Q1 2027 Pennar Industries Ltd Earnings Call

August 13, 2026

Speaker #1: Call. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes.

Speaker #1: Should you need assistance during this conference call, please signal an operator by pressing star, then 0 on your touchstone phone. Please note that this conference is being recorded.

Speaker #1: This conference call may contain forward-looking statements about the company which are based on the beliefs, opinions, and expectations of the company, as on date of this call.

Speaker #1: These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. I now hand the conference over to Mr. Vikram Suryavanshi, thank you, and over to you, sir.

Speaker #2: Thank you. Good morning, and a very warm welcome to everyone. Thank you for being on the call of Pennar Industries Limited. We are happy to have with us the management of Pennar Industries for question-and-answer session.

Speaker #2: The management is represented by Mr. Aditya Rao, Vice Chairman, and Managing Director, Mr. Shrikant Bhakkad, Chief Financial Officer, Mr. Manoj, President, Corporate Planning, and K.

Speaker #2: M. Sunil, Vice President, Investor and Media Relations. Before we start with the question-and-answer session, we'll have opening comments from the management. Now, I hand your call to Mr. Aditya for opening comment.

Speaker #2: Go to you, sir.

Speaker #3: Thank you so much. Good morning. Thank you to all of you for joining Pennar Industries Q1. FI27 investor conference call. For the quarter-ended 30th June 2026, we will cover a number for the quarter, take you through each of our businesses, and share how we see FI27 unfolding.

Speaker #3: I'll walk you through the quarter's headline numbers, the story behind each of our growth engines. Shrikant, our CFO, will then take you through the detailed financials.

Speaker #3: We will, as usual, end with the Q&A from all of you. So, Q1 has come in well. Revenue grew 3.58% year-on-year to $884.55, and PBT grew 16.04% to 46.8.

Speaker #3: Revenue growth was moderate this quarter, a few segments moved a little slower than planned, but profitability held up because we ran the business quite tightly on cost and mix.

Speaker #3: Our three growth drivers for the next few quarters are VB India, the order book now sits at $1,008 crores, the highest we have ever carried.

Speaker #3: Revenue is going to come in through engineering clearances coming in. We have several large data center orders also that are coming in in the next few days.

Speaker #1: Ladies and gentlemen, good day, and welcome to Pennar Industries Limited Q1 FY27 earnings call. As a reminder, all participant lines will be in listen-only mode.

Operator 2: Ladies and gentlemen, good day, and welcome to Pennar Industries Limited Q1 FY27 earnings call. As a reminder, all participant lines will be in listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing * then zero on your touch-tone phone. Please note that this conference is being recorded. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as on date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. I now hand the conference over to Mr. Vikram Suryavanshi. Thank you, and over to you, sir.

Operator: Ladies and gentlemen, good day, and welcome to Pennar Industries Limited Q1 FY 2027 Earnings Call. As a reminder, all participant lines will be in listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as on date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. I now hand the conference over to Mr. Vikram Suryavanshi. Thank you, and over to you, sir.

Speaker #3: Conversion picks up sharply in this quarter, in Q2, and we expect this business to do well. PBUS also our order book is at a new peak.

Speaker #1: And there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star, then zero on your touch-tone phone.

Speaker #3: We have now crossed $100 billion in US dollars in order backlog. Revenue is running ahead of what we had built into the plan for the quarter, and again here, for Q1 to Q2 also, we expect very strong growth here in this revenue stream.

Speaker #1: Please note that this conference is being recorded. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as of the date of this call.

Speaker #3: Engineering services, structural engineering, grew well, 26.3%. It's a strong quarter. And our US sales team is closing more work than before. Tech Pennar has been the weak spot.

Speaker #3: The order book was thin, and a few execution slips cost us some customers. A new sales team is now in place, and we expect that trajectory to improve from Q2.

Speaker #2: Thank you, Atharu. Good morning and a very warm welcome to everyone. Thank you for being on the call of Pennar Industries Limited. We are happy to have with us the management of Pennar Industries for the question and answer session.

Vikram Suryavanshi: Thank you, Atarot. Good morning and a very warm welcome to everyone. Thank you for being on the call of Pennar Industries Limited. We are happy to have with us the management of Pennar Industries for question and answer session. The management is represented by Mr. Aditya Rao, Vice Chairman and Managing Director; Mr. Shrikant Bhakkad, Chief Financial Officer; Mr. Manoj, President, Corporate Planning; and K M Sunil, Vice President, Investor and Media Relations. Before we start with the question and answer session, we will have opening comments from the management. Now I hand over call to Mr. Aditya for opening comment. Over to you, sir.

Vikram Suryavanshi: Thank you, Atarot. Good morning and a very warm welcome to everyone. Thank you for being on the call of Pennar Industries Limited. We are happy to have with us the management of Pennar Industries for question and answer session. The management is represented by Mr. Aditya Rao, Vice Chairman and Managing Director; Mr. Shrikant Bhakkad, Chief Financial Officer; Mr. Manoj, President, Corporate Planning; and K. M. Sunil, Vice President, Investor and Media Relations. Before we start with the question and answer session, we will have opening comments from the management. Now I hand over call to Mr. Aditya for opening comment. Over to you, sir.

Speaker #3: Hydraulics are out of backlog is at 30 crores. Quote activity in the US has slowed, though Europe has done well. Reintroduction of some tariffs uncertainty, even though it's past the Senate and not the House, the expectation that something may come in is causing order backlog to order bookings to run a little lower than we expect.

Speaker #2: The management is represented by Mr. Aditya Rao, Vice Chairman and Managing Director; Mr. Srikant Bakkar, Chief Financial Officer; Mr. Manoj, President, Corporate Planning; and K.

Speaker #3: We are in wait-and-watch mode on the hydraulics. Every other business, I think we have a clear articulated growth plan, and we're confident of revenue, profit growth.

Speaker #2: M. Sunil, Vice President, Investor and Media Relations. Before we start the question-and-answer session, we'll have opening comments from the management. I now hand over the call to Mr. Aditya for his opening comments.

Speaker #3: Hydraulics, we'll wait and see for the next few quarters as far as US is concerned. And the US is one of the biggest markets for us for hydraulics, so we will monitor this.

Speaker #2: Go to you, sir.

Speaker #3: Thank you so much. Good morning. Thank you to all of you for joining the Pennar Industries Q1 FY27 investor conference call. For the quarter ended 30th June 2026, we will cover the numbers for the quarter, take you through each of our businesses, and share how we see FY27 unfolding.

Aditya Rao: Thank you so much. Good morning. Thank you to all of you for joining Pennar Industries Q1 FY27 investor conference call for the quarter ended 30 June 2026. We will cover our numbers for the quarter, take you through each of our businesses, and share how we see FY27 unfolding. I will walk you through the quarter's headline numbers, the story behind each of our growth engines. Shrikant, our CFO, will then take you through the detailed financials. We will, as usual, end with the Q&A from all of you. Q1 has come in well. Revenue grew 3.58% year on year to INR 884.55 and PBT grew 16.04% to INR 46.8. Revenue growth was moderate this quarter. A few segments moved a little slower than planned, but profitability held up because we ramped the business quite tightly on cost and mix.

Aditya Rao: Thank you so much. Good morning. Thank you to all of you for joining Pennar Industries Q1 FY27 investor conference call for the quarter ended 30 June 2026. We will cover our numbers for the quarter, take you through each of our businesses, and share how we see FY27 unfolding. I will walk you through the quarter's headline numbers, the story behind each of our growth engines. Shrikant, our CFO, will then take you through the detailed financials. We will, as usual, end with the Q&A from all of you. Q1 has come in well. Revenue grew 3.58% year on year to INR 884.55 crore and PBT grew 16.04% to INR 46.8. Revenue growth was moderate this quarter. A few segments moved a little slower than planned, but profitability held up because we ramped the business quite tightly on cost and mix.

Speaker #3: Boilers, again, highest ever order backlog at over $150.75 crores. Two firsts this quarter, first industrial power boiler in the has been achieved. This is a good pre-qualification reference for us.

Speaker #3: Allows us to dramatically improve our adjustable market. And our first orders in the pharmaceutical sector, which is a new industry vertical for us. On profitability and margins, PBT margin was at 5.38%, up from 4.77% last year.

Speaker #3: I'll walk you through the quarter's headline numbers and the story behind each of our growth engines. Srikant, our CFO, will then take you through the detailed financials.

Speaker #3: We will, as usual, end with the Q&A from all of you. So, Q1 has come in well. Revenue grew 3.58% year-on-year to $884.55 million, and PBT grew 16.04% to $46.8 million.

Speaker #3: Mix moving in the right direction. Higher margin businesses, PBUS, engineering services are growing faster. And the group margin follows. So same trend that we've been on for the last 3-4 years, and this we expect this to continue.

Speaker #3: Revenue growth was moderate this quarter. A few segments moved a little slower than planned, but profitability held up because we ran the business quite tightly on cost and mix.

Speaker #3: On capital efficiency, gross was around 20%, and ROE around 10-12%. We want both to move higher. We are deliberately stocking a little more raw material and anticipation of revenue growth, with PB India, PBUS, and all others at a strong place from an order backlog perspective.

Speaker #3: Our three growth drivers for the next few quarters are: our PB India, the order book now sits at ₹1,008 crore, the highest we have ever carried.

Aditya Rao: Our three growth drivers for the next few quarters are PEB India. The order book now sits at INR 1,008 crores, the highest we have ever carried. Revenue is going to come in through engineering clearances coming in. We have several large data center orders also that are coming in in the next few days. Conversion picks up sharply in this quarter in Q2, and we expect this business to do well. PEB US, also our order book is at a new peak. We have now crossed USD 100 million in order backlog. Revenue is running ahead of what we had built into the plan for the quarter. Here for Q1 to Q2 also, we expect very strong growth here in this revenue stream. Engineering services, structural engineering grew well, 26.3%, a strong quarter. Our US sales team is closing more work than before.

Speaker #3: Revenue is going to come in through engineering clearances. We have several large data center orders also that are coming in in the next few days.

Speaker #3: We want to put ourselves in a place where we can dramatically expand revenue. So ROE at 12%, ROC at 20% is lower than what we would traditionally want to see.

Speaker #3: Conversion picks up sharply in this quarter, in Q2, and we expect this business to do well. PB US—also, our order book is at a new peak.

Speaker #3: But we will look to improve this further. And we are quite certain that September quarter we will see very good improvements in this. So this is the quarter in summary.

Speaker #3: We have now crossed $100 billion in U.S. dollars in order backlog. Revenue is running ahead of what we had built into the plan for the quarter.

Speaker #3: No change in our strategy, but capital into a prioritized business units. Expand our order backlogs and consequently expand our revenue and our profitability. Working capital keep it tight and make sure ROC guides all of our decision-making.

Speaker #3: And again, year-over-year for Q1 to Q2 also, we expect very strong growth here in this revenue stream. Engineering services, structural engineering, grew well—26.3%, a strong quarter.

Speaker #3: And our US sales team is closing more work than before. Tech Pennar has been the weak spot. The order book was thin, and a few execution slips cost us some customers.

Speaker #3: I now hand this call over to our CFO, Mr. Shrikant Bhakkad, for the detailed financials. Thank you to all of you again, and look forward to your questions.

Aditya Rao: Tech Pennar has been the weak spot. The order book was thin and a few execution slips cost us some customers. A new sales team is now in place, and we expect the trajectory to improve from Q2. Hydraulics, our order backlog is at INR 30 crores. Quote activity in the US has slowed, but Europe has done well. Reintroduction of some tariffs uncertainty, even though it's passed the Senate and not the House, the expectation that something may come in is causing order bookings to run a little lower than we expect. We are in wait and watch mode on the hydraulics. Every other business, I think we have a clear articulated growth plan and we're confident of revenue profit growth. Hydraulics, we'll wait and see for the next few quarters as far as US is concerned.

Speaker #2: Thank you, Aditya. A very warm welcome to all our shareholders and investors joining us today. Q1 20 FI27 reflects a continued evaluation of our business towards profitable and sustainable growth, while the quarter saw moderate revenue growth.

Speaker #3: A new sales team is now in place, and we expect that trajectory to improve from Q2. Hydraulics order backlog is at ₹30 crore.

Speaker #3: Quote activity in the US has slowed, though Europe has done well. The reintroduction of some tariff uncertainty—even though it's passed the Senate and not the House—the expectation that something may come in is causing order backlog to order bookings to run a little lower than we expect.

Speaker #2: Our operational discipline and improvement in the product mix and the project execution translated into stronger profitability across the businesses. Our strong priorities remain unchanged.

Speaker #2: This initiative has helped us deliver double-digit growth in EBITDA, profit before tax, despite a challenging operating environment. Key financial highlights: revenue from operations has increased from $870.4 crores to from $845.7 crores, a growth of 2.9%.

Speaker #3: We are in wait-and-watch mode on the hydraulics. For every other business, I think we have a clear, articulated growth plan, and we're confident of revenue and profit growth.

Speaker #3: Hydraulics—we'll wait and see for the next few quarters as far as the US is concerned. The US is one of the biggest markets for us for hydraulics, so we will monitor this.

Aditya Rao: The US is one of the biggest markets for us for hydraulics, so we will monitor this. Boilers, again, highest ever order backlog at over INR 150.75 crores. Two firsts this quarter. First industrial power boiler has been achieved. This is a good pre-qualification reference for us, allows us to dramatically improve our addressable market. Our first orders in the pharmaceutical sector, which is a new industry vertical for us. On profitability and margins, PBT margin was at 5.38%, up from 4.77% last year. Mix moving in the right direction. Higher margin businesses, PEB US engineering services are growing faster and the group margin follows. So same trend that we've been on for the last three, four years, and we expect this to continue. On capital efficiency, ROCE was around 20% and ROE around 12%. We want both to move higher.

Speaker #2: EBITDA has increased to $106.8 crores from $94.3 crores, representing a growth of 13.3%, reflecting improved product operating and project mix. Profit before tax has increased by 16% to $46.8 crores.

Speaker #3: Boilers, again, highest ever order backlog at over ₹150.75 crores. Two firsts this quarter: our first industrial power boiler has been achieved.

Speaker #3: This is a good pre-qualification reference for us. It allows us to dramatically improve our addressable market. And our first orders are in the pharmaceutical sector, which is a new industry vertical for us.

Speaker #2: The most increasing aspects of the quarter is the profitability growth, significantly exceeded the revenue growth, which is reflecting the strong operating leverage and the efficiency benefits that we have been working towards over the last several years.

Speaker #3: On profitability and margins, PBT margin was at 5.38%, up from 4.77% last year. Mix is moving in the right direction. Higher margin businesses—PB US and engineering services—are growing faster.

Speaker #3: And the group margin follows. So, same trend that we've been on for the last three to four years, and we expect this to continue.

Speaker #2: In terms of customized, designed building solutions, the investments made over the last year, including the integration of the telco acquisition, have strengthened our platform and customer reach in the US.

Speaker #3: On capitalization, gross was around 20%, and ROE was around 12%. We want both to move higher. We are deliberately stocking a little more raw material in anticipation of revenue growth, with PB India, PB US, and all others in a strong place from an order backlog perspective.

Speaker #2: As a result, revenue from the business in the custom-designed building solution has grown from $411 crores to $507 crores, and continues to be an important driver for our transformation journey.

Aditya Rao: We are deliberately stocking a little more raw material in anticipation of revenue growth. With PEB India, PEB US, and all others at a strong place from an order backlog perspective, we want to put ourselves in a place where we can dramatically expand revenue. So ROE at 12%, ROCE at 20% is lower than what we would traditionally want to see, but we will look to improve this further. We are quite certain that September quarter we will see very good improvements in this. So this is the quarter summary. No change in our strategy. Put capital into our prioritized business units, expand our order backlogs, and consequently expand our revenue and our profitability. Working capital, keep it tight and make sure ROCE guides all of our decision-making. I now hand this call over to our CFO, Mr. Shrikant Bhakkad, for the detailed financials.

Speaker #2: Profitability from this initiative is taking time to fully materialize, as we continue to invest in process strengthening activities. In India, while we have adequate capacity execution in PEB business was impacted by operational challenges.

Speaker #3: We want to put ourselves in a place where we can dramatically expand revenue. So, ROE at 12% and ROC at 20% are lower than what we would traditionally want to see.

Speaker #3: But we will look to improve this further, and we are quite certain that in the September quarter we will see very good improvements in this. So, this is the quarter in summary.

Speaker #2: We have strengthened the execution team, and we are focused now in improving the project delivery in view of this, the operation we view this as an operational rather than the structural issues.

Speaker #3: No change in our strategy. Put capital into prioritized business units, expand our order backlogs, and consequently expand our revenue and our profitability. Keep working capital tight and make sure ROC guides all of our decision-making.

Speaker #2: Combination of process strengthening in the US and overcoming the operational issues will help us drive the growth in the customized building solutions. Importantly, as Aditya has mentioned, our order pipeline remains at an all-time high.

Speaker #3: I now hand this call over to our CFO, Mr. Srikant Bakkar, for the detailed financials. Thank you all once again, and I look forward to your questions.

Speaker #2: And we expect the momentum to improve over the coming quarters. We remain optimistic about the medium and the long-term growth of this businesses. Our diversified engineering business experiences software quarter due to lower activity in steel and hydraulics.

Aditya Rao: Thank you to all of you again and look forward to your questions.

Speaker #2: Thank you, Aditya. A very warm welcome to all our shareholders and investors joining us today. Q1 FY27 reflects a continued evaluation of our business towards profitable and sustainable growth, while the quarter saw moderate revenue growth.

