Operator: We welcome you all to the Q2 and H1 FY27 earnings conference call of Pitti Engineering Limited. 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 the date of this call. These statements do not guarantee the future performance of the company and may involve risks and uncertainties that are difficult to predict. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Akshay S. Pitti, Managing Director and Chief Executive Officer from Pitti Engineering Limited.
Operator: Thank you, and over to you, sir.
Akshay S. Pitti: Good afternoon, everyone, and thank you for joining the Q2 H1 FY27 earnings conference call of Pitti Engineering Limited. Along with me are members of the senior management team and our investor relations partners from SGA. Our financial results and investor presentation and related document disclosures are available on the stock exchanges and on the company's website. I hope you have had the opportunity to go through the same. The global economy continued to face inflationary pressures and supply chain disruptions amid the ongoing conflict in the Middle East. With geopolitical uncertainties likely to persist, we are also witnessing price increases across our raw materials. Despite these challenges, demand remained robust. India's investment-led growth and rising demand for value-added engineering solutions continue to provide a favorable long-term outlook for our business.
Akshay S. Pitti: At Pitti Engineering, we have evolved from a manufacturer of electrical laminations into a broader engineering solutions company, with capabilities across laminations, castings, machining, and other value-added components. This evolution has been driven by our focus on understanding customer needs, expanding our manufacturing capabilities, and building long-term relations with leading global OEMs. Looking ahead, we believe three structural forces are shaping the demand for engineering industry and creating opportunities for us. First, the sustained investment in infrastructure and manufacturing, ongoing public and private investment in railway, power, and manufacturing is expanding the installed base of rotating electrical equipment. As infrastructure and industrial activity grow, so does the need for motors, generators, and precision engineered components that go into them. This creates opportunities for us to support customer across wider range of applications. Second, the growing electrification and digitalization of economy.
Akshay S. Pitti: Driven by AI data centers and infrastructure, the shift towards a more electrified and digital economy is increasing the need for efficient motors, generators, and reliable engineering components. As these applications evolve, customers are looking for products that deliver greater efficiency, precision, and performance. Our expanding capabilities across lamination, casting, and machining positions us to address this broad range of requirements. Third, the consolidation of global sourcing. International OEMs are increasingly looking to work with manufacturing partners that can offer scale, consistent quality, reliable execution, and wide range of capabilities. This creates an opportunity for integrated companies like us to deepen existing customer relationships and increase our share of business and participate in new platforms. Together, these trends provide a favorable long-term demand for our business.
Akshay S. Pitti: Our focus on converting these opportunities into sustainable growth by expanding capacity in a phased manner, strengthening our engineering capabilities, and continuing to deliver on customer expectation. A few months ago, we had announced the first of our major capacity expansion for a greenfield facility in Hyderabad covering the casting and machining. The project was to be commissioned in a phased manner through FY30. This investment was backed by strong order visibility from marquee customers across high-growth sectors such as data centers, mining, off-highway vehicles, and railways. Building on this, now we are announcing a new capacity expansion in lamination and machining. The objective is to consolidate our lamination operations in Bangalore and progressively increase our sheet metal capacity to 160,000 metric tons per annum, and machining capacity to 1.31 million hours by financial year 2031.
Akshay S. Pitti: This expansion will strengthen our ability to serve existing customers, pursue new opportunities, and support long-term growth. The total planned CapEx for this project is INR 450 crores, comprising approximately INR 125 crores towards land procurement and the remaining INR 325 crores towards infrastructure, plant, and equipment. The new greenfield facility will provide a platform for consolidating the Bangalore operations and creating capacity for the next phase of growth. The entire investment will be incurred in a phased manner till FY31, with capital deployment linked to project milestones and capacity requirements. This approach will allow us to align investment with business needs while ensuring that capacity comes on stream in a timely manner. The project will be funded through a combination of internal accruals and debt. Coming to the operational and financial performance.
Akshay S. Pitti: In terms of segment-wise revenue, due to FY27, traction motor and railway components continue to contribute the highest share of the revenue at 27%. Power generation accounted for 16%, followed by industrial and commercial applications at 12%, mining, oil and gas at 10%, special purpose motors at 8%, and data centers at 7%. This diversified mix reflects the range of applications we serve and multiple demand drivers supporting our business. Among these segments, data centers have emerged as a strong near-term growth opportunity. As we have highlighted on multiple occasions before, the demand remains robust, driven by significant power requirements of AI-led data center infrastructure, the need for reliable primary and backup power generation. We are seeing strong demand from customers such as Cummins, Marathon, and Nidec in this segment. We are also developing new opportunities with few additional marquee customers in the same segment.
