated level has increased by INR 19 crores, which was driven by subsidiaries, close to INR 68.61 crores, and there was a dip in terms of stand-alone businesses. Custom Design Building Solutions revenue grew from INR 460 crores to INR 516 crores. At a consolidated level, an increase of 12.35% and growth predominantly comes from the U.S. business driven by our Telco acquisition that we have carried out in the last year. This offset partially at due to the execution challenges, and we are confident that we will improve in the coming quarters. Diversified Engineering revenue is at INR 429.54 crores. And overall, there has been a decrease because of the steel order and the The order book stands healthy for PEB India at INR 810 crores, PEB U.S. at INR 63 crores and Boiler at INR 128 crores. That competes on the revenue. Now coming on to the other income. The other income has increased by INR 1.65 crores. Predominantly, this is due to the ForEx transactions and the translation gains that we had in the quarter. Employee benefits. Overall, there was an increase of INR 6.72 crores. An incremental INR 14 crores comes from subsidiaries and there is a decrease of INR 7.52 crores in terms of the stand-alone entities. Finance cost has increased by INR 0.69 crores. This is in line with our revenue expectations. The increase is attributable predominantly on account of the Telco acquisition that we had at acquisition and the higher working capital utilization, which is in line with the revenue growth. While there a slight increase in terms of working capital, what we would have guided you. But our overall guidance, we will continue to remain and this will be under 4. Presently, the long-term loan is at 0.68 and the working capital is 3.03. We are slightly higher on the working capital, and we will be reducing in the coming quarters. On the 2 aspects that we are working in order to reduce our working capital will be on inventory as well as our receivables. Inventory due to the ongoing prices and other things, there are certain inventory that we have consciously taken a call to procure it higher. That's the reason the inventory is a little higher at the quarter and the year-end. And we will improve and reduce the inventory turns. There are certain debtors, which are stuck for a certain period of time, and we are confident that we will be able to collect in the coming quarters. With this trajectory, we will be reducing our working capital from 82 to 75 days. Depreciation and amortization has increased by INR 6.87 crores, predominantly on account of in the U.S. which is on account of robotic welding machines installations and the Telco acquisitions close to INR 4 crores and INR 2.9 crores is on account of India CapEx at Raebareli and other repairs and maintenance CapEx that we have carried out. Overall, other expenses have increased by INR 19.49 crores, comprising in terms of stand-alone at INR 11 crores and in subsidiaries at INR 8 crores. In standalone, this is predominantly on account of outwork and manpower cost, which has slightly gone up from the last period. And this is in line with our higher order execution and increase in manpower days. Other costs, broadly in line with the revenue growth. We expect manpower and subcontract cost to stay at this level while we aim to moderate other expenses to maintain the overall fixed cost discipline in the coming quarters. Moving to tax. Tax expenses increased due to the current quarter profit. Also, if you compare last year to current year, there was a provision which was there in last year INR 1.36 crores, which we have reversed in the last year. So that's the reason the tax percentage appears to be a little higher. We continue to guide you to a consolidated tax rate of approximately 25.5%, which is 25 to 26 -- in the range of 25% to 26% overall. Overall summary. Revenue growth has been strong across subsidiary, Custom Design Building Solutions and the overall operations in India and the U.S. are growing. Taking you through the balance sheet. The change in assets comprise of increase in PPE by INR 104 crores, increase in by INR 82 crores, increase in properties by INR 62 crores, inventories by INR 75 crores, debtors by INR 150 crores and investments by INR 15 crores and cash and cash equivalents by INR 80 crores. PPE increased predominantly on account of the acquisition of the Telco that we have carried out in the year. And out of that, in building to INR 60 crores and in plant and equipment, it is INR 86 crores. The other predominantly remains ongoing projects, which are done at PL and in U.S. for the robotic lines. Inventory stand-alone increased by INR 50.71 crores, out of which predominantly comes from subsidiary, which is INR 24.37 crores and in India, another INR 26 crores. Debtors at the consolidated level increased by INR 156 crores; in stand-alone INR 91 crores; and we are planning to get this down as I've expectedly stated earlier. Overall, we have increased from 65 days to 66 days in terms of the revenue that we have. There is an increase of 1 day in terms of debtors. Cash and cash equivalents, we -- standalone it has increased by INR 55 crores and at subsidiaries, it has increased by INR 8.48 crores. The total cash and cash equivalents, we are healthy with close around INR 205.57 crores. And if you include the other bank balances, we are at INR 269.93 crores. the highest cash and cash equivalents that we had. Taking the trajectory of liabilities. The liabilities have increased because of increase in borrowings by INR 366 crores, an increase in trade payables by INR 21 crores. Another liabilities, which has increased by INR 22.81 crores. Long-term liabilities have increased on account of 2 accounts: last year that the capitalization that we have carried out and account Telco acquisition. Short-term borrowings are increased by INR 145 crores. And on account of cash credit, that is close to around INR 99 crores and accounting by INR 81 crores and which is we have taken for the revenue growth at INR 11.67 crores. So out of this, both short-term borrowings, the increase that has happened in subsidiaries is close to INR 70 crores and the rest of the thing is in India. Trade payables have decreased by 2 days in terms of the overall comparison from last time to this time. Change in lease liabilities are at INR 16.73 crores. Other equity, there is no change. Overall, the increase is on account of the profit that we have added in the current year. With this, I will hand over the call to the moderator for the questions to the investor community.

