The Anup Engineering Limited (ANUP) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 ended FY '26 Earnings Conference Call of the Anup Engineering Limited. [Operator Instructions]. Please note that this conference is being recorded. Before we proceed to the call, let me remind you that the discussion may contain certain forward-looking statements that may involve known or unknown risks, uncertainties and other factors. It must be viewed in conjunction with the business risks that could cause actual results, performance or achievement to differ significantly from what has been expressed or implied in such forward-looking statements. Please note that the company have uploaded the results, press release, investor presentation and also the outcome of the Board meeting on the website of the stock exchanges and website of the company. I now hand the conference over to Mr. Reginaldo Dsouza, Managing Director and CEO of the company. After speech of Mr. Reginaldo Dsouza, Mr. Punit Lalbhai, Chairman and Non-Executive Director of the company, will give insight of the company's performance. Thank you, and over to you, sir.

Thank you. Hello, everyone. Warm greetings to all members present on this call. As you may be aware, we entered the year with a very uncertain and volatile global situation in terms of wars, critical sea route disrupted for commercial trade impacting energy costs disrupting supply chain and raising the input cost substantially, necessitating a tough balance between execution and profitability. As I mentioned during the last call, we delayed the new order intake last year to wait for relatively better margins than what the market offered at that point in time. We also had to realign our execution to match the supply chain and prioritize accordingly in line with contractual deliverables and hence, planned a gradual start for the year with quarter 1 and progressively moving over the next three quarters towards our annual plan. For the quarter 1, we achieved a consolidated revenue of INR 125 crores, in line with our plan. The EBITDA was at INR 9.2 crores. The result on margin is simply a reflection of the lower revenue generation and absorption of the fixed cost in the first quarter. The operating expense is as planned and under control. The low revenue plan for quarter 1 is mainly due to delayed start of the execution on account of the above-mentioned delayed order intake and the supply chain challenges. Though the execution started late in the quarter, the revenue could not be recognized as the milestones were not reached. Now as we progress into the execution, the revenue for these projects shall be recognized in the coming quarters in line with our annual plan. In terms of export, the export to domestic ratio continued at almost 60% to 50%, in line with our strategic intent. On the new order booking front, I think we saw a very significant improvement this year, especially over the last two months. The pending order book as on date as we speak, stands very close to INR 1,000 crores, INR 985 crores to be precise, with new orders of INR 538 crores booked in this financial year, that is from April to till date in this financial year. This means that we have booked around INR 240 crores already for the next year quarter 1. This has been the best ever start for us on order book. And as we see the inquiry shaping up to about INR 1,100 crores, we are confident that more opportunities will emerge, improving the order booking further helping us secure our next year revenue plan. As I mentioned in the last call, as we navigate the execution cycle with due consideration to the current uncertain global business scenarios due to war, geopolitics and thereby elevated input costs, this year, FY '27 will be a year where we focus on stabilizing, strengthening our fundamentals, consolidation and risk protection. Focus shall clearly on protecting margins to the extent possible under the current cost pressures and mainly maintaining a healthy cash flow. Further, we had refrained from providing any guidance for the year in the last call as we wanted to ascertain the real-time situation on our execution philosophy considering the supply chain challenges, margin position and contractual deliverables to our customers. After having analyzed the current situation, we wish to provide a guidance for the year of a consolidated revenue growth of 5% to 10% and an EBITDA of about 15%. The projected EBITDA is considering the cost committed to projects under the current circumstances. We will try to make this better as we progress into the execution. I understand this guidance sounds conservative, but we believe this is a good approach in the current circumstances where a right balance between profit and project delivery is essential. Now as we navigate through the year, a lot of efforts have gone into the future growth strategies. There have been some few good developments in the last quarter in line with our broader strategy roadmap. As articulated earlier, we have the strategic focus of getting into critical and proprietary licensed product to spur our revenue growth within the given capacity and which shall also improve our order conversion rate. In line with this, we have successfully managed to get ourselves qualified and also orders for two critical proprietary license products, both for export markets for rep process licenses. And we shall continue our efforts towards getting into the niche products in the next three quarters. Also, we have started a long-awaited air-cooled heat exchanger manufacturing with an important order for a German client. We have also made substantial progress on our thermal power business with good order intake of over INR 150 crores. There are a few other strategic focus areas where we wish to close in this year, moving ourselves into niche product segments, driving our future growth. We believe that once the war and uncertainty settles, the disruptions and disruptions will eventually lead to three things: energy security measures by all countries, leading to new investments and expansion in energy sectors within the countries number two, repair works for all the damaged refineries, gas plants, tanks and pipelines. So, this can bring about a lot of repair work for fabricators like us. And number three, we see accelerated push to nonconventional energy sources, including nuclear and other renewables. So, with now our capacities in place and capabilities spread over shop fabrication, site fabrication and also our technical services, I think we, as a company at the right space to capitalize on this demand as it materializes. I also wish to mention that we have built a strong organization to drive these business verticals which should support our future growth. As mentioned in my last call, I wish to reiterate that with our Kheda, which is our bigger facility now fully operational and we strategically moving to complex equipment manufacturing means we will be taking orders of longer cycle, maybe average around 12 months. Hence, it is natural that you shall see fluctuations on quarter-on-quarter numbers, but over the year, it should normalize. Let me end by saying that we at the management and Board have deeply thought through the scenarios and decided on actions to achieve our business plan for this financial year. So, with these opening remarks, I wish to thank you all for your patient listening, and I now hand it over to Punit Lalbhai for his comments.