Akshay S. Pitti: Beyond data centers, we continue to see strong demand visibility across railways, metros, mining, off-highway equipment, and specialized industrial applications. In railways, the modernization of North American infrastructure, along with investments in rail networks and mobility solutions are supporting demand for our products. Similarly, increasing mining activity and demand for off-highway equipment are creating opportunities for our machine components segment. Overall, our diversified end market presence allows us to participate in multiple growth opportunities. On the volumes front, total lamination and assembly volumes for the quarter stood at 21,600 tons, a growth of 26% YOY. H1 lamination volumes increased to 41,000 tons, up by 22% compared to H1 FY26. Total raw casting and machine components volume for Q2 FY27 was 13,086 tons, growing by 6%. And 6,054 tons for H1, with a growth of 1.6%.
Akshay S. Pitti: Coming to our financial performance. Before discussing the numbers, I would like to highlight that in September 2026, the company merged its two subsidiaries, Pitti Industries Private Limited and Dakshin Foundry Private Limited, with the parent entity, Pitti Engineering. Accordingly, the financial results for Q2 and H1 have been reported on a standalone basis, with previous numbers restated to ensure comparability. For Q2 FY27, our total income stood at INR 581 crores, compared to INR 499 crores in Q2 FY26, registering a growth of 16.3%. For the half year, revenue grew by approximately 15% to INR 1,110 crores, compared to INR 963 crores in H1 FY26. Adjusted EBITDA for the quarter stood at INR 91 crores, compared to INR 80 crores in Q2 FY26, a growth of 13%.
Akshay S. Pitti: The adjusted EBITDA margin stood at 15.8%, impacted by an increase in Forex loss, increase in consumable and packing cost, along with increase in fuel and power costs. Adjusted PAT for the quarter stood at INR 36 crores, compared to INR 43 crores in Q2 FY26. It is important to note that in Q2 FY26, we had INR 21 crores of other income from Maharashtra's government for the Package Scheme of Incentives that we enjoy for our Aurangabad facilities investment. We have decided to defer this claim of incentive in the current year to the next financial year, with the objective of maximizing its cash flow. To conclude, we remain focused on strengthening our market positioning and building capacities to support long-term growth. Our diversified end market presence and strong customer relations provide a solid foundation for future opportunities.
Akshay S. Pitti: We continue to remain focused on operational efficiency, cost management, and disciplined capital allocation with our ongoing expansion plans. We remain confident in our ability to deliver sustainable growth over the coming years. Thank you. Now we can open the floor for the Q&A session.
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 the touch-tone 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 is from the line of Pranay Roopchanderji from Burman Capital Management. Please go ahead.
Pranay Roop Chatterjee: Hello. Good afternoon, sir. Am I audible?
Operator: Yes, sir. You are audible.
Akshay S. Pitti: Yes, you are audible.
Pranay Roop Chatterjee: Yeah. My first question was obviously on the margins. You mentioned three things: FX, packing and consumable inflation, and fuel and power cost inflation. Would you be able to quantify how much was the FX loss portion, and how much was the same loss or gain recorded in the previous quarter?
Akshay S. Pitti: Just one second on that. Apart from these, also the raw material prices have gone up. That would have anyways reflected in a lower EBITDA margin as a percentage. So they are actually also on the RM front. The Forex loss in the quarter, INR 4.61 crores.
Pranay Roop Chatterjee: What was it in the last quarter, like Q1 FY27?
Akshay S. Pitti: Q1 FY27. Just hold on. I do not have that number over here. I think our partners can get that across to you from SGA.
Pranay Roop Chatterjee: Sure. Just to be sure, this is recorded in other expenses, which is above EBITDA?
Akshay S. Pitti: Yes.
Pranay Roop Chatterjee: Got it. Okay, fine. This is something I would expect would be sort of one-off in nature. Coming to the other costs, how do you see those evolving? Obviously, crude has not come down at all. On fuel, packing, and consumables, and also the raw material inflation, any sense on if you are able to pass on, and hence could margins recover to the 16% to 17% range, or we should expect similar levels for the rest of the year?
Akshay S. Pitti: I would say that the fuel and power cost is going to be passed on from January onwards. Typically, during the year, we do not go into the consumable level because it is a very small percentage of overall cost. This is a unique situation where due to global supply chain issues and the oil prices due to Middle East have remained consistently high.
Akshay S. Pitti: I would say that by Q4, you should see that coming back because those are annually readjusted. The steel price inflation is a quarterly pass-through, so those we are able to pass through as per normal contract terms.
Pranay Roop Chatterjee: Understood. My last question is on the casting volumes actually dropped quarter-on-quarter. This quarter, I think your capacities also came in around August. We had a guidance of about, if I recall, around 16,000, 17,000 tons for the year.
Akshay S. Pitti: Yes.
Pranay Roop Chatterjee: Are we still on track to meet that guidance? Because that will mean substantial pickup in the H2.
Akshay S. Pitti: The line that you see as 6,054 tons for the H1, these are casting and machine components going as pure vanilla machine components.
Pranay Roop Chatterjee: Okay.