[Operator Instructions] The first question is from the line of [ Nitin Jain ] from [ Fair Value Equity Advisory ].

Your PEB India order book has declined quarter-on-quarter, so can you provide some color here? And how is the pipeline seeing in this business?

It's quite healthy. We anticipate reaching a higher level in the next 3 months itself. As of right now, it stands at around and -- I mean, this is a number that changes on a day-to-day basis as order flow comes in and revenue goes out. But we anticipate no PEB India order backlog issues. In fact, we expect it to grow quarter-on-quarter over the next 2 quarters as revenue capacity utilization picks up.

Right. So if you can provide some color on how is the pipeline looking here?

From a pipeline, I think the way if you're looking at quote activity, then that remains quite healthy. There are several large orders we are picking the orders that we want to take. In fact, I won't name the customer, but there was a INR 150 crore order that we said no to the other day because we felt it wasn't exactly the right product mix that we wanted. So we have been a little tactical about it. But from a code activity perspective and what we expect to close, I do not see an issue in maintaining the order backlog we need so that we can grow PEB India directly in double-digit rate in this financial year.

My next question is on your margin. So contrary to most of the listed peers, you have seen a sharp jump in gross margin. So if you could clarify what led to this jump? And how sustainable these margins are going forward given that we have inflation in raw material prices due to the conflict

Yes, I request can to specifically address what -- which aspects of you're talking about. But effectively, we do not have any listed peers. I think about 40% of our revenue is PEB, so that's, in some sense, comparable. But other than that, I think we have a blend of 4 different kinds of businesses, some of them being very high margins, some of them being lower. And as this mix changes, the gross margin tends to move. So I wouldn't read too much into that per se, the quarter-on-quarter movement on gross margins. But let me refer to Shrikant in terms of the exact gross margin increase that you're referring to and the rationale for that.

Thanks, Nitin. Nitin, I think the gross margins are on account of the value addition of the businesses that we are carrying out out of our BWI and the boiler businesses, the margins have slightly increased in that. And the Engineering Services contributes to a higher margin and the bottom line as well. So the Engineering Services revenue comes that, but the fixed costs and related things comes in. the employee benefits cost. So at a certain point in time, this tends to change as because of the mix change. Otherwise, we are on a trajectory for the transforming. We use the margins to go up. The overall we are there where we are.

Right. And how sustainable do you think these margins will be going forward?

sustainable margins have not changed why we had some ups and downs in this quarter. But overall, the margins we guide you would remain at the similar 42%, 43% kind of a thing.

And my next question is, given the strong order booking in the U.S. business and also in the boiler business, what kind of revenue and margin outlook do you have for FY '27?

We won't be providing a forecast, but I think what we typically say is that we definitely expect EPS growth of at least 20%. I think we said we would mentioned that as our stated target, and we are quite confident we'll be able to achieve that in this year.

Right. No, I'm asking because last year, I think there was a slight miss in the guidance as well as versus the achievement. So would you stick with the 20% this year as well?

Yes, sir. EPS growth 20%. Well, let me not say EPS because there is the question of supplemental warrants and equity coming in as well. So let me say, a PAT growth of 20% is what we are committed to it, we will ensure we achieve that.

[Operator Instructions] The next question is from the line of Deepak Poddar from Sapphire Capital.

Sir, just wanted to understand first up on revenue. Now -- so labor was the only reason because of which, I mean, we could not see revenue growth this quarter? And has that issue been resolved? And how should we look at revenue growth for FY '27, yes?