Shrikant Bhakkad: Thank you, Aditya. A very warm welcome to all our shareholders and investors joining us today. Q1 FY27 reflects a continued evaluation of our business towards profitable and sustainable growth. While this quarter saw moderate revenue growth, our operational discipline and improvement to the product mix and the project execution translated into stronger profitability across the businesses. Our strong priorities remains unchanged. This initiative has helped us deliver double-digit growth in EBITDA, profit before tax, despite a challenging operating environment. Key financial highlights, the revenue from operations has increased from INR 845.7 crores, a growth of 2.9%. EBITDA has increased to INR 106.8 crores from INR 94.3 crores, representing a growth of 13.3%, reflecting improved product operating and project mix. Profit before taxes increased by 16% to INR 46.8 crores.

Speaker #2: And other businesses which we have exited over the years in terms of module-mounting structures and Pennar Enviro. Which is decreased our sales from $450 crores to $385 crores.

Speaker #2: Our operational discipline and improvement in the product mix and project execution translated into stronger profitability across the businesses. Our strong priorities remain unchanged.

Speaker #2: However, we continue to view this business as important contributors to our diversified portfolio and remain focused on enhancing competitiveness and the operational efficiency, which continues to bring profit to the table.

Speaker #2: This initiative has helped us deliver double-digit growth in EBITDA and profit before tax, despite a challenging operating environment. Key financial highlights: Revenue from operations has increased to ₹870.4 crore from ₹845.7 crore, a growth of 2.9%.

Speaker #2: Coming to the margins, one of our key highlights as I've said is the operating margin. While quarterly fluctuations remain quarter-on-quarter due to the nature we believe the structural measures which we plan to undertake will give us a result over the period.

Speaker #2: EBITDA has increased to ₹106.8 crores from ₹94.3 crores, representing a growth of 13.3%, reflecting improved product operating and the project mix. Profit before tax has increased by 16% to ₹46.8 crores.

Speaker #2: Gross margins have been expanded from 42.56% to 43.85% at a consolidated level, while the contribution margins has increased from 27.14% to 28.51%. In terms of the numbers, from 231.81 crores to 252.12 crores.

Speaker #2: The most increasing aspect of the quarter is the profitability growth, which significantly exceeded the revenue growth. This reflects the strong operating leverage and the efficiency benefits that we have been working towards over the last several years.

Shrikant Bhakkad: The most encouraging aspects of the quarter is the profitability growth significantly exceeded the revenue growth, which is reflecting the strong operating leverage and the efficiency benefits that we have been working towards over the last several years. In terms of Custom Designed Building Solutions, the investments made over the last year, including the integration of the Delko acquisition, has strengthened our platform and customer reach in the US. As a result, revenue from the business in the Custom Designed Building Solution has grown from INR 411 crores to INR 507 crores and continues to be an important driver for our transformation journey. Profitability from this initiative is taking time to fully materialize as we continue to invest in process strengthening activities. In India, while we have adequate capacity, the execution in PEB business was impacted by operational challenges.

Speaker #2: One of the important aspects is on other income that includes income interest income and bank deposits. For 2.26 crores, gain on sale of investments 2.16 crores, rental and export-related incentive 3.05 crores, and some write-back of liabilities and provisions contributes the rest.

Speaker #2: In terms of customized design building solutions, the investments made over the last year, including the integration of the Telco acquisition, have strengthened our platform and customer reach in the U.S.

Speaker #2: As a result, revenue from the business in the custom design building solution has grown from ₹411 crore to ₹507 crore, and continues to be an important driver for our transformation journey.

Speaker #2: A substantial portion of this items arises from normal business activities and treasury management activities. Coming to cost, employee expenses increased during the quarter from 92.5 crores to 107.32 crores up by 16%, primarily reflecting investment in the telco capabilities across the US operations, which has increased by 16.24 crores, up by 37%.

Speaker #2: Profitability from this initiative is taking time to fully materialize, as we continue to invest in process-strengthening activities. In India, while we have adequate capacity, execution in the PB business was impacted by operational challenges.

Speaker #2: We have strengthened the execution team, and we are now focused on improving project delivery. In view of this, we view the operations as an operational rather than a structural issue.

Shrikant Bhakkad: We have strengthened the execution team and we are focused now on improving the project delivery. We view this as operational rather than the structural issues. Combination of process strengthening in the US and overcoming the operational issues will help us drive the growth in the Custom Designed Building Solutions. Importantly, as Ritesh has mentioned, our order pipeline remains at an all-time high. We expect the momentum to improve over the coming quarters. We remain optimistic about the medium and the long-term growth of these businesses. Our diversified engineering business experienced a softer quarter due to lower activity in steels and hydraulics and other businesses which we have exited over the years in terms of Module Mounting Structures and Pennar Enviro, which decreased our sales from INR 450 crore to INR 385 crore.

Shrikant Bhakkad: We have strengthened the execution team and we are focused now on improving the project delivery. We view this as operational rather than the structural issues. Combination of process strengthening in the US and overcoming the operational issues will help us drive the growth in the Custom Designed Building Solutions. Importantly, as Aditya has mentioned, our order pipeline remains at an all-time high. We expect the momentum to improve over the coming quarters. We remain optimistic about the medium and the long-term growth of these businesses. Our diversified engineering business experienced a softer quarter due to lower activity in steels and hydraulics and other businesses which we have exited over the years in terms of Module Mounting Structures and Pennar Enviro, which decreased our sales from INR 450 crore to INR 385 crore.

Speaker #2: This investments are focused on sales and business development activities, project execution capabilities, and the growth initiatives in the US market. Coming to the finance cost, we continue to maintain a disciplined approach to capital allocation through all though the finance cost remains slightly above our internal target during the quarter.

Speaker #2: Combination of process strengthening in the US and overcoming the operational issues will help us drive the growth in customized building solutions. Importantly, as I mentioned, our order pipeline remains at an all-time high.

Speaker #2: Our long-term guidance remains around 4% as a percentage of our revenue. Interest cost for the quarter stood at approximately 4.18% this quarter, slightly higher.

Speaker #2: And we expect the momentum to improve over the coming quarters. We remain optimistic about the medium- and long-term growth of these businesses. Our diversified engineering business experienced a softer quarter due to lower activity in steel and hydraulics.

Speaker #2: Term loan costs are primarily attributable to telco acquisition cost, which has already begun contributing to the revenue growth. As the scale improves, we expect that the cost to normalize as a percentage of revenue.

Speaker #2: And other businesses which we have exited over the years, in terms of module mounting structures and Pennar Enviro, which has decreased our sales from ₹450 crores to ₹385 crores.

Speaker #2: Working capital allocation and utilization remains elevated due to the investment supporting for the revenue growth and the higher order book. As we move into Q2 FI27, management priorities to enhance the inventory terms accelerate the collection and optimize the current assets.

Speaker #2: However, we continue to view this business as an important contributor to our diversified portfolio and remain focused on enhancing competitiveness and operational efficiency, which continues to bring profit to the table.

Shrikant Bhakkad: However, we continue to view this business as important contributors to our diversified portfolio and remain focused on enhancing competitiveness and the operational efficiency, which continues to bring profit to the table. Coming to the margin, one of our key highlights, as I have said, is the operating margins. While quarterly fluctuations remain quarter-on-quarter due to the nature, we believe the structural measures which we plan to undertake will give us a result over the period. Gross margins have been expanded from 42.56% to 43.85% at a consolidated level, while the contribution margins has increased from 27.14% to 28.51%, in terms of the numbers, from INR 231.81 crore to INR 252.12 crores. One of the important aspects is on other income.

Speaker #2: We believe this will strengthen our cash generation, improve our return ratio, and also provide additional flexibility to our future growth initiatives. Before I close, I would just like to mention in terms of the milestones of our order book, we are all at a record high in terms of PEB India, PEB US, as well as the boiler division.

Speaker #2: Coming to the margin, one of our key highlights, as I've said, is the operating margin. While quarterly fluctuations remain quarter-on-quarter due to the nature of our business, we believe the structural measures which we plan to undertake will deliver results over the period.

Speaker #2: Gross margins have expanded from 42.56% to 43.85% at a consolidated level, while the contribution margin has increased from 27.14% to 28.51%, with a rise in numbers from ₹231.81 crores to ₹252.12 crores.

Speaker #2: This provides strong revenue visibility and reinforces our confidence in the growth outlook for the coming quarters of FY27. Thank you, and I would like now to handle the call back to the moderator.

Speaker #2: We'll be happy to take your questions.

Speaker #2: One of the important aspects is other income, which includes interest income on bank deposits of ₹2.26 crores, gain on sale of investments of ₹2.16 crores, rental and export-related incentives of ₹3.05 crores, and write-back of liabilities and provisions contributing the rest.

Speaker #1: Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may please start, and one on their touchstone telephone.

Shrikant Bhakkad: That includes interest income and bank deposits for INR 2.26 crores, gain on sale of investments INR 2.16 crores, rental and export related incentives INR 3.05 crores, and certain write-back of liabilities and provisions contributes the rest. A substantial portion of these items arises from normal business activities and treasury management activities. Coming to cost, employee expenses increased during the quarter from INR 92.5 crores to INR 107.32 crores, up by 16%, primarily reflecting investment in the Delko capabilities across the US operations, which has increased by INR 16.24 crores, up by 37%. These investments are focused on sales and business development activities, project execution capabilities and the growth initiatives in the US market. Coming to the finance cost, we continue to maintain a disciplined approach to capital allocation, although the finance cost remains slightly above our internal target during the quarter. Our long-term guidance remains around 4% as a percentage of our revenue.

Speaker #1: If you wish to remove yourself from the question queue, you may press start, and two. Participants are requested to use handsets while asking a question.

Speaker #2: A substantial portion of this item arises from normal business activities and treasury management activities. Coming to the cost, employee expenses increased during the quarter from ₹92.5 crores to ₹107.32 crores, up by 16%, primarily reflecting investment in telco capabilities across the US operations, which has increased by ₹16.24 crores, up by 37%.

Speaker #1: Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question comes from the line of Kanishk Gupta from SS Family Office.

Speaker #1: Please go ahead.

Speaker #2: These investments are focused on sales and business development activities, project execution capabilities, and growth initiatives in the US market. Coming to the finance cost, we continue to maintain a disciplined approach to capital allocation, though the finance cost remains slightly above our internal target during the quarter.

Speaker #3: Hello and very good morning. I would like to ask that broadly with our FY27 debt-to-equity target of 0.8, what kind of ROCs can we expect for full year FY27?

Speaker #2: Thank you. ROCe for the year I mean, as stated, target is higher at around 30%, but we will definitely be over 20 for Q2.

Speaker #2: Our long-term guidance remains around 4% as a percentage of our revenue. Interest cost for the quarter stood at approximately 4.18% this quarter, slightly higher.

Shrikant Bhakkad: Interest cost for the quarter stood at approximately 4.18% this quarter, slightly higher. Term loan costs are primarily attributable to Delko acquisition cost, which has already begun contributing to the revenue growth. As the scale improves, we expect that the cost will normalize as a percentage of revenue. Working capital allocation and utilization remains elevated due to the investment supporting for the revenue growth and the higher order book. As we move into Q2 FY27, management priority is to enhance the inventory turns, accelerate the collections, and optimize the current assets. We believe this will strengthen our cash generation, improve our return ratio, and also provide additional flexibility to our future growth initiatives. Before I close, I would just like to mention, in terms of the milestones of our order book, we are at a record high in terms of PEB India, PEB US, as well as the boiler division.

Speaker #2: Higher than that. Over the year as an average, I think we can say 55% return over 20, so that's an accurate 25% we can commit to.

Speaker #2: Term loan costs are primarily attributable to telco acquisition cost, which has already begun contributing to revenue growth. As the scale improves, we expect the cost to normalize as a percentage of revenue.

Speaker #3: 25% being the baseline, and 25 to 30 percent range.

Speaker #2: Working capital allocation and utilization remains elevated due to the investment supporting the revenue growth and the higher order book. As we move into Q2 FY27, management's priorities are to enhance the inventory turns, accelerate the collections, and optimize the current assets.

Speaker #2: That is correct. EBIT divided by capital applied.

Speaker #3: And sir, what is our revenue from the network JV in Q1, if you can answer that?

Speaker #2: We believe this will strengthen our cash generation, improve our return ratio, and also provide additional flexibility to our future growth initiatives. Before I close, I would just like to mention, in terms of the milestones of our order book, we are at a record high in terms of PB India, PB US, as well as the Boiler Division.

Speaker #2: So we don't consolidate that because we are a minority shareholder in that business unit. I'm unsure if we are allowed to give network numbers in that sense, or is that something we've so I mean, I can tell you that it's going well.

Speaker #2: I mean, the order book, everything is in good shape, and I think it should I think it's going to be a very good value generator for Pennar.

Speaker #2: This provides strong revenue visibility and reinforces our confidence in the growth outlook for the coming quarters of FY27. Thank you, and I would now like to hand the call back to the moderator, and we’ll be happy to take your questions.

Shrikant Bhakkad: This provides strong revenue visibility and reinforces our confidence in the growth outlook for the coming quarters of FY27. Thank you, and I would like now to hand the call back to the moderator, and we will be happy to take your questions.

Speaker #2: But as of right now, we don't have numbers to share on that. I think I'll have to speak with them and come back to you on that.

Speaker #3: No worries, sir. And what kind of qualitative value has been created from that JV within the company till now?

Speaker #1: Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may please start by pressing one on their touch-tone telephone.

Operator: Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Kanishk Gupta from SS Family Office. Please go ahead.

Speaker #2: Till now, I think I mean, I think the value of our investment there would be about the valuation of that company, the equity valuation of that company, considering the capacity being set up is 2 gigawatts, which has a top-down revenue potential of about 4,000 crores.

Speaker #1: If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question.

Speaker #1: Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question comes from the line of Kanish Gupta from SS Family Office.

Speaker #2: And Pennar holds 45%, I believe, in that. So I mean, you would have to value what a profitable company with that kind of revenue stream would be worth.

Speaker #2: And that's a revenue stream we expect I think they will achieve. So it would be difficult for me to comment on exactly what the valuation of that would be, but I think I can speak to them and have narrative for you on that the next time we speak next quarter.

Speaker #1: Please go ahead.

Speaker #2: Hello and a very good morning. I would like to ask: with an FY27 debt-to-equity target of 0.8, what kind of ROCs can we expect for the full year FY27?

Kanishk Gupta: Hello, and very good morning. I would like to ask that broadly with our FY27 debt to equity target of 0.8, what kind of ROCEs can we expect for full year FY27?

Speaker #3: No worries, sir. Thank you, and all the very best for the future.

Speaker #2: Thanks. Thanks so much.

Speaker #1: Thank you. The next question comes from the line of Nitin Jain from Fair Value Equity Advisors. Please go ahead.

Speaker #3: Thank you. ROCE for the year, I mean—as stated—the target is higher, at around 30%, but we will definitely be over 20% for Q2.

Aditya Rao: Thank you. ROCE for the year, our stated target is higher at around 30%, but we will definitely be over 20 for Q2, higher than that. Over the year as an average, I think we can say 25%, Sreenath. What would you say? That is an accurate figure. 25% we can commit to.

Speaker #4: Yeah. Thank you for the opportunity. So in your PEB business, the drop in EBIT margins is more than 200 basis points. So this is, I think, the highest among your peers.

Speaker #3: Higher than that. Over the year, as an average, I think we can say 25% treatment over 20, so that's an accurate 25% we can commit to.

Speaker #4: A lot of your peers were able to get price hikes from clients, to mitigate the steel price hike. So were we not able to get the same?

Speaker #2: 25% being the baseline and a 25% to 30% range.

Kanishk Gupta: 25% being the baseline and 25% to 30% range.

Speaker #4: If you can elaborate, please.

Speaker #3: That is correct. EBIT divided by capital applied.

Speaker #2: We were able to get the vast majority of the pass-through steel price increase pass-through had happened. Some I think there was a little bit of a bleed effect where it took some time for us to get those increases.

Aditya Rao: That is correct. EBIT divided by capital employed.

Speaker #2: And sir, what is our revenue from the Zwork JV in Q1? If you can answer that.

Kanishk Gupta: What is our revenue from the Zetwerk JV in Q1, if you can answer that.

Speaker #2: So a lot of them are in now, so our operating margins or contribution on a lot of backlog, both in India and the US, are back up.

Speaker #3: So we don't consolidate that because we are a minority shareholder in that in that business unit. I'm unsure if we are allowed to give Zwork numbers in that sense or is that something we've so at so I mean, I can I can tell you that it's going well.

Aditya Rao: We do not consolidate that because we are a minority shareholder in that business unit. I am unsure if we are allowed to give Zetwerk numbers in that sense, or is that something we have. I can tell you that it is going well. The order book, everything is in good shape, and I think it is going to be a very good value generator for Pennar. As of right now, we do not have numbers to share on that. I think I will have to speak with them and come back to you on that.

Speaker #2: But there was a period of time about a month or two where it didn't get passed through. That's probably what you're referring to in terms of the 200 basis point drop.

Speaker #2: I would strongly suggest you see this as a momentary flip. We are extremely confident that our operating margins move back to where they were for PEB India and for PEB US from this quarter onwards.

Speaker #3: I mean, the order book, everything is in good shape and I think it should I think it's a it's going to be a very good value generator for Pennar.

Speaker #4: Okay. So will it be this quarter onwards or gradually over the year?

Speaker #3: But as of right now, we don't have numbers to share on that. I think I'll have to speak with them and come back to you on that.

Speaker #2: Q2. Q2, sir.

Speaker #4: Q2. Okay. And you indicated that PEB is expected to grow well in India as well as the US, given the record high pipeline. So what revenue growth are we expecting in both PEB as well as overall company level?

Speaker #2: No worries, sir. And what kind of qualitative value has been created from that JV within the company till now?

Kanishk Gupta: No worries, sir. What kind of qualitative value has been created from that JV within the company till now?