Akshay S. Pitti: To do the comparison vis-à-vis the overall sales, you also have to add the other machine components going into the lamination assemblies.
Pranay Roop Chatterjee: Okay.
Akshay S. Pitti: Which is just about the total lamination and assembly quantity, which is 2,185 tons. Sorry, 2,024 tons.
Pranay Roop Chatterjee: Got it. So your 17,000 number is after you add both of these, the target for the H2?
Akshay S. Pitti: Yes.
Pranay Roop Chatterjee: Okay. If you could just confirm one number for me, what is the incentive per year you would realize from Maharashtra? Because I think I was slightly confused. There was two different terms, nine year and seven year. So basis whatever term is agreed or finalized, what would be the incentive per year you will actually be able to book from next year? Not the cap.
Akshay S. Pitti: We are eligible to receive up to INR 400 crores of the incentive. If we take it over seven years, the eligibility would come to INR 57 crores. If we take it over nine years, it would come to INR 44 crores. However, having said that, based on the local Maharashtra sales, we don't estimate that we will be able to recover more than INR 40 crores per annum, irrespective of the eligibility, at least in the near term.
Pranay Roop Chatterjee: Okay. But that's still bulk of the CapEx, right? It's a reasonable part of the CapEx.
Akshay S. Pitti: Yeah. It's a good chunk of the capital, which is why we are trying to work and increase the recovery period to nine years instead of seven years, so that we can maximize the recovery. As time progress, we will be able to recover more than 40 per year also.
Pranay Roop Chatterjee: Got it, sir. Thanks a lot and all the best.
Akshay S. Pitti: Thank you.
Operator: Thank you. The next question is from the line of Mohit Jain, from DRChoksey FinServ Private Limited. Please go ahead.
Mohit Jain: Hi, sir. Good afternoon. Thank you for giving me this opportunity. Sir, on the EBITDA margin.
Akshay S. Pitti: Yes.
Mohit Jain: Mostly the first participant asked the question, but my question is more of a follow-up. You said this 100 bps decrease was mainly due to fuel and power cost consumable and raw material. I am seeing gross margin was impacted 60 bps. So I am taking that raw material impact would be 60 bps and other fuel power would be around 40 bps. You also mentioned that from Q4.
Akshay S. Pitti: Fuel power and Forex also.
Mohit Jain: Forex, yes, right. You also mentioned that, so probably you are saying this 40 bps improvement can be seen from January onwards, but the 60 bps raw material inflation can be seen from this quarter itself. Can you just clarify?
Akshay S. Pitti: The raw material inflation is not actually impacting in that way. The gross margin reduction is not a factor of the increase in raw material cost alone.
Mohit Jain: Okay.
Akshay S. Pitti: It is the inflation. Even if you pass it on to the customer, the margin as a percentage would go down. See, my selling price would adjust from 100 to 110 if the cost increases by INR 10. But the cost also would go up by INR 10. So the percentage margin would look lower even if you are passing it on. So there would be a possibility to recover it.
Mohit Jain: If the inflation is here to stay, let us say for next 3, 4, 6 months, it is very hard for us to get the margin levels to 17%, or you are confident to reach there?
Akshay S. Pitti: See, if the steel price increased by another, say, INR 10,000, I am just giving as an illustration.
Mohit Jain: Yeah.
Akshay S. Pitti: We will pass that on to the customer. With the increase in selling price, the customer won't give you a margin on the inflation. So the margins will go lower. The absolute margin will not go down.
Mohit Jain: Okay, got it. My second question is on the working capital. Can you just clarify this trade payables increase to INR 470 crore from INR 236? This has positively impacted our cash for this semi-annual. Is it here to sustain? Can you just clarify on this?
Akshay S. Pitti: Yeah. It is here to sustain. We will be looking to work more on the trade payables side than leverage our cash positions to buy material going forward as we are going into a CapEx cycle over the next 4 years.
Mohit Jain: All right. Akshay, lastly, on the CapEx side, this newly announced INR 450 crore CapEx.
Akshay S. Pitti: Yes
Mohit Jain: Which you bifurcated between 125 and 325, land 125 and infrastructure 325.
Akshay S. Pitti: Yes.
Mohit Jain: Can you just give the split between how will it be funded? I am pretty sure it must be from internal and debt. Can you just provide a clarity, not clarification, but a touch on this?
Akshay S. Pitti: This CapEx is going to be a very long-term implementation. Apart from the INR 125 crores which will be spent for the land acquisition and the building, the remaining is going to be linked to the increase in requirement from the customers and therefore, quarter on quarter we will be adding capacity. This INR 450 crores will be spent approximately in a split, something like INR 150 crores in the first year, which would be FY28, and then towards FY29, 2030, and 2031, the remaining amounts. Again, linked to what the requirement and demand from the market is coming. I believe that over those years, we should be able to fund it entirely with the internal accruals. However, we have put a point out there that we are going to fund it through a mix of both.