No, I don't believe it was labor supply. I think there was a fair amount of revenue, which fell out of Q4 into Q1. I think that tends to happen from time to time. I wouldn't see the quarter in in isolation. I think overall for the year, it's been 1 of growth, and we expect that growth to continue in this financial year as well. So I think the narrative that we are providing, and I think the takeaway for this should be is that a lot of our areas deals are not picking up revenue. We did have a labor issue in our PEB business unit, but that's in the past. We don't we don't take -- that has completely moderated right now, and we are well on our way to higher capacity utilization. So this year, you should see a substantially high percentage increases in our -- both our capacity utilization and ultimately our revenue in PEB India as well. So no, I wouldn't guide to our inability to grow revenue in these businesses or a labor issue

So 15%, 20% growth this year is what we are looking at

I think revenue guidance, per se, we don't. I think -- but I can tell you that we are focused on revenue growth and I think as we discussed last time, sort of saying double-digit growth, which is a little weight. I think we are committing that as a management team, we are committed to 20% PAT growth. And we feel that our business model will provide that. That's where that's basically the.

Understood. And my second question is on your margin front. I mean you had mentioned in your opening remarks that we expect our fixed cost to largely be contained rate. And given some growth, we will see on top line. So some leverage we should see. So how should I look at your margins, EBITDA or PAT margins, whatever you're comfortable.

I think both EBITDA and PAT, I mean, as I said, not a quarter look -- but if you were to look financially over the last 4 years is the same trend that we've been communicating. Both our PAT margins and our EBITDA margins year-on-year have been increasing for the past 4 years. And all we're doing is removing legacy revenue streams, adding newer high-margin revenue streams. As those revenue streams pick up a higher percentage of revenue, this includes our U.S. business, Engineering Services business, Hydraulics, as that starts contributing then overall revenue and -- sorry, overall profitability goes up. So that's the effectively the guiding factor here. And we think that -- or what you see as PAT margins grow from 2%, 3%, now I believe at 4% is what we're at and we expect that to continue.

Okay. So sometime in this year, I mean, we would want to target a 5% kind of a PAT margin. I mean not a yearly basis, but sometime maybe towards the end of the year? Would that

I think we -- again, we would -- we have a -- PAT value growth. Margin growth will be consistent being broaden and you'll see it coming quarter-on-quarter, year-on-year. I wouldn't commit to a big jump in this year itself. That I'm not committing.

Okay. Okay. Fair point. I think that would be it from my side. I would like to wish you all the very best.

Thank you so much.

The next question is from the line of Rahul Kumar from Vaikarya Fund. [Operator Instructions] As there is no response, moving ahead to the next question. The next question is from the line of [ Vinod Krishna ] from [indiscernible].

Sir, given that Iran war situation, because in your con call, you have been already -- always saying that we should not -- you should be mostly growing around 20%. What -- I understand not extreme that but market is not a reason that you would give. So what are the tailwinds and how confident are you of delivering next year growth and maintaining this 4% margin, sir?

I'm sorry, I understood your question is the Iran ar situation impacting us...

Yes, because if you see in your earlier con-call, you have been mentioning that market should not be the reason for our growth because the opportunity size is so huge. So confident are you of 20% growth and 4% margins for the next year?

I would reiterate that. I would absolutely reiterate that I think the Iran war as such is an energy inflation thing. So our costs have gone up a little bit. We have passed on to our customers. Sometimes that's a little easy, sometimes it's hard, but it's an imperative. We cannot swallow INR 10,000 increase in our commodity pricing on a per tonne basis nor can we swallow a 10% increase in our operating costs, right? So it's a practicality. Just seen in the context of energy inflation and what you had mentioned, which is that ever use market as a reason to not perform. I think we are quite confident that with our market shares growing moderately, we will continue to have our revenue and profit growth. So we don't -- we are not seen an issue as far as the run or is concerned, I don't anticipate any macro risk to our business model or our revenue. In the short term, let's forget the long term. The one exception that was there last year was for our Hydraulics business unit for not Iran war, but the tariffs. So that's a different kind of situation where effectively that the business model itself gets impacted for that 1 revenue stream because imports to U.S. gets taxed differently. But even that now has recovered to a great extent and order backlog in Hydraulics also are going up. So my answer to the question is, we do not -- we have modeled this. It's to the extent we can model it. And other than an energy price inflation risk and the the headache of passing through increased cost to customers. We don't anticipate this having any impact on revenue profitability. We will maintain our projections.

Sir, my second question is regarding the revenue stream that you said legacy where you're winding down. And you I'm not asking what the -- can you at least say what percentage are we like -- is there new revenue streams as a total percentage and at what percentage of new revenue streams are growing?

About 30% to 35% would be, Shrikant on the exact numbers, would be the legacy businesses, about 70 -- Shrikant, would you agree with that or do you...

Yes. I think we are there depending upon the month and the quarter, it changes, but we are between 30% to 35% in terms of...