Speaker #3: Till now, I think—I mean, I think the value of our investment there would be about the valuation of that company, the equity valuation of that company.

Aditya Rao: Till now, I think the value of our investment there would be about the valuation of that company, the equity valuation of that company. Considering the capacity being set up is 2 gigawatts, which has a top-line revenue potential of about INR 4,000 crores, and Pennar holds 45%, I believe, in that. You would have to value what a profitable company with that kind of revenue stream would be worth. That is a revenue stream we expect they will achieve. It would be difficult for me to comment on exactly what the valuation of that would be, but I think I can speak to them and have narrative for you on that the next time we speak next quarter.

Speaker #2: So I think PEB will be a big driver of revenue in this quarter. Both India and in the US. As I mentioned, the order backlogs are very high, and it's all at a stage right now where drawing clearance is available.

Speaker #3: Considering the capacity being set up is 2 gigawatts, which has a top-down revenue potential of about ₹4,000 crores, and Pennar holds 45%, I believe, in that.

Speaker #2: The working capital's been deployed. The labor situation is all in the past. So we are going to see the higher uptake numbers rather than speak of the individual thing, I think PEB overall as a component, you should expect double-digit growth from last quarter to this quarter, from last year to this year, in every which way you see it, we should see good growth in this quarter, Q2.

Speaker #3: So, I mean, you would have to value what a—what a profitable company with that kind of revenue stream would be worth.

Speaker #3: And that's a revenue stream we expect. I think they will achieve it. So it would be difficult for me to commit on exactly what the valuation of that would be, but I think I can speak to them and have a narrative for you on that the next time we speak, next quarter.

Speaker #4: So if you could quantify the number, please.

Speaker #2: That would be providing guidance. So I think that we don't usually provide, but I would I think the best picture I can give you is that order backlogs are strong.

Speaker #2: No worries, sir. Thank you, and all the very best for the future.

Kanishk Gupta: No worries, sir. Thank you, and all the very best for the future.

Speaker #3: Thanks. Thanks so much.

Aditya Rao: Thanks. Thanks a lot.

Speaker #1: Thank you. The next question comes from the line of Nitin Jain from Fair Value Equity Advisors. Please go ahead.

Speaker #2: It's going through to revenue, double-digit growth.

Operator: Thank you. The next question comes from the line of Nitin Jain from Fairvalue Equity Advisors. Please go ahead.

Operator: Thank you. The next question comes from the line of Nitin Jain from Fair Value Equity Advisors. Please go ahead.

Speaker #4: And for the overall company level?

Speaker #2: I mean, individual component and overall company level, PEB revenue would be high. Growth would be high.

Speaker #4: Yeah, thank you for the opportunity. So, in your PB business, the drop in EBIT margins is more than 200 basis points. This is, I think, the highest among your peers.

Nitin Jain: Yeah. Thank you for the opportunity. So in your PEB business, the drop in EBIT margins is more than 200 basis points. This is, I think, the highest among your peers. A lot of your peers were able to get price hikes from clients to mitigate the steel price hike. Were we not able to get the same, if you can elaborate, please?

Speaker #4: Okay. Thank you.

Speaker #1: Thank you. The next question comes from the line of Vidhi Shah from CRK Investment. Please go ahead.

Speaker #4: A lot of your peers were able to get price hikes from clients to mitigate the steel price hike. So, were we not able to get the same?

Speaker #4: If you can elaborate, please.

Speaker #5: Sir, we noticed that there was a revenue slowdown in this quarter. So can you explain what would be the key drivers for revenue growth in the coming year?

Speaker #3: We were able to get the vast majority of the past steel price increase passed through; that did happen. Some, I think, there was a little bit of a bleed effect where it took some time for us to get those increases.

Aditya Rao: We were able to get the vast majority of the steel price increase pass-through had happened. Some, I think there was a little bit of a bleed effect where it took some time for us to get those increases. A lot of them are in now, so our operating margins, our contribution on order backlog, both in India and the US are back up. But there was a period of time, about a month or two, where it didn't get passed through. That's probably what you're referring to in terms of the 200 basis point drop. I would strongly suggest you see this as a momentary blip. We are extremely confident that our operating margins move back to where they were for PEB India and for PEB US from this quarter onwards.

Speaker #2: So as the narrative which we've been providing you for the last three years, that continues. We are having a fair amount of revenue decline in the what we call the legacy businesses, which comprise of our steel business unit and our railways business unit.

Speaker #3: So, a lot of them are in now. Our operating margins or contribution on order backlog, both in India and the US, are back up.

Speaker #3: But there was a period of time, about a month or two, where it didn't get passed through. That's probably what you're referring to, in terms of the 200-basis-point drop.

Speaker #2: So both of those business units did, and we're not deploying capital into those businesses. While the revenue drop there also, we believe to be temporary.

Speaker #3: I would strongly suggest you see this as a momentary flip. We are extremely confident that our operating margins will move back to where they were for PB India and PB US from this quarter onwards.

Speaker #2: I think again in Q2, that comes back. But the messaging we have for you is that our growth vectors, which is PEB India, PEB US, boilers, BIW, and engineering services, are all firing.

Speaker #4: Okay, so will it be this quarter onwards, or gradually over the year?

Nitin Jain: Okay, so will it be this quarter onwards or gradually over the year?

Speaker #3: Q2. Q2, sir.

Aditya Rao: Q2. Q2, sir.

Speaker #2: The only one where we don't have clear narrative to provide for you is hydraulics because of the tariff situation actually creating a fair amount of confusion.

Speaker #4: Q2. Okay. And you indicated that PB is expected to grow well in India as well as the US, given the record-high pipeline. So, what revenue growth are we expecting in both PB as well as at the overall company level?

Nitin Jain: Q2. Okay. You indicated that PEB is expected to grow well in India as well as the US, given the record high order backlogs. So what revenue growth are we expecting in both PEB as well as overall company level?

Speaker #2: But that's not that doesn't derail from the regular story where our revenue growth is predicated on these four revenue streams growing. The other legacy businesses, which comprised about 1,300 crores of revenue annually, that has seen a little bit of a decline.

Speaker #3: So, I think PB will be a big driver of revenue in this quarter, both in India and in the US. As I mentioned, the order backlogs are very high, and it's all at a stage right now where drawing clearances are available.

Aditya Rao: Well, I think PEB will be a big driver of revenue in this quarter, both India and in the US. As I had mentioned, the order backlogs are very high, and it is all at a stage right now where drawing clearance is available, the working capital has been deployed, the labor situation is all in the past. So we are going to see the higher uptick numbers. But I will just speak on the individual things. I think PEB overall as a component, you should expect good double-digit growth from last quarter to this quarter, from last year to this year, every which way you see it, we should see good growth in this quarter, Q2.

Speaker #2: So you see the smaller numbers. But if you were to remove that, then you actually had pretty good growth in our shall we say, our prioritized business units in the quarter.

Speaker #3: The working capital spend has been deployed. The other labor situation is all in the past. So, we are going to see higher uptake numbers rather than speak about the individual items.

Speaker #2: Overall, yeah, I agree, 4% doesn't look like very high growth, but it's planned in that manner that the older business units decline and this grows.

Speaker #3: I think PB overall, as a component, you should expect could see double-digit growth from last quarter to this quarter, from last year to this year. Every which way you see it, you should see good growth in this quarter, Q2.

Speaker #2: But be that as it may, for Q2, I think with the higher levels of growth being achieved in multiple business units, we will be in a place to the combined entity to grow at double-digit rates.

Speaker #4: And sir, if you could quantify the number, please.

Nitin Jain: Sir, if you could quantify the number, please.

Speaker #3: That would be providing guidance. So, I think that we don't usually provide it, but I would—I would, I think the best picture I can give you is that order backlogs are strong.

Speaker #5: Okay. Yeah. And I'm the chair of these legacy these low-margin businesses have declined. So what kind of margins do we expect there for the company for the next two to three years?

Aditya Rao: That would be providing guidance. I think that we do not usually provide, but I think the best picture I can give you is that order backlogs are strong. It is flowing through to revenue, double-digit growth.

Speaker #3: It's going through to revenue. Double-digit growth.

Speaker #4: And for the overall company level?

Speaker #2: So as you see, I think over the last, not just this quarter, but the last four years, quarter on quarter, with momentary flips, perhaps you have seen our operating margins improve.

Nitin Jain: And for the overall company level?

Speaker #3: For, I mean, at the individual component and overall company level, PB revenue would be high; growth would be high.

Aditya Rao: For individual component and overall company level, PEB revenue growth would be high.

Speaker #2: As these as the deprioritized businesses reduce. So accordingly, you see in this quarter as well, though our revenue is only grown by 4%, our operating margins have grown at a more healthy rate.

Speaker #4: Okay. Thank you.

Nitin Jain: Okay. Thank you.

Speaker #1: Thank you. The next question comes from the line of Vidhisha from CRK Investment. Please go ahead.

Operator: Thank you. The next question comes from the line of Vidhi Shah from CRK Investment. Please go ahead.

Speaker #2: So that will continue. What we have guided to is over the next three years, reaching a PBT of 7%. We are right now at around 5 change.

Speaker #5: Sir, we noticed that there was a revenue slowdown in the quarter. Can you explain what would be the key drivers for revenue growth in the coming months?

Vidhi Shah: Sir, I noticed that there was a revenue slowdown in this quarter. Can you explain what will be the key drivers for revenue growth in the coming years?

Speaker #2: I think. Yeah, 5.38. 5.3 or 5.38, I'm told is everywhere, right? So we are quite confident that just executing this gets our PBT up.

Speaker #3: So, as the narrative which we've been providing you for the last three years, that continues. We are having a fair amount of revenue decline in what we call the legacy businesses, which comprise our Steel Business Unit and our Railways Business Unit.

Aditya Rao: As the narrative which we have been providing you for the last three years, that continues. We are having a fair amount of revenue decline in the, what we call the legacy businesses, which comprise of our steels business unit and our railways business unit. Both of those business units, we are not deploying capital into those businesses. While the revenue drop there also we believe to be temporary. I think again, in Q2 that comes back. The messaging we have for you is that our growth vectors, which is PEB India, PEB US, boilers, BIW, and engineering services are all firing. The only one where we do not have clear narrative to provide for you is hydraulics because of the tariff situation actually creating a fair amount of confusion. That does not derail from the regular story where our revenue growth is predicated on these four revenue streams growing.

Speaker #5: Understood, sir. And can you clarify what is the current order book of the company?

Speaker #2: In what, sorry? Order book?

Speaker #5: Order book of the PEB.

Speaker #3: So both of those business units did, and we're not deploying capital into those businesses. While the revenue drop there, we also believe to be temporary.

Speaker #2: So we don't combine everything. PEB India is at 1,008 crores. PEB US has just crossed. I mean, this is not an end-of-quarter. As it is right now, we've crossed 100 million dollars in order backlog for Essent, which is our US hub.

Speaker #3: I think I think again in Q2 that comes back. But the what the the messaging we have for you is that our growth vectors, which is PV India, PV US, boilers, BIW, and engineering services, are all firing.

Speaker #2: Boiler order book is at 150 crores. BIW, we don't measure an order book, but our Hyundai plant is getting commissioned this month. And that should over the next three months double our revenue from a scheduled order backlog point of view.

Speaker #3: The only one where we don't have a clear narrative to provide for you is hydraulics, because the tariff situation is actually creating a fair amount of confusion.

Speaker #2: So everything except hydraulics is in great shape.

Speaker #3: But that doesn't detract from the regular story, where our revenue growth is predicated on these four revenue streams growing. The other legacy businesses, which comprised about ₹1,300 crores of revenue annually, have seen a little bit of a decline.

Speaker #5: Understood, sir. Thank you, Nandita.

Speaker #1: Thank you.

Aditya Rao: The other legacy businesses, which comprised about INR 1,300 crores of revenue annually, that has seen a little bit of a decline, so you see the smaller numbers. If you were to remove that, then you actually had pretty good growth in our, shall we say, our prioritized business units in the quarter. Overall, yeah, I agree, 4% does not look like very high growth, but it is planned in that manner that will be the older business units decline and this grows. Be that as it may, for Q2, I think with the higher levels of growth being achieved at multiple business units, we will be in a place to the combined entity to grow at double-digit rates.

Speaker #2: Thank you.

Speaker #1: The next question comes from the line of Shubhankar Gupta from Equatory Capital. Please go ahead.

Speaker #3: So you see the smaller numbers. But if you were to remove that, then you actually had pretty good growth in our, shall we say, our prioritized business units in the quarter.

Speaker #2: Hi, I think the question is combined. First thing, is it possible to.

Speaker #1: Sorry to interrupt, Shubham. Your voice is not clear. May I request you to please use a handset?

Speaker #3: Overall, yeah, I agree. 4% doesn't look like very high growth, but it's it's a it's planned in that manner that will be the older business units decline and this grows.

Speaker #2: Is it better now? Yes, please go ahead. Yeah, sure. So I'm just asking, can you provide a segmental pickup of the segments for all these segments?

Speaker #3: But be that as it may, for Q2, I think with the higher levels of growth being achieved at multiple business units, we will be in a place for the combined entity to grow at double-digit rates.

Speaker #2: If that's possible. That will just help us segregate how the EBITDA has moved a bit. Within what segments? I agree. I think I believe this is something we discussed last time I promised some clarity on this.

Speaker #5: Okay. And I have a share of these legacy like these low margin businesses has declined. So what kind of margins do we expect ahead for the company for the next two to three years?

Vidhi Shah: Okay, sir. As the share of these legacy, like these low margin businesses are declining, what kind of margins should we expect ahead for the company for the next two to three years?

Speaker #2: We've discussed this internally. Please give us a little bit more quarter. We are setting these businesses up for high growth, high scale, capital deployment.

Speaker #3: So as you see, I think over not just this quarter but for the last four years, quarter on quarter, with momentary blips perhaps, you have seen our operating margins improve as these deprioritized businesses reduce.

Aditya Rao: So as you see, I think over the last, not just this quarter, but the last four years, quarter on quarter with momentary blips perhaps, you have seen our operating margins improve as the de-prioritized businesses reduce. Accordingly, you have seen in this quarter as well, though our revenue has only grown by 4%, our operating margins have grown at a more healthy rate. So that first, that will continue. What we have guided to is over the next three years, reaching a PBT of 7%. We are right now at around five change, I think.

Speaker #2: And I agree it's important to get that segmental picture. If I can request you give us until next quarter to achieve this. That is directionally where we are going.

Speaker #2: We will get there. But do give us the quarter to present because well, let me be honest, we have not prepared the data for disbursal yet.

Speaker #3: So accordingly, you see, in this quarter as well, though our revenue has only grown by 4%, our operating margins have grown at a more healthy rate.

Speaker #3: So, that will continue. What we have guided to is, over the next three years, reaching a PBT of 7%. We are right now at around 5% and change.

Speaker #2: We have obviously, we have it internal to the company. Every revenue stream we have separate P&Ls, balance sheets, capital efficiency. But at this point, we're currently not able to share the segmental thing.

Speaker #3: I think, yeah, 5.38. 5.3, 5.38, I'm told, is where we're at. So we are quite confident that just executing this gets our PBT up.

Speaker #2: But you have the management's commitment that we get ourselves there. Do give us this quarter to get there.

Shrikant Bhakkad: Yeah, 5.38.

Aditya Rao: 5.3 or 5.38, I am told is where we are at. So we are quite confident that just executing this gets our PBT up.

Speaker #3: Sure. So no problem. That's helpful. And from the other income perspective, can we see this so other income has went, I think, from 8 crores.

Speaker #5: Understood, sir. And can you clarify what is the current order book of the company?

Vidhi Shah: Understood, sir. Can you clarify what is the current order book of the company?

Speaker #3: In what, sorry? Order book. Order book.

Aditya Rao: In what, sorry?

Shrikant Bhakkad: Order book.

Speaker #5: What is the current PB?

Speaker #3: It has gone to 14, 14 and a half crores, quarterly basis, right? Just want to understand, is this something which we at CFS or is this something which is more one-off?

Aditya Rao: Order book.

Operator: What is the current order book?

Vidhi Shah: What is the current order book?

Speaker #3: So, we don't combine everything. PB India is at ₹1,008 crore. PB US has just crossed— I mean, this is not an end-of-quarter number.

Aditya Rao: PEB India is at INR 1,008 crores. PEB US has just crossed, I mean, this is not end of quarter. As it is right now, we have crossed $100 million in order backlog for Ascent, which is our US sub. Boiler order book is at INR 150 crores. BIW, we do not measure an order book, but our Hyundai plant is getting commissioned this month, and that should over the next three months, double our revenue from a scheduled order backlog point of view. Everything except hydraulics is in great shape.

Speaker #3: And then what is the other income anticipation at least from an FI27 perspective?

Speaker #3: As it is right now, we've crossed $100 million in order backlog for Ascent, which is our US subsidiary. The boiler order book is at ₹150 crores.

Speaker #2: So as I had mentioned, I think not perhaps not last quarter, but a couple of quarters ago. So I think it makes more sense from a report standpoint, there's certain revenue categories we have to declare in other income.

Speaker #3: BIW, we don't measure an order book, but our Hyundai plant is getting commissioned this month. That should, over the next three months, double our revenue from a scheduled order backlog point of view.

Speaker #2: These include things such as forex gains and all of this. Some of them, and they're all not one-time events. They're consistent events. So really, our operating margin, our contribution only makes sense when you look at our revenue including both what their net revenue and also the other income.

Speaker #3: So, everything except hydraulics is in great shape.

Speaker #5: Understood, sir. Thank you, and welcome back.

Vidhi Shah: Understood, sir. Thank you, and all the best.

Speaker #1: Thank you. The next question comes from the line of Subankar Gupta from Equatory Capital. Please go ahead.

