Pennar Industries Limited (513228) Earnings Call Transcript & Summary

Good morning all. Good morning, ladies and gentlemen. I'm Mirza Mohammed Ali Baig, Company Secretary of Pennar Industries Limited extend a warm welcome to all the members of the 50th Annual General Meeting of Pennar Industries Limited. The Ministry of Corporate Affairs and the Securities Exchange Board of India, [indiscernible] respective circulars, have permitted the conduct of AGM through video conferencing, other audio-visual means without the physical presence of the members at the common [indiscernible] In compliance with the provisions of the Companies Act 2013, the SEBI listing regulations and applicable circulars issued by MCA and SEBI, this Annual General Meeting of the company is being conducted through VC. The company was availed the services of KFin Technologies Limited for providing the facility of remote e-voting, participating in the AGM through a video conferencing and e-voting during the AGM. The detailed procedure for remote e-voting, participation in the AGM through VC, and e-voting during the AGM has been provided in the notice of the Annual General Meeting. While most of the members may already be familiar with the participating in AGM through VC, I would request you to spend a few minutes to take note of certain procedural and technical aspects for the smooth conduct of the meeting. The facility to join the AGM through video conferencing is available on first-come, first-served basis. All members joining the meeting [indiscernible] by default being placed on mute to avoid background noise and to ensure the smooth and seamless conduct of the meeting. Once the question-and-answer sessions conducts, [indiscernible] the names of the speakers who have registered themselves as speaker shareholders will be announced one by one. The audio of the respective speaker shareholder will thereafter be unmuted by the moderator. When invited to speak, the speaker shareholder is requested to click on the video on button only once and wait for the video to be activated. If for any reason [indiscernible] good to join through video, he or she may participate through audio mode. While speaking, members are requested to use earphones wherever possible [indiscernible] to clear audio, minimize background noise, and ensure that the Wi-Fi connection is not being used by multiple devices. Close unnecessary background applications and ensure the adequate lighting for the better video experience. In case a speaker shareholder faces any connectivity issue, the next speaker will be invited to speak. Once the connectivity issue is resolved, the earlier speaker shareholder may be given an opportunity to speak after the other registered speaker shareholder have completed their turn. We request the speaker shareholders to speak slowly and clearly so that their questions and comments can be captured correctly. Members are also requested to restrict their speaking time to 3 minutes. In case of any member faces a technical difficulty during the AGM, he or she may contact KFin Technologies' helpline number provided in the notice to AGM. I now request Mr. R. V. S. Ramakrishna garu, Chairman of the Board of Directors and Chairman of Stakeholders Relationship Committee, to take the chair and conduct the proceedings of the AGM. Thank you, sir.

Thank you, Mirza. A very warm welcome to all the members to the 50th Annual General Meeting of Pennar Industries. I think this is a very significant meeting. Since the requisite quorum is present, I declare the meeting duly constituted and in order. I would like to introduce the directors present at the meeting. Mr. V. S. Parthasarathy, Chairman of the Audit Committee; Mr. Chandrasekhar Sripada, Chairman of the Nomination and Remuneration Committee and CSR Committee; Mr. Aditya Rao, Vice Chairman and Managing Director. I would also like to introduce the Chief Financial Officer and the auditors present at the meeting. Mr. Shrikant Bhakkad, Chief Financial Officer of the company; Mr. Prakash Bhutada representing the statutory auditors; Mr. M S K A & Associates Chartered Accountants in Hyderabad; Mr. M. Ramakrishna representing the internal auditors, Mrs. R. Krishna & Associates, Chartered Accountants, Hyderabad; Mr. Subhash Kishan Kandrapu, Practicing Company Secretary, and Secretarial Auditor of the company. Since this Annual General Meeting is being conducted through video conferencing and other audio-visual means pursuant to the applicable MCA circulars [indiscernible], the facility for appointment of proxies by members is not applicable. The statutory auditors' and the secretarial audit report are taken as read. There are no qualifications in the statutory auditor's report. The statutory registers and other documents required to be made available for inspection by members under the Companies Act 2013 have been made available electronically. Members requiring any assistance in this regard may contact the Company Secretary at corporatecommunications@pennarindia.com. The members may also access the message uploaded on the website of KFin Technologies Limited. I now request Mr. Aditya Rao, Vice Chairman and Managing Director, to brief the members on the performance of the company and its future initiatives.

