Tembo Global Industries Limited (TEMBO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '27 Earnings Conference Call of Tembo Global Industries Limited. [Operator Instructions] Please note that this conference is being recorded. I now would like to hand the conference over to Mr. Hiral Keniya from EY LLP. Thank you, and over to you, sir.

Thank you, Sagar. Good evening, everyone. On behalf of Tembo Global Industries, I welcome you all to the company's Q1 FY '27 Earnings Conference Call. To discuss the performance of the company, we have with us the management team represented by Mr. Sanjay Patel, Managing Director; Mr. Shabbir Merchant, Director and Finance team. Before we proceed with this call, I would like to draw your attention to the fact that today's discussion may contain forward-looking statements that are subject to various risks, uncertainties and other factors, which would be beyond management control. We kindly request to bear in mind that there may be uncertainties while interpreting such statements. We now start the session with an opening remarks from the management team. Afterwards, we will open the floor for an interactive Q&A. I will now hand over the conference call to Mr. Shabbir Merchant for his opening remarks. Thank you, and over to you, sir.

Thank you, Hiral. Tembo Global Industries Q1 FY '27 Earnings Call. Good evening, everyone, and a very warm welcome to all of you joining us today for Tembo Global Industries Q1 FY '27 Earnings Call. On behalf of Tembo Global Industries, firstly, I thank the All Mighty, all our shareholders, investors, analysts, customers, partners and employees for their continued trust and support. FY '27 has begun on a strong note with Tembo Global Industries reporting robust growth in both revenue and profitability during quarter 1 FY '27. This performance was primarily driven by the sustained momentum in the high-margin Engineering & EPC segment. It has recorded an impressive growth of 172.7% year-on-year. Revenue for the quarter rose by 21.9% year-on-year to INR 302 crores, while the PAT grew by 55.3% year-on-year to INR 31 crores. This has been supported by strong project execution, operational efficiencies and disciplined cost management. Encouraged by the strong start to the year and a healthy order pipeline, we remain confident on sustaining this growth trajectory and achieving our FY '27 revenue guidance of INR 1,600 crores. The ongoing quarter reflects the successful execution of our strategy to transform Tembo into a diversified engineering-led industrial platform with a growth presence across Engineering Solutions & EPC, Solar Power, defense and aerospace. Our focus remains on building scalable businesses, expanding addressable markets, improving profitability and creating long-term value for stakeholders. I would now highlight glimpse of our key business verticals. To start off with Engineering & EPC business. Our Engineering & EPC business continued to be primary growth driver during the quarter. In line with our strategic focus on value-accretive businesses, the contribution of Engineering & EPC to the overall revenue mix increased significantly to a ratio of 99:1 against textiles in the quarter 1 of FY '27, compared to the ratio of 44:56 in quarter 1 of FY '26. This has been supported by an of INR 1,500 crores plus of order book and INR 2,400 crores plus of orders, which are bidding in pipeline. We remain well positioned to drive growth across domestic and international markets. The demand remains robust across oil and gas, water infrastructure, marine projects, refineries, industrial, construction, fuel farms and other infrastructure segments. Over the last few years, we have consciously strengthened our EPC capabilities, expanded our project execution team and increased our focus on larger and more complex projects. Today, as we stand, we are seeing the benefits of those investments through a healthy order pipeline and improved project profitability. With this increased scale, improved operational efficiency and greater product diversification, we believe our new Vasai facility will play an important role in driving our next phase of growth. The next vertical would be solar business. Our renewable energy portfolio continues to advance steadily in line with planned milestones, reflecting the company's commitment to building a diversified and sustainable growth platform. Four solar project sites have already been commissioned and are operational, while the remaining sites are on track for commissioning in Q2 of FY '27. With commercial operations expected to commence in Q3 of FY '27, these projects are poised to become an important contributor to the company's revenue stream. Beyond strengthening revenue diversification, the renewable energy business is expected to generate stable and recurring cash flows. It would enhance our earnings visibility and reduce dependence on cyclical business segments. This strategic initiative aligns with our long-term vision of creating a balanced and resilient