So the 30 would become 0, sir? Can you guide, can you let us know what is the growth rate in your -- that 70% at what rate that revenue line is growing? And will this 30 will become 0 and in what time in your view? Or it will go to...

Yes. So I think the right way to see this is we are not deploying capital or any other resources into those legacy businesses. And what is there, generates revenue and cash flow. So it going to 0 isn't perhaps the right way to look at it. It will become a lower and lower percentage of our revenue. It will become what the relevant is what is growing. So in any company, I'm sure there's the 5%, 10% revenue streams, which is older revenue rate. So over time, of course, the right thing is on the overtime if we don't deploy capital and don't grow a business, then we all know what happens, right? But as far as our growth model is concerned, the prioritized us, large addressable markets, build up assets there. And revenue and profit growth will come. It's a simple equation. We've been on that journey for 4 years, and I have no doubt it will succeed.

No, no, sir, I was asking that 70% is growing at what rate was like because 30% is there, so it should be growing at more than 20%, 30%, right, that 70% revenue?

You are correct. The prior SBUs are growing bigger and it's a simple equation, just divide our overall growth rate by 0.7 and you get the growth rate.

So that would continue that growth rate on that

We expect that rate to continue.

The next question is from the line of Shubhankar Gupta from Equitree Capital.

Yes. So actually, my first question is on the debt bit. Debt has become a bit high at 0.98x of equity. I mean interest cost at around INR 138 crores now, right? So I just want to understand, are there any debt reduction plans for F '27 or '28? And if there, then what are the plans?

Yes. I think, Shubhankar, that you are looking at the debt, the gross debt kind of I think. We are sitting with close to INR 236 crores in terms of the cash and cash equivalent also. So if you take the cash and cash equivalent also, reduced INR 200 crores from them, it is below 0.9. Our stated target and aim is that we should be below I 0.8. This has happened on account of 2 reasons. One on account of the acquisition that we have done for the Telco, which was close to around INR 14 million that we had in terms of revenue of the long term and the working capital as well as -- yes, there is a working capital increase in the India business at the quarter end. And that's where our plan is to get this reduced by 6 days. So presently, the working capital is high by close to around INR 60 crores, INR 70 crores, and we will get that down in the coming 2 quarters.

So actually, with regards to this 1 quick question here on the debit bit itself. If you had already sat INR 200 crores in cash and cash equivalents. I just want to understand why we increased our debt from 0.78x to 0.98% on a gross level for FY '26.

In terms of requirements, working capital and other things by the live in forward throughout of the year at certain point in time, most of these monies are deployed on the last day of the balance sheet kind of a thing. So I don't have...

Let me step in, sorry. So I think the guidance we'll give is that we -- the way we look at debt is most of our majority of our debt is working capital debt. And as we grow revenue, that will also increase. Our stated goal is to get to 0.8 debt to equity. I think we can say that by the end of the year, we'll get there through a combination of a big gap between the cash we generate versus the CapEx we'll have as an outflow and also there's some equity capital coming in as well. So maintaining 0.8 as a stated and we will get there. I think that, for us, we believe, to be a sustainable model and to be at -- as we grow and scale this company. As long as we are growing, scaling, our profits being scaling and our debt equity is 0.8x or lower, that's fine. And that we'll ensure we get there at the end of the year.

Okay. Got it. Got it. And also 1 more question here. So what are the CapEx plans for FY '27? And given that you are looking to reduce that, like how do we plan to fund those CapEx plans?

We don't have extremely heavy CapEx plans. It comes in [indiscernible] crores, I think. Most of it is the completion of our plant that should happen in the next 2 to 3 months. Post that, I think there's a lot of automation CapEx in because of the labor cost arbitrage is appearing. So Shrikant will give you that number about total...

Close to INR 100 crores.

Yes, close to INR 100 crores and our cash generation would be much higher than that.

Got it. Got it. And just another question on the same...

Mr. Shubhankar, may we request you return to the question queue for a follow-up question. The next question is from the line of Rahul Kumar from Vaikarya Fund.

[indiscernible] what's the order book [indiscernible]

In the U.S., we have now moved to a combined order book for Asset Building & Structures and that the current as of now picture, it's about INR 62 million is the current order backlog.

Okay. And which areas are they in the strong demand [indiscernible] anything is in India [indiscernible]

So I think the restaurant, if you see, I think a lot of India is dominated by process industries. So we have received -- and are continuing to book a lot of orders from them. Solar is doing very well as well. That's another big area. In the U.S., it's dominated by data centers and industrials. That's what's growing right now.

No, I'm asking that this labor, we are seeing minimum wages going up in Northern part of India. Is that something you are also experiencing in your PEB plant?