Speaker #2: So it's not a separate item which is one-time or not part of our regular income. It's just accounting law makes us put that in there.

Operator: Thank you. The next question comes from the line of Shubhankar Gupta from Equitree Capital. Please go ahead.

Speaker #2: It is composed of various other components including I think even gains that we have from sale of investments, export-related incentives that we have got, certain foreign exchange fluctuations, certain write-back of liabilities as a project cost.

Speaker #3: Hi. I think the question is from my end. So, is it possible to interrupt?

Shubhankar Gupta: Hi, question from my end.

Operator: Sorry to interrupt, Shubham. Your voice is not clear. May I request you to please use a handset?

Operator: Sorry to interrupt, Shubhankar. Your voice is not clear. May I request you to please use a handset?

Speaker #1: Shubham, your voice is not clear. May I request you to please use a handset?

Speaker #3: Is it better now?

Shubhankar Gupta: Is it better now?

Speaker #2: So all these are part of the other income as a bundle. And this would continue. We tend to target a certain operating margin, taking these into account.

Speaker #1: Yes, please go ahead.

Speaker #3: Yes, please go ahead. Yeah, sure. So I'm just asking, can you provide a segmental pick-up of the segments for all these segments?

Operator: Yes, please go ahead.

Shubhankar Gupta: Yes, please go ahead. Yeah, sure. I am just asking, can you provide a segmental breakup of the segments, like the EBITDA margins for all these segments, if that is possible. That will just help us segregate how the EBITDA has moved a bit within what segments.

Aditya Rao: Yes, please go ahead.

Shubhankar Gupta: Yeah, sure. I am just asking, can you provide a segmental breakup of the segments, like the EBITDA margins for all these segments, if that is possible. That will just help us segregate how the EBITDA has moved a bit within what segments.

Speaker #2: So removing them would perhaps not give enough accurate picture because our model works because we take those into account and we are pretty good at estimating them.

Speaker #3: If that's possible, that will just help us segregate, you know, how the EBITDA has moved a bit—within what segments? I agree.

Speaker #2: As they come in, you do see a little bit of up and down on it, but the combined other income plus net income picture, net sales picture is what gives you our actual sales.

Speaker #3: I think—I believe this is something we discussed last time. I promised some clarity on this. We've discussed this internally. Please give us a little bit more quarter.

Aditya Rao: I agree. I believe this is something we discussed last time. I promised some clarity on this. We have discussed this internally. Please give us a little bit more quarter. We are setting these businesses up for high growth, high scale, capital deployment. I agree it is important to get that segmental picture. If I can request you give us until next quarter to achieve this. That is directionally where we are going. We will get there, but do give us the quarter to present because, well, let me be honest, we have not prepared the data for dispersal yet. Obviously, we have it internal to the company. Every revenue stream we have separate P&Ls, balance sheets, capital efficiency. At this point, we are currently not able to share the segmental thing. But you have the management's commitment that we get ourselves there.

Speaker #3: We are setting these businesses up for high growth, high scale, capital deployment. And I agree it's important to get that segmental picture. If I can request, you give us until next quarter to achieve this.

Speaker #2: That's the narrative we had provided also two quarters ago.

Speaker #3: Got it. Got it. And just one last question on the dead date. So is there any plans of what is the debt-to-equity ratio we are targeting from an FI27 perspective?

Speaker #3: That is directionally where we are going. We will get there. But do give us the quarter to present because, well, let me be honest, we—we have not prepared the data for disbursal yet.

Speaker #3: I think we had plans to reduce. The same, right? So what are the target which we are taking on a, let's say, from a two, three-year lens also.

Speaker #3: We have it. Obviously, we have it internal to the company. Every revenue stream, we have separate P&Ls, balance sheets, capital efficiency. But at this point, we're currently not able to share the segmental thing.

Speaker #3: It's not FI27.

Speaker #2: So what we consider healthy debt versus shall we say unhealthy debt. Now, I think with our treatment of healthy everything, all debt is now being combined.

Speaker #3: But you have the management's commitment that we will get ourselves there. Do give us this quarter to get there.

Speaker #2: We would consider any debt equity around 0.7 to be healthy. From an annualized point of view, by the end of the year, we are quite confident we will be able to get close to that number.

Aditya Rao: Do give us this quarter to get there.

Speaker #4: Sure. Sure. No problem. That's helpful. And from the other income perspective, like can we can we see this like so further income has went I think from 8 crores, it has gone to 14, 14 and a half crores quarterly basis, right?

Shubhankar Gupta: Sure. No problem. That is helpful. From the other income perspective, can we see this like, if other income has went, I think from INR 8 crores it has gone to INR 14 and a half crores on a quarterly basis, right? Just want to understand, is this something which we see as sustainable or is this something which is more one-off? What is the other income anticipation, at least from an FY27 perspective?

Speaker #2: If you're slightly higher than that number, it would be because of perhaps acquisitions we have made and others. But anything higher than 0.7 is something that we will not accept.

Speaker #4: I just want to understand—is this something which we see at the CSS table, or is this more of a one-off? And then, what is the other income anticipation, at least from an FY27 perspective?

Speaker #2: So we will ensure that there's also I mean, speaking from a promoter point of view, there's about 50 crores of capital that's being brought in.

Speaker #2: But 20 crores has been brought in already. So that too will to some extent reduce debt equity. So that's not the major metric. But staying around 0.7 is the stated target.

Speaker #3: So as I had mentioned, I think not perhaps last quarter, but a couple of quarters ago, I think it makes sense from a reporting standpoint. There are certain revenue categories we have to declare in other income.

Aditya Rao: As I mentioned, I think perhaps not last quarter, but a couple of quarters ago. I think it makes sense from a report standpoint, there is certain revenue categories we have to declare in other income. These include things such as forex gains and all of this. Some of them, and they are all not one-time events, they are consistent events. So really our operating margin, our contribution only makes sense when you look at our revenue, including both what the net revenue and also the other income. So it is not a separate item which is one time or not part of our regular income. It is just accounting law makes us put that in there.

Speaker #3: Stated target.

Speaker #3: These include things such as forex gains and all of this. Some of them, and they're all not one-time events—they're consistent events. So, really, our operating margin or contribution only makes sense when you look at our revenue, including both what is their net revenue and also the other income.

Speaker #2: Which is okay.

Speaker #3: Got it. Sure. That's helpful. Thank you.

Speaker #1: Thank you. The next question comes from the line of Basheet Parikh from LS Finance. Please go ahead.

Speaker #3: So, it's not a separate item which is one-time or not part of our regular income. It's just that accounting law makes us put that in there.

Speaker #3: Hello. Am I audible?

Speaker #2: Yes. Perhaps a little loudest. Can you?

Speaker #3: It is composed of various other components, including, I think, even gains that we have from the sale of investments or export-related incentives that we have got.

Aditya Rao: It is composed of various other components, including, I think even gains that we have from sale of investments, export related incentives that we have got, certain foreign exchange fluctuations, certain write back of liabilities as a project cost. All these are part of the other income as a bundle, and this would continue. We tend to target a certain operating margin taking these into account. Removing them would perhaps not give an accurate picture because our model works because we take those into account and we are pretty good at estimating them. As they come in, you do see a little bit of up and down on it, but the combined other income plus net income picture, net sales picture is what gives you our actual sales. That's the narrative we had provided also two quarters ago.

Speaker #3: Okay. I'll try. Does this work?

Speaker #2: Still not very clear, but.

Speaker #3: Certain foreign exchange fluctuations, certain write-backs of liabilities as a project cost—so all these are part of the other income as a bundle.

Speaker #3: So please go ahead, sir. We'll try to understand. Okay. All right. So I'm a new investor to the company, and I've gone through the last three, four years' work of phone calls.

Speaker #3: And this would continue. We tend to target a certain operating margin, taking these into account. So removing them would perhaps not give an accurate picture because our model works as we take those into account, and we are pretty good at estimating them.

Speaker #3: And one of the things I'm a little bit concerned about is how the goalpost keeps moving in terms of the targeted type margin. So for example, I think in 2024, there was a stated goal of getting to 5% type margin by 2026.

Speaker #3: As they come in, you do see a little bit of up and down on it, but the combined other income plus net income picture—net sales picture—is what gives you our actual sales.

Speaker #3: That was missed. And then I think there was a mention quite confidently about 7% type margins by, let's say, FY28 or FY29. Now, as of today, I think Aditya just spoke about 7% PBT margins by two, three years.

Speaker #3: That's the narrative we had provided also two quarters ago.

Speaker #4: Got it. Got it. And just one last question on the debt bit. So like any plans of like what are this what is the debt to equity like ratio we are targeting from an FY27 perspective?

Shubhankar Gupta: Got it. Just one last question on the debt bit. Aditya, what is the debt-to-equity ratio we are targeting from an FY27 perspective? I think we had plans to reduce the same, right? What are the targets which we are taking on a, let's say, from a two, three-year lens also, if not FY27?

Speaker #4: I think we had plans to reduce. The same, right? So like what are the what are the target which we are taking on a let's say on a from a two, three year lens also if not FY27.

Speaker #3: So I think the goalpost continuously keeps moving, which does not inspire a lot of confidence in me. So what makes you why as an investor should I feel very confident that you would get that you promised you would get?

Speaker #3: So the, so the, what we consider healthy debt versus, shall we say, unhealthy debt. Now, I think with our treatment of healthy debt, all debt is now being combined.

Aditya Rao: Well, what we consider healthy debt versus, shall we say, unhealthy debt. I think with our huge treatment of LC, I think all debt is now being combined. We would consider any debt equity around 0.7 to be healthy. From an annualized point of view, by the end of the year, we are quite confident we will be able to get close to that number.

Speaker #2: Okay. So let me first clarify that you are right. I think it would be extremely inappropriate if we gave you guidance and we switched that around and said something else.

Speaker #3: We would consider any debt-equity ratio around 0.7 to be healthy. From an annualized point of view, by the end of the year, we are quite confident we will be able to get close to that number.

Speaker #2: So let me try to explain how we are seeing this and maybe that will help clarify this a little bit more. So for us, it's not that we have a certain margin and we stop there.

Aditya Rao: From an annualized point of view, by the end of the year, we are quite confident we will be able to get close to that number. If we are slightly higher than that number, it would be because of perhaps acquisitions we have made and others, but anything higher than 0.7 is something that we will not accept. We will ensure that. Speaking from the promoter point of view, there's about INR 50 crores of capital that's been brought in. INR 20 crores has been brought in already, so that too will to some extent reduce debt equity, so that's not the main major metric. But staying around 0.7 is the-

Speaker #3: If you're slightly higher than that number, it would be because of perhaps acquisitions we have made and others. But anything higher than 0.7 is something that we will not accept.

Aditya Rao: If we are slightly higher than that number, it would be because of perhaps acquisitions we have made and others, but anything higher than 0.7 is something that we will not accept. We will ensure that. Speaking from the promoter point of view, there's about INR 50 crores of capital that's been brought in. INR 20 crores has been brought in already, so that too will to some extent reduce debt equity, so that's not the main major metric. But staying around 0.7 is the-

Speaker #2: Any more than we will say, okay, we will reach a certain revenue or a certain profit number and we'll stop there. Our guidance on consistent and sustainable operating margin increase and profit margin increase, which we have demonstrated over the past few years.

Speaker #3: So, we will ensure that there's also—I mean, speaking from a promoter point of view—there's about ₹50 crore of capital that's being brought in.

Speaker #3: But ₹20 crore has been brought in already, so that too will to some extent reduce debt-equity, though that's not the main major metric.

Speaker #2: So while they may have been an exact time in which or the timeframe in which we will reach a certain percentage number, what is definitely on the record and we have shown is that we have inner capital efficient manner maintaining our rose about 20%.

Speaker #3: But staying around 0.7 is the stated target.

Speaker #4: Stated target.

Shubhankar Gupta: stated target.

Aditya Rao: stated target, which we will achieve.

Speaker #3: Which is okay.

Shubhankar Gupta: Okay. Got it. So that's helpful. Thank you.

Speaker #4: Got it. Sure, that's helpful. Thank you.

Speaker #2: We have managed to grow our profit margins from 2%, 2 and a half percent, 3%, 3 and a half percent, and above that also.

Speaker #1: Thank you. The next question comes from the line of Basheet Parikh from LS Finance. Please go ahead.

Operator: Thank you. The next question comes from the line of Basit Pareek from LS Finance. Please go ahead.

Speaker #2: In fact, for the quarter we've just closed, I think our packed margin would be open 4.07%. So what is creating this increase is effectively our focus on higher margin businesses.

Speaker #5: Hello. Am I audible? Hello.

Basit Pareek: Hello, may I come in?

[Analyst] (LS Finance): Hello, may I come in?

Speaker #3: Yes. Perhaps a little loudest.

Aditya Rao: Yes. Perhaps a little louder, sir.

Speaker #5: All right.

Speaker #3: Can you okay. I'll try.

Basit Pareek: All right.

[Analyst] (LS Finance): All right.

Aditya Rao: Can you be heard?

Speaker #2: And the margins, the operating margins in these businesses even if you take our US business out, yes, the India businesses are growing. They're focusing on operating margins which are higher than 15%.

Basit Pareek: Okay. I'll try. Does this work?

[Analyst] (LS Finance): Okay. I'll try. Does this work?

Speaker #5: Does this does this work?

Speaker #3: Still not very clear, but please go ahead, sir. We'll try to understand.

Aditya Rao: Still not very clear, but-

Shrikant Bhakkad: Still not very clear, but-

Aditya Rao: Please go ahead, sir. We'll try to understand.

Speaker #2: And as the additional revenue comes in and the older legacy business revenue streams, the commodity revenue streams with lower EBIT and packed margins go away, margins tend to expand.

Speaker #5: Okay, all right. So, I'm a new investor to the company, and I've gone through the last three to four years' worth of phone calls.

Basit Pareek: Okay. All right. I'm a new investor to the company, and I've gone through last three, four years' worth of con calls. One of the things I'm a little bit concerned about is how the goalpost keeps moving in terms of the targeted PAT margins. For example, I think in 2024, there was a stated goal of getting to 5% PAT margins by 2026. That was missed. Then I think there was a mention quite confidently about 7% PAT margins by, let's say, FY28 or FY29. As of today, I think Aditya just spoke about 7% PBT margins by two, three years. I think the goalpost continuously keeps moving, which does not inspire a lot of confidence in me. Why, as an investor, should I feel very confident that you promised you would get?

[Analyst] (LS Finance): Okay. All right. I'm a new investor to the company, and I've gone through last three, four years' worth of con calls. One of the things I'm a little bit concerned about is how the goalpost keeps moving in terms of the targeted PAT margins. For example, I think in 2024, there was a stated goal of getting to 5% PAT margins by 2026. That was missed. Then I think there was a mention quite confidently about 7% PAT margins by, let's say, FY28 or FY29. As of today, I think Aditya just spoke about 7% PBT margins by two, three years. I think the goalpost continuously keeps moving, which does not inspire a lot of confidence in me. Why, as an investor, should I feel very confident that you promised you would get?

Speaker #5: And one of the things I'm a little bit concerned about is how the goalpost keeps moving in terms of the targeted back margin.

Speaker #2: So that's all we're doing and that's the narrative that's carrying on. Now, if there is hysteresis or a little bit of as you put it, goalpost moving in terms of when we achieve that, that is primarily because of what we see as a quarter-on-quarter impact in terms of higher commodity pricing, which tends to have a temporary effect.

Speaker #5: So, for example, I think in 2024 there was a stated goal of getting to, you know, 5% back margin by '26. That was missed.

Speaker #5: And then I think there was a mention, quite confidently, about 7% back margins by, let's say, FY28 or FY29. Now, as of today, I think this spoke about 7% PBT margins in two or three years.

Speaker #2: But longer term, that's the drive. How do we know what our margins would be two years from now, three years from now? Because we have an articulated plan for where we want to be and what those operating margins in those business units would be.

Speaker #2: So if we execute that, what we've committed to you automatically happens. And more or less, it has been happening. We have doubled our margins in the last three years.

Speaker #5: So I think the goalpost continuously keeps moving, which does not inspire a lot of confidence in me. So what makes you—why, as an investor, should I feel very confident that you would get what you promised you would get?

Speaker #2: So that trend will continue. So that's the narrative I want to provide. Now, when do we reach five? Do we stop at five? Do we go to six?

Speaker #2: Do we go to seven PBT versus PAT? I agree that we should give you as much clarity as we can. But I think we put ourselves in the best position to show you where we are headed when we show consistent profit packed margin improvement, which we have shown.

Speaker #3: Okay, so let me first clarify that you are right. I think it would be extremely inappropriate if we gave you guidance and then switched that around and said something else.

Aditya Rao: Okay. Let me first clarify that. You are right. I think it would be extremely inappropriate if we gave you guidance, then we switched that around and said something else. Let me try to explain how we are seeing this, and maybe that will help clarify this a little bit more. For us, it is not that we have a certain margin and we stop there, any more than we will say, "Okay, we will reach a certain revenue or a certain profit number, and we will stop there." Our guidance on consistent and sustainable operating margin increase and profit margin increase, which we have demonstrated over the past few years.

Speaker #3: So let me try to explain how we are seeing this, and maybe that will help clarify things a little bit more. For us, it's not that we have a certain margin and we stop there.

Speaker #2: And consistent making sure capital efficiency, that's also important. You can't just have high profit with capital efficiency going down. So that also is something that we need to ensure happens.

Speaker #2: So we commit to you that we are targeting 25% ROC, ROE over 10%. I mean, we used to be at 7, 8% ROE also has now reached 12%.

Speaker #3: At any point, if we say, okay, we'll reach a certain revenue or a certain profit number and we'll stop there, that is not our approach. Our guidance is on consistent and sustainable operating margin increase and profit margin increase, which we have demonstrated over the past few years.