business portfolio while supporting sustainable value creation for all our stakeholders. The next vertical would be defense and aerospace business. The most exciting development during the ongoing quarter came from our defense and aerospace initiatives, which represent significant long-term growth opportunities for the company. A landmark achievement was the receipt of ammunition manufacturing license to our subsidiary, Tembo Classic Engineering Private Limited in the Q1 of FY '27. This marks a major step in establishing Tembo as a meaningful participant in India's defense manufacturing ecosystem. The acquisition of land in Amravati and the planned development of the defense manufacturing facility provides us with a strong foundation to build a fully integrated defense platform. As India continues its emphasis on indigenous, self-reliance and domestic manufacturing under the Make in India and Atmanirbhar Bharat initiatives, we at Tembo believe is well positioned to capitalize on these opportunities. In the aerospace, we announced a strategic international joint venture agreement with JR UAV Europe, Italy and JR PROPO Japan through our company, JR UAV Limited, aiming at bringing advanced UAV technologies to India. This collaboration combines global technological expertise with Tembo's engineering and manufacturing capabilities to develop and manufacture next-generation UAV systems. We also expect to commence UAV component manufacturing from our Vasai facility in Q3 of FY '27. With the first calendar year revenue target of around INR 100 crores, the joint venture reflects the significant market potential of the business and growing trust among global customers in the platform, technological engineering and manufacturing spends. As we look ahead, we remain highly optimistic about the opportunities across all our key business verticals. Our strong order book, growing bidding pipeline, expanding manufacturing capabilities, upcoming solar revenues and strategic entry into defense and aerospace provides a solid platform for sustained growth. Our objective remains clear: deliver profitable growth, strengthen operational excellence, diversify revenue streams and create long-term value for all our stakeholders. With that, I would now like to take you through the financial performance of the quarter. The quarter was marked by strong growth across all key financial parameters, reflecting both healthy business momentum and the success of our strategic focus on engineering-led margin-accretive businesses. Revenue from operations for quarter 1 FY '27 stood at INR 302 crores, representing a growth of around 21.9% year-on-year. This growth was primarily driven by the continued expansion of our Engineering & EPC business, which remains a core contributor to the overall revenues. Our business mix continued to improve significantly during the quarter. The Engineering & EPC segment accounted for most revenues, reflecting our successful transition towards higher-value engineering businesses and a reduced dependence on legacy trading activities. This shift is not only strengthening revenue quality, but is also driving sustainable margin expansion. On the profitability front, the company delivered an excellent performance. The EBITDA increased by 74.8% year-on-year to INR 49.2 crores, while EBITDA margin expanded by 493 basis points to 16.3%. The margin improvement was driven by several factors: higher contribution from engineering and EPC projects, better product and project mix, improved operating efficiencies, increased utilization of manufacturing resources, disciplined cost management across operations. As a result, profitability growth significantly outpaced revenue growth during the quarter. Profit before tax increased by 69.1% year-on-year to INR 43.7 crores, while after tax grew by 55.3% year-on-year to INR 31.2 crores. PAT margins improved to 10.3% compared to 8.1% in the corresponding quarter last year. This margin expansion demonstrates our ability to create operating leverage while continuing to invest in future growth opportunities. Our balance sheet remains aligned to support the next phase of expansion. We continue to invest strategically in manufacturing capacity, EPC execution capabilities, solar projects, defense infrastructure and aerospace initiatives while maintaining a disciplined approach to capital allocation. Looking ahead, we remain confident about the company's growth trajectory. The strong engineering and EPC order pipeline provides revenue visibility. The solar assets are expected to begin commercial operations during the year, and our defense and aerospace initiatives are progressing according to plan. With a strong start to FY '27, healthy profitability trends and the multiple growth drivers coming into play, we believe Tembo is well positioned to deliver sustainable growth and creating significant shareholder value in the years ahead. With that, we conclude our opening remarks, and we would now be happy to take your questions. Thank you.