Could you repeat the question? You said labor -- what was the labor in North India, what was the concern, sir?

Sir, your voice is not very audible.

Sorry to interrupt, Mr. Rahul, may we request you to use the handset to ask the question.

I was asking about the labor situation in [Technical Difficulty]

Sorry to interrupt, [Operator Instructions].

Rahul-ji, I think I understood question. Let me try to answer it. I think you specifically asked for the labor situation in North India. Let me speak about our plan because we have plants in North, South and Central near Bombay as well. Across all of our plants right now, yes, labor is harder to come harder to get than it used to be historically that's being met through an expansion of our resources in terms of how we procure labor. So we moved to a lot of labor contractors. We've also increased our onward. We've also began a process by which a lot more automation is go at what can get automated specifically in painting surface treatment. And simply, we have -- we expanded our automation deployment as well. Frankly, it's not just in India, I think even the U.S. labor has become harder because of some of the, I guess, immigration policies that have been put in place there. So more and more the writings on the wall, we have to automate more and we are putting that in. What I can tell you is that the worst impact we had was last year, we probably dropped, well, hundreds of crores really because of our labor issues. As of last quarter itself, last financial itself, we have resolved that. I think this year, we we don't anticipate labor being an issue. As it stands right now, I think we measure labor in terms of kids for fab and for surface treatment waiting. Our skids are fully manned, and we have buckles as well. So we need to pay a little bit more on that. There's a little bit of a compromise on operating margin to make sure that happens. But once the automation comes in quite strongly, I have no doubt that our operating margins will exceed what we had prior to these labor concerns being We don't have a labor concern anymore.

The next question is from the line of [ Pratik Kothari ] from [ CRK ]. [Operator Instructions] As there is no response, the next question is from the line of [ Nitin Jain ] from [ Fair Value Equity Advisory ].

My question is regarding the debt that you have highlighted. Although you have mentioned that you try to pay it down by the next 2 quarters. In the meantime, should we see any significant increase in finance costs in the next 2 quarters?

No, sir. I think our finance cost will be...

Yes, we have guided to the overall below 4% in terms of the finance cost. We are at 3.71%, slightly higher on the working capital at 3.03 and lower in the overall long-term capital. So we continue to guide you based on the revenue, we will be at below 4%.

Right. So -- but this 3.7 or will this be for the entire year? I mean in the short term, should we see any spike?

Yes. Temporally, when we acquire certain facility or when there is a working gap, when there's a revenue growth changes that happens. But overall, we gave you at this range for the full year.

Okay. Great. And last question is on the debtor days. Can you reiterate the reason for the increase. So I joined the call a little late. I mean, what gives you the confidence that you will be able to collect these in the coming days?

There are certain projects where the amounts have been cut for handing over and the completion of the pending list. So we are confident that the next 6 to 8 weeks, we'll be able to hand over those sites and collect the amounts. And that's the reason the debtors will come down.

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

Regarding the U.S. business, while our gross margins are higher outside India, but the cost, but really employee costs are consistently growing in the last 3 to 4 years. You have maintained that our U.S. business will be far more profitable than our India business. So can you give some light on how the next 1 or 2 years now that we have got the structural steel also on board, how the growth and profitability will look like in the long term in the next 2, 3 years? When are we going to see this 18% to 16%, 18% kind of operating margin in this business?

So a lot of that cost is the senior management team, the engineering team. As we grow in scale and the capacity tuitions are still -- there's still room for capacity utilization to grow in the U.S. as well. There's new capacity has just been commissioned. So once Telco and Structurals gets up to a higher capacity utilization, one is in buildings also to the new AGT Robotics Line that we've commission. We had to get a lot of engineers on board to do that. This is expensive to talent in the U.S. is expensive, and it's necessarily so. But the flip side is, as you had mentioned, as you will see in this financial year, when you have the strong double-digit growth going come in, the profitability also will increase will jump accordingly. So Operating leverage is a very real thing there as we grow at scale. Yes, I mean, even though I wouldn't guide to the margins being poor or anything like that in the U.S., but further increase of our PAT margins is something that will come in as scale comes in.

Sure. So can we say like in Q4 this year, we will like reach the optimum profitability and reasonable growth like say, INR 400-odd crores per quarter by Q4 this year. Like you have done about INR 250 crores -- the reason I'm saying INR 400 crores instead of INR 250 crores this quarter is because there is a Telco component which you would have mentioned that it will be upward of INR 150 crores per year. So that's how I was coming to around INR 350 crores to INR 400 crores by Q4 this year.

Yes, I'm understanding how you came up with that number. I will not be able to provide revenue guidance, profit we do it, but I'm not disagreeing with your numbers. If you were really afar off, I would say so.