Speaker #2: So all of those margins go ahead. And keeping with that, our packed margins will increase. PAT, PBT margins will increase. One other factor you want to take into account specific to this quarter is we had a higher tax rate.

Speaker #3: So, while there may not have been an exact time or time frame in which we will reach a certain percentage number, what is definitely on the record, and as we have shown, is that we have, in a capital-efficient manner, maintained our ROCE at about 20%.

Aditya Rao: While there may have been an exact time in which, or the timeframe in which we will reach a certain percentage number, what is definitely on the record and we have shown is that we have, in a capital-efficient manner, maintaining our ROA support 20%, we have managed to grow our profit margins from 2%, 2.5%, 3%, 3.5%, and above that also. In fact, for the quarter we have just closed, I think our PAT margin would be-

Speaker #2: Because of one type in the last quarter which we are tax adjustment relating to a clear year. This was 1.75 crores. So PBT is the metric we should use.

Speaker #3: We have managed to grow our profit margins from 2%, 2.5%, 3%, 3.5% and above that also. In fact, for the quarter we've just closed, I think our PAT margin would be 4.07%.

Speaker #2: Let's use PBT and PAT, I mean, it tends to move a little bit because we have India tax code, US tax code, both of which tend to be around 25%.

Speaker #2: So there's not massive changes there, but yeah. So long-winded, but that's the answer I have.

Speaker #3: 4.07%. So, what is creating this increase is effectively our focus on higher margin businesses. And the margins—the operating margins—in these businesses, even if you take our US business out, yes, the India businesses are growing.

Shrikant Bhakkad: 4.07

Aditya Rao: 4.07%. What is creating this increase is effectively our focus on higher margin businesses. And the margins, the operating margins in these businesses, even if you take our US business or just the India businesses, are growing. We are focusing on operating margins which are higher than 15%. As the additional revenue comes in and the older legacy business revenue streams, the commodity revenue streams with lower EBIT and PAT margins go away, margins tend to expand. That is all we are doing, and that is the narrative that is catching up.

Speaker #3: Got it. Thank you. So yeah, I fully understand various geopolitics and other factors. And I do believe the higher margin businesses should do really well.

Speaker #3: They're focusing on operating margins, which are higher than 15%. And as the additional revenue comes in and the older, legacy business revenue streams—the commodity revenue streams with lower EBIT and PAT margins—go away, margins tend to expand.

Speaker #3: I'm just so because I want to value the business, I don't fully understand how I should value it because I understand it will grow at a certain rate.

Speaker #3: But how much will it grow is the concern, right? The second question, I have is so again, going back to some of the historical thoughts that Aditya had, so you mentioned in the past that 7% packed margin seems like a sustainable goal.

Speaker #3: So that's all we're doing, and that's the narrative that's carrying on. Now, if there is hysteresis or a little bit of, as you put it, 'goalpost moving' in terms of when we achieve that, that is primarily because of what we see as a quarter-on-quarter impact in terms of higher commodity pricing, which tends to have a temporary effect.

Speaker #3: And then at one point, I'm not sure if this was a slip of tongue, but you mentioned that long-term maybe even 10% is achievable, right?

Speaker #3: But longer term, that's the driving factor. How do we know what our margins will be two years from now, three years from now? Because we have an articulated plan for where we want to be and what those operating margins in those business units will be.

Speaker #3: So maybe over the next 10 years, 15 years, whatever timeframe. So what would stop you from getting to those numbers apart from geopolitics and especially macro factors?

Speaker #3: So, if we execute that, what we've committed to you automatically happens. And, more or less, it has been happening. We have doubled our margins in the last three years.

Speaker #3: What are the key challenges in getting to those numbers?

Speaker #3: So that trend will continue. So that's the narrative I want to provide. Now, when do we reach five? Do we stop at five? Do we go to six?

Speaker #2: So considering the model we follow is have large adjustable markets. Our current adjustable market is from a total adjustable market point of view is 2.25, 2.3 lakh crores.

Speaker #3: Do we go to seven, PBT versus PAT? I agree that we should give you as much clarity as we can.

Speaker #2: Our specific obtainable market is over 80,000 crores. So the revenue we do every year from a gross sales point of view are about 4,000, 400.

Speaker #3: But I think we put ourselves in the best position to show you where we are headed, when we show consistent profit and margin improvement, which we have shown.

Speaker #2: That if you look at it from a share, it's about 6 to 7 percent. Provided addressable markets stay large, our revenue stays large. Provided the revenue stays where it is and operating margins in industries tend to be static over the longer term.

Speaker #3: And consistently making sure capital is efficient—that's also important. You can't just have high profit with capital efficiency going down. So that is also something that we need to ensure happens.

Speaker #3: So we commit to you that we are targeting 25% RoCE, and ROE over 10%. I mean, we used to be at 7–8% ROE, which has now reached 12%.

Speaker #2: They don't tend to move around too much unless there's a massive technological change or temporary competitive intensity tends to reduce it. If those things happen, and fixed cost effectively is a function of payroll and other asset costs.

Speaker #3: So, all of those margin go ahead, and keeping with that, our PAT margins will increase. PAT, PBT margins will increase. One other factor you want to take into account specific to this quarter is, we had a higher tax rate.

Speaker #2: As long as those stay within our model, then what falls to bottom line effectively or the limiting factor for our PBT, so to speak, in any business, frankly, not just for us, is effectively how much scale you can bring in.

Speaker #3: Because of a one-time, one-type item in the last quarter, which was a tax adjustment relating to a theory, which was ₹1.75 crore. So, PBT is the metric we should use.

Speaker #2: And typically tends to half. Half of your operating margin is your EBITDA, half of EBITDA tends to be PAT for most manufacturing businesses. So considering that operating margin we're all adding right now is in the 15 to 20 percent range, a natural border which we will result will mean that you can't really get past 10% from a PAT point of view.

Speaker #3: Let's use PBT and PAT. I mean, it tends to move a little bit because we have India tax code, US tax code, both of which tend to be around 25%, so there are not massive changes there. But yeah, so long-winded, but that's the answer I had.

Speaker #5: Got it. Thank you. So yeah I fully understand you know various you know geopolitics and other factors. And I I I do believe you know the higher margin businesses should do really well.

Speaker #2: That being said, it would be better for us to look at this as that's the Mount Everest. That's what we need to reach. Mount Everest is overstated.

Speaker #5: I'm just like, so, because I want to value the business. I don't fully understand how I should value it, because I understand it will grow at a certain rate, but how much will it grow is the concern, right?

Speaker #2: A lot of businesses, but all of our competitors also benchmarking, if you see, they're all at 7, 8. A lot of them are at 7, 8 percent.

Speaker #2: So the market would prevent us from reaching those numbers. So what else could help me? I mean, poor execution is one thing. So our goal is to make sure that that doesn't become a reason for us not to achieve our revenue and profit growth aspirations.

Speaker #5: The the second the second question I have is so you know again like going back to some of the historical you know thoughts that Aditya had so you you mentioned in the past that you know 7% pat margin seems you know like a you know sustainable goal and then at one point I'm I'm not sure if this was a slip of tongue but you mentioned that long term maybe you know even 10% is achievable right.

Speaker #3: Got it. And really, one last question. So what is the I understand there is a separate CEO for the US PEP business. How else are you making sure that the middle management and the people who are skilled at the lower levels are helping the company grow?

Speaker #5: So maybe over the like next 10 years 15 years I'm you know whatever time frame so what would stop you from you know getting to those numbers apart from you know geopolitics and you know other such like macro factors what are the key challenges that the management sees in you know getting to those numbers?

Speaker #3: So if Aditya decides that he wants to retire, what is your backup plan?

Speaker #2: So I think humans capital agenda is actually probably the most important thing for me. It isn't none of this growth, all of it is driven by me alone.

Speaker #3: So, considering the model we follow, we have large addressable markets. Our current addressable market, from a total addressable market point of view, is ₹2.25 to ₹2.3 lakh crores.

Speaker #2: It's the team. And a lot of them accomplish seasoned professionals who've spent decades in the industry, whether every one of our business units is headed by people with decades of experience in the fields that they presented.

Speaker #3: Our specific obtainable market is about ₹80,000 crores. So, the revenue we do every year, from a gross sales point of view, is about ₹4,400 crores. If you look at it from a share, it's about 6 or 7%.

Speaker #2: And there is no exception to this rule. So human capital-wise, we are focusing on what the company needs to look like for five years from now.

Speaker #3: Provided the adjustable market stays large, our revenue stays large. Provided the revenue stays where it is, operating margins in the industry tend to be static over the longer term—they don't tend to move around too much unless there's a massive technological change, or temporary competitive intensity tends to reduce it.

Speaker #2: What does it need to be? We have the doc structure mapped out. There's been several new additions in the thing. Just in the last quarter, in leadership roles, we have brought in people from INEL, we brought in people from Hero Honda, senior management there too.

Speaker #2: We're not talking about the manager level. We are talking at the COO, CEO, or president level. We've gotten people in from Murugappa Group U Investments, INEL, as I said, also Wipro Hydraulics as well.

Speaker #3: If those things happen, and fixed cost effectively is a function of payroll and other asset costs, as long as those stay within our model, then what falls to the bottom line effectively—or the limiting factor for our PBT, so to speak, in any business frankly, not just for us—is effectively how much scale you can bring in, and typically tends to half.

Speaker #2: So five senior team members additions in the last quarter, and we expect this to reach 20 people over the course of this year, all of whom are people.

Speaker #3: Half of your operating margin is your EBITDA. Half of EBITDA tends to be PAT for most manufacturing businesses. So considering that, operating margin we're all adding right now is in the 15% to 20% range. A natural border, which will result, will mean that you can't really get past 10% from a PAT point of view.

Speaker #2: And our attrition rate in senior management is I mean, it may be a good or bad thing, is quite low. So we don't really fire people also in that sense.

Speaker #2: So we believe that our human capital is strong. Our org structure has been defined for what we want to look like four years from now.

Speaker #2: It's good, it's lean, and filled with people with a tremendous amount of execution experience. I'm very confident that I mean, they say the not to be macabre, but there's this thing called hit by the bus test.

Speaker #3: That being said, it would be better for us to look at this as—that's the Mount Everest. That's what we need to reach.

Speaker #2: So tomorrow I get hit by the bus, the story continues. It's not me driven. Aditya driven in any sense. It is driven by the team and I'm proud of the team that we have and they're all ambitious and their ambition will be the limiting factor, not me.

Speaker #3: Mount Everest is overstating it. There are a lot of businesses, but all of our competitors are also benchmarking. If you see, they're all at 7–8%. A lot of them are at 7–8%.

Speaker #3: So, the market would prevent us from reaching those numbers. So what else could help me? I mean, poor execution is one thing. So, our goal is to make sure that doesn't become a reason for us not to achieve our revenue and profit growth aspirations.

Speaker #3: All right. Thank you. Thank you for your time.

Speaker #2: Thanks so much. Great questions so far. Thank you so much.

Speaker #5: Got it. And maybe one last question. So what is the you know I I understand there is a separate CEO for the US PV business.

Speaker #1: Thank you. Ladies and gentlemen, you are requested to restrict yourself to two questions per participant. I repeat, you are requested to restrict yourselves to two questions per participant.

Speaker #5: Like, how else are you making sure that the, you know, middle management and the, you know, people who are skilled at the lower levels are, you know, helping the company grow?

Speaker #1: The next question comes from the line of Vinod Krishna, from Avinash Capital Private Limited. Please go ahead.

Speaker #5: So, you know, like, if Aditya decides that he wants to, you know, retire, what is your backup plan?

Speaker #2: Sir, am I audible, sir?

Speaker #4: Yes.

Speaker #2: Sir, if you can help, I've been in this company for we have been there for the last four, five years. So if you can help us understand how to think about growth because you have been guiding PAT growth of 20% and how to think about medium-term revenue on PAT growth because there is a legacy business of around 20, 25 percent which how does that shape?

Speaker #3: So we I think human our human capital agenda is actually probably the most important thing for me. What's it isn't none of this growth all of it is driven by by me alone.

Speaker #3: It's the team. And a lot of them are accomplished seasoned professionals who've spent decades in the industry. Every one of our business units is headed by people with decades of experience in their fields at present, and there is no exception to this role.

Speaker #2: Will it really go to zero or will it stay there and the other part will be growing? How should we think about tailwinds division-wise?

Speaker #3: To this route. So, human capital-wise, we are focusing on what the company needs to look like five years from now. What does it need to be?

Speaker #2: What are the factors driving giving us the ability to get market shares? And then if you can help us understand this PAT 20% is the peak or we will definitely because you used to use the word at least 20%.

Speaker #3: We have the doc structure mapped out. There have been several new additions in the thing. Just in the last quarter, in leadership roles, we have brought in people from INEL.

Speaker #3: We brought in people from Hero Honda, senior management there too. We are not talking about the manager level; we are talking at the COO, CEO, or president level.

Speaker #2: So if you can help us because that becomes important for us to value the company because how to think about growth drivers for each of your divisions and is this 20% the max growth or we will definitely because you used to say that at least 20% PAT growth will come.

Speaker #3: We've gotten people in from Murugappa Group, U Investments, and INEL. As I said, also Hydraulics is Wipro Hydraulics as well. So, five senior team member additions in the last quarter, and we expect this to reach 20 people over the course of this year.

Speaker #2: So if you can help us understand, sir.

Speaker #4: So let me speak first about the legacy business units. Steel special grade CR, tubing, and railways businesses. These are good profitable businesses. We should not allow them to go to zero.

Speaker #3: All of whom are people, and our attrition rate in senior management is—I mean, it may be a good or bad thing—very, is quite low.

Speaker #4: But capital isn't infinite. Management mana is infinite. And we have to focus on a growth drivers and ensure we don't create many, many sub-scale businesses.

Speaker #3: So we don't really fire people also, in that sense. We believe that our human capital is strong. Our organizational structure has been defined for what we want to look like four years from now.

Speaker #4: So we have decided on this growth path. We are not going to deviate from it. That being said, we need to have some kind of org crop structure which allows those they should not go to zero.

Speaker #3: It's it's good. It's lean and and filled with people with a tremendous amount of execution experience. I'm very confident that I mean they say the not to be macabre but there's this thing called hit by the bus test.

Speaker #4: That would be wrong. Penar should realize value from those revenue streams. So we have we are looking at what are the best ways to achieve that.

Speaker #3: So tomorrow if I get hit by a bus, the story continues. It's not me-driven or Aditya-driven in any sense. It is driven by the team, and I'm proud of the team that we have. They're all ambitious, and their ambition will be the limiting factor—not me.

Speaker #4: We will it takes time to put those things together. Similar to what we did in solar where we took all of our solar capabilities and we have created a joint venture with Zetwork which has the potential to do some amount of revenue, some amount of profit.

Speaker #4: So it didn't go to zero. It's a it's something that holds value for Penar. And not value meaning it's some 50, 100 grows. It should I mean, what would a company like that be worth, right?

Speaker #5: Got it. Thank you. Thank you for your time.

Speaker #3: Thanks so much. Great questions, by the way. Thank you so much.

Speaker #4: That is a good question to answer. So similarly, we should do something similar for this 1,300 crores of legacy revenue stream that's in the business.

Speaker #4: And we have we are working on it and we should have something for you soon. Let me put that there and everything. No commitments in terms of timeline, but we are working hard on this.

Speaker #1: The next question comes from the line of Vinod Krishna from Avengers Capital Private Limited. Please go ahead.

Speaker #4: So that's point one. As far as PAT margin growth sorry, PAT growth of 20% is concerned. As I said, as this new revenue streams comes in, as they pick up scale, the operating margin being higher and our net margins being from our PBT point of view right now in the four, five percent range, just adding our revenue takes care of profitability.

Speaker #2: Sir, am I audible? Sir, if you can help, I've been in this company—we have been here for the last four or five years.

Speaker #2: So if you can help us understand how to think about growth because you have been guiding pat growth of 20% and how to think about medium term revenue and pat growth because there is a legacy business of around 20, 25 percent which how how does that shape will it really go to zero or will it stay there and the other part will be growing?

Speaker #4: There's no natural thing that it has to be 20 and can't be more than that. Let's take, for example, our BIW business. It's expected to double in revenue size in the next few months once Hyundai comes in.

Speaker #4: It's the plant is being commissioned today. There's no sales involved. The programs are all there. The three programs. We just have to keep producing and executing well and our revenue grows and scales.

Speaker #2: How should we think about tailwinds division-wise? What are the factors driving and giving us the ability to gain market share? And then, if you can help us understand, is this past 20% the peak, or will we—because you used to use the words "at least 20%"—go higher?

Speaker #4: We've created these seeds everywhere. And all of them are seeds. The US too, even though it's a 120 million dollar P&L right now, is a seed.

Speaker #4: There's a tremendous amount of potential where that can grow because of competitors there are in billions of dollars. So as we grow, achieve a large addressable market and get revenue streams to comply and that is something we need to execute.

Speaker #2: So if you can help us, because that becomes important for us to value the company—how to think about growth drivers for each of your divisions—and is this 20% the maximum growth? Or will we definitely, because you used to say that at least 20% PAT growth will come?

Speaker #4: Once we do that, there's no such thing as 20% is the criteria or not. I mean, I think the best way to value us is to look at our addressable market, look at our revenue growth, and our potential PAT margins, which will be ranged bond.

Speaker #2: So, if you can help us understand, sir.

Speaker #3: So, let me speak first about the legacy business units: steel, special grade CR tubing, and railways businesses. These are good, profitable businesses. We should not allow them to go to zero, but capital isn't infinite.

Speaker #4: It's not going to be 15%, but it's not going to be four, five percent also. It is going to scale. So that should suffice to give a valuation range.