Thank you, Mr. Chairman. [indiscernible] presentation have an overview and the presentation [indiscernible]. Okay. So to all the stakeholders, it's a pleasure to address all of you at this Annual General Meeting. I would like to begin by thanking all of our shareholders, all of our customers, employees, partners, vendors and the communities in which we operate for their continued trust in Pennar. For Pennar, this year represents a new beginning. We have strengthened the foundations of the business. We have sharpened our strategic priorities. We have created an organization that I believe is capable of sustaining double-digit growth over the coming years. Pennar has considerable headroom for growth. The markets we are present in are significantly larger than our current scale, our current market share and our capabilities continue to expand. Our international presence also has become quite robust and represents [24.1%] of our overall revenue. And as we look forward towards 2030, we have set ourselves important aspirations. We want to build Pennar into a INR 10,000 crore enterprise while improving profitability and ensuring that our return on capital employed and return on equity also improves. There are 5 key messages, 5 takeaways that I would like to leave all our stakeholders with today. The first takeaway, we are building Pennar for sustained double-digit growth. Growth is at the heart of our strategy. There are 5 business verticals that Pennar has chosen for growth. These include our engineered buildings business in India and in the U.S., our body-in-white automotive components business, hydraulics and industrial components, process engineering. Also engineering services as the backbone underlying all of these verticals. So we will invest our capital, our management bandwidth and our technological capabilities to grow in these areas. Our growth is not -- our objective for growth is not the next 1 year or the next 2 years, but sustained consistent growth over the next many years by taking advantage of the large addressable markets we have in these seeds/segments [indiscernible] and ensuring that we have good quality assets, good quality capabilities that are being built up. It's the same path we've been on for the last 5 years and has served us well by taking us from about INR 1,000 crores in gross sales to about INR 4,000 crores plus in gross sales. And I'm quite confident that, that same pathway will take us to the goals we have set for ourselves in 2030. The second takeaway is our growth in global markets. We no longer see Pennar as an India-focused company. We look at Pennar as a global company. So for most of our history, we've been an Indian manufacturing firm based in an increasingly global world. Today, however, we have manufacturing, warehousing, engineering capabilities across India, the United States, Europe, and UAE. Our priority markets for growth over the next few years are India, the U.S. and Europe. Across these geographies, in these chosen business verticals, which I spoke of, the 5 business verticals, we see an addressable opportunity -- addressable market opportunity of more than $10 billion. So our current share of this opportunity is quite small. This is precisely why we believe that merely by standing up good quality assets, we will be able to ensure growth, build it, and our customers will come. Third takeaway is that our growth must create returns, not merely revenue. Scale by itself is not our objective. We want Pennar to become larger, better, more profitable. And most importantly, foundational to all of this is capital efficiency. Our annualized ROCE currently stands at 22% approximately, while ROE stands at around 12%. Over the longer term, we aspire to achieve 30% ROCE and 15% ROE. As we progress towards our 2030 goals, capital allocation will continue to remain disciplined. Every investment we make, whether in capital or working capital, must contribute to stronger margins, better cash generation and superior returns on capital. So the combination of double-digit growth in revenue and profitability and improving capital efficiency will, we believe, create a lot of shareholder value for all Pennar stakeholders. We will [indiscernible] good takeaway I want to communicate is that we will communicate better with all of our stakeholders. As Pennar enters its next phase, while we have many plans or a lot of plans internally, we want to fundamentally improve the way we engage with our shareholders. This focuses goes [indiscernible] on Investor Relations. I would mean all of our stakeholders, including analysts, the larger investor community, our employees and vendors and customers as well and also the people we partner with as we grow Pennar. For the investment community, specifically, we are looking at improved research coverage, better investor interactions, analyst conferences, which we will [indiscernible] conduct on a regular basis and better narrative, better communication is what we [indiscernible] committed -- the fifth takeaway that I would like to commit is finally a stronger organization. Strategies by themselves do not deliver results. A big challenge ahead of the last 5 years is not the market opportunity is not our presence or -- in these markets is execution. So we are systematically investing in the leadership team and our talent team processes and what we will need to put in place, the foundation and also the assets we will need in order -- the human capital assets we will need in order to ensure that these plans become reality. So we are strengthening our org structure, next generation of leadership, greater accountability across all businesses. We are also embracing AI and automation. We look at it not in terms of just automating our workflows, but fundamentally changing the way our company does business as well. This has a large impact on our engineering services revenue streams and also our automated manufacturing and mass production in automotive components and in hydraulics. So technology will transform the way we operate that much is clear. That's true not just for Pennar, but for the larger engineering universe we are present in. And our people will remain fundamental to Pennar's strategy. So our objective is to combine strong human leadership, powerful technology, including the latest in engineering, in AI and in manufacturing technology to create a faster, more innovative and more resilient organization. So together, all of these 5 initiatives represent a new beginning for Pennar. We have a clear destination. We want to hit INR 10,000 crores as a revenue target, good quality growth. The quality of the journey matters as much as the destination [indiscernible] to build Pennar that is resilient, global, capital-efficient and also more responsible. And of course, our end goal is to ensure stakeholder -- shareholder value creation for everyone. And I thank you also for the trust that everyone has placed in Pennar. To all of our long-term shareholders, I am very grateful for the support that we have received from you. Without your guidance, we would not have reached where we have reached so far. And I believe our best days are ahead of us. Thank you so much.