Great. Last question is the services business, Alto the margin has been there with us for a very long time. But I guess it is still not INR 100 crore of size. So any idea of where we will really scale up this business to a reasonable level?

It's a very good observation. I think we -- 1 of the businesses that -- well, part of that business has underperformed a little bit, specifically our BIM and plant automation business. I think we have now dramatically expanded that team, both on the business development side on the delivery side as well. I'm hopeful we'll have some -- the metric that you said, at least INR 100 crores should be something that we should absolutely achieve. I think in this year, you will see all of our revenue verticals Engineering Services also scaling well. I think we've prepared a lot of ground in the last financial year. The biggest markets there are U.S. and Europe, and there is no market problem. I do not see a market problem at all.

AI is not a problem here? AI is not a problem here?

AI is a good thing here, sir. So I mean, I think for our customers, and sometimes -- I mean, sometimes people tend to get worked up over AI. But effectively, for us, our contracts and other things stay the same. It's just that instead of having a large delivery to and do it, we have an AI-led design to it because there's a lot of customization and design. It has to be fitted to inventory if you take something like building design. So there's a lot of platforms out there, AI platforms out there, which we can use in order to optimize what we are providing, but you still need to have the stamp, that's a statutory requirement. You still need to have designers look through and optimize further post that. So the initial detailing the lower-end job is definitely getting automated. That's a very good thing for us. And even if you take 4, 5 years down the line, those aspects will not go away. So I see it as a huge positive, frankly, for our business model because as platforms get automated, but our ability to actually feel not just but also direct line of connectivity with customers, project management, project managers in the U.S. were able to hand-hold our customers and optimize the design through both the human and the AI element. That's where it is. In fact, for a lot of our structural building designs now AI-assisted design is also already helping out and lot of advantages that are coming in. So we don't see it as a risk. It's just automation. It's just -- we should just replace the AI with automation and things become a lot clearer.

The next question is from the line of Rahul Kumar from Vaikarya Fund.

I hope this is better audible than earlier one. On the engineering question, do you bill your clients on a headcount basis or on a project outcome basis, in which case AI actually makes you more productive and you can improve your margins?

It is entirely a product outcome basis. We do not bill on -- in fact, our clients have no idea what in the vast majority of cases. Now there's some exceptions to this, where cornerstone and others, they have direct line of sight to our team because it kind of work partially on our systems and partially on their virtualized environments of their systems. In that case, they will know who is working on it, but even then the billing is not banners we -- I think it wouldn't be an exaggeration to say it's all project basis. It's not man hour basis.

Second question, I really talking about labor automation. Can you say tell us some bit like projects you have topped 3? And what kind of automation gains you're looking at over next 1, 2, 3 years?

So with this year itself, one of the initiatives we've been looking at are what we call our EGT Robotics line. So not to get a little technical, but once you -- the material has come through the pull-through weld, something that follows a lot of manhours is what is called fitment and stiffeners and other aspects being added to the team. A lot of that is now being automated, where instead of having 20, 30 people work on 1 product, you essentially have only 2 people doing it. And then that precision that you get out of it, the output at grit is higher. Obviously, it's a lot cheap. I mean each robot bought us about $200,000, $100,000, and we need a fair number of them to automate these operations. But once the initial CapEx cost, which you've already taken last year and this year as well, a little bit is going in. Once that comes in, I think our value -- the increase in our margins will compensate for that. And our profit will grow faster than our revenue growth. So the AGT line is our major driver right now of automation in the building space.

Great. On the debt side, do you have any other plan apart from what Shrikant described, which is the organic way of deleveraging, but are you guys thinking of any other corporate action or in some other shape to take care of -- to make balance sheet stronger and be ready for some growth?

We will communicate. There are a lot of options being discussed at the Board. We will communicate them to you as the Board takes a decision. But -- you're right to flag. I think 0.98 is not a number we are comfortable at. 0.8, we'll commit to as a management team. The way we get there through a combination of profitability as the founders bringing in equity and there are other things also which are under discussion. As and when we have those initiatives in place, we will communicate them to you.

And lastly on this, you had with land parcels. Is there something which you can take action? Is that option on table for you or that's a harder one to do in a short time then?

We will communicate developments in that once they take place. We would be a little premature to speak right now, but yes, the regulatory standard is also changing, and there's this -- it is -- we reserve the right to look at those -- unlocking those land assets that we have.

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

Congratulations on a good set of numbers. Sir, my first question is, if you can share what the order book is like in the U.S. and India and share some commentary on how you're seeing the market in terms of order bidding.