Thank you. Good afternoon, everyone. It's a pleasure to be on this call. I just wish to share my short perspective on this quarter's performance and how I see things going forward. I know many of you would think that this performance this quarter is short of the mark, and you're not wrong. However, this performance is the result of actions that have happened almost a year ago when there was a very large dearth of orders in the marketplace, and we had low order booking. Also, it is a coming together of many things where we have this year an order book that is skewed towards the second half, where we have longer lead time items, which will sort of mature towards the second half of the year. That said, I think I'm extraordinarily encouraged by the fact that we have started this year with almost the best ever order book that we have seen in the recent past. And that gives me a lot of confidence for the future. I think the team with Reginaldo at the helm leading from the front has done a great job in navigating very uncertain times, great variations in input costs, massive variations in freight, a prolonged period last year where there were order cancellations and uncertainties due to tariffs, which were then subsequently normalized. So, all this period has been navigated extremely well. Further adding to my confidence is the last three to four months where the new order intakes have been very close to our historic margins. Of course, there's a lot of order books, part of the order book that is there that was taken at a time when we had a very low project pipeline. So, this year, we'll see the effect of that. However, the order book that is now building is very healthy and robust, which points to the future being back to sort of our expected past and back to a path of growth. I think it is important to use this year as a consolidation year where we build the order book back, where we focus on all the important initiatives that Regi outlined that diversify the company towards next-generation segments that will reduce our dependency on oil and gas and petrochemicals going forward. So, I would like to reiterate that I have full confidence in the team and the efforts that they are all putting in will start to bear fruit, especially the results should start being visible this year itself in the second half. With that, I would like to close my comments and open the floor for question and answers. I request Raghu to field the questions.

[Operator Instructions] The first question is from the line of Sameer Thakur from Ambit.

First question is what should we think about the order run rate going forward? That's the first one. I'll do the second one after this.

Okay. Yes, Sameer. So, as I mentioned, considering the last three months of good runs of the order intake and the fact that the inquiry pipeline is even stronger, close to about INR 1,100 crores. What we see is going forward, the order intake position should be in the range of INR 200 crores to INR 250 crores per quarter. That has been our plan, and I believe we can achieve that in the next quarters.

Okay. And just wanted to know about the strategy regarding service and you used to talk about this high-volume products. But I think, again, you're focusing on long-cycle products again. So, is that strategy changing now focusing on long cycle products rather than high-volume short cycle?