Mohit Jain: All right. Thank you.
Akshay S. Pitti: Which will be funded entirely from internal accruals, if that clarifies.
Mohit Jain: Till FY31?
Akshay S. Pitti: Yeah.
Mohit Jain: Yeah. Okay. Thank you very much, Akshay. All the best.
Akshay S. Pitti: Thank you.
Operator: Thank you. The next question is from the line of Mayank Chaturvedi from HSBC India Limited. Please go ahead.
Mayank Chaturvedi: Yeah. Hi, Akshay. Thanks for the opportunity. On the CapEx side, the integration for the lamination manufacturing that you are doing in Bangalore, so that would entail the entire Aurangabad facility to be integrated into Bangalore, right?
Akshay S. Pitti: No. So see in Bangalore,
Mayank Chaturvedi: The lamination part of it.
Akshay S. Pitti: Aurangabad will continue to have lamination, going forward. I think even when the full CapEx is implemented, I believe Aurangabad will be our largest lamination facility overall. The idea to integrate is that in Bangalore, when we acquired Bagadia Chaitra Industries, they were operating 2 units encompassing around 80,000 square feet of factory built-up areas.
Akshay S. Pitti: Subsequent to that, we had expanded into 2 additional leased facilities owing to the increase in demand from our customers in that region. What we are seeing going forward is that there is additional growth coming in Bangalore, and we would have to again go and lease more facilities. The idea is that now that we have a significant lamination manufacturing presence in Bangalore to consolidate not only the existing leased facilities, but also what we will grow into future into a single location. If I were to give a background, I think between now and when the Bangalore facility will come up, we will actually have to go to a fifth and a sixth leased facility before we can move into our own facility. The idea is that you do not want to have this manufacturing distributed across 6, 7 sites. It is quite inefficient.
Akshay S. Pitti: Economies of scale do not come in and your overhead costs go up.
Mayank Chaturvedi: Okay. Because I was wondering if that is to be done, then if Aurangabad is to be shifted to Bangalore, then there will be a disruption in operations for some time on the lamination side of it, but that is not going to happen.
Akshay S. Pitti: No. The increase in capacity is not only in Bangalore. From 108,000 to 160,000, we are not saying that 52,000 will be the increase in Bangalore. This will be an increase including Aurangabad.
Mayank Chaturvedi: Okay.
Akshay S. Pitti: The INR 325 crores is going towards the capacity increase and the INR 125 crores is going towards consolidating the Bangalore factories into a single location.
Mayank Chaturvedi: Got it. And another piece on CapEx is there any plan to add copper winding to all of this? I mean, you had not included it, but
Akshay S. Pitti: We have not discussed it to bring it in-house, but we are exploring to get it outsourced to start with and get into that segment slowly.
Mayank Chaturvedi: Okay.
Akshay S. Pitti: If we see enough demand coming and margin profile being strong enough, then we could consider bringing it in-house.
Mayank Chaturvedi: All right. And on this Maharashtra incentive that we're deferring to next year, can you provide some context to it, why we would not want it this year?
Akshay S. Pitti: Right now our sales support a recovery of roughly about INR 35 to 36 crores per annum. When we had initially applied for this scheme, we were expecting to receive a nine-year recovery period. The investment that was eligible for incentive claim was INR 400 crores. That worked out to about INR 44 crores per year.
Mayank Chaturvedi: Right.
Akshay S. Pitti: Typically, as you ramp up your capacity and sales, this INR 36 recovery potential per annum would have increased. We were quite comfortable claiming this. However, the approval and sanction that we got was for seven years. That meant that we had to recover INR 57 crores a year. We are trying to work with the government to get this back to nine years so that we can recover a larger portion of the investment. Anyways, by deferring it by a year, I am pretty confident, like I said, by next year, we should be running at a rate of about INR 40 crores recovery per year. That increased sales would help us recover more, even if we do not end up getting the nine-year claim period from the government.
Mayank Chaturvedi: Okay. You will not be able to recover any in FY27, but to recover the whole amount, you have to defer it and then you will start recovering again from FY28?
Akshay S. Pitti: Yes.
Mayank Chaturvedi: Okay. Got it. Any CapEx incentive, state incentive for the new CapEx that you are putting up?
Akshay S. Pitti: In Bangalore?
Mayank Chaturvedi: Yeah.
Akshay S. Pitti: No. In Bangalore, there won't be any incentive available.
Mayank Chaturvedi: All right. Okay. All right. Yeah. That was.
Akshay S. Pitti: The only thing you would get is land at a concessional rate. I think that would be the only support that you'd get.
Mayank Chaturvedi: Okay. Sure. Yeah. All right. Thank you so much.
Akshay S. Pitti: Yeah. Thanks.
Operator: Thank you. The next question is from the line of Kartik Jain from Solidarity Investment Managers. Please go ahead.