So as I mentioned, our order backlog entirety covers our pre-net building our boilers or hydraulics, a combined order backlog number right now, I think what we have quoted is in the last quarter about close to INR 1,000 crores being booked. We expect that to continue and to persist. Forgive me, it's INR 900 crores, my apologies. So we expect that trend to continue. I think everywhere we're looking to scale up. So PEB order backlog in India, our order backlog in the U.S. is healthy enough, but I think there may be some improvements for the coming in as well. We have what we need in order to generate growth because we have grown by about close to about 20% just in the last 3 months in the U.S. from an order backlog perspective. And others as well, boilers is growing quite well. from March now itself, I think there's been a double-digit growth in our order backlog. So we are quite eager to execute that and increase our revenue. Overall numbers, right now, we do not have anything. So we will -- we don't right now have the overall order backlog number.

Sure, no problem. Second question I had, sir, if you have -- if you can give some comment on what drove the margin expansion specifically in the diversified engineering business. I think if I go with some calculation based on the reporting, I think we've almost seen 14% margin from 11.5% last year. So if you can help us understand what drove this and which specific [indiscernible].

I request Shrikant to comment. 11.5% to 40%, I'm not -- I mean, I think overall...

14%.

Okay. Shrikant, if you can take...

Yes. As I've expressed earlier, there are 2 changes that are carried out in the things. And then when you look at this diversified business, there are certain engineering services component to it like that. The revenue for the engineering services component gets included as revenue from sales while the cost comes at employee benefit cost. So the gross margins drill increase will definitely increase during those periods. But overall, we guide you -- we continue to at the similar margins in each of the businesses. The margins have, over a period of time, are growing as we do more and more new business and reduce our old business -- legacy business. But otherwise, we are at the sustained margins where we are.

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

First question, sir, regarding the property. It has been revalued and the difference in revaluation has it been shown in results or it has been shown into the profit and loss account, sir?

I'm sorry, could you say that again?

the investment properties has been increased from INR 25 crores to INR 85 crores. As it's been shown -- difference has been shown in the results or it has been carried to the P&L account?

No. It is directly the addition that we carry out in investment property gets shown separately. These are separate rental income and other things, which will come. So hence, the classification has undergone from property, plant and equipment to investment property.

Okay. There's been a new investment, sir?

Yes, sir.

Okay. Okay. And secondly, sir, the like where is this going saint which segment?

As I've expressed during in call, yes, we totally comprises of the investments that we are putting in our new growth CapEx, which is BIW as well as the -- every year, we have automation, repairs and maintenance CapEx, which is close to around INR 45 crores. So predominantly, we'll go for BIW and repair and maintenance.

And lastly, sir, what is the reason for this muted growth in the fourth quarter in the divested business, sir?

Diversified business is all our businesses in diversified businesses, as I expressed, there are some solar orders, solar revenue that we have had some hit during the quarter, and that's the reason the diversified business has reduced. And this is not part of our prioritized business growth. So we are okay with that decline as well.

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

My question is in continuation to our previous participant regarding the U.S. markets. So a few quarters ago, you had mentioned that the U.S. market is much larger as compared to India. So could you please help us contextualize this opportunity by sharing what is the estimated size of the addressable U.S. PD market? And what percentage of that is our current market share within that opportunity? And what is your long-term percentage ambition over the next

Thank you I'll try to be as succinct as I can. So the U.S. in the metal buildings and metal building component space, which is our addressable value proposition it's actually quite massive. The overall U.S. market size is an excess of $10 billion if you combine both of those. If you were to obviously measure our revenue of whatever million versus that, then obviously, it looks like a very, very low market share. The reason for that is basically the total addressable market versus the -- what we would call what marketing people call a specific obtainable market. So we are present in the South, Midwest Center of the U.S. That's the market we play in. We don't do the east. We don't do the deep south like Texas and others. And we don't do the west at all. So we don't do California. We don't do those states. The reason for that is because of the plant location. As of right now, we have 3 plants in the U.S. catering and 2 of them cater to metal building components. Part of them is in Tennessee, the other 1 is in Alabama. So that gives us the south further expansions, I think, in addressable market -- sorry, in will happen once we move to the west and to the north a little bit. If you do that, then we continue to stay in states with good labor policies with a lot of infrastructure growth that is coming in and that is the sweet spot we are looking for. So based on that, I think we have not started tapping into the massive part of the I don't even think we're catering to even half of the U.S. market as we expand and grow organically and maybe even inorganically, we'll be able to grow that further. So right now, our market share in the U.S. will be very small. It would be sub-3%.

The next question is from the line of [indiscernible] from [ Value Equity ].

