Permanent Magnets Limited ($504132)

Ladies and gentlemen, good day, and welcome to Permanent Magnets Limited Q4 and FY '25/'26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sayam Pokharna IR Adviser at TIL Advisors. Thank you, and over to you, sir.

Thank you, [ Nirav ]. Good afternoon, everyone. We appreciate you taking out the time to join us today on the call. The investor presentation for FY '26 has already been uploaded on the stock exchange and on the company website. To take us through today's results, we have with us from the management team, Mr. Sharad Taparia, Managing Director; and Mr. Sukhmal Jain, Senior Vice President and Chief Financial Officer. We will begin with a brief overview of the quarter and the financial year from Mr. Taparia, followed by a Q&A session. Please note that any forward-looking statements made during this call must be viewed in conjunction with the risks and uncertainties that we see. These risk factors have been outlined in our annual report. With that, I would now like to hand over the call to Mr. Taparia. Over to you, sir.

Yes. Thank you, Sayam. Good afternoon, everyone, and thank you for joining us today for Permanent Magnets Limited Quarter 4 and Financial Year '26 Earnings Conference Call. I will begin with a review of our performance for the past quarter and financial year. Stand-alone revenue from operations for quarter 4 stood at INR 66 crores, an increase of 47% year-on-year. On the full year, stand-alone revenue from operations stood at INR 225 crores, reflecting an increase of 13% year-on-year. While the first half of FY '26 was impacted by lower exports, particularly to the U.S.A., on account of tariff policies and a weaker domestic demand in energy data segment, the second half of financial year '26 created better in terms of top line growth, led by alloys division, along with an overall recovery in exports and steady performance in electricity and meter and automotive applications. The EBITDA margins for the year stood at 17% as against 14% in the previous year. It was aided by a favorable product mix and revenue scale up in the second half of financial year '26. For quarter 4, EBITDA margins came in at 15%, an improvement on a year-on-year basis, with some moderation on a sequential basis. Now on the project execution front, the new furnace in the alloys division was installed in January and commercialized in quarter 4 of financial year '26. It has contributed to the performance during the quarter. We aim to further scale up commercial production in alloys division through the coming financial year, and are also engaging with customers across oil and gas, aerospace and other sectors. On the relays project, we are behind the original time lines. The commercial ramp-up now expected from second half of financial year '27. Testing is currently underway and customer approvals are in progress, both of which have taken longer than our initial expectations. While the facility is almost ready, we foresee commercial business picking up pace only in the later part of this year. For Quantum Magnetics, the Phase 2 CapEx covering block cutting, machining and surface treatment is expected to be implemented in quarter 3, quarter 4 of financial year '27. Additionally, future investments for outer to block manufacturing projects are already under planning stage. Looking ahead, our focus during the coming year is on scaling up commercial operations across our key growth pillars, which are alloys, relays and quantum magnetics. The commercial ramp-up of these projects is expected to drive growth in the coming year. With these updates, I would now like to open the floor for questions. Thank you.

[Operator Instructions] The first question is from [ Parpamesh Diva ] from Orbit Family Office.

Firstly, sir, congrats for the good set of numbers. So I have 3 questions. So firstly, sir, on the rare earths side, like government has recently came out with the PLI scheme, so are we also expecting any incentives from the government in terms of CapEx that we will be doing in the rare earth segment?

We are yet evaluating the scheme, and that decision...

Sorry to interrupt you. [indiscernible], can you mute your line from your side, please?

Yes, sure.

Yes, we are yet evaluating the scheme, and that decision, whether -- or what to do, we will take in the -- in these coming few weeks. There are multiple schemes. So which scheme to apply for that is also one of the things that we are considering.

Understood. Understood. And sir, in terms of the revenues from rare earth, so can you please quantify how much revenues we made in this FY '26? And what was the margins that we've done on the assembly part?

There was no revenue in FY '26 because of the restrictions from China for export of magnets. So we could not do any business in FY '26. So those revenues are expected to start in FY '27.