No. So Sameer, we keep that strategy same what we mentioned at the end of the year. Our stronger vertical, of course, is the legacy old products, which has a mix of complex critical and long gestation equipment. Why we wish to get into niche segment is because that improves our win rate and also gives us better margin profile. So, we keep that going as a stronger vertical. But at the same time, we continue to focus on our volume products. So if you look at the air-cooled heat exchangers that I mentioned, that is in the bucket of high volume, moderate margin, roughly about 15% margin, but high volume. And with Kheda operational, that gives us the opportunity to manufacture and supply these large volume items. So, a direct answer, we continue to focus on our stronger vertical with the legacy old product with niche segments and also at the same time, focus on a higher volume and the service sector, which is the technical services, which forms a third vertical, which gives us higher margins.

On technical services, is that improving. Have you seen any improvement in that segment in the last few quarters? Or it's still in development and we should look at it probably a year.

No. As I said in the last call, we did the stick to understand where we stand and the result has been extremely encouraging. So we have gone all out into this financial year with an organization already created with a senior person heading that vertical. Of course, the revenue because we'll have to do some legwork in the early part of the year. So for this year, we set that business volume at about INR 25 crores to start off with. But of course, it will give us anywhere about 30% margin. Next year, we roll it up to INR 100 crores. And as I said, the third year, we intend to have this vertical at INR 200 crore. [Technical Difficulty]

So, I was saying that it looks like you have been selective in taking orders. So, is there any risk of losing market share if lower tier players start coming in and start taking orders at lower margins? Do you see that risk going forward?

Yes. So as long as we continue to remain in the product segments that we were operating historically, the answer is yes, and that's the precise reason why we are taking a step forward to move into niche segment so that we can beat that competitor profile and move one step higher. If you heard me in the past few years, our strategy has always been as long as the market allows us to remain in that profile, we will continue and prepare ourselves to move into the niche segments. And I think that's where our strategy for this year strongly holds that we wish to move to niche segments to beat that comp.

Our next question comes from the line of Gopalakrishnan with [Indiscernible] National Investment

I have the following questions. First is the interest cost when I compare the last year, it has almost doubled from around INR 87 lakh, it has gone to almost INR 1.6 crores, INR 1.7 crores. Is there any specific reason why it has happened like that? That is one thing. And then the second thing is the orders that we have got in in FY27, are they under fixed price contracts and we will be impacted by higher raw material price which we cannot pass on to the customer? Is that the reason why you are guiding for the lowest EBITDA margin in the recent history.

On your question for order book in FY '27, yes, all our contracts are mostly fixed price contracts. And the guidance that we have provided on the EBITDA is considering the input cost in the current given circumstances. So, from that perspective, there is no cost pass on to the customer. It's a fixed price contract, and we are able to assess our EBITDA margins to a great extent.

Nilesh, here. Finance cost part, if you look at last Q4 FY '26, it was INR 221 lakh, which is reduced to INR 161 lakh. So in Q1 last year, we were having a positive balance, which has reduced and which was a negative to a loan. And now it has reduced to almost a zero stage. So as we speak today, our cash balance is roughly INR 45 crores and long-term debt is roughly INR 44 crores. So net cash is INR 1 crore positive, which was not the case at the beginning of the year. That's the reason why there is change in the finance cost.

But actually, last year, it was only the same quarter, it was only INR 80, the same quarter it was only 87 lakhs.

In a scope it can't be compared on quarter on quarter, it depends on the balance cash balance we have. So in Q1, if you look at the April 2025, we were cash positive and very limited portion of loan was used during the Q1 last year. If you look at the Q4 last year, we had used more amount of loan. So, the interest cost was high up to INR 2.21 crores. Now that balance of loan has reduced, it's INR 161 crores. And in Q2, in the coming quarter, Q2, probably we expect this to be 1/4 of that.

So in fact, we moved to cash positive position as we speak today.