Sir, I wanted to know -- I mean, you stated that the PB India capacity utilization is at 70%. So what's our target supposed in the next 1 year to take this to any level higher?

So India capacity by itself. I think we're quite confident in the next quarter itself, we will see substantial improvements in this. As to how high can it go? Well, we are adding some capacity as well, specifically in our fab lines and also in our painting capacity. So overall capacity also will scale a little bit. I think around 80% is certainly achievable for this financial year, and that will be our goal.

Right. And my second question is -- so I mean, if we see the PEB in competitive landscape, the other players are also getting constrained by capacity after a certain point. So -- are you seeing any pricing challenges? Or I wanted to know what are the trends in your average average order size for a PEB order

So the average order size, I mean the larger orders go around INR 100 crores and about INR 5 crores to INR 10 crores is the sand. So there's rocks and the sand, right? So and we need both really. So our average order value is quite healthy. I think I can't speculate as to what that is right now, but I'll get back to you on that number. Pricing, I think it's been more of an issue where our existing order backlog -- I mean most of it is now bound by price variation clauses. So raw metal is shooting up doesn't change much. But I think the recent issues have been with passing on the large price increase in steel. So -- but that's okay. That's a temporary issue, and we pass it on. I don't I think the industry will always maintain the same operating margins that it always had because I don't think there's anything else that can be -- any other interpretation is not possible. So I think margins will hold steady, slight in the last few months maybe, and that I'm sure other listed PEB companies also would have spoken to that. But over the medium term, that will for us all. I don't see an issue there.

The next question is from the line of from [indiscernible] Asset Managers.

So I have a small query. Correct me if I'm wrong, like you have mentioned there will be a growth in the top line by 9% approximate in the single digit. And you have also mentioned that the PAT will grow by 20%. Can you please throw some light on that? Like if the pipe margin will be around 4% and revenue growth will be around single-digit term, how we are expecting the PAT to grow by 20%?

So this is what we've committed to and what a commentary on that margin and anything is. So if you have to apply that margin growth and what we want to achieve -- and we comment that with the baseline commitment that we're making, that won't fully line up, you will get, as you said, a number for revenue growth and not.And I do get what retreat. My suggestion would be to take these independently and not combine them into a larger picture because that just lead to RF. We're confident of revenue and profit growth. What we're communicating is PAT growth of 50% who as a management, we are committing. And over quarter-on-quarter, year-on-year, the PAT margin percentage also will increase as it has over the past 4 years. So continuation of what's been happening for the last 4 years is what we're committing. It's better to be seen in that venue rather than us saying that if it's a 20% growth in PAT, but the PAT margin increases and revenue growth will become something that would be an erroneous way to look at it.

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

Yes. Aditya, this is a question regarding this INR 5 crore of investment in the solar joint venture. If I remember when we did that deal. We very categorially stated that this business, we are done and we have basically divested the assets to the joint venture, and there won't be any more capital infusion from Pennar's side. Is there a change of stand on this proposition?

No, there's -- there's no change in stance. As you would appreciate, I mean, that is -- it's a minor increase in equity. And the reason for that is simple. There's 2 things. One, I think the U.S. dollar has -- I mean the -- the total CapEx for the plant and the plant is about to be commissioned was made at a time and the U.S. dollar was significantly different from the rupee. So as the equipment comes in the conversion, you get it forward cover in some cases, but effectively, some amount of it is left uncovered. And so this price increase is primarily because of that. And there's also been a slight change in terms of the technology which we are using not the expert on the but there's been a change from the previous model -- the base directive that I've been to provide us. This is still a business unit which we hold minority investment in. There's going to be no further CapEx -- there's just the last bit of CapEx that came in because of dollar price appreciated and others. And the plant is about to be completed. So what I will happily guide to is we're not going to come back to you and ask you for a larger another equity investment a few quarters down the line or something like that. So -- this is just something we needed to do to complete the project. And the reasons for that is what I mentioned. The move to is a slight change in terms of the equipment profile and the U.S. dollar, India rate decreasing a little bit and thus adding to the business unit having -- not business, the company is a 91, I think, as any other company, having a little bit of exposure from a U.S. dollar point of view.

That's quite comforting, Aditya. This business is a capital Hungary business. So if you need capital in the future there is a clear-cut way of funding that capital, right, without Pennar investing capital into it. That clarity is there with the joint venture.

That is correct.

Ladies and gentlemen, we'll take that as the last question of today. And I now hand the conference over to the management for closing comments.

Thanks to all of you for your support. As we have communicated, we'll go ahead and execute our plan, and we look forward to this next year being our best ever as well like last year was. Thank you so much for your support.

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