[Operator Instructions] Your first question comes from Deepak Poddar with Sapphire Capital.

So just first, I wanted to understand what would be our engineering and EPC revenue mix this quarter?

The revenue mix is in consolidation basis. So the bifurcation, we will give you later on, but it's coming into the total segment of manufacturing, engineering and all goods.

Okay. Okay. Understood. And regarding -- can you just update on your status on your Amravati defense, the proposed manufacturing facility? So what state is it right now? And when do you expect to start?

Deepak, what I understand is that the land has been acquired. The project planning consultant has been appointed, and we are -- there is already a plan which is being in place for the construction of the said manufacturing facility.

Okay. Okay. And by when we expect the production or commercialization of this facility to start?

So we are planning to manufacture -- the first batch to come out in the Q4 of FY '27.

Okay. 4Q FY '27?

Yes. So the production and the prototypes and all will be starting in the Q3 of FY '27, and this would spill over to Q4 of FY '27.

Okay. So do we expect any kind of revenue to come in -- come through in this year? Or will it start fully?

So we expect the revenue to come in this year because it's a buyback agreement with a performance guarantee attached to it. So there will be -- whatever production which takes place will be, of course, accounted in revenue coming in.

And so how much we are targeting?

So it would be a percentage to -- we look at around -- in the range of around INR 70 crores to INR 100 crores of revenue in this particular quarter. I mean this particular, yes.

INR 70 crores to INR 100 crores of revenue. Okay. Understood. And regarding the JV that we are planning at Vasai, so any contribution we are expecting from that JV this year?

Yes, there will be a revenue -- so I'm talking about the combined revenue, which comes in from both the verticals, and it will come from this JV as well, and it will come from the manufacturing at the Amravati plant as well.

Okay. So total combined, you're saying INR 70 crores to INR 100 crores?

Yes.

Okay. Because I was just looking at the presentation, so there, it was mentioned that the commercial production of Amravati, we are expecting to start from 1Q of FY '28, right?

Yes, so that would be the full capacity production that would be in FY '28. And of course, there will be commercial production starting in Q4 of FY '27, and that will then, of course, spill over in the next year coming up.

Okay. Okay. And what sort of margins we can expect in defense?

So we are looking at around 30% to 35% of PAT.

30% to 35% PAT margins.

Yes.

Okay. And on the debt side, I mean, what would be our current debt and how much debt we would require for all this CapEx?

So in defense, currently, we are looking for around INR 250 crores of debt for the first phase.

And what would be current debt levels? So...

Sorry, in defense, there's no debt right now.

At the company, I was just trying to understand at the company level, what would be our current debt and what would be additional debt we would require?

So current debt is around INR 400 crores at consolidated level outstanding because we have solar also, so it is also funded by debt, partially, yes.

And we would require INR 250 crores for defense and what for other projects?

Sorry? So yes, so for solar, we have around INR 350 crores of debt.

So that INR 350 crores is additional debt requirement?

Sorry?

This INR 350 crores, INR 250 crores you mentioned for defense, you will require additional debt.

Right, right?

INR 350 crores additional debt you require for solar.

No, no, no. So solar, we have -- we already have INR 350 crores of debt.

And any additional we would require?

No, no. We do not require any additional.

Okay. Okay. Understood. And just one last thing on the margin front, EBITDA this year, what sort of EBITDA margin we should look at a company level?

So we are looking at around 16% to 18% of EBITDA.

16% to 18%.

Yes.

Your next question comes from the line of [Manan Mandur] with [Walfort EMS].

Sir, my first question would revolve around the defense ammunition part. So just wanted to understand that from Q1 FY '28 onwards for the whole FY '28, the ammunition part would add how much revenue? And what would the EBITDA margins be for them?