I understand that 5 members have registered themselves as speaker shareholders. I now call upon the registered speaker shareholders in the order in which the requests were received. Name of the speaker shareholders Yogesh Kumar J, Sudhershan Surender Lodha, Shraine Kumar, Ajay Kumar J, Yerrvalli Venkat Rao, and Suraneni Jhansi Rani. After all the registered speaker shareholders have been given an opportunity to raise their queries, the Chairman will respond to the queries relating to the matter that are [indiscernible] Vice Chairman and Managing Director will respond to queries relating to the company's business operations and other technical and operational matters. After the completion of the question and answers session, Mr. Aditya Rao will hand over the proceedings.

I request our first speaker, Mr. Yogesh Kumar Jain from Ajmer, Rajasthan [Operator Instructions]

What were the key highlights of the company's performance during financial year -- during the financial year?

We take all the questions, then we will give an answer for all the questions of the speaker so that will be [indiscernible].

I now invite our next speaker Mr. Sudharshan. [indiscernible] Maharastra [Operator Instructions] I now invite Mr. Shrain kumar Abhay Kumar Jain from Yavatmal, Maharastra [Operator Instructions]. I now request Mr. Yerravali Venkatrao from Hyderabad Telangana [Operator Instructions]

So my question was, so what is the expected time line for the completion and the commercialization of the current ongoing projects?

I now invite Ms. Suraneni Jhansi Rani [Operator Instructions]. I invite Mr. Shraine Kumar [Operator Instructions] No feedback received, sir. I hand it over to you.

Okay. So there are 2 questions. The first one was what were the key highlights of the company during the financial year. So I will start with financial and then give other highlights. Financial year, our total income increased 12.5% [indiscernible] from INR 3,263 crores to INR 3,666 crores. This is net sales. Our EBITDA increased by 13.4%, which is INR 347 crores to INR 401 crores. Our PAT increased from INR 119 crores to INR 138.33 [indiscernible] crores, which is a growth of 16.2% and our cash PAT increased from INR 188 crores to INR 223 crores, which is an 18.4% growth. We do a presentation, which goes into some detail in terms of what drove that growth. But the financial metrics, these are the -- this is the common [Audio Gap] the key highlights. The next question was what is the expected time line for completion of ongoing CapEx projects, ongoing projects, which I interpret as CapEx projects. So the major CapEx projects we undertook is one was our Hyundai BIW plant commissioning, which we had commissioned earlier this month. It has now entered what's called as LP2 clearance, which means that the parks are being tested for mass production. Within the next couple of months, we will intend to enter mass production stage. And we have high hopes that come January, this will result in the revenue of that business expanding at a very high rate. We have received clearance for quality testing and other procedural steps from Hyundai. So we're quite confident that, that business unit and that CapEx project has been commissioned well and will ensure revenue and profit growth for us. The other project which we have completed is our structural plant acquisition in the U.S., Telco. It has now started delivering at a very high capacity utilization. And partly because of that and also because of growth in our standard Ascent Buildings business, our overall revenue growth in the last quarter and this quarter, as we have reported publicly are quite high in excess of 30% from a revenue standpoint. So apart from that, we have projects underway for capacity expansion in the EV business because our order backlog has expanded at a very quick pace, both in India and in the U.S. We are also looking at expanding our engineering capacity. We have opened a new engineering center in Chennai. So our other larger projects which are underway across other business verticals, revenue verticals are in line with our strategic plan to grow on those 5 vectors. Order backlogs are strong across all of our businesses. With the exception of Hydraulics, no other business unit has seen any decline in order backlog. So the market is healthy. We are expanding our asset base and revenue and profit growth are, we believe, are patent [indiscernible]. On the matter of Hydraulics, the issue at hand is the relative tariff rates and the uncertainty in the tariff rates with respect to the U.S. Our largest business, the vast majority of our Hydraulics business is exported to the U.S. So that one -- in that one business, we do have -- since there's a lack of clarity, we have consciously taken the call to restrict order backlog in that business. We are building a stronger business development team. We've onboarded new resources in the U.S. We are also, perhaps a little counterintuitively increasing our product development capacity in India. The intent for this is to, one, ensure that at some point of time, the policy confusion eases and we get a clearer idea of what the rate is going to be. But even if that does not happen, we do want to expand in Europe and in India. Therefore, a larger product development team will help us do that. There are several large opportunities in Europe, which are shaping up. So our hope is that in the next quarter or 2, we should be able to not have Hydraulics as an outlier. With the exception of that, across PEB India, PEB U.S., our process and boiler equipment business, our order books are at a record high, and we are quite confident that this will lead to sustained improvement in our financials.

I request Suraneni Jhansi Rani [Operator Instructions] proceed with the question? [Operator Instructions]