Shilchar Technologies Limited (531201) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Shilchar Technologies Q4 FY '26 Earnings Call hosted by Avendus Spark. [Operator Instructions] I now hand the conference over to Mr. Alay Jay Shah, Chairman and Managing Director from Shilchar Technologies. Thank you, and over to you, sir.

Good evening, everyone, and thank you for joining us today. Before we open the floor for questions, I would like to walk you through our performance for Q4 and the full year FY '26 and share some update on our operational and financial performance. For the full year '26, Shilchar Technologies delivered revenue from operation of INR 652 crores, reflecting around 5% growth year-on-year with EBITDA of INR 190 crores and an EBITDA margin of 29%. Profit after tax for the year stood at INR 158 crores, up 8% on a year-on-year basis with an EPS of INR 1.38. These numbers, while healthy in absolute terms, could have been notably better as the year closed with a weaker-than-expected Q4 driven by 2 distinct and external factors that I will address shortly. On a 5-year basis, Shilchar's compounding story remains strong with revenue, EBITDA and PAT growing at CAGRs of 38%, 77% and 83%, respectively. Turning to Q4 specifically, revenue from operations came in at INR 152 crores with EBITDA margin at 21% and PAT at INR 28 crores. Two developments weighed on Q4 dispatches. First, the uncertainty around U.S. tariff policy in the preceding quarters, moderated order intake from U.S. customers, specifically in Q3. While order inflows recovered through Q4, dispatches remained slow given the lower order intake in preceding quarter and the interim policy uncertainty at the time. With subsequent U.S. tariff policy amendment and a firm demand outlook from U.S. customers, both order intake and deliveries have picked up, notably in Q1 financial year '27. Second, a significant volume of shipments scheduled for delivery to Middle East customers in March '26 could not be dispatched due to the crisis in West Asia and the resulting logistics disruptions. These shipments have been deferred and not canceled. Dispatches to the region resumed in April and the situation has improved considerably since then. Both of these factors were temporarily in nature, and we expect Shilchar to resume its growth trajectory from the coming quarter. This will be supported by the structured demand across power transmission, distribution and renewable energy. On the domestic front, demand has remained firm. India commissioned 55 gigawatts of renewable energy capacity in year '26, a record high, and this sustained momentum continues to underpin strong order inflows in our domestic renewable transformer business. Coming to our balance sheet, Shilchar remains debt-free with cash and cash equivalents of INR 246 crores at the end of financial year '26, a part of which will be used to financing our ongoing CapEx. Operating cash flow for the year stood at INR 192 crores. On our CapEx project, our Gavasad expansion #3, which will add 6,500 MVA and take our total installed capacity to 14,000 MVA, remains on track for commissioning in April '27. Civil foundation work for the site is completed. PEB erection and utility infrastructure work is currently in progress and all major production equipment has been ordered. The capital expenditure of approximately INR 120 crores is being funded entirely through internal accruals. For financial year '27, we expect to run our existing 7,500 MVA capacity at almost full utilization. And the new facility will drive the next leg of growth from financial year '27, '28 onwards. Our business outlook remains strong with order visibility for financial year '27 of approximately INR 800 crores, supported by robust inquiries from both domestic and export customers. The global transformer demand remains favorable. Domestically, investments in grid infrastructure, T&D capacity and the ongoing build of renewable provides strong visibility. With these remarks, I would now like to open the floor for the questions.

[Operator Instructions] We have first question from the line of from [ Ayush D. ], service capital.

Sir, just trying to understand on the gross margin compression, could you just throw some light in terms of which aspect of our RM basket has taken a hit because clearly, we had gross margin compression. I'm just trying to understand which part of the RM basket has taken a hit.

Yes. So in Q4, basically, our export is considerably less. Main reason for that is that we could not ship out the transformers in March due to this Middle East crisis. And that has reduced our export compared to the domestic, and that has changed the ratio of our raw material consumption. And secondly, I mean, all the raw material prices have gone up but in month of March specifically, we were hit by the increase in oil price. So these are the 2 main factors, which has created a problem in -- I mean, which has increased the consumption of raw material.

Understood, sir. And just a follow-up, sir, given the nature of the inflation in RM market as well, are we taking any price hikes? And have you had any dialogue with your customers in terms of accepting these price hikes? Any -- just to give us an understanding of what is going on in that front?

Yes, sir. So we have approached to almost all customers for the price increase, revision in price and active dialogues are going on. I mean, some of the customers have already agreed for the price increase. And with some customers, we are still under discussion. So -- and the good thing is that this price increase is known to each and everyone. Even our customer understands the increase in raw material cost. So I think slowly, slowly, we are able to get the price increase from all our customers.

Understood, sir. And also, sir, when do you see...

