Shilchar Technologies Limited (531201) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Shilchar Technologies Q4 and FY '25 Earnings Conference Call hosted by Avendus Spark. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ravi Swaminathan from Avendus Spark. Thank you, and over to you, sir.

A warm welcome to the Q4 FY '25 Earnings Call of Shilchar Technologies. To take us through the results today, we have with us from the management, Mr. Alay Shah, Managing Director; Mr. Aashay Shah, Executive Director; Mr. Aatman, Manager Operations; and Mr. Prajesh Purohit, the CFO. We will start with a brief opening remark on the business performance of the quarter and full year from Mr. Alay Shah and then open the floor for Q&A. Thank you, and over to you, sir.

Hello, everyone, and good evening. I'm Alay Shah, Managing Director of Shilchar Technologies Limited. Thank you for joining us today. Before we open the floor for questions, I would like to provide a brief update on our performance for the quarter and the full year. I'm pleased to report that, both Q4 and year '25 have been exceptional for Shilchar Technologies, with strong results across all key metrics. Operationally, we achieved significant milestones, including the successful commissioning of capacity expansion in month of August, and a subsequent ramp-up in production in the following quarter. Notably, we reached full capacity utilization in Q4, well ahead of our original target in year '26. As a result, we delivered our highest ever top line and bottom line performance, both on a quarterly and annual basis. This robust revenue growth has driven positive operating leverage, while maintaining healthy gross margins, leading to a marked improvement in our EBITDA and net profits. The transformer industry continues to benefit from several favorable trends. India's electricity consumption is rising and is projected to peak at 273 gigawatts in June '25. Investments in generation capacity, across both renewable and conventional source remain very strong, complemented by significant capital expenditure in power transmission and distribution sector. Sub-segments such as renewable, including solar and wind are poised for continued growth, supported by the Government of India's ambitious plan of 500 gigawatt green energy road map for 2030. Given this demand trend, there is potential for further investment in our manufacturing capacity. While we have not yet finalized specifics, I want to assure you that, Shilchar is fully prepared to capitalize on the emerging opportunities in the transformer sector. For the immediate future, our focus remains on optimizing existing operations and consolidating our recent gains. I would also like to address, the recent update regarding reciprocal tariff by the new U.S. administration. As of now, there are no reciprocal tariff on the export of transformers from India to U.S. And thus, there is no immediate impact on Shilchar's exports. We will, however, closely monitor the situation as the 90-day tariff pause concludes, and we'll adapt our strategy should any change arise. Our outlook remains positive for both domestic and export markets, though we expect the domestic business to experience higher growth in the coming financial year. Accordingly, we anticipate somewhat greater share of domestic revenue in the upcoming financial year. Finally, in recognition of this year's strong performance, the Board has recommended a final dividend of INR 12.5 per equity share, subject to shareholders' approval. Additionally, the Board has approved the equity bonus issue, 1 new fully paid up equity share for every 2 shares held by eligible shareholders. In conclusion, we are optimistic about the future and remain committed to achieving our growth objectives while maintaining operational excellence. Thank you for your attention. I would now like to open the floor for your questions.

[Operator Instructions] The first question comes from the line of Abhi Jain from AJ Capital.

So a couple of questions, sir. One is, I discussed it last time on the con call also. What are the plans on listing on NSE? Because last time you said that, in the fourth quarter of FY '25, you would plan to do that. But since we have passed that, so I wanted to understand that.

Yes. So that plan is already. So for NSE listing, we need to have a minimum INR 10 crores of paid-up capital, which we will be eligible by giving this bonus share. So once the bonus shares are issued, our authorized capital will be INR 11.44 crores. And after that, we will be applying to NSE for the listing.

Okay. Sir, second question was, obviously, you have covered in your presentation and in your opening remarks also that the current situation with the U.S. tariff is moving and it is -- nobody can certain right now what will happen. But I just wanted to understand that internally, have you come up with a mitigation -- risk mitigation plan? Are you thinking of derisking? Are you thinking of reducing your reliance on U.S. in terms of revenue? Because domestically, the demand that is there and all the other competitors of yours who are more focused on domestic market, I mean, the demand is there, and you might have also been seeing it and witnessing it. So there are a lot of options available in terms of derisking from U.S. So just wanted to understand from your perspective, what are you doing?