Understood. Understood. And sir, my last question is on alloys. So we are also expecting, as our new funnels are streamline in Jan. So -- and you mentioned, on the second half of this year, we'll be expecting more ramp-up on this side. So are we expecting more ramp from the Aerospace division? Or it will be more than from the oil and gas and other segments?

Right now, we are looking at oil and gas, more ramp-up, and that is already in commercial production. So that will -- that has already started from now only. So for the second half, we are looking at -- for the relay business.

[Operator Instructions] Next question is from the line of [ Rumit ] from [indiscernible] BMS.

Am I audible?

Yes, sir. Go ahead.

So on this alloys segment, so what utilization are we working on? And like, let's say, in Q4, exit? And how do you see this ramping up in financial year '27?

Sorry, can you repeat that, please, a little louder?

Okay. I was saying, in the alloy segment, what was the exit utilization rate in Q4? And how do you see what kind of contribution can alloys do for us in FY '27 in terms of top line?

So utilization, we installed the furnace in January, and utilization was almost at about 18%, 19%, almost full capacity we utilized until the end of the year. And now ramp up, approximately, as per current estimates, we are looking this year to about, let's say, in financial year '27, to maybe about 3 to 4x what we have done in the last year.

So is it fair to expect that, like whatever ramp-up in terms of, let's say, INR 20-odd crores that you saw incrementally from last quarter and same quarter last year to this year, that is all largely driven by alloys? Is that a fair assessment? And on that base, you...

Yes, yes.

Okay. And sir, in this, you have been talking about the only 2 kinds of products, right? One is the virgin metal and then there's one through scrap. So the volume [indiscernible] is lower margin and the scrap is a bit higher margin. So I mean, where are we on both of these products and like how do you see FY '27 on both these products, like...

In the last quarter, we did more of the virgin metal alloys sales, orders were there more for that product. And in this coming quarter, this coming a year, it's a mix of both, but there is a possibility -- I mean, this is -- sometimes a customer can give a large order for one type of business. So that we will come to know in about maybe at the end of first quarter or maybe in the second quarter of FY '27 and what the product mix is going to be. But right now, in the last quarter, it was mostly virgin material only. Currently, also, we have [ sorting ] virgin using metal is more.

Okay. The margin was slightly lower, right?

Slightly lower, yes, yes.

So [indiscernible] that.

Right. So sir, from a real point of view, you're saying H2 of this financial year, in terms of all the CapEx, et cetera, is it all done? Or like we need to finish the CapEx? You mentioned approval -- yes.

It is ongoing. CapEx is ongoing. The initial CapEx we have done for testing equipment and end of the line equipment, all that we have done, the production equipment, some of it is yet to be purchased. So that is depending on automation and production agreement depends on what orders we click first. So that we will do accordingly.

Okay. Okay. So this just like you had earlier mentioned that like the large part of this product, I mean you have only -- used to have only one customer in smart meters and now we're trying to broad base that and you're not selling this product and is largely imported. So like -- what is the overall size of business that you're looking at, let's say, 2, 3 years down the line once all the approvals from? Like what could be this business look like for you as a line of business? It's a 3 years out, let's say, FY '29.

See the average value per electricity meter can be about INR 250 crores to INR 300 and depending on the customization that we do and also depend on the metal prices, that could be the range. So -- and -- but there are going to be multiple players in this business also. Right now, most of it is imported, but there is a PLI scheme also announced by the government, and there are multiple players also setting up. So we may get a market share, but the total market is quite big. The total addressable market is about, for the entire INR 250 -- INR 25 crore meter replacement, you can say, again, can be about between INR 6,500 crores to INR 7,000 crores. So it can be -- I mean, yearly, on a yearly basis, it can be hundreds of crores on a good peak potential, let's say.

Yes. Got it. Got it. And just last 2 questions. So in terms of one is CapEx for the financial year '27 and on, let's say, 2, 3 years, next couple of years is, what is the CapEx outlay you're looking at because I saw that you've increased your borrowing mix. That was one. Second, specifically for '27, so like can we see a 30%, 40% kind of revenues are purely based on alloys playing up? And anything apart from that on delays or one can be [indiscernible] to it. Is that the right understanding?