Mr. [ Ayushji, ] sorry for the interruption. Please rejoin the queue for follow-up question. We have next question from the line of [ Shrenik Mehta ] from IndoAlps GmbH.

Am I audible?

Yes.

I wanted to understand a little bit about how the first quarter of the current year will fare. So broadly speaking, we have lost INR 80 crores, INR 90 crores of sales in the quarter 4 because of this Middle Eastern crisis. What proportion of this would be added additionally to the Q1 or Q2 sales? Expected...

Like I said in my opening remarks, the shipping has already resumed, and we have already started shipping our transformers, which we were not able to ship in month of March. And slowly, slowly, that situation is becoming normal. And we have a very strong order book. As of now, we have an order book of almost INR 452 crores. Yes, we are discussing with all our customers regarding the price revision. So once that is settled, the normal operation will take place. And we are feeling quite confident about the Q1.

Any guidance, say, for the first half or for the full financial year FY '27? Are you targeting INR 800 crores sales or more or less?

No. So our target for the entire year is INR 800 crores, and that we are very confident to achieve.

And any clues on the first half that will be majority increase in the first half?

I won't be able to give you the exact figures, but it will be a normal quarter.

We have next question from the line of Pankaj from Axis Capital.

A quick question I have is that you explained the Middle East crisis actually impacted your Q4. So can we get at least some numbers for the actuals for the month of April this year, April '26? And how do they compare it with April '25?

So see, as far as the export is concerned, I think we'll do pretty much same as previous quarter. It will be a normal quarter as far as the export is concerned. The local domestic shipments will also be in quite a healthy way. except that there might be some time taken for discussing about the price revision. But otherwise, we don't anticipate any major issues in quarter 1.

But is it possible for you to give the actual numbers for April, sir?

No. Unfortunately, I won't be able to give you the number.

We have next question from the line of Akash from NV Alpha Fund.

Sir, just wanted to understand, I believe in terms of margins, both on the gross and EBITDA margins, we have almost taken a 7% to 8% kind of a hit. So -- and one of the reasons like you said is that our exports in March were halted due to the Middle East war to the amount of INR 70 crores to INR 80 crores. But then would -- even if we would have done that, would our margins be similar to what we have achieved in the past, like in the last quarter and the year before?

So in month of March, export as well as for the price increase of all the commodities, that has impacted the EBITDA margin. And yes, if this situation would not have been there, we would have done similar margin as what we did in Q1, Q2 and Q3.

Understood. Sir, just a follow-up on that. I mean, firstly, what kind of inventory levels do we work on? Secondly, if you could quantify the gap in margins, that is the 7% to 8% delta that we have in this quarter as against the previous quarters. If you can split it and quantify the amount of hit due to lack of us being able to export the transformers and the second reason that you mentioned is the inflation commodity prices. If you could just quantify that? These 3 things, yes.

You want to know the inventory we keep in terms of rupees in value?

Yes, sure. Yes, yes. And in terms of months or days also will help both value and months?

No. So I mean, as of year-end March 31, we have a total inventory of close to INR 100 crores. And I mean, of course, the export business has higher margin than the domestic business. And because of the less export in month of March, our EBITDA has come down.

Okay. So at any point of time, we have only around 10% to 15% of our sales and inventory levels?

Mr. Akash, sorry for the interruption. Please rejoin for the follow-up question. We have next question from the line of [ Rittal Shah ] from Dalal & Broach.

Firstly, what would be the export domestic mix for the quarter? Secondly, your guidance on the EBITDA margin front for FY '27 and the quantum of dispatches that were delayed in March, if you could -- yes, these are my questions.

Yes. So in Q4, our total export was around INR 52 crores and the domestic is around INR 100 crores. And export, we could not ship in the tune of almost like INR 35 crores, INR 40 crores in month of March.

Okay, fine. And sir, I mean, you've already given the top line guidance for FY '27. So in terms of margins, would it be the same 29%, 31%?

Yes, we'll do our best to maintain the same margin or even increase the margin.

Okay, fine. And sir, Middle East exposure in FY '25 would be what percentage of your revenue?

You mean the coming year?

No, FY '25 and this year?

So for the total turnover, we did almost 30% sales -- I mean, 30% revenue came from the export to Middle East in FY '25, '26.

Okay. And sir, previous year would be how much?

Sorry for the interruption, [ Mr. Rittal Shah. ] Please rejoin queue for the follow-up question.

No, that was just a part of the question that I asked.

I think it was about the same. I mean you can check the balance sheet.

[Operator Instructions] We have next question from the line of Naman Parmar from Niveshaay Investment.

Just wanted to know currently what is the percentage cost of the transformer oil the overall transformer.

I'm sorry, I didn't understand your question. Can you repeat it, please?

Yes, the percentage cost of the transformer oil in the transformer.