Pratik Jain: Hey, Akshay. Thanks for the opportunity. Akshay, I have three questions. First is, looking at the next three years with the visibility you have today, what kind of growth do you think is achievable? If it is possible, can you break it down little granularly?
Akshay S. Pitti: So, if you talk of by FY30, 31, when this whole CapEx is done, and obviously this CapEx is extremely modular in nature. Assuming that it is at full utilization by FY31, we should be having a revenue potential of approximately INR 3,800 crores as a company. Of which around INR 850 odd crores would come from machine components, plain vanilla machine components, and the remaining would come from the lamination part of the business.
Pratik Jain: What will be the levers for Pitti to sweat this capacity out?
Akshay S. Pitti: So, apart from the land and building of INR 125 crores in Bangalore, we are not committing to expend anything today. As we keep getting orders, we have got strong visibility and forecast from customers. We are developing the products for them. But obviously, these things take time to pick up in the end markets. Our idea is to announce this CapEx, get the approvals in place, and only expend the money as we see the demand coming in from the customer. The lead time on the equipment is barely six to eight months. So, we can be very tactical in deployment of this capacity.
Pratik Jain: Got it. This was one of my questions also, given you mentioned that it is modular. Are we confident that if we get the demand, given a lot of these new CapEx will be coming onstream by FY30, if there is a pre-demand jump before FY30, the CapEx won't be a bottleneck here for growth?
Akshay S. Pitti: We will have to dip into probably debt. See, like I said, when someone asked me about the funding structure, the reason that we have put debt and internal accruals is that we do not want to get tied down. If like you rightly said, the demand comes ahead of our expectation, then that flexibility is available to us. Similarly, we are not going to restrict ourselves just because our facility in Bengaluru is not available. We are already operating in three leased premises apart from the one fully owned facility for lamination in Bengaluru. Till our facility comes up, we are not averse to taking more facilities on lease, implementing the CapEx, securing the business, and then re-shifting it back to a single location within Bengaluru.
Pratik Jain: Got it. Lastly, on margins, if I take a slightly longer term view, you guys are doing more of a machining value-added products, right? So margins should structurally improve here. Can you give me some sense around it? If you sweat this INR 3,800 crore capacity by FY31, what will be the steady state margins of the business?
Akshay S. Pitti: On a blended basis, you should be looking, again, talking of current raw material prices, when I say current Q2 raw material price levels. Steel prices are obviously increasing and decreasing every quarter. If you take a Q2 price level, your sustainable blended margin should be in the vicinity of 17%+ EBITDA.
Pratik Jain: But as you move to FY31 with more value-added mix, shouldn't it be to the range of 18% plus? I do not want to get involved in these quarterly fluctuations because it will eventually get passed on to the customers. But if a longer term view on a steady state basis, can it be 18%?
Akshay S. Pitti: See, again, it depends on the mix of the machine component to lamination. Obviously, we are penciling in a higher growth in lamination as well. We are suggesting that lamination would do closer to INR 3,000 crores revenue on a standalone basis. So that would bring the overall blended margin profile lower.
Pratik Jain: Got it.
Akshay S. Pitti: You have to see both combined, right? So if you talk of just the machine components, you should have an EBITDA margin in excess of 25%. But if you talk of a lamination, it then depends on how much is going as loose laminations and how much is going as value-added SMBs. There are already multiple drivers for the overall lamination within itself.
Pratik Jain: Got it.
Akshay S. Pitti: Potentially, 18% is available. 17% would be pretty much a very comfortable number to hit with this mix.
Pratik Jain: Very much clear. Thanks, Akshay.
Akshay S. Pitti: Thank you.
Operator: Thank you. The next question is from the line of Vivek Ganguly from TGS Asset Management Company. Please go ahead.
Vivek Ganguly: Thank you. My first question is on the CapEx. The new CapEx that the planned CapEx that you have announced is over and above the earlier CapEx that you announced, or is this inclusive of that?
Akshay S. Pitti: No, over and above. The CapEx announced earlier was INR 290 crore. The current CapEx announced is INR 350 crore and the cumulative CapEx for the two announcements is INR 740 crore.
Vivek Ganguly: INR 740 crore. And of this, about INR 350 crore is which is going to be much more modular depending on how the orders come through.
Akshay S. Pitti: Okay. If you want to look at it in that manner, I would say out of the INR 740, 250 to 260 would be kind of a committed CapEx, because in Hyderabad also we are doing the land and building which is of a similar scale and value. The remaining is modular.
Vivek Ganguly: Right. Got it. Approximately then you all will end up, if this entire thing goes through as planned, about 150 odd crores every year.
Akshay S. Pitti: With the INR 290 crores, the Hyderabad land and building in current year is also going to be there. The first year-
Vivek Ganguly: Right
Akshay S. Pitti: would be something like 300 or 250 to 300.
Vivek Ganguly: Right.