So in the -- first, I'll speak about the EBITDA. EBITDA would be around 45% to 50% of EBITDA that would come around the EBITDA because I was speaking about PAT initially. So this would be 45% to 50% of EBITDA, right? And as you speak about the revenue towards the ammunition, not the arms, okay? I'm talking about the ammunition right now. We look at around INR 200 crores to INR 200 crores of ammunition of revenue, which could be added.

Yes. When I say ammunition, I'm meaning to say the defense part. I'm not trying to go into the aerospace, which is why I said ammunition. You're talking about arms and ammunition.

You're talking about arms and ammunition.

Yes, the defense, ams and ammunition part, full part, yes.

Around INR 300 crores to INR 350 crores of revenue.

Okay. INR 300 crores to INR 350 crores for FY '28. Okay. Got it. And sir, the second question would be that what is the share of Tembo in the aerospace venture because we said that it's a JV. So can you explain the capital structure, please?

So it is -- basically, this is a collab with -- so the structure is yet in process to be made. And in due course, it will be informed in the exchange.

Okay, sir. Understood. And sir, last question would be that do we have guaranteed offtake in the...

Just one thing to add on, but it would come in the defense space only. And the defense vertical would have majority shareholding.

Okay. Okay. Understood. Yes. Sir, the last question is that, do we have guaranteed offtake from the aerospace venture too just like how we have for the defense?

So what it is basically, it is an expansion of the current manufacturing facility, which is operated by the collab, and it would be a mirror effect coming out in India. And after that, the facilities which they are already manufacturing in Japan and Europe and in Malaysia would be transpired back to India. And the orders are already -- so it is actually getting into larger manufacturing and larger production for orders which are already in place. And of course, there are certain products which we would get into components, get into manufacture, which we would be the -- and I can rightly say we would be the only company in India to do this, and that would give us an edge of -- not even an edge, it would give us a complete advantage in the existing defense or this UAV platform or corridor, which is existing in the country. But apart from that, as you say about the buyback, there is an already business in place, which needs to be sufficed. So there are already orders in hand. That's the reason we can give you guidance for revenues.

Understood. Understood. And just the last question along with this would be that same, sir, for FY '28, what could be the revenues and the EBITDA for the aerospace division, please?

So as I said that there would be INR 100 crores of additional from the time we start our manufacturing, that would be INR 100 crores of additional revenue and approximately INR 100 crores of additional revenue and the EBITDA remains same.

About INR 45 crores to INR 50 crores, okay.

[Operator Instructions] The next question comes from the line of [Abhay] from [Shah Investment].

Yes. So my only question would be that what is our Tembo Global subsidiary in the Tembo defense sector?

So Tembo Classic Engineering Private Limited is a subsidiary.

Yes. And what is the percentage of holding Tembo Global has in subsidiary?

Around 76%, around 75%, 76%.

[Operator Instructions] Your next question comes from the line of [Nachiket Kale], an individual investor.

My question is around the Vasai facility. So could you talk us through how the capacity utilization is shaping up there? And what is the utilization currently and by closure of FY '27, where would we stand?

Nachiket, good evening. What you mean is the Vasai facility at the moment, we are looking at around 35% to 40% of capacity utilization. And we -- by the year-end of FY, we look at around 65% to 70% of capacity.

Okay. And the guidance which you have given for FY '27 includes, is like in sync with this 65%, 70% utilization?

Yes, yes. So we look forward to overcome our guidance. Idea is always to go beyond what we have guided.

Yes, sir. Got it. And so by -- of course, this is commendable that we'll almost double the utilization in a short period. So what would be the peak utilization? And by when do we target to reach it?

So idea is to get the peak utilization in around 1.5 to 2 years. That's the idea, okay? And of course, as a manufacturer, as an entrepreneur, we would like to capitalize as soon as possible.

Yes, sir, of course. And we have around 1 lakh MTPA capacity split between ERW and Strut Channels, right?

Yes.