I would put the estimate between 20% to 30%, maybe more also depending on the orders that we click in the alloy business and rare earth business. So it is possible that it can be a little higher also, but totally depends. Sometimes -- for example, if you get a large order, then it can jump. So I would put the estimate between 20% to 30% and then plus something maybe.

Okay. And sir, on the CapEx?

On the CapEx side, we have -- CapEx for both the product for alloys, we have done around INR 15 crores -- around INR 18 crores CapEx, and for energy, has been around INR 5 crores to INR 6 crores CapEx. So further in this year, we will -- we are planning to do further CapEx for relay alloy and also for the new plant that we are setting up a factory. -- so as all this CapEx has been in mind.

So like what would be the quantum? And like how are you looking to fund it? because I saw that you have -- yes.

It could be between INR [ 40 ] crores to INR 50 crores for PML itself, another INR 40 crores to INR 50 crores could be the plan in quantum roughly -- the number -- as we go along, we are finalizing the numbers based on the business plan.

But this INR 40 to 50 would be your share then?

For P&L business, it could be INR 40 crores to INR 50 crores. And for quantum business, so it could be another INR 40crores to INR 50 crores.

Yes, for the quantum, by calculation, this INR 40 crores to INR 50 crores would be your stake, I mean your contribution? Or this would be at a 100% level?

Yes. We -- our contribution also, we have the [indiscernible] which is about $5 million, roughly. We will put in -- we are planning to put that in about 18 months' time. So depending on this year, how much we do and a number [indiscernible] we do that we are yet to finalize.

Okay. And is it all through in terms of approval, sir? Or we, taking some...

We will do a combination, maybe in debt and equity, maybe we will do, but we are yet to finalize.

Next question is from the line of [ Nishita ] from Sapphire Capital.

So I just wanted a clarification on the CapEx amount that you just said. So you said that INR 40 crores to INR 50 crores of CapEx on stand-alone basis in PML, and then another INR 50 crores is going to be our contribution in quantum, right?

Yes.

[indiscernible] INR [ 20 ] crores, from this, we will be spending [indiscernible].

Okay. And this new asset dilution, what?

We have around 6 [ plants ] we are in around [indiscernible]. So with the company, all 6 [ clients ] together at one [ plant ], and where we are purchasing them on [indiscernible].

Okay. So I'm assuming the INR 20 crores is excluding the land price, right?

Land and we have already advanced.

Okay. Okay, understood. And my next question would be on the relay schedule. You mentioned that we will start a project by H2 FY '27.So what is the peak revenue that we can expect from that project?

Sorry, what is that, peak?

Peak revenue that we can get from that relays project that will be commercialized in H2 FY '27?

So that -- in this financial year, the current capacity that we are planning to set up, we can expect maybe in FY '27, maybe between INR 25 crores to INR 50 crores, maybe something like this could be possible. But depending again -- it depends on how aggressive -- how many orders we get from the customer, how fast we click the business.

Understood. And this INR 25 crores to INR 50 crores is going to be at what utilization rate?

We are -- this will be -- we are setting up -- so this will be almost 100% utilization only. So we are ramping up. We are setting out the capacity based on what customer forecast. So almost full capacity, let's say. Because we are going to set up based -- the capacity we're going to increase based on the customer needs.

Okay. Understood. So you mentioned that in FY '27, we are also going to increase the capacity at the program to use to increase alloys relays capacity. So that is also based on customer requirement, right?

Yes, yes, yes. And based on customer requirements.

Is our estimate now, yes.

Okay. Okay. Understood. And what if you think there's some outlook on FY '27 and consolidated this on margins and annual retreat?

On a value fund amount, you can consider maybe 20% to 30% depending on what orders we click. Margins at similar level only.

So margin will be at the level of 15% -- 15%, 16%?