Akshay S. Pitti: And thereafter it would be 100, 125, 150. It is all going to depend on what demand comes in and how quickly it comes in.
Vivek Ganguly: Right. Got it. So this INR 250 to 300 for land and building, what is the schedule for this like really by how much of that will be incurred this year and how much the next year?
Akshay S. Pitti: I think if you take the start date as 1 July, I would say that in 18 months you should see more than 90% of it being expended.
Vivek Ganguly: Okay. 18 months. Okay. Right. Okay. That is all from me. I will again come back into the queue.
Akshay S. Pitti: Yeah.
Operator: Thank you. The next question is from the line of Bala Subramanian from Arihant Capital Markets Limited. Please go ahead.
Balasubramanian A: Good afternoon, sir. Thank you so much for the opportunity. Sir, the volume of byproducts and scrap, it is almost increased to more than 60% in this quarter. Is the result of increased production activity, or are we seeing higher scrap generation due to new manufacturing process or lower yields in the initial ramp-up phases? How do you understand, sir?
Akshay S. Pitti: See, there are a couple of things. There is a higher production. Obviously, being H1-end, we are not able to dispatch many of the products, so there is a little bit of an overhang from last quarter in terms of inventory and of finished goods, which will get liquidated in this quarter. Apart from that, if you see the high value-added assemblies volume has significantly jumped in this quarter, and that also yields into a lower utilization of the side trim. So if we are not able to use those side trim, we prefer to liquidate them.
Balasubramanian A: Okay, sir. Sir, I think that presentation, I mean, support a strong order visibility from marquee customers like Caterpillar, Siemens Mobility, et cetera. If you look at three, four years back, almost 60% of your business came from the top five customers. How that mix change currently?
Akshay S. Pitti: So I would say that even if you look forward, I would say the major revenue will still come from the top five, top seven customers, because when we do the grouping, we would take the beneficial ownership level. For example, if we are going to do business with Progress Rail, we would still consider that as a Caterpillar-owned entity, and therefore quantify it there in terms of customer concentration risk. Similarly, if you talk of Siemens Mobility, we would say that Siemens, Gamesa, and all of these companies are also Siemens owned, and therefore we would regroup it there.
Balasubramanian A: Okay, sir. Sir, last question. Data center, we have seen a doubled increase in contribution in this quarter. How do you look at those emerging sectors and what kind of mix we can expect over the next 3 to 5 years?
Akshay S. Pitti: I would say we are looking at it cautiously optimistic on data center. The good part is that I would say not all of our data center business is linked to AI. There is also link to regular data centers, so we see sustained growth coming from that segment. However, I would not look at it increasing more than probably 9% odd of the overall revenue as a segment. We see that other segments like mining and special purpose motors, power gen in general will also grow and overall mix should remain similar.
Balasubramanian A: Got it, sir. Thank you.
Operator: Thank you. The next question is from the line of Rahul Kumar from Vaikarya Fund. Please go ahead.
Rahul Kumar: Yeah, hi. Congratulations on a strong quarter. In light of the strong volumes in this quarter and in the previous quarter as well, do you want to revise the FY27 volume numbers and FY28?
Akshay S. Pitti: FY27, I think we will still hold on to the upgraded guidance given last quarter. Execution will be a challenge. Q3 was always a little bit of challenge considering the holiday season in India and Europe. We have Dussehra, Diwali, then Christmas for our European and American clients. However, Q4, I think we should see a strong volume growth. For FY28, yes, definitely with this CapEx coming in and modularly expanding our capacity from Q2 of FY28, we should see again a stronger volume growth.
Rahul Kumar: Okay. The second question, I think earlier you used to give the split of the machined components and the raw casting. Can you give the same for this quarter as well?
Akshay S. Pitti: Just give me a minute. Let me just pull that out if that's there. Yes. So machine component is about 16,000, 17,000 tons and raw casting is about 1,000 tons.
Rahul Kumar: Okay. The reason I was asking was the percentage obviously gets deflated because of the steel prices. But if you look at the consolidated EBITDA per ton figure as well, I think that's seen a 10% decline over the Q1 quarter. Not sure it's 100% explained by the cost increase. So is there anything else in terms of product mix or something which has led to this?
Akshay S. Pitti: Consolidated EBITDA per ton?
Rahul Kumar: Yes. The denominator is the lamination volumes also.
Akshay S. Pitti: You see, that would not be the right way to look at the company. That is why we had stopped giving that metric. If you see the volume in Q2, the loose lamination and low value-added assemblies are almost 15,500 tons. Therefore, that business is obviously a lower EBITDA margin. Right. That change between the segments and the percentage of machining revenue will not actually give you a right metric. EBITDA per ton, you cannot take lamination as a tonnage.
Rahul Kumar: Okay. But actually, if you see the value-added products share as well, that share also is sort of flat. It hasn't deteriorated. The machine component percentage also has actually increased, right?