Yes. So, I mean, we have our own strategy. Suppose after 90 days, if there are tariffs levied off from export of transformers from India to U.S., I would not like to go much in detail. But I mean, we are very confident that we will -- our business will not be that much affected with those tariffs. I mean, we are very well placed in terms of our product, our quality, our service with our customers. And also, the North American sales is only like less than 20% of our total revenue. So rest is all other countries and domestic market. So there will not be any significant impact.

Final question, sir. Given that, the outlook on the industry is pretty strong and everyone in the industry is currently seeing more demand than supply, and obviously, you have also indicated something to the tune of same. And you have also indicated that as and when it is necessary, you will disclose to the shareholders in terms of our expansion plan. But I just wanted to understand that since you're already achieving your capacity utilization before time, what is the probabilistic capacity expansion that you're looking in the next 12 to 18 months? Currently, you are at 7,500. So how do you see it ramping up in the next 12 to 18 months? Just a glide part would be helpful.

So we have still not finalized the concrete plan, but we are already working on the expansion that how we would like to do it, till what capacity we want to do it and what is the maximum rating which we would like to have with this new capacity. Everything is going on in detail, and we are also working on the budgeting, what will be the cost, what will be the land area which will be requiring, all those things. Once everything gets finalized and once we are ready to start the expansion project, we will definitely come back to all our shareholders and give presentation with complete details.

I like your candor and honesty. Just wanted to tell you that, if we can have these con calls every quarter, that would be helpful rather than having it after 6 months of it, sir.

Sure, we'll keep in mind. Yes, thank you.

[Operator Instructions] The next question comes from the line of Ninad Sarpotdar from Aditya Birla Money.

Yes. So I wanted to ask the first question regarding the TAM, the addressable market. Like you discussed in previous con calls, for taking a hypothetical number, say, for 1 gigawatt of solar energy, you need 1 gigawatt of transformation power. And -- am I correct? Is that the right ratio?

Yes, that is the right ratio.

And your product is only installed at the generation point. Ideally for transformation, it's at the generation point and as well as the end consumption point. So if you put up a 1 gigawatt solar energy per se, so you will need 2 gigawatts of transformation power. Is my understanding correct? So your time is half because your product is put at generation point? Just wanted to know.

No. Actually, I don't understand your question, technically what you are trying to say. But what I can explain you is that, our transformers are used for generating voltage and they are stepping up the voltage from the solar panel, which are like 800 volts or 700 volts to 33 kV volt. And those 33 kV volts are feeded into the grid. So against 1 gigawatts of generation, the total capacity of transformer required is 1 gigawatts.

Okay. So that's for only stepping up the power, right?

Correct, yes.

And for stepping down also, you need transformers, like on the opposite end, right?

Yes. But that is at the consumer level, or at the substation level, distribution level or substation level.

So that's the product you don't -- you are not into. Understood, understood. And sir, second question that, since now U.S. is focused more on the conventional power and they have shifted their focus from renewable development or growth, do you see any demand fluctuations from that market? Or how is the export scenario looking for U.S.?

No. Right now, the U.S. market is very, very robust, and there is a lot of demand in all segments. And we are not specific to any one segment for our export business. So we cater to all kind of transformers.

Okay. But your 60% sale is from inverter duty transformers, right?

That is for local business.

The next question comes from the line of Mahesh Bendre from LIC Mutual Fund.

Sir, I just want to understand the opportunity for us in terms of step-up transformer requirement in domestic market and export market. What kind of inquiry flows you are witnessing right now? If we have to look for next 12 to 18 months, what kind of opportunity is going to come on our way?

No. So demand is very strong in both the domestic market as well as for export market. And we are flooded with inquiries and we have at present a very good order position, orders on hand. So I don't see any downfall in the demand in coming -- near future.

In terms of -- I mean, do you see a strong demand in domestic market? Or is it both domestic and export side, we are witnessing the same?

No, we are witnessing the same very strong demand in both domestic as well as in export market.

Yes. Because what we are currently witnessing is in the transmission side, there is a huge demand for transformers across 400 kV. So when we look at the distribution transformer, is it the solar is the only driver? Or is it some other CapEx that is coming up in distribution side that will drive the growth?

So locally, we don't supply any distribution transformer. We only supply locally the solar IDT transformers and wind transformers, and some power transformers for stations.

The next question comes from the line of Samyak Jain from Marcellus Investment Managers.

My first question is, so if I recall our discussion in quarter 2's con call, so you had mentioned that, you will be finalizing the CapEx plans for expansion plans by Jan '25. So just wanted to understand, if we have so strong demand visibility, why haven't -- like what are the reasons that the plans are still under discussion stage? So, just wanted to know your thoughts on that.

