Shilchar Technologies Limited (531201) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Shilchar Technologies Limited Q2 FY '26 earnings conference call. [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, over to you, sir.

Warm welcome to everybody to the Q2 FY '26 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 Shah, Manager Operations; and Mr. Prajesh Purohit, the CFO. We will start with a brief opening remark on the business performance during the quarter from Mr. Aashay Shah and then open the floor for Q&A. Thank you, and over to you, sir.

Good afternoon, everyone. Thank you for taking the time to join us today. Before we open the floor for questions, I would like to provide a brief update. For Q2 FY '26, we delivered -- Q2 FY '25 (sic) [ Q2 FY '26 ] delivered revenue from operations of INR 171 crores, making a robust 31% growth year-on-year. Our profitability metrics continue to demonstrate the benefits of our operational efficiency and the healthy demand trends in our key markets. EBITDA margins for Q2 stood impressively at 31%, remaining in line with levels achieved in Q2 FY '24 (sic) [ Q2 FY '25 ]. Furthermore, we posted a net profit of INR 46 crores for the quarter which represents an exceptional 40% year-on-year growth. Overall financial performance for first half FY '26 has noted considerable growth across 3 key metrics on a sequential basis, including a 39% top line growth and 54% bottom line growth. [indiscernible] the domestic power and renewable energy sector continues to provide substantial tailwinds for our business. According to Ministry of New and Renewable Energy, India commissioned approximately 21.7 gigawatts of solar capacity in first half of FY '26. This strong sectorial momentum is translating directly into sustained order inflows and robust visibility across the domestic segments positioning us well for further growth. Considering the first half sales, on hand orders of approximately INR 300 crores plus and ongoing discussions with our customers for new orders, we are on track to achieve our target meeting sales of INR 750 crores for year FY '25, '26. Turning to our export business. There have been some recent changes in policy landscape in the United States. The new tariff measures implemented from August 27 have introduced some uncertainties. Despite these developments, underlying demand and customer engagements in the United States remain strong. Notably, business momentum in the United States market remains healthy so far even post policy change. We continue to watch the evolving situation closely and are actively working with customers to minimize any potential impact on our business. Additionally, our outlook for other international markets, such as Middle East, remains encouraging, providing a well-balanced foundation for our export business. A significant milestone for Shilchar Technologies this quarter was announcing our Gavasad expansion.

Sorry to interrupt, sir. We missed the last few lines. Could you please repeat?

Yes. So a significant milestone for Shilchar this quarter was announcing our Gavasad expansion 3 project. This will be the largest capacity addition in our company's history, adding 6,500 MVA and bringing our total to 14,000 MVA by April 2027. This expansion is funded entirely through internal accruals with a capital outlay of approximately INR 90 crores, underscores our commitment to India's rapidly evolving power sector and our confidence in long-term growth strategy. With these highlights, I would now like to open the floor for questions.

[Operator Instructions] The first question comes from the line of Sagar Dhawan with Valuequest.

Just a few questions on the new capacity addition that you announced of 6,500 MVA. So what is the targeted kV class of transformers that we will be looking to make here? Would it be the similar class that you're making today? Or are we looking to fit into the other kV classes?

So we are going [indiscernible]. We will be able to manufacture 100 MVA, 220 kV class transformers.

Sir, your voice is breaking. I'm not able to hear you clearly.

So we'll be able to manufacture up to 100 MVA 220 kV class of transformers at this new manufacturing facility.

Understood. Okay. And this is entirely it will be used for 220 kV class? Is that the correct understanding?

Yes. So it can be used for 220 kV class, but we can manufacture smaller size transformers also over here. So we can have a mix of different products also.

Okay. Understood. And since this is a new range for us, can you give us an idea about the market size that you are seeing here, the demand visibility as well as how the approval time line would move along for this for you so that you can start this.

Yes. So we are planning to -- I mean, all the -- [Technical Difficulty] in these solar parks, so we will -- we are targeting to offer these transformers as a package along with the inverter duty transformers. And then of course, once we have some references of these, we will move to the exports as well.

Understood. Okay. And sir, for the commissioning time line of the new facility, you mentioned April 2027, so just wanted to understand what are the long lead time items that lead to such a time line being there because this is a brownfield expansion for us, if I'm not mistaken.

So we have already started floating inquiries for machinery. We have already given the order for the civil contractor and the preengineered building as well. And before that is completed, all the machinery will be available with us. There are some long lead items like winding machines and [Technical Difficulty] be with us before the -- before the [Technical Difficulty].