Akshay S. Pitti: Yeah.
Rahul Kumar: That is-
Akshay S. Pitti: How should I put it? When we say high value-added assemblies and low value-added assemblies, within the high value-added assemblies, like I mentioned in the past, there is no metric to say that 1 ton of high value-added assembly will give you X EBITDA. It is a very wide band on the amount of value add you do, and therefore the margin that you earn.
Rahul Kumar: Okay.
Akshay S. Pitti: Secondly, also if you see, while we discussed the EBITDA is down because of the inflationary pressures, you will also see that the manpower cost is significantly higher on a Q-over-Q basis. That is mainly because the new capacity that has come in, we have geared up our manpower side to take care of the increase in capacity while it is not giving its full effect yet. From Q4, you should see that margin further gaining.
Rahul Kumar: Understood. Perfect. Thank you.
Akshay S. Pitti: Thank you.
Operator: Thank you. The next question is from the line of Tanen Trivedi from Groww Wealth Private Limited. Please go ahead.
Kanan Trivedi: Hi. Thank you for the opportunity. Firstly, I wanted to ask, are we still on track to our previous quarter guidance of INR 370 crore for the full year?
Akshay S. Pitti: Yes, I think we are pretty much on track. If you look at current quarter and simply extrapolate this, we should be getting there.
Kanan Trivedi: My second question was on the exports front. If I see from FY23 to FY26, there is a bit reduction as a percentage of our total revenue. This may be more because we are more on the domestic front in recent years. But how do you see this panning out in next, let's say, three to four years?
Akshay S. Pitti: Yeah, I think overall exports will remain stable or slightly downward as a percentage of overall sales. As a standalone number, exports will grow and they will grow significantly. But the domestic business is going to grow faster than the direct export business.
Kanan Trivedi: Okay. Can you provide some color like, what are the various reasons for the same?
Akshay S. Pitti: See, the direct export opportunity would be limited to the business that we can do to sell the product as components to the customer. What is a trend that we are seeing is that most of our customers also have a manufacturing presence in India, and rather than importing the components and doing the manufacturing in, say, Europe or US, they would be happier to make the product in India. So we cannot actually, how to put it, quantify what are our deemed exports or what portion of the revenue that we supply to our domestic clients eventually gets exported.
Kanan Trivedi: Okay.
Akshay S. Pitti: That actually misrepresents the overall potential of our products, which are eventually getting exported, if that makes sense.
Kanan Trivedi: That is it from my side. Thank you.
Akshay S. Pitti: Yeah.
Operator: Thank you. The next question is from the line of Saksham Tyagi from Desvelado Advisory. Please go ahead.
Saksham Tyagi: Hello, am I audible?
Operator: Yes, sir, you are audible.
Saksham Tyagi: Okay, so thanks for the opportunity, sir. My first question is, in Q1, you outlined an ongoing INR 290 crore Hyderabad expansion and also mentioned a potential INR 400 crore Bangalore CapEx for FY28 and FY29, right?
Akshay S. Pitti: Yes.
Saksham Tyagi: In Q2, the board has already approved a new INR 450 crore CapEx phase to 2031 to expand the sheet metal capacity.
Akshay S. Pitti: Yes.
Saksham Tyagi: How does this INR 450 crore project fit into your earlier CapEx timeline, and how will it be funded given the total borrowings currently stand at INR 640 crore?
Akshay S. Pitti: If you look at it, what I had given in the conversation in the last investor call, INR 400. The board has just approved INR 450 instead of INR 400. It is just again an estimate which I had given that time. It is exactly what we discussed in the last call. In terms of timeline, it is going to be done by FY31. Like I already mentioned in the previous query, if I take the entire INR 740, INR 290 plus INR 450, roughly about INR 260 crore would be pre-committed CapEx in terms of land building infrastructure. Apart from that, everything else is modular. If the business materializes faster than our expectation, we would have to dip into debt.
Akshay S. Pitti: Otherwise, we believe that we should be able to support this CapEx from internal accruals through this period.
Saksham Tyagi: Okay, sir, understood. My second question is related to the previous one. You revised the FY27 lamination volume target from 78,000 tons to 82,000 tons, implying approximately around 17% to 18% growth for the year, right? Given that Q1 lamination and assembly volumes were around 19,200 tons, could you update us on the volume achieved in Q2 and the cumulative H1 performance? What quarterly run rate will be required in H2 to achieve the 82,000 tons target? Are you still confident about meeting that target?
Akshay S. Pitti: Yeah, if you see H1 numbers, it is about 40,889 tons. If I just double this, you are at 82,000 tons. If you take Q4, it is going to be similar to Q2, maybe slightly stronger than Q2. Q3 volumes might dip a little bit on lamination owing to the festivals.
Saksham Tyagi: Okay, so the target can still be met this year.
Akshay S. Pitti: Yeah, 82,000, 82 plus 1,000 tons for the year.