Yes -- EBITDA -- yes, roughly at that level, 15%, 17%. 15% to 18%.

15% to 18%, okay. Understood.

[Operator Instructions] Next question is from the line of [ Parpan ] from [ Sushil ] Finance.

My first question...

Sir, sorry to interrupt, can you speak through the handset please?

Yes. Am I audible?

Yes.

And my first question is related to rare earth magnet. As per presentation, the company has set up a 5,000 tonne plant for rare earth magnets. But when will production commence and when can it scale up? And what is the realization going on is the ballpark figure?

So you see, this is a long-term plan to set up 5,000 tonne capacity. We are currently starting with Phase 1 and Phase 2. Phase 1, we already implemented, which was assemblies -- manufacturing of assemblies and sales. Then we go to Phase 2, which is block cutting onwards all operations. Phase 2 is currently under implementation. So that commercial sales we will mostly start by quarter 4 of 2027. So the long-term plan is to do 5,000 tonnes, but that -- every step that we take will be based on what success we get in each implementation of each space. I hope I answered your question. And totality -- in totality, 5,000 tonnes, depending on the sale price. It can range from somewhere between, let's say, INR 3,000 crores to maybe INR 4,000 crores, something like that, 5,000 tonnes.

Okay. Okay. So that is the plan. Okay. And just related to this, as per last con call, this can scale up to INR 3,500 crores over a few years. So is this -- can you put some color on this?

Sorry?

As per last con call, this is just related to the previous one. This can scale up to INR 3,500 crores over a few years. So can you put some color on this?

That is 5,000 tonnes or what we are planning is about, it could be about maybe 30, 31. But that depends -- again, it depends on how the implementation in Phase 2 goes, how the demand is from the market, how aggressively customers want to buy it, are we seeing margins, everything put together. So this is our -- right now, this is the plan, and then it can change based on what the customer needs.

Okay. And my next question is related to debt levels. So debt levels has gone up from INR 15 crores to INR 85 crores. Can you share some light on the purpose of the same?

Sorry, debt level is, what are you saying?

The debt levels have gone up from INR 15 crores to INR 85 crores.

It is 85...

[indiscernible] number from [indiscernible] is around INR 20 consolidated in the...

Okay, [indiscernible] in our subsidiary.

Sir, we lost the line for the participant. We move on to the next participant. Next question is from the line of [ Nan Agrawal ] from [ SIC ] Wealth Management.

Congratulations on the great set of numbers. I just wanted to understand, like in the last con call, you mentioned that the Chinese restrictions might ease after the Q3 or January, February. So has there been any [indiscernible] from the raw material perspective?

No, we did not get any approval for our products that we were importing. So there has been no sale in the last year. But we see that customers are now moving away from the heavy rare earth to light rare earth options. And that you are seeing a lot of customers doing that. So that will probably help in future.

So the SMB turnover, which you were expecting of around INR 5 crores to INR 10 crores, is there any update on that?

You're talking about FY '26?

FY '27.

FY 27, we will -- because now we are implementing Phase 2, so that will happen by July to November sometime. And then after that, December onwards, sales should start. So that we are estimating maybe about INR 10 crores to INR 15 crores, something like that.

It may happen in the -- in quarter 4.

Next question is from the line of [ Vivek Shed ], Individual Investor.

One question regarding the revenue guidance and the breakup and the various sales that is our Quantum Magnetics, alloy division and the existing business. What can we foresee in financial year '28, '29 and '30?

'28 will depend -- that guidance we can give in -- I mean in the coming year, we are expecting a large sales of alloy division and some start of the relay division also in second half. So depending on that performance and the capacity utilization, we will make plans how aggressive we want to be in FY '27, '28 and '28, '29. But currently, the indication is good, and we feel that it can scale up quite well. I can't comment exactly on the numbers.

Actually the last 2 years, we have been expecting the commercialization and ramping up to happen, but it's been actually a very [indiscernible], I would say.

Yes. We were expecting it to implement much earlier. We were expecting the relay to start much earlier, that did not happen. So it has -- being delayed to that extent, yes.