Speaker #3: Management bandwidth is finite and we have to focus on our growth drivers and ensure we don't create many, many subscale businesses. So we have decided on this growth path.

Speaker #4: And of course, from a capital efficiency point of view, you should assume that we reach the 25% benchmark as we want to be from a ROC point of view.

Speaker #3: We are not going to deviate from it. That being said, we need to have some kind of org crop structure which allows those—they should not go to zero.

Speaker #4: Those numbers together should give you a foundation for how you want to look at our business.

Speaker #3: That would be wrong. Pennar should realize value from those revenue streams. So, we are looking at what are the best ways to achieve that.

Speaker #3: Sir, my second question is then I'm assuming this is not a question. So I'm assuming that there are enough tailwinds because you always say we should not give market reasons for growth in all these divisions mostly.

Speaker #3: It will take time to put those things together, similar to what we did in solar, where we took all of our solar capabilities and created a joint venture with Zetwork, which has the potential to generate some amount of revenue, some amount of profit.

Speaker #3: So our PAT growth of 20% should be taken even for this year. And my second question is in this Jetwork, when you say 4,000 crores, by when, sir?

Speaker #3: So it didn't go to zero. It's—it's something that holds value for Pennar. And not value meaning it's some ₹50, ₹100 gross.

Speaker #3: And how should we look at that? And my assumption, if you can clarify on my assumption that PAT growth of 20% for this year also is given like full year.

Speaker #3: It should—you know, we—I mean, what would a company like that be worth, right? That is a good question to answer. So, similarly, we should do something similar for this ₹1,300 crores of legacy revenue stream that's in the business.

Speaker #4: So the ZAP 91 subsidiary, which is majority owned by Zetwork and Penar, the revenue for that is something that I will we will speak internally in terms of what numbers you want to share.

Speaker #3: And we are, we are working on it, and we should have something for you soon. Let me put that there and everything. No, no commitments in terms of timeline, but we are working hard on this.

Speaker #4: What I had mentioned is 4,000 crores is typically what a two to another gigawatt solar plant, which is the capacity setup, what they tend to do, right?

Speaker #3: So that's point one. As far as pat margin growth pat sorry pat growth of 20% is concerned. As I said as this new revenue streams comes in as they pick up scale the operating margin being higher and our net margins being from a PBT point of view right now in the four five percent range just adding our revenue takes care of profitability.

Speaker #4: So that isn't guidance by any stretch. When will they achieve what all of that is are things that we need to have a discussion at a later point.

Speaker #4: But as of right now, it's an investment for Penar. It's a minority investment. It's a way for Penar to unlock value out of its long presence in the solar field.

Speaker #3: There's no natural thing that says it has to be 20 and can't be more than that. Let's take, for example, our BIW business. It's expected to double in revenue size in the next few months once Hyundai comes in.

Speaker #4: At one point in time, solar used to be a 600 crore revenue stream for us. Instead of having that go to zero, we have decided this is the best way to do.

Speaker #4: So let's that's the narrative on solar. The subsidiary's exact revenue is not something that we'd be able to comment on right now.

Speaker #3: The plant is being commissioned today. There's no sales involved. The programs are all there—the three programs. We just have to keep producing and executing well, and our revenue grows and scales.

Speaker #3: Yeah, sir, but PAT growth of 20% for this year, we can assume, right?

Speaker #3: We've created these seeds everywhere, and all of them are seeds. The US too, even though it's a $120 million P&L right now, is a seed.

Speaker #4: Yes, that is our stated goal that we achieve those numbers.

Speaker #3: And you're seeing tailwinds in most of our revenue lines. We have no. We are seeing all the revenue lines firing in terms of tailwinds.

Speaker #3: There's a tremendous amount of potential where that can grow, because our competitors there are in billions of dollars. So, as we grow, achieve a large addressable market, and get revenue streams to comply, and that is something we need to execute.

Speaker #4: Yes, our order books are strong. We are capitalized well. Our assets capacity utilizations are ready to take on additional revenue. We are confident of I mean, forget Q1, Q1.

Speaker #3: Once we do that, there's no such thing as 20% is the criteria or not. I mean, I think the best way to value us is to look at our addressable market.

Speaker #4: Q1 to Q2 sequentially also you will see very decent.

Speaker #3: Look at our revenue growth and our potential PAT margins, which, as we said, will be range-bound. It's not going to be 15%, but it's not going to be 4-5% also.

Speaker #3: Sir, order three, four year, what kind of a revenue can we look at, sir, at a complete order of three, four year?

Speaker #4: So I mean, I'm trying to answer that question without it seeming like guidance or something. I mean, we can the market isn't going to prevent us from growing, clearly, based on our order backlog, as you can see.

Speaker #3: It is going to scale. So that should suffice to give a valuation range. And of course from a capital efficiency point of view you should assume that we we reach the treat the 25% benchmark as as where we want to be from a ROC point of view.

Speaker #4: It's not the market. Our competitors are all large. So we will sustain consistent revenue growth and profit growth. Over three, four years, that will continue.

Speaker #3: Those numbers together should give you a foundation for how you want to look at our business.

Speaker #3: Thank you, sir. Thank you and all the best, sir.

Speaker #2: Sir, my second question is—I'm assuming this is not a question, so I'm assuming that there are enough tailwinds, because you always say we should not give market reasons for growth in all these divisions, mostly.

Speaker #4: Thank you, sir.

Speaker #1: Thank you. The next question comes from the line of Rahul Kumar from Vaikaria Fund. Please go ahead.

Speaker #2: So, our PAT growth of 20% should be taken even for this year. And my second question is, in this Jetwork, when you say Rs 4,000 crores, by when, sir? And how should we look at that? And my assumption—if you can clarify on my assumption—that PAT growth of 20% for this year also is given, like, for the full year.

Speaker #3: Yeah, hi. Shrikant, you mentioned in the call that in your opening remarks that India business faced some operational challenge. Can you just elaborate a bit more on that?

Speaker #3: What exactly happened?

Speaker #3: So Zetwork the ZAP 91 subsidiary which is majority owned by Zetwork and Penar the revenue for that is something that I will we will speak internally in terms of what numbers you want to share.

Speaker #4: See, in the India business, we only had 13 impacts on account of PEP. Which in terms of execution team, and focusing on the project delivery kind of a thing.

Speaker #3: What I had mentioned is, ₹4,000 crores is typically what a two to one gigawatt solar plant—which is the capacity setup—what they tend to do, right?

Speaker #4: So now that we are focusing on the project delivery, there's certain issues in terms of project delivery and things. We will be focused for the growth.

Speaker #3: So that isn't guidance by any stretch. When will they achieve what—all of that—are things that we need to have a discussion about at a later point.

Speaker #4: So these are more of an operational reasons rather than structural issues, as I said. I think the reference would have been to engineering clearances in the PEP space.

Speaker #3: But as of right now, it's an investment for Pennar. It's a minority investment. It's a way for Pennar to unlock value out of its long presence in the solar field.

Speaker #4: More of an internal thing that they need to align ourselves. Yeah, but I mean, it's

Speaker #3: At one point in time, solar used to be a ₹600 crore revenue stream for us. Instead of having that go to zero, we have decided this is the best way to deal with it.

Speaker #3: Okay. Okay. So I think so are those issues resolved or is it something which is sort of continues to be bothering us?

Speaker #3: So, that's the narrative on solar. As for Zetwerk, the subsidiary's exact revenue is not something that we'd be able to comment on right now.

Speaker #2: Yes, sir, but PAT growth of 20% for this year we can assume, right?

Speaker #4: I mean, as we are scaling up, these issues are sometimes it creeps up, but these issues are viewed as more of a operational issues and get challenged.

Speaker #3: Yes, that is our stated goal—that we achieve those numbers.

Speaker #2: And you're seeing tailwinds in most of our revenue lines. We have no we are like we are seeing all all the all the revenue lines firing in terms of tailwinds.

Speaker #4: It is not that this gets locked in permanently and this will have impact on the things. These are temporarily blips which had issues. There are no long-term or strategic reason for us to that this will prevent our growth.

Speaker #3: Yes, our order books are strong. We are well capitalized. Our asset capacity utilizations are ready to take on additional revenue. We are confident—I mean, forget Q1, Q1.

Speaker #3: Q1 to Q2 sequentially, also you will see, you will see very decent.

Speaker #3: And basis the order book traction which we have seen and I think the order book has increased pretty sharply in this quarter. So are we geared up to cater to that order book this year?

Speaker #2: Sir, over a three to four year period, what kind of revenue can we look at, sir, at a company level over a three to four year period?

Speaker #3: So, I mean, I'm trying to answer that question without it seeming like guidance or something. I mean, we can—the market isn't going to prevent us from growing, clearly, based on our order backlog, as you can see.

Speaker #3: In terms of delivery and execution?

Speaker #3: It's not the market. Our competitors are all large, so we will sustain consistent revenue growth and profit growth over three to four years, and that will continue.

Speaker #4: For Shrikant, sir, for me, I mean, yeah. So okay, we'll both answer. Order books strong production capacity is up in both US and in India.

Speaker #2: Thank you, sir. Thank you, and all the best, sir.

Speaker #3: Thank you sir.

Speaker #4: So we have the capacity to deliver on those order. I mean, it would be dangerous if we took an eye a much higher order backlog and we couldn't push that out.

Speaker #1: Thank you. The next question comes from the line of Rahul Kumar from Vaikaria Fund. Please go ahead.

Speaker #4: That would be so we consciously taken a call to ramp up our order backlog in preparation for higher revenue because the capacity creation is there and the previous issues we've had for a few quarters in terms of labor supply and others, those have gotten resolved.

Speaker #4: Yeah, hi. Shrikant, you mentioned in the call, in your opening remarks, that the India business faced some operational challenges. Can you just elaborate a bit more on what exactly happened?

Speaker #4: We put a lot more automation in. We've diversified our input sources a lot. And that larger order backlog, the short cycle time it takes for it to get engineering clearances, drawings, all of that has also happened both for boilers, for PEP India, PEP US as well.

Speaker #3: See, in the India business, we only had certain impacts on account of PEB, which were in terms of the execution team and focusing on the project delivery kind of a thing.

Speaker #3: So, now that we are focusing on project delivery, there are certain issues in terms of project delivery and things. We will be focused on growth.

Speaker #4: So well set to grow and scale these businesses.

Speaker #3: So, these are more of operational reasons rather than structural issues, as I said. I think the reference would have been to engineering clearances in the PEB space.

Speaker #3: Okay. Okay. Second question which I have is on the diversified engineering. So out of this 385 crore, revenue item, how much is the legacy and how much is the focused business out of this?

Speaker #3: More of an internal thing that they need to align ourselves with. Yeah. Yeah, but I mean, it's—

Speaker #3: And how has it what was it, let's say, in quarter four of this last year?

Speaker #4: Okay. Okay. So I think so are those issues resolved or is it is it something which which we sort of continues to be bothering us?

Speaker #4: We don't have a precise breakup. What I can guide you to is typically the legacy business units that are referred to, which includes our special grade steel business, our cold rolled what do you call our steel strips business, which is frankly the original business of the company when we started about 25 years ago it was 90% of our revenue.

Speaker #3: I mean, as we are scaling up, these issues sometimes creep up, but these issues are viewed more as operational issues and get challenged.

Speaker #3: It is not that this gets logged in permanently and that this will have an impact on things. These are temporary blips which had issues.

Speaker #4: Other than that, it includes also our railway coaches, wagons, and components. And our prescient tubing business. So those legacy revenue streams currently contribute about 25% of our revenue.

Speaker #3: There are no long-term or strategic reasons for us to, but this will prevent our growth.

Speaker #3: Sorry, I interrupt.

Speaker #4: It used to be 25. A year ago it was 35, 33. It's reducing. Quarter on quarter, it reduces.

Speaker #4: Mm-hmm. And based on the order book traction that you have seen—and I think the order book has increased pretty sharply this quarter—

Speaker #3: Okay. But let's say out of 385, how much would that.

Speaker #4: So, are we geared up to, you know, cater to that order book this year—in terms of delivery and execution?

Speaker #4: Exact number, I'm not. We come back to the exact number. I mean, I don't have the I mean, I could do 25% into our sales, but into our next year.

Speaker #4: But I think it will be better served if we give an exact number. We'll come back to you on that.

Speaker #3: For Shrikant sir, from me.

Speaker #4: I mean, I think you can answer.

Speaker #3: Okay. But in this diversified engineering decline of 15% on a YUI basis, so is the entire decline being explained by the defocus business or the rest of the business also is a bit slow?

Speaker #3: Yeah, so, okay, we'll both answer. The order book is strong. Production capacity is up in both the US and India, so we have the capacity to deliver on those order books.

Speaker #3: I mean, it would be dangerous if we took on a much higher order backlog and we couldn't push that out. That would be—so we consciously decided, taken a call, to ramp up our order backlog in preparation for higher revenue, because the capacitation is there and the previous issues we've had for a few quarters in terms of labor supply and others.

Speaker #4: The entire decline of what was the 15%.

Speaker #3: Predominantly because of these three diversified segment.

Speaker #4: Okay, fine. The revenue of the segment specifically. If you could get that question. So in the diversified segment, predominant decrease is because of the legacy businesses.

Speaker #3: Those have gotten resolved. We've put in a lot more automation. We've diversified our input sources a lot. And that larger order backlog—the short cycle time it takes for it to get engineering clearances, drawings, all of that—has also happened, both for boilers, for PEB India, and PEB US as well.

Speaker #4: And small bit of hydraulics, which is one of our growth vertical we have, and that is because of the geopolitical issue. Other than that, there's no blips that we have seen.

Speaker #3: Okay. Okay. Okay. Understood. Thank you.

Speaker #3: So, we’re well set to grow and scale these businesses.

Speaker #1: Thank you. The next question comes from the line, of Nilesh Narendra Shah. From Arrow Investment. Please go ahead.

Speaker #4: Okay, okay. Second question which I have is on the diversified engineering. So out of this ₹385 crore revenue item, how much is, you know, the legacy and how much is the focused business out of this?

Speaker #3: Yeah, hi, Aditya and hi, Shrikant. Good afternoon. I have two questions. I'm audible? Am I clear?

Speaker #4: Yes, please go ahead.

Speaker #4: And how has it, you know, what was it—let's say, in quarter four of this last year?

Speaker #3: All right. There's always reassuring to hear you. I think I love the confidence with which you actually present the numbers. But something just doesn't add up when we look at the entire business model overall.

Speaker #3: We don't have a precise breakup. What I can guide you to is typically the legacy business units that are referred to, which include our special grade steel business, our cold rolled—what do you call—our steel strips business, which was frankly the original business of the company. When we started about 25 years ago, it was 90% of our revenue.

Speaker #3: Now, the first question I have is on the employee cost, which Shrikant tried to explain. Now, quarter on quarter, I think we have gone to 107 crore rupees as of now.

Speaker #3: Is it due to wage inflation or increase in the number of employees? That would be the first question. And are we looking at 400 to 500 crores of employee expenses for the year?

Speaker #3: Because they seem to be growing faster than our profitability. I think that is a very concerning factor that I have. That is one. Second, I think we're spreading ourselves too thin and we're getting a holding company kind of a discount.

Speaker #3: Other than that, it also includes our railway coaches, wagons, and components, and our friction tubing business. So, those legacy revenue streams currently contribute about 25% of our revenue.

Speaker #3: We have ball ears, boilers, we have cagnons, we have BIW. We have so many verticals. As far as the market is concerned or as far as valuation goes, that's the reason why I'm here talking to you.

Speaker #3: It used to be 25; a year ago, it was 35 or 33. It's reducing quarter on quarter—it reduces.

Speaker #3: I think we're getting less than a holding company discount. So what steps is the management going to take to allow concerns that there are so many fragmented pieces of businesses?

Speaker #4: Okay. But let's say, out of 385, how much would that be?

Speaker #3: The old business, legacy business, are coming out. But these will become legacy over a period of time. What you're doing now. So how are you going to address the concerns?

Speaker #3: The exact number, I'm not— we will come back to the exact number. We— I mean, I don't have the— I mean, I could do 25% into our sales, but I think it will be better served if we give an exact number.

Speaker #3: Because like someone mentioned earlier, the goalpost keeps moving. And every year there is something new that's happening in terms of how we are growing.

Speaker #3: We'll

Speaker #4: Okay. But in this diversified you mean decline of the 15% on a YY basis. So is the entire decline being explained by the by the defocus business or you know the rest of the business also is a is is a bit slow?

Speaker #3: The business from cagnons, I think the JV is more than three to four years old. They have marquee clients, but apparently there is nothing that is coming in terms of the volume of the business.

Speaker #3: We have no clue on what is happening over there. That is the second part of the question. And the last one would be in terms of you bought warrants at 168 in a personal capacity and why would it not make sense to actually pick up the equity from the open market to actually give more confidence to shareholders?

Speaker #3: The entire the decline of what what was the 15%.

Speaker #4: Predominantly because of the steel.

Speaker #3: So, the diversified segment—okay, fine. Regarding the revenue of the segment specifically, if you could take that question: in the diversified segment, the predominant decrease is because of the legacy businesses and a small bit of hydraulics, which is one of our growth verticals, and that is because of the geopolitical issue.

Speaker #3: Why would there be a warrant issue given? I mean, I really don't understand the reason for that in terms of if you can just throw light and color on these three things.

Speaker #3: Thank you.

Speaker #4: Okay. Let me try to unpack that one by one. The first question had to do with salary costs. Our salary costs are higher because we have undertaken an acquisition in Telco.

Speaker #3: Other than that, there are no blips that we have seen.

Speaker #4: And as I've mentioned, as we ramp up order backlog, we do also need to ramp up engineering manpower, DMs, production staff labor. And that typically tends to come before these order backlogs, before the revenue increase.