Transformer oil, I think it depends on transformer because it varies from different rating of transformers to different application of transformers but it is somewhere between 8% to 12%.

Okay. Understood. And secondly, on the lead time, currently, what you are seeing the lead time specific for the higher kV transformer specific for the power transformers?

It's about -- so power transformers, whatever we make right now, we are able to supply within 12 to 16 weeks.

Okay 12 to 16 weeks.

We have next question from the line of Kunal Mehta from InCred Equities.

Sir, my first question is, do you think we'll be able to get back to historical EBITDA margins of 30% now? And will the price revision with the price discussion with the customers lead to similar margins that we used to make on the gross and EBITDA level?

Yes. Like I said earlier, we will do our best to maintain the same similar margin what we have been doing in the past few years.

And sir, just a little broader picture on how is the competitive landscape in the overseas? And maybe some light on how are we going to expand beyond the 6,500 MVA capacity that will come next year. So anything that we have planned, let's say, for over a 3-year view, what is it that Shilchar wants to achieve? If you can throw some light on that? Not numbers, just a basic sense on.

Yes. So once this expansion takes place and once we start fully utilizing this new facility, we can do a turnover of around INR 1,500 crores. And of course, we have a plan for further expansion. So we'll not wait for this new facility to be utilized 100%. I'm sure that we'll do some further expansion. We'll plan it, and we will announce it in future.

And do we see the major driver being U.S.A. in this INR 1,500 crores or Middle East?

No, it will be a combination of everything, domestic and export.

Okay. And in domestic, how is the pricing...

Mr. Kunal Mehta, please -- sorry for interrupting. Please rejoin the queue for the follow-up question. We have next question from the line of [ Nikunj Bhanushali ] from Walfort PMS.

Am I audible?

Yes.

Yes. So the first question is what is the current scenario in terms of transformer oil pricing? And what -- how much is the hike in the commodity, raw material?

So oil prices have become almost double than what we used to buy in month of February. So February till today, it has increased to almost 100%. And all other commodity has increased in range of 10% to 25%.

And that is still there. I mean none of this has subsided in the current month.

No, no. Nothing.

Okay. Okay. And my second question is with the new facility coming up, do we have any plans to move up the higher voltage class? So I think up till now, we just make transformers still 132 kV class. So...

Yes. So the new facility, what we are making will have a capacity to make transformers up to 160 MVA, 220 kV class.

Okay. Okay. And do we have any plans to get the PGCIL approval for that?

Of course, yes. Once the facility is ready, we will be going for all the different approvals.

We have next question from the line of [ CA Garvit Goyal ] from Equinox Capital Venture Private Limited.

Am I audible?

Yes, please go ahead.

First question is on the margins front. Considering the capacities in India right now, do you really think domestic customers will agree to pass on the price hike, sir?

Yes, because everybody is demanding price rise and everybody knows that the prices have gone up drastically. So if they don't accept, I don't think anybody will supply them any transform because nobody will do business in loss.

Okay. And so far, any domestic they have agreed to it for the future?

We have already received a couple of price revisions, and we have already resumed supply to them.

Understood. And second question is on the guidance for FY '27. I remember in last con call, you people were speaking about INR 850 crores to INR 900 crores for FY '27, right? And now we are speaking about INR 800 crores. Considering that you have mentioned initially like things are getting normalized now, and we are having the capacities to do that INR 850 crores, INR 900 crores, then why we are not looking for that target, sir?

We are looking for that target. I mean it will be INR 800 crores to INR 850 crores. Just conservatively, I'm saying INR 800 crores. But of course, we will try and do...

We were talking INR 900 crores, INR 850 crores, then now we are speaking about INR 800 crores. So that's the reason I want to understand, sir.

It can reach to INR 900 crores also. I mean it's not that we are not targeting, but we have to take a conservative approach when we say any figures. And if you look at our past track record, I mean, whatever figure we have said, we have always done more. So we will try and do whatever best possible, whatever maximum is possible.

[Operator Instructions] We have next question from the line of Abhijeet Singh from Systematix.

Sir, sorry to harp on the question again. Just want to understand the gross margin impact for this quarter. There is a severe impact on a Q-on-Q and Y-o-Y basis. Sir, and as far as I understand, there are a couple of forces acting and one of them is, of course, the commodity price. And there's also some of the imports that we do and the depreciation in rupee is also impacting the increased costs. Sir, since the extent of increase for some of the commodities like oil is double in a month or 2 months, sir, what percentage of it is something that we can pass on to the end customer? Because I'm sure there will be a limit to the absorption of the end customer as well. So how does this gross margin look like going forward in Q1 and Q2? Because I believe some of these forces will sustain even in the quarters going ahead. So what is our position within this entire situation to pass on the increased cost of input and all the other costs?