Understood, okay, and last question from my side is on the components. So are you seeing any bottlenecks or scarcity of companies like bushing, insulation or other raw materials or currently the situation is stable?

No. Most of our raw material is sourced from India only. And most of the items there are multiple vendors. So there is no bottleneck in terms of sourcing any materials.

The next question comes from the line of Akash from Dalal and Broacha.

Sir, my first question is what kind of current order book are you sitting on?

So we have an order book of INR 300 crores. And we are currently under negotiation with a lot of our customers and we are very confident that we will be able to achieve our target of INR 750 crores this financial year.

Understood. And sir, at the new facility, which comes live by April '27, so what kind of utilization levels do we target to achieve in FY '28, that is the year when the capacity goes live?

Sorry, can you repeat, please?

What kind of targeted utilization levels are we trying to achieve in FY '28 at this new capacity in the first year?

So we'll -- I mean as much as we can. And we'll be happy if we can, in the first year, achieve 60%, 70% capacity utilization. Even in the new plant, we will be manufacturing inverter duty transformers, where our presence is already there. For 220 kV class, yes, of course, it will take some time to get the approvals, the [indiscernible] and build confidence on our customers.

Understood. Sir, just 1 clarification on this 220 kV class. I think we lost your voice when you were trying to explain why you all are making this shift to 220 kV and I think you all are trying to bundle this up with your existing inverter duty offering, right? So I mean, how does this help us penetrate further in the market? That's what I wanted to understand.

So it's mainly volume and most of our customers who are buying for us, they really look at quality and they don't mind [Technical Difficulty].

Sir, could you please repeat? We couldn't hear you.

So most of our customers, existing customers, they really value the quality, and we -- and they give us -- they don't mind paying a premium to us for the transformers they buy from us. So we are expecting them to have the same kind of approach for these power transformers. It will increase our top line and the bottom line as well.

Understood. So this will be better on realization front as well as margin front, right?

Correct, correct.

And just 1 last question before I come back in the queue. Considering the current tariff scenario, sir, I mean I was asking -- I was concerned about our margins that we do this year. Do you feel that this will affect our margins in the current year or on a year-on-year basis, we'll be able to maintain or even go further than what we achieved last year?

So I mean, we don't see any issue. We'll be able to maintain the margins which we have and we've been doing so over the last 2 years, and all our customers, I mean, they have not placed any orders on hold or they have not canceled any orders. They are continuing with the deliveries. They have not even pushed back the deliveries. So we are not expecting these margins to go down, and we expect them to be the same for the next year or so.

[Operator Instructions] The next question is from the line of Jiten Parmar with Aurum Capital.

I want to congratulate you on excellent last few years and the way we have gone about taking advantage of the cycle. So that is commendable. I must congratulate you on that. Coming to the question. Can you please throw some more light on basically the U.S. tariff situation? Like what is the current tariff which is applied to our products. I mean we are hearing 50%, but if you can just give a color on that.

It is 50%.

Okay. So how is this being mitigated? Are the customers ready to pay for it? Or do we have to take any hit or if you can throw some more light.

The customers are ready to pay for it as of now because our competitors for these markets, they are in different countries, which also have tariffs.

Okay. Okay, great. And what is our export revenue from U.S. percentage-wise?

Export is about 12%, 12% to 15%.

12% to 15% to U.S., right?

Yes.

Okay. Great. And it's good to know. And what was our capacity -- I guess for FY '25 our capacity utilization of 77%. What about for Q2 and -- and also further to this, post this expansion to 14,000 MVA, what is the revenue potential which the company would have?

So with the new expansion, we will be able to -- at full capacity, we'll be able to do a turnover of anywhere between INR 1,400 crores to INR 1,500 crores.

Okay. And what was the capacity relationship for Q2? And what are we expecting it to be for the FY '26?

So FY '26, we are expecting about 90% to 95% capacity utilization. And for Q2, it was about, again, 90% to 95%.

The next question comes from the line of Jai Chauhan with Trinetra Asset Managers. Please go ahead.

Am I audible?

Yes, you are audible.

So sir, you mentioned about the order book you have INR 300 crores. Can I know the split of exports and domestic out of that?

Domestic is about INR 175 crores, export is INR 125 crores.

Domestic is INR 175 crores and export is INR 125 crores you mentioned?

Yes.