Speaker #4: Okay. Okay. Okay. Understood. Thank you.

Speaker #1: Thank you. The next question comes from the line of Nilesh Narendra Shah from Arrow Investment. Please go ahead.

Speaker #4: On the back of this, we are happy to commit that there will be strong double-digit growth in our US businesses. And a lot of this increase in the salary cost is because of that.

Speaker #4: Yeah. Hi, Aritya, and hi, Shrikantji. Good afternoon. I have two questions.

Speaker #1: Hi Nilesh.

Speaker #4: So that's point one in terms of why. And does that justify the revenue growth? Yes. I think over the next few quarters, if you see our US business revenue stream growing from a revenue standpoint, and it was growing by strong double-digit rates, then that does justify a salary increase.

Speaker #4: Hi, am I audible? Am I clear?

Speaker #3: Yes please go ahead.

Speaker #1: Hello.

Speaker #4: All right. It is always reassuring to hear you. I think I love the confidence with which you present the numbers. But something just doesn't add up when we look at the entire business model overall.

Speaker #4: Now, the first question I have is on the employee cost, which Mr. Shrikant tried to explain. Now, quarter on quarter, I think we have gone to ₹107 crore as of now.

Speaker #4: And obviously, I agree with it. The profit also for our has to grow faster than our fixed costs are growing. Otherwise, there's no operating leverage.

Speaker #4: Is it due to wage inflation or an increase in the number of employees? That would be my first question. And are we looking at ₹400 to ₹500 crores of employee expenses for the year?

Speaker #4: So that I grant. And you should look at that for next few quarters. Speaking specifically about whether the goalposts are moving in terms of what is growing, you mentioned cagnons.

Speaker #4: Because they seem to be growing faster than our profitability. I think that is a very concerning factor that I have that is one. Second I think we are spreading ourselves too thin and we are getting a holding company kind of a discount.

Speaker #4: I think we've been I mean, I would like to state that I think we've been very clear what our growth model is and over the last two and a half, three years at least, over the last, I would say, close to 10 quarters, we have been very clear that the business units we think will grow and scale our revenue are the India, the US, body in white business, hydraulics business, boilers business.

Speaker #4: We have boilers. We have Cadmium. We have BIW. We have so many verticals. As far as the market is concerned, or as far as valuation goes, that's the reason why I'm here talking to you.

Speaker #4: I think we are getting less than a holding company discount. So what steps is the management going to take to allay concerns that there are so many fragmented pieces of businesses—the old business, legacy businesses you’re coming out of—but these will become legacy over a period of time, with what you’re doing now?

Speaker #4: Cagnons is a good aerospace business. It's a good small vertical. But as I said, we have many other such revenue businesses, legacy streams. It sits in our railways.

Speaker #4: So how are you going to address the concerns? Because, like someone mentioned earlier, the goalpost keeps moving, and every year there is something new that's happening in terms of how we are growing.

Speaker #4: We used to, when I spoke of railways, that covers that as well. And we're finding ways in order to realize some value out of those businesses.

Speaker #4: The business from Cadmum—I think the JV is more than three to four years old. They have marquee clients, but apparently there is nothing that is coming in terms of volume or business.

Speaker #4: But the growth vectors we're talking about was always these four revenue streams. So that's four. All of them situated in Pennar Industries. So there is I can't really speak to a holding company discount.

Speaker #4: We have no clue as to what is happening over there. That is the second part of the question. And the last one would be, in terms of, you bought Wardens at 168 in a personal capacity, and why would it not make sense to actually pick up the equity from the open market to give more confidence to shareholders?

Speaker #4: I think there are several companies with a similar profile that we have. So if the PE multiple shall we say of the company is not at a place where we like it, that's something that as we execute, as we show consistent growth in profitability and capitalization, that will take care of itself.

Speaker #4: Why would there be a warrant issue given? I mean I I really don't understand the reason for that in terms of if you can just throw light and color on these three things please.

Speaker #4: I think there's in the last two years, we've seen PE multiples of 28. We've seen PE multiples of lesser than that as well. So I would advocate that we look at whether we are growing revenue and profitability and if we are consistent in our messaging about what our growth vectors are.

Speaker #4: Thank you.

Speaker #3: Okay. Let me try to unpack that one by one. The first question had to do with salary costs. Our salary costs are higher because we have undertaken an acquisition in Telco and, as I've mentioned, as we ramp up order backlog, we also need to ramp up engineering manpower, DMs, production staff, and labor.

Speaker #4: I think the answer to both those questions is yes. Other revenue streams, they exist in the company. We do have the choice of stopping them immediately and not talking about them so that, as you said, the goalposts don't move.

Speaker #4: But I think we have a responsibility not just to ourselves and the company and for Pennar to realize value, but for our employees, for our customers, and others.

Speaker #3: So and that typically tends to come before these order backlogs increase before this revenue increase. On the back of this we are happy to commit that there will be strong double digit growth in our US businesses and a lot of this increase in the in the salary cost is because of that.

Speaker #4: It is the where revenue streams we stopped like our water business, our industrial water, and wastewater business. And we do not want to be that kind of corporate.

Speaker #3: So that's point one in terms of why. And does that justify the revenue growth? Yes. I think over the next few quarters, if you see our US business revenue stream growing from a revenue standpoint, and it is growing at strong double-digit rates, then that does justify a salary increase.

Speaker #4: And I don't think that's healthy for us in the long term, even if you were to look at consistency of revenue and profitability. So these revenue streams are what's going to grow to give it to summarize this and the second part of your question.

Speaker #4: PV India, PV US, our body in white business, our engineering services business, our boilers business, our hydraulics is the one thing, as I had mentioned, there's lack of clarity in what our addressable market.

Speaker #3: And obviously, I agree with you that the profit also, for us, has to grow faster than our fixed costs are growing. Otherwise, there's no operating leverage.

Speaker #3: So that I grant, and you should look at that for the next few quarters. Speaking specifically about whether the goalposts are moving in terms of what is growing, you mentioned cadmium.

Speaker #4: We will come back to you on that. Other than that one revenue piece, which by the way, for us, it's 100 crore per year revenue piece.

Speaker #4: It's not an extremely material part of our business. Other than that one piece, we unequivocally tell you we will be growing and scaling our other revenue streams.

Speaker #3: I I think we've been I mean I I would like to state that I think we've been very clear what our growth model is and over the last two and a half three years at least for the last I would say close to ten quarters we have been very clear that the business units we think will grow and scale our revenue are the the India the the US body in white business hydraulics business boilers business.

Speaker #4: We have large order books in all of them. We have indicated we have broad capacity up and CapEx has been deployed to ensure capacity goes up.

Speaker #4: We're commissioning our new BIW plan, for I mentioned, which itself will double the size of that. Take a look at it in the next few quarters.

Speaker #4: If the messaging continues to change, then obviously do hold us to it. But I would strongly contest that we have been changing the narrative as far as growth vectors are concerned.

Speaker #3: Cadmum is a good aerospace business; it is a good small vertical. But as I said, we have many other such revenue businesses—legacy streams. It sits in our railways.

Speaker #4: The last part of your question was on the warrants. Now speaking now is the promoter of the company. I think warrants the decision to take them is not just about pricing in the market.

Speaker #3: We used to—when I spoke of railways, that covers that as well. And we are finding ways in order to realize some value out of those businesses.

Speaker #3: But the growth vectors we're talking about were always these four revenue streams. So that's four. All of them are situated in Pennar Industries. So I can't really speak to a holding company discount.

Speaker #4: The pricing, share price in the market can be anything. But it is a measure of confidence that we as promoters and I speaking again as the promoter have in the business model that we have.

Speaker #4: We are confident it will deliver revenue and profitability growth and a capital efficient manner. Therefore, we've deployed 50 crores is what we're committed to deploying.

Speaker #3: I think there are several companies with a similar profile to what we have. So, if the P/E multiple, shall we say, of the company is not at a place where we like it, that's something that—as we execute, as we show consistent growth in profitability and capital efficiency—will take care of itself.

Speaker #4: 20 crores of that is already in the company. Whether the founders pick up from the market also in parallel to that is a discussion for another day.

Speaker #4: And that's something as if such actions were to be taken, I think we will be reporting it to the exchange and doing it. There's no real way to map that.

Speaker #3: I think that in the last two years, we've seen P/E multiples of 28. We've seen P/E multiples lower than that as well. So I would advocate that we look at whether we are growing revenue and profitability, and if we are consistent in our messaging about what our growth vectors are.

Speaker #4: So to answer your question, sir, I think I see where you're coming from. Salary cost increase is being high. There's method behind that madness.

Speaker #4: I've explained it. Revenue streams growth, I commit to you that we are not changing the narrative. We're not going to come with a new revenue vertical as if this is going to be the next vector of growth.

Speaker #3: I think the answer to both those questions is yes. Other revenue streams do exist in the company. We do have the choice of stopping them immediately and not talking about them, so that, as you said, the goalposts don't move.

Speaker #3: But I think we have a responsibility not just to ourselves and the company, and for Pennar to realize value, but also for our employees, our customers, and others.

Speaker #4: And I don't think any vector we have spoken to has not been what we have said is going to grow the business over the last, I would say, many quarters.

Speaker #3: It is with the water revenue streams—we stopped like our water business, our industrial water and wastewater business—and we do not want to be that kind of corporate.

Speaker #4: So that would be my response. On the warrants, I've already commented that it's a measure of our commitment. And we just wanted a price that is logged in.

Speaker #4: That's all. Whether it's 168 rupees or 150 rupees or higher than that is not the metric. We went through a process of price discovery.

Speaker #3: And I don't think that's healthy for us in the long term, even if you were to look at the consistency of revenue and profitability. So these revenue streams are what's going to grow. To summarize this, and the second part of your question...

Speaker #4: We went through what corporate governance requires. And that's what we are going to do. We don't want to be opportunistic about the founders or the promoters increasing their stake.

Speaker #3: PEB India, PEB US, body-in-white business, our engineering services business, our boilers business, our hydraulics is the one thing—as I had mentioned—there's lack of clarity in what the addressable market is.

Speaker #4: There's a way this should be done. And that's the process we have followed. So thanks thank you for your questions.

Speaker #3: We will come back to you on that. Other than that one revenue piece, which by the way for us is a ₹100 crore per year revenue piece.

Speaker #1: Wait, this is going I mean, you're doing too many things and too many good things at a time. Yes, industries which have got huge visibility in terms of growth, profitability, other companies are doing it.

Speaker #3: It's not an extremely material part of our business. Other than that one piece, we can unequivocally tell you we will be growing and scaling our other revenue streams.

Speaker #1: If I minus this to a simple case in point, if I minus the other income component and add the net profit, it will be less than 2 to 2 and a half percent.

Speaker #3: We have large order books in all of them. We have indicated that we have broad capacity up, and capex has been deployed to ensure capacity goes up.

Speaker #1: Our net profit margins, if I minus the other income is less than 20 crores. So I don't think that's not justified. Something is not adding up somewhere.

Speaker #3: We're commissioning our new BIW plant, which I mentioned will itself double the size of that. Take a look at it in the next few quarters.

Speaker #1: I think a little introspection would be required from the team, the management, I think, in terms of what as an owner, as a business owner, I would look at their kind of expenses that I have in terms of my revenue growth.

Speaker #3: If the messaging continues to change, then obviously do hold us to it. But I would strongly contest that we have been changing the narrative as far as our growth vectors are concerned.

Speaker #1: There something is not adding up. But I wish you all the very best. And I still committed to being a shareholder with the company for many more years to come.

Speaker #3: The last part of your question was on the warrants. Now, speaking now is the promoter of the company. I think with warrants, the decision to take them is not just about pricing in the market.

Speaker #1: Thank you so much.

Speaker #4: Thank you.

Speaker #3: The next question comes from the line. Of Venkata Subramanian Raman. From Organic Capital. Please go ahead.

Speaker #3: The pricing, share price in the market can be anything. But it is a measure of confidence that we as promoters—and I am speaking again as the promoter—have in the business model that we have.

Speaker #3: We are confident it will deliver revenue and profitability growth in a capital-efficient manner. Therefore, we've deployed ₹50 crores—that is what we're committed to deploying.

Speaker #4: Hello?

Speaker #3: Sir, can you hear me?

Speaker #4: Hello?

Speaker #3: Twenty crores of that is already in the company. Whether the founders pick up from the market also in parallel to that is a discussion for another day, and that's something—if such actions were to be taken—I think we would be reporting it to the exchange and doing it.

Speaker #5: Yeah, go ahead with your question, sir.

Speaker #4: Hello? Am I audible?

Speaker #5: Yes, you are.

Speaker #3: Yes, please go ahead.

Speaker #4: Hi, Aditya. Just a couple of questions. Do we declare our engineering services revenue specifically and how many people we have and what kind of growth path we have for that?

Speaker #3: There's no real way to map that. So, to answer your question, sir, I think I see where you're coming from. Salary cost increase is being high.

Speaker #3: There's method behind that madness. I've explained it. Regarding revenue streams' growth, I commit to you that we are not changing the narrative. We're not going to come with a new revenue vertical as if this is going to be the next vector of growth.

Speaker #5: I don't believe we give it a segmental breakup, but from a revenue standpoint, I can tell you that it's about 70 crores per year.

Speaker #3: And I don't think any vector we have spoken to has not been what we have said is going to grow the business over the last, I would say, many quarters.

Speaker #5: It's composed primarily of structural engineering and building information modeling. The primary markets are the US and Europe. In fact, the only markets are US and Europe.

Speaker #3: So, that would be my response. On the warrants, I've already commented that it's a measure of our commitment, and we just wanted a price that is locked in.

Speaker #4: Right. Some parts of the industry believe that this is one segment that wouldn't be disrupted by the advent of AI. Do you guys have some specific thoughts and guidance on this?

Speaker #3: That's all. Whether it's ₹168 or ₹150, or higher than that, is not the metric. We went through a process of price discovery.

Speaker #3: We went through what corporate governance requires, and that's what we are going to do. We don't want to be opportunistic about the founders or the promoters increasing their stake.

Speaker #5: So obviously, we monitored that because this is a high-margin business. So what we found is that a lot of our customers, I won't name, have tried to bring in some automation, AI, basically we say it, we call it automation.

Speaker #3: There is a way this should be done, and that's the process we have followed. So, thanks. Thank you for your questions.

Speaker #1: Wait, this is going—I mean, you're doing too many things, and too many good things at a time. We are in industries which have got huge visibility in terms of growth, profitability; other companies are doing it.

Speaker #5: So effectively, what workflows in the engineering side on the design detailing side can be automated through the use of platforms such as Open Cloud and others.

Speaker #1: If I minus this, to cite a simple case in point, if I subtract the other income component and add the net profit, it will be less than two to two-and-a-half percent.

Speaker #1: Our net profit margins, if I minus the other income, is less than 20 crore. So I don't—it's just not justified. Something is not adding up somewhere.

Speaker #5: They've tried, but the nature of the business is that it requires while you can automate certain aspects of the workflow, the entirety of it cannot be.

Speaker #1: I think a little introspection would be required from the team and the management, I think, in terms of what—because as an owner, as a business owner, I would look at what kind of expenses I have in terms of my revenue growth. There's something that is not adding up.

Speaker #5: So the we believe that some improvement in terms of productivity is what it will be. Up to about 30%, 35% is what we have mapped out.

Speaker #5: And we already started using that. But overall, the business being at threat of disappearing because no one gives engineering work out anymore is I believe that question has been answered.

Speaker #1: But I wish you all the very best, and I am still committed to being a shareholder with the company for many more years to come.

Speaker #1: Thank you so much. Thank you.

Speaker #5: So I don't believe that that's under threat.

Speaker #2: The next question comes from the line of Venkat Subramanian Raman from Organic Capital. Please go ahead.

Speaker #4: Right. Right. That's what I hear from our industry players as well. But is it playing out on the ground? Do we have new inquiries coming?

Speaker #4: Do we have is our margin getting affected on the new bids? How is it playing out in reality?

Speaker #3: Hello.

Speaker #2: Sir can you hear me?

Speaker #3: Hello.

Speaker #5: So as I mentioned, one of our customers there are multi-billion dollar firm in the US that spent a lot. And tried to automate some work.

Speaker #4: Yeah, go ahead with your question, sir.

Speaker #3: Hello. Am I audible?

Speaker #5: It didn't go in the direction. So I think right now, as it stands, we're running three shifts. We work Saturdays, Sundays for our engineering work.

Speaker #4: Yes you're good.

Speaker #2: Yes please go ahead.

Speaker #3: Hi Aditap. Just a couple of questions. Do we declare our engineering services revenue specifically, and how many people we have, and what kind of growth path we have for that?

Speaker #5: And I think in the last quarter, it grew by about 26%. That revenue stream. So we have high hopes for this as well. We've also done some hiring in this both in the US and in India.

Speaker #5: We've brought in senior professionals in the building information modeling space. So as I'd mentioned, out of the five growth vectors, we have this is one of them.

Speaker #4: I don't believe we give it a segmental breakup, but from a revenue standpoint, I can tell you that it's about ₹70 crores per year.

Speaker #5: We're quite confident that this continues to grow in scale. I'm not seeing a threat of not of any of this work getting automated or any of the manas or a manas pricing being reducing.

Speaker #4: It's composed primarily of structured engineering and building information modeling. The primary markets are the US and Europe. In fact, the only markets are the US and Europe.

Speaker #5: These are quite robust revenue streams in my view.

Speaker #3: Right. Some parts of the industry believe that this is one segment that wouldn't be disrupted by the advent of AI. Do you guys have any specific thoughts or guidance on this?

Speaker #4: Okay. There was some discussion about CAD/NAM, I think one of the previous investors actually was referring to that. And after a long while, we saw some mention of CAD/NAM in your press release in terms of new orders, etc.