We are already working on the -- all the data's and drawings and what kind of capacity we want to increase, what will be the cost, what kind of land which we will be requiring for this new CapEx. We are going a bit slow because we are a bit conservative. We want to make sure that any expansion we do has to be manageable and sustainable. And -- but the plan is already going on. And at the right moment, we will make a formal announcement.

Got it. Sir, just a follow-up. So I believe once the plan is finalized, it will take a year's time for the capacity to go live. So, do you foresee any loss of revenue or loss of orders due to any delay in finalizing the investment plans? Is there a case -- is there a chance of any loss on that front?

I don't think so. Because once the plant is ready, much before that, we will start marketing for that particular plant and acquire the orders. I don't think, there will be any loss of any orders.

Understood. And a follow-up to a previous participant's question, so you mentioned that for your expansion plans, you are also considering going for a higher rating transformers. So does that mean that, you are going for higher KVA transformer? So just wanted to understand a bit more about what's the plan on that front?

Yes. So again, it is not finalized, but we are considering higher MVA and higher KV class of the transformer.

The next question comes from the line of Sunil Jain from Nirmal Bang Securities Private Limited.

Yes. Just to confirm, once you decide on the expansion and put up -- start making this implementation, how much time it will take for first production to come?

Yes, it will take anywhere between 12 months to 18 months to complete the project and start the production.

And since you have done recently expansion, so land is already there or you need to acquire additional land?

No, we already have a land. We have 17 acres of plot and hardly 40% is utilized so far. So we have an ample land for further expansion.

Yes. And say then, other utilities like connectivity to grid and all will be available?

Yes, that is already available.

Okay. Fine. And this order book, can you quantify? Is it possible how much is the order book or no?

So at present, I think our order book is close to INR 400 crores.

The next question comes from the line of Prolin Nandu from Edelweiss Public Alternatives.

A couple of questions from my side. On the state of the industry, right, while you are thinking of capacity expansion, a lot of your peers have already announced capacity. And I was looking at, let's say, some of the top 10 players are expanding capacity in the next 3-odd -- 3 years by almost 50%, right? So do you see a condition in the market where there is an oversupply and there could be some pricing power? Could you help us understand that a lot of players are expanding capacity and you are also probably thinking of doing it, so how -- I mean, is there a high probability of oversupply in the market in, let's say, next couple of years? And could that lead to some sort of a high competitive intensity and pricing erosion in the market?

So I mean, we were ahead of all our competitors. We have already done our first expansion and started production in full swing. What we are talking right now is the second phase of expansion where all our competitors are still doing their first phase of expansion. Yes, everybody is expanding. So there will be a huge capacity coming in the market in next 2 to 3 years. But at the same time, the government data shows that there will be a huge demand for the transformers also because there will be a very huge demand for the power and government is doing their best to meet this power demand. So it's very difficult to say, but there will be a lot of production [Technical Difficulty] and there will be lot of demand also.

Okay. Understood, sir. Sir, my second question is that one of your peers have gone for backward integration in terms of lamination of CRGO, right? So is it something we are also probably thinking to do? And if not, we are fine with our vendors who are doing it for us? Can you help us understand what could be the -- I mean, when you will think about backward integration on this aspect? And is it critical to -- for you to probably move into higher KVA? Is this backward integration one of the important things that needs to be done?

So personally, I feel that this backward integration is not required at all because there are enough suppliers of laminations very close to our city, Vadodara. So -- and we are able to get -- we never face any shortage or any supply problems of lamination from any of them. So personally, I feel that we should concentrate on our product transformer and not raw material [Technical Difficulty] in-house where our model is only to manufacture transformer and get everything from outside.

Understood. And can I ask one more question, sir, if that's okay with you?

Yes, go ahead.

Yes. So sir, in the export market, right, where some of your transformers also go for the export market and probably U.S. is one of the key markets that you also highlighted to the previous participant's question. Could you help us understand that in U.S. market, what could be the share of transformers which are coming from, let's say, China? And because of this tariff issues, do you see an opportunity for some of the Indian players to probably gain market share in U.S.?

Yes. So as far as U.S. market is concerned, there are no Chinese transformers going into the U.S. market because there are tariffs on that product since last so many years. But there are other countries which are exporting transformers to U.S. market. And of course, there are a lot of opportunities over there.

The next question comes from the line of Balasubramanian from Arihant Capital.