So I guess the share of the domestic is okay, similar. So -- how can we look at margins going forward, like will there be pressure due to export share are going down? Or will it get better?

I mean we are still expecting a lot more export orders for Q4 and it -- I mean, at the end, we'll be at 50% export and 50% domestic only. So we don't see any issue with the margins. We'll be able to maintain our margins.

The next question comes from the line of [indiscernible] with Nvest Analytics.

Am I audible?

Yes, yes. I'm able to hear you.

Congrats for a good set of numbers. My question is on the outlook only, reading the Q2 PPT. One thing we observed is like your tone is looking very cautious this time. And our guidance, which earlier used to be INR 750 crores to INR 800 crores, now we are like on the lower side. So can you put some color like because the real test will be now as July and August might have been good for us, but what about September and the upcoming months, sir? How do you -- how are you seeing the revenue booking from U.S. right now, sir?

So revenue booking is okay. I mean, like I said, we don't have any pushbacks or we don't have any cancellations so far. So we don't see any issue regarding the orders. Like I said, most of our competitors who supply to the U.S. are in countries where the tariffs have been implemented as well. So the difference is not very high. It is manageable and our customers are preparing to buy from us only.

Understood. And sir, on the margin front, like you said we will be able to maintain our margins, not for this year and also over the next couple of years. So the thing is with the huge capacities coming in, we are seeing like everyone is announcing the CapEx in the transformer side plus this U.S. tariff hang on. How do you see like -- how you are confident like we will be able to maintain the margin? Because there will be a situation when the overcapacity will be there in the transformer industry, right? We are already seeing it.

Yes, but we don't see that happening for next at least 3, 4 years. I mean next 3, 4 years, it should be good. And like I said, most of our domestic customers, they prefer buying from us and they don't mind paying a premium to us as well.

Okay. And 1 last question on our product mix. Like today, we are focusing on transformer side, but it is putting us into a risk of the single product exposure, right? So do we have any plan or we are into the R&D of any product that can further diversify our portfolio going ahead?

No, not as of now. We are focusing on making this expansion, where we'll be manufacturing 220 kV class. So it is a, I mean, different type of manufacturing altogether. So we'll be focusing on that only. We are not looking at any other product. We know the market. So we want to focus on transformer only. And it is a growing market, and it should be growing like this for the next 5, 10 years. So we want to focus on transformers only.

Understood. And sir, this INR 750 crores number is the -- like we are very much cautious or there is still a chance to achieve INR 800 crores kind of number that we earlier stated.

No, INR 750 crores, we are a bit cautious with this number. So we'll be able to achieve it. We are very confident.

The next question comes from the line of [ Shrenik Mehta ] with Indo Aalps Wealth.

Congratulations to the entire team for great results. I just wanted to understand a little bit about FY '27, given that you're talking about capacity utilization of 90%, do you think -- is this really confirming that the sales in FY '27 will be fairly flat or muted?

No, there will be some growth. So generally, what happens is in Q1 and Q2, there is always a slow movement. So for FY '27, we will try to increase that capacity. So we'll be growing by about 10% -- 20% or so for FY '27.

Okay. And given this demand scenario that you have, would it not have been better for you to have the new capacity at least 1 year in advance? Are we a little bit late in adding this capacity? It's a question of just in hindsight, but of course, you can't do anything about it, but just a reflection.

No, I think we are moving at the right time, and there is still huge demand. A lot of requirement is there. And I don't think we are late for this.

The next question comes from the line of Sahil Desai with [indiscernible].

Sir, my question was on, again, the U.S. customers. So when you're saying they are still buying from you, are they taking the full brunt of the additional duty or you give them some relief and then that at some part of it.

No, they are only taking the full brunt of the duty.

So the tariff regime from now, so effectively, there's a, let's say, 50% price hike. The demand is so much that they are -- they are so desperate that let's buy this no matter what, right?

Correct.

Is that how bad the demand situation is or how bad the supply situation is?

Correct, correct. I mean they don't have much choice because our competitors are in various countries where they have kept tariff also. So they don't have much of a choice. In order to fulfill their projects, they will have to bear this cost.

Understood, right. And in any of your interaction or visits to the U.S., have you seen that some local supplies coming up or people are planning? Or do you yourself think that it might make sense to...

No, it doesn't make sense in the U.S. because this is a very labor-intensive manufacturing product. So it becomes very expensive to manufacture there.

The next question comes from the line of Abhi Jain with AJ Capital.