Speaker #4: So we we obviously we monitored that because this is a high margin business. So what we found is that a lot of our customers I won't name have tried to bring in some automation AI basically we say it we call it automation.

Speaker #4: What is your view and what can we expect there?

Speaker #5: So CAD/NAM is an aerospace business. This sits in our railways business. Railways is railways plus what we call aerospace, machining, and assembly and treatment and tooling.

Speaker #5: So that's the CAD/NAM business. It's stable right now. It's not growing. We're not deploying any capital into it anymore. So it's effectively where it is.

Speaker #4: So, effectively, what workflows on the engineering side, on the design detailing side, can be automated through the use of platforms such as Open Cloud and others?

Speaker #4: They've tried, but the nature of the business is such that, while you can automate certain aspects of the workflow, the entirety of it cannot be.

Speaker #5: It's profitable. In like the rest of the railways business, like the rest of our legacy revenue streams, we're trying to find a way in order to realize some value there.

Speaker #4: So, we believe that some improvement in terms of productivity is what it will be—up to about 30% to 35% is what we have mapped out.

Speaker #4: Okay. My second question is on the PEB business in India. What is it that we need to do to get the kind of profitability metrics and return on capital employed metrics that some of our competitors have?

Speaker #4: And we have already started using that. But overall, the business being at threat of disappearing because no one gives engineering work out anymore—I believe that question has been answered.

Speaker #4: So, I don't believe that that's under threat.

Speaker #4: You spoke about this a couple of quarters back. There's a lot of different on the capital employed side, between us and that competitor that we talk about.

Speaker #3: Right, right. That's what I hear from our industry players as well. But, you know, is it playing out on the ground? Do we have new inquiries coming?

Speaker #4: You said some work needs to be done a few quarters ago. Has there been some progress there?

Speaker #3: Do we have—is our margin getting affected on the new bids? How is it playing out in reality?

Speaker #4: So, as I mentioned, one of our customers is a multi-billion dollar firm in the US that spent a lot and tried to automate some work.

Speaker #5: A lot of work has been done. We looked at the entirety of the process flow of the premium building. And we looked at what was different from our competitors.

Speaker #5: Key differences were a much higher advanced percentage, which tends to reduce working capital at our competitors. We have since instituted that and an advanced percentage is now grown to 25%.

Speaker #4: It didn't go in that direction. So, I think right now as it stands, we're running three shifts. We work Saturdays and Sundays for our engineering work, and I think in the last quarter it grew by about 26%—that revenue stream.

Speaker #5: There's still some headway for that to grow, but that at least is a massive improvement from where we were, which was closer to 5 to 10 percent.

Speaker #4: So, we have high hopes for this as well. We've also done some hiring in this, both in the US and in India.

Speaker #5: So that's one change. The second thing we did was engineering optimizations so we can actually get post-order booking perhaps a percentage or two in savings as well.

Speaker #4: We've brought in senior professionals in the Building Information Modeling space. So, as I mentioned, out of the five growth vectors we have, this is one of them.

Speaker #4: We're quite confident that this continues to grow in scale. I'm not seeing a threat of any of this work getting automated, or any of the MANAS, or MANAS pricing degrading. These are quite robust revenue streams, in my view.

Speaker #5: There doesn't sound like much, but obviously all of that flowing through the bottom line means that that is something that can be a powerful driver of capital efficiency.

Speaker #5: Especially the net margins are single-digit percentages. So that's the second aspect of it. The nature of contracts, we tried to sign also has changed where we've now removed supply linkages to erection.

Speaker #3: Okay. There was some discussion about CAD/NAM. I think one of the previous investors was actually referring to that. After a long while, we saw some mention of CAD/NAM in your press release in terms of new orders, etc.

Speaker #5: They will be when we ship, we tend to there was an element in previous contracts where that money comes in only after a certain milestones in the erection side have been met.

Speaker #5: And for whatever reason, if there are delays in the erection side, then that led to our accounts receivable being higher because we technically that money was not due until we finished those milestones.

Speaker #3: What is your view, and what can we expect there?

Speaker #5: We have now removed that in keeping with what our competitors are also doing. So it's a combination of not two, three. It's many, many things.

Speaker #4: So CAD/NAM is our aerospace visit. This sits in our Railways business. Railways is Railways plus what we call aerospace machining and assembly and treatment and tooling.

Speaker #5: We are doing we are now in a place where because of those, you will slowly see our capital efficiency, especially our working capital will improve and will reduce and our operating margins will improve to a certain degree, which will bring us more in line with what our competitors are entering.

Speaker #4: So that's the CAD/NAM business. It's stable right now. It's not growing. We're not deploying any capital into it anymore, so it's effectively where it is.

Speaker #4: It's profitable. And like the rest of the railways business, like the rest of our legacy revenue streams, we're trying to find a way to realize some value there.

Speaker #4: Okay. So in terms of value addition and deliverables I understand. Thank you. Thank you.

Speaker #3: The question is on the PEB business in India. What is it that we need to do to get the kind of profitability metrics and, you know, return on capital employed metrics that some of our competitors have?

Speaker #5: I'm sorry.

Speaker #4: From the line. Of Deepak Poddar from Sapphire Capital. Please go ahead.

Speaker #6: Yeah. My audible sound?

Speaker #3: You spoke about this a couple of quarters back. You know, there's a lot of difference on the capital employed side between us and that competitor that we talk about.

Speaker #4: Hello. Yes, please go ahead.

Speaker #6: Yeah. Yeah. So just wanted to understand. I mean, in terms of our strategy or in terms of focus, I mean, are we looking I mean, there's a lot of opportunity in aerospace and defense.

Speaker #3: You said you saw some work that needs to be done a few quarters ago. Has there been some progress there?

Speaker #6: I mean, you just touched upon aerospace space. So in precision engineering, are we focusing I mean, in these areas, I mean, as a strategy or so can you throw some light there?

Speaker #4: A lot of work has been done. We looked at the entirety of the process flow of the regional building, and we looked at what was different from our competitors.

Speaker #5: That's a no sir. I mean, I'm not denying that there are good opportunities for growth here, but I think we are focused on what we have chosen.

Speaker #4: Key differences were a much higher advance percentage, which tends to reduce working capital at our competitors. We have since instituted that, and our advance percentage has now grown to 25%.

Speaker #5: Even if we execute on across our five growth vectors, if even if three or four of them hit, then we achieve our stated long-term growth objectives and a profit objective.

Speaker #4: There's still some headway for that to grow, but that at least is a massive improvement from where we were, which was closer to 5% to 10%.

Speaker #4: So that's one change. The second thing we did was engineering optimizations, so we can actually get post-order booking—perhaps a percentage or two in savings as well.

Speaker #5: So while there are opportunities in the aerospace good opportunities, it's not something we are looking to pursue. But we will figure out a way where these legacy revenue streams similar to what we have done with our solar business, if we can find a home for it so that it can become somebody else's baby, we will explore that.

Speaker #4: That doesn't sound like much, but obviously all of that flowing through to the bottom line means that it can be a powerful driver of capital efficiency.

Speaker #5: But as of right now, we are looking to see what is the best way for us to achieve that. But growing it with our capital, our management manas, would not be the things.

Speaker #4: Especially the net margins are single-digit percentages. So that's the second aspect of things. The nature of contracts we try to sign also has changed, where we've now removed supply linkages to erection.

Speaker #5: So right now, there is steady state mode. Not capital no capital no capex going into those in any material sense. But there are strong stable and profitable all of them, even aerospace business is profitable then.

Speaker #4: They will be. When we ship, we tend to—there was an element in previous contracts where that money comes in only after certain milestones on the erection side have been met.

Speaker #4: And for whatever reason, if there are delays in the erection side, then that led to our accounts receivable being higher because technically that money was not due until we finished those milestones.

Speaker #5: They're good businesses, but it's not our job to scale them anymore.

Speaker #6: Okay. Got it. Got it. And in terms of growth, I mean, from now, the first quarter, you mentioned there were some slowness in a few of the sectors, right?

Speaker #4: We have now removed that because, in keeping with what our competitors are also doing. So, it's a combination of not just two or three things—it's many, many things.

Speaker #4: We are, we are doing, we are, we are, we are now in a place where, because of those, you will slowly see our capital efficiency, especially our working capital, will improve and our will reduce, and our operating margins will improve to a certain degree, which will bring us more in line with what our competitors are entering.

Speaker #6: Even the PEB, US, and the India as well, you saw some slowness. I mean, but now, as you alluded, that second quarter onwards, you will see growth in both given the strong order book that we have in both PEB, India, and US.

Speaker #6: So sequential growth is what one can research. I mean, as we go ahead in coming quarters, as we go ahead into FY27?

Speaker #3: Okay. So, in terms of value addition and deliverables, may I request you to—I understand. Thank you. Thank you.

Speaker #5: I think you can look at I mean, if you're saying sequential, yeah, I think is what you mentioned. If you want to go to, you should expect growth.

Speaker #4: Thank you. I'm sorry, we'll try to.

Speaker #5: Yeah, you should expect double-digit growth in revenue and profitability.

Speaker #3: Comes from the line of Deepak Kodar from Sapphire Capital. Please go ahead.

Speaker #6: Okay. And then how about 3Q and 4Q?

Speaker #2: Demo audible sir? Hello.

Speaker #5: I mean, as I said, I mean, our model is that it's not that our order backlog goes away, right? I mean, if you just map out where what we have in PEB, India, and PEB, US, there's 1,008 crores 100 million dollars.

Speaker #3: Yes please go ahead.

Speaker #2: Yeah, yeah. So just wanted to understand, I mean, in terms of our strategy or in terms of focus, I mean, are we looking—I mean, there's a lot of opportunity in aerospace and defense. I mean, you just touched upon aerospace space.

Speaker #5: All of that is something that has to be done in the near term, in the next few quarters, right? So it will sustain further medium term.

Speaker #2: So so in decision engineering are we focusing I mean in these areas I mean as a as a as a strategy or so can you throw some light there?

Speaker #5: It will sustain high growth rates. Our order backlogs. We just have to execute on the order backlog.

Speaker #6: Okay. Okay. And I mean, if you have to look at some of the peers, I mean, who are in the PEB space, I think most of them we have seen a growth of around 20, 25 percent, right?

Speaker #4: No, sir, I mean I'm not denying that there are good opportunities for growth here, but I think we are focused on what we have chosen.

Speaker #4: Even if we execute across our five growth vectors, if even three or four of them hit, then we achieve our stated long-term growth objectives and profit objective.

Speaker #6: So why what I mean, though you did mention that you have a legacy business, right? But what stops us that from growing those levels?

Speaker #6: I mean, can you give your comment on that?

Speaker #4: So while there are opportunities in the aerospace good opportunity opportunities it's not something we are looking to pursue. But we will figure out a way where these legacy revenue streams similar to what we have done with our solar business if we can find a home for it so that it become can become somebody else's baby we will explore that.

Speaker #5: We're not in 25, but if the legacy business reduction, if that is accounted for, then we are I mean, around those levels. It's not 25, but I think I believe it's 16 or 17.

Speaker #5: We don't have that number right now, but yeah, it is it isn't that we are we are not in the same revenue growth metric or range that they are in.

Speaker #4: But as of right now, we are looking to see what is the best way for us to achieve that. But growing it with our capital or management manpower would not be the thing.

Speaker #5: But we are confident of our model. I mean, just PEB, US will beat that 25 percent also. So it's just execution. We just need to execute.

Speaker #4: So right now we're in steady state mode—no capital going, no capex going into those in any material sense. But they are strong, stable, and profitable, all of them. Even our aerospace business is profitable then.

Speaker #5: We've had some issues because of the unique way we had structured some of our businesses, specifically PEB, India, over the last few quarters. We're looking, learning.

Speaker #4: A good business, but it's not our job to scale them anymore.

Speaker #5: Sometimes those transitions take a few quarters, but we are committed to growing. I mean, and a strong order backlog demonstrates that we can go into the market and get our get our orders.

Speaker #2: Okay. And got it. Got it. And in in terms of growth I mean from now the first quarter you mentioned there were some slowness in in see of the sectors right.

Speaker #2: Even in PEB US and India as well, you saw some slowness. I mean, but now, as you alluded, from the second quarter onwards you will see growth in both, given the strong order book that we have in both PEB India and US.

Speaker #5: So we'll ensure that we improve our output both in India and the US and grow and scale revenue.

Speaker #6: Got it. Got it. But our PEB, India, and PEB, US segment has grown 16, 17 percent. I mean, together.

Speaker #2: So so sequential growth is what one can research. I mean as we go ahead in coming quarters as we go ahead into FY27.

Speaker #5: That is correct. It has grown the custom design building solutions. If you see the details that we have given it, you close to 16 percent.

Speaker #4: I think you can look at—I mean, if you're saying sequential, I think is what you mentioned—from Q1 to Q2, you should expect growth.

Speaker #6: Close to 16.

Speaker #5: 16 percent.

Speaker #6: Okay. Okay. That's very helpful, sir. I wish you all the best.

Speaker #4: Yeah, you should expect double-digit growth in revenue and profitability.

Speaker #5: It's more or less the same. I don't see us as being laggards to the market. At least from a revenue growth standpoint in these methods.

Speaker #2: Okay. And how about Q3 and Q4?

Speaker #5: But more will come. It will improve, but it will in this quarter, next quarter with the order backlog wasn't 1,008 in Q1. It is now, right?

Speaker #4: I mean as I said I mean our our model is that it's it's not that our order backlog goes away right. I mean if you just map out where what we have in PEB India and PEB US there's 1008 crores 100 million dollars all of that is something that has to be done in the near term in the next few quarters right.

Speaker #5: It wasn't 100 million dollars in Q1. It was only about 70 million. So larger order backlog, more execution capacity is equals revenue. That's revenue growth.

Speaker #5: That's the equation here we want to ensure we realize.

Speaker #4: So, it will sustain high growth rates for the medium term. Our order backlog—we just have to execute on the order backlog.

Speaker #6: Understood. That's very helpful, sir. That would be from my side. Wish you all the best. Thank you.

Speaker #2: Okay. Okay. And and and and I mean if you have to look at some of the peers I mean who are who are in the PEB space I think most of them we have seen a growth of around 20 25% right.

Speaker #5: Thank you.

Speaker #3: Thank you. Ladies and gentlemen, we'll take that as the last question, and I would now like to hand the conference over to the management for closing comments.

Speaker #2: So, so, so, what I mean—though, you did mention that we have a legacy business, right? But what stops us from growing to those levels? I mean, can you give your comment on that?

Speaker #3: Thank you and over to you.

Speaker #5: Thank you to all of you for your questions. We will continue to execute on our plan. In the interim, I think a lot some questions which weren't we weren't able to get to.

Speaker #4: We're not at 25 but if you if the legacy business reduction if that is accounted for then we we are I mean around those levels.

Speaker #5: My apologies for that. We will keep an open line of communication so that I and the rest of the team can address some of these.

Speaker #4: It's not 25 but I think I believe it's 16 or 17. We don't have that number right now but but yeah it it is it is it isn't that we are we we we are not in the same revenue growth metric or or range that they are in.

Speaker #5: My takeaways from this are to ensure that we execute on our growth plans, convert that large order backlog into revenue, and the with your support, I'm hopeful that we will achieve our goals for this financial year, and we are we will look to execute on our plans.

Speaker #5: Thank you so much.

Speaker #4: But we are confident in our model. I mean, just PEB US will beat that 25% also. So it's just execution—we just need to execute.

Speaker #3: Thank you. On behalf of Philip Capital India Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your line.

Speaker #4: We've had some issues because of the unique way we structured some of our businesses, specifically PEB India, over the last few quarters. We're looking and learning.

Speaker #4: Sometimes those transitions take a few quarters but we are committed to growing. I mean and a strong order backlog demonstrates that we can go into the market and get our get our get our orders.

Speaker #4: So, we'll ensure that we improve our output both in India and the US, and grow and scale revenue.

Speaker #2: Got it. Got it. But our PEB India and PEB US segments have grown 16–17%, I mean, together?

Speaker #4: That is correct. It has grown the custom design building solutions. If you see the details that we have given, it's close to 16%.

Speaker #2: Close to 16%.

Speaker #4: 16%.

Speaker #2: Okay, okay, okay. That's very helpful, sir. Wish you all the best.

Speaker #4: It's more or less the same. I don't see us as being laggards to the market, at least from a revenue growth standpoint in these mixes.

Speaker #4: But more will come. It will improve, but it'll be in this quarter, next quarter, with the order backlog. Wasn't it 1,008 in Q1?

Speaker #4: It is now right. It wasn't $100 million in Q1. It was only about $70 million. So, larger order backlog plus more execution capacity equals revenue.

Speaker #4: That's revenue growth. That's the that's the equation here we want to we want to ensure we realize.

Speaker #2: Understood. That's very helpful, sir. That would be it from my side. Wish you all the best. Thank you. Thank you.

Speaker #1: Ladies and gentlemen, we'll take that as the last question. I would now like to hand the conference over to the management for closing comments.

Speaker #1: Thank you, and over to you.

Speaker #4: Thank you to all of you for your questions. We will continue to execute on our plan. In the interim, I think there were some questions which we weren't able to get to.

Speaker #4: My apologies for that. We will keep an open line of communication so that I and the rest of the team can address some of these.

Speaker #4: My takeaways from this are to ensure that we execute on our growth plans. Convert that large order backlog into revenue. And we with your support I'm hopeful that we will achieve our goals for this financial year and we are we will we will look to execute on our plans.

Speaker #4: Thank you so much.

Speaker #1: Thank you. On behalf of Philip Capital India Private Limited that concludes this conference. Thank you for joining us and you may now disconnect your lines.

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Q1 2027 Pennar Industries Ltd Earnings Call

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