Okay. Sir, one more question. What is the competition that you are seeing in the magnetic as well as the oil division in the listed space in the year?

In Oil division, there are a few companies and -- but the companies have different capacities. So we are targeting getting a certain size, smaller capacities also we are targeting. So -- but we are also doing some import substitution. So we are choosing our markets that way.

[indiscernible] lack of clarity, we do not have any metrics to compare where the company would be in the next probably 2 or 3 years. What about the magnetic division, what is the competition that you have?

No, sorry, can you repeat that?

What is the competition that we have in the Magnetic division? In the listed space.

Magnetic division, you mean to say the rare earth?

Yes, yes. Quantum Magnetics.

Quantum Magnetics, there are multiple companies who are planning to set up, and they are all applying -- some of them are applying for PLI. There are big players also. So that is -- that competition is yet to come. But we understand that...

Have we applied for it?

No, we have not applied -- we are looking at our options. There are -- we expect about 5, 6 companies, maybe they will set up.

Okay. Then in the opening, you said that the EV demand has been slow. So I was just checking yes, the U.S., there has been a slowdown, but the Europe market has rebounded in the last financial year. As well as the smart meter business in India, I was in to the results of [indiscernible], they are showing growth. So why is our business not showing up going accordingly in line?

For the EV business, our supply is mainly to European companies and American companies. We understand that the major growth is being taken up by Chinese companies for EVs. So we did not experience orders for our products that we are selling currently to those platforms. However, some of those platforms are now getting implemented in India also for EV. So in future, it may increase. But in totality, I feel that the Chinese EVs are far more -- they are coming in far more aggressively. So that -- we do not have any business for the Chinese EVs.

And are we not planning to do any business with the Chinese EV companies in the future?

There are some Chinese companies who have Indian collaborations. For that, we are planning to make some products, and we are already developing some products. But to sell in China, we have not been able to sell anything in China yet.

Next question is from the line of [ Mihir Taka ] take from [indiscernible].

I just wanted to know the reason behind the huge jump in the debt figure?

The debt numbers are consolidated -- on a consolidated basis. The major reason is that we took an ECB of $5 million [indiscernible] subsidiary. That is the main item.

Okay. And the other thing was like -- I'm fairly new to the company, and I just wanted understanding of the business. And in that sense, I tried to reach out to the company in the first week of March for an off-line meeting. So would it be possible for you to arrange an off-line meeting because I have been trying to reach and nobody was responding.

Yes, please send an e-mail, we will reach out.

Yes. I've already sent a mail in March. I'll send again.

Next follow-up question is from line of Nishita from Sapphire Capital Partners.

So I just wanted to understand like is it possible for us to ramp up to [ 100% ] utilization in H2? It is like a start commercial for relay in H2, and you mentioned that we reach 100% utilization also in that period of time. So is that possible? And if so, what is the growth driver for such fast count?

We are setting up the relay plant phase-wise. Our first investment is going to be for 5 million capacity. Then we will increase it to 10 million capacity depending on which orders we get, the relays or customized relays, each relay design, basic relay remains the same, but there is customization for each customer. So accordingly, we have to set up the capacity. So -- and we -- our pilots get built and those are successfully tested in the customer, then the ramp-up will happen. And accordingly, we will increase the capacity.

Right. But you mentioned like from the commercial project from the plant, capacity will commercialize in H2. You mentioned that we will be able to do a revenue of INR 25 crores to INR 50 crores, and that is at 100% utilization. So I just wanted to understand that this is the flavor. So from 5 million capacity, we can do revenue of INR 50 crores and that will be able to do in H2, right?

Yes, that is our judgment of sales that we will do after September. That is the judgment today. Now it can change based on how early or -- how early the customer adopts and whether they want to ramp up faster or slower, that may change. So that is our judgment today from the indication that we have from the customer.

[Operator Instructions] As there are no further questions, I'll now hand the conference over to the management for closing comments.

Okay. Thank you very much all for participation and your support. Thank you.

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