Congratulations for good set of numbers. Sir, you mentioned about North America sales are less than 20% of revenue. I have seen the presentation, could you please share the exports breakup for these 5 continents: America, Europe, Middle East, Africa and Asia for FY '25?

Yes. So I don't understand your question.

Sir, for exports, we are supplying to 5 continents, America, Europe, Middle East, Africa and Asia. And like if you could share approximate exports breakup for these countries -- for these continents?

I cannot give you a precise number, but at least I can say that, North America is about 20% of our total export and the rest is around 80%, mainly Middle East and North Africa.

Got it, sir. Sir, on that CapEx front, I'm looking at the historical data, it took first 18 years to achieve 1,000 MVA to 4,000 MVA and from 4,000 MVA to 7,500 MVA, it took only 6, 7 years. So based on the historical CapEx capacity expansion, so whether we can able to take another 3,000 to 4,000 additional MVA next 3, 4 years? Is that right assumptions we can look at?

Yes, there is a possibility.

The next question comes from the line of Arpit Shah from Stallion Asset.

Congratulations, Alay. You have just done a fantastic job executing such a large number of transformers. Just wanted to understand how sustainable is this number of INR 220 crores on a quarterly basis? Or you think this number has been led up in anticipation of a tariff to be raised and leading to higher orders in the last 15 days of the month? So I just wanted to understand how sustainable is the INR 220 crores revenue number going ahead?

So first of all, I mean, the tariff issue started only from first week of April, and we cannot pull off numbers in anticipation of tariff in last year. So that is the wrong assumption on your side. But I mean, if you look at our track record, I mean, since last 11 quarters, we have been performing very consistently as far as our margins are concerned. And I'm sure that, we'll continue to do that. That will be our goal to maintain this profitability or improve it.

Got it. So you've continued to surprise us with 28% margins. Now we have come up about with 31%. So how should we look at this number going ahead? And should it continue to go higher? Or this is the number that you will be looking as a sustainable run rate?

Are you talking about the EBITDA margins [Technical Difficulty]

Yes, EBITDA margins, EBITDA margins.

Like I said, we will try our best to maintain this or maybe even improve it. Why not?

Got it. And you will be looking to double the capacity or you will be looking to announce it in a month or so?

Like I said, we are still working on it. At the right moment, we will give you all the details.

And what is the aspiration that you're looking at? What kind of ambition you're looking at in terms of numbers to build in? How big do you think in terms of what kind of PAT targets you have, maybe let's say INR 500 crores PAT number, meanwhile, whatever it will be.

So again, depends on the complete project viability. We are working on numbers. And once we finalize that, okay, this is the capacity which we want to increase and this is the CapEx which we want to incur for this increase in capacity, we will give you all the numbers that and what will be the revenue from that and what will be the PAT.

Sir, I was just trying to understand…

Right now, it's very difficult to say.

Sir, I was just trying to understand one thing.

Sorry to interrupt, Arpit…

Just one question, this is [ Amit Jeswani ]. Just one question. Just trying to understand one thing, sir that [Foreign Language]. So it's only INR 30 crores the last time we spent CapEx. Even if we double capacity and assuming you go wrong, okay, you lose probably 1 quarter of profit. [Foreign Language]. So why so conservative in capacity addition? Just trying to understand.

So like I said, I mean, I said this earlier also that any expansion has to be manageable and sustainable. Why are we doing the best EBITDA, why our company is having the best EBITDA margin in the industry among all our peers? So we are doing something which -- something extraordinary, which we would like to maintain it.

Right. So competition cannot come in basically that so easily in our products, even if they're assuming there's a market out there, we are not -- like even though we are not increasing capacity very fast, we don't -- we are not scared that some other competition will come and take our market away.

So we are increasing capacity fast. Like I mean, we did increase our capacity from 4,000 MVA to 7,500 MVA, and that was only in this year. So further expansion, we will be doing it. But again, like I said, we are working in detail with all the numbers, and we'll inform you at the right moment.

The next question comes from the line of Aman Soni from Nvest Analytics Advisory LLP.

Congratulations for a decent set of numbers. Just in continuation with earlier participants only, like you are saying demand is very decent, particularly in domestic market. And in your opening remarks you also mentioned exports are also having a decent demand. So my question is like in this quarter, we are operating at fuller utilization. So do you see for rest of the quarter obviously, for all the quarters in '26, are we going to maintain this kind of utilization level?

Yes, that's the plan.

And is there any scope of -- yes, please.

Yes. So for this coming year, year '25-'26, we are targeting around INR 750 crores in sales in top line.