Saksham Tyagi: Okay, sir. Thank you.
Operator: Thank you. The next question is from the line of Abhijit Madra from Aenoice Alpha Investment Management. Please go ahead.
Abhijit Mitra: Yeah. Hi, am I audible?
Operator: Yes, sir. Audible.
Abhijit Mitra: Yeah. Thanks for taking my question. Just to get my understanding right, your volumes for total castings and machine component is around 3,000 tons. If I look at the capacity for castings, it is around 24,600 tons and the utilization is 52%, right?
Akshay S. Pitti: Yeah.
Abhijit Mitra: Castings volume for the quarter. Out of this 3,198, 1,059 would have gone into other machine components, which is essentially going into lamination and assemblies. The rest would be a mix of your raw castings and your machine components. This is the breakdown broadly, this is the breakdown.
Akshay S. Pitti: Yeah. About 1,000 odd tons, like I said, is raw castings and the remaining would be machine castings and 300 tons of machine castings going into assemblies. Right. When we talk of capacity utilization, historically in the past, the foundry used to give its own utilization. We need to probably work a little bit on that metric, because we are taking the sales and defining the utilization. If you see the casting that is going into machining, there will be an input-output ratio. In machining, we are basically shaving off the metal to get the finished dimensions.
Abhijit Mitra: Right.
Akshay S. Pitti: Typically about 30% to 40% of the weight is reduced in the machining or from the raw castings level. If you kind of equate it to a production of casting, that would be closer to 4,900 tons of casting produced.
Abhijit Mitra: Understood.
Akshay S. Pitti: The utilization is calculated on sale basis historically, so we did not want to change that metric for comparative purposes.
Abhijit Mitra: Okay. Casting is also the machining hours are also given. So you use the utilization and divide it by total castings and that, in average.
Akshay S. Pitti: That is just the number of machine hours that ran to get the output required.
Abhijit Mitra: Yeah. For example, in this quarter you would have run it for 172,000 hours, broadly, or 173,000 hours.
Akshay S. Pitti: Yes.
Abhijit Mitra: Against that, whatever would have gone into your machine casting and machine components put together. Your machine casting is going into lamination and assemblies because that is the paper what we are giving, as well as machine components.
Akshay S. Pitti: Yes.
Abhijit Mitra: You have to divide by that to get the hours of machining that casting for this run is to get the extent of value added.
Akshay S. Pitti: Yes. One can say that about six hours per ton of machined output is utilized because the 1,000 tons of other machine components going to assembly plus 2,000 tons of machine components in total, 3,000 tons of machining was done and 172,000 hours were utilized to get that machining done.
Abhijit Mitra: Understood. If the value added for the quarter is around, you get around 54 hours per ton. That is for the full quarter.
Akshay S. Pitti: 6 hours per ton, roughly.
Abhijit Mitra: Understood. Got it. Great. Thanks for this.
Akshay S. Pitti: Yeah.
Operator: Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. The next question is from the line of Rabindranath Nayak from Nirmal Bang Securities. Please go ahead.
Rabindra Nath Nayak: Good afternoon, sir. Thank you for the opportunity. Two questions. One is, this traction sales, particularly the traction motor sales, it is one of the largest business contributor. It is declining. What is the outlook there? That is one question. The second question regarding the realization. Our overall realization has almost reached around INR 200,000 per ton, but in a consolidated basis. But if we see the EBITDA per ton, it is one of the lowest in the last six to seven quarters, EBITDA per ton. I understand it is not a right measure, but how to look at this in coming periods. Secondly, you mentioned about this scrap. There is a significant increase in scrap, where previous participants had asked this question. If we see the realization with scrap, it is also one of the lowest. How to see these things in a totality basis?
Rabindra Nath Nayak: Can you please guide on this for the second question and the first question regarding the traction motor sales. Thank you.
Akshay S. Pitti: On the traction motor share of overall revenue, I would say that earlier the overall reliance on traction motor as a segment was very high and our focus was very high there. Obviously, we are seeing a good demand coming from other segments like data center and mining, off-highway, special purpose, wind power, et cetera. If you look at it on an absolute number, the traction motor has not really de-grown at an alarming rate. Out of INR 580 crores of revenue, about 27% is about INR 156 crores for traction motor and railway-related components. If you see last year, it is about 32%. On an absolute number, it is still, I would say, a solid segment for us. The other segments are growing faster. Now coming to the EBITDA per ton, like you rightly said, that is not the right way to look at it.
Akshay S. Pitti: But if I can provide some guidance and color. Unfortunately, I cannot because if you look at the lamination business and if you are only doing lamination and EBITDA per ton could have been a metric where you can blend everything and measure the business. But the minute you get into machining, it becomes slightly different. On the EBITDA being lower for the overall output in this quarter, definitely there are two contributing factors. One is your Forex loss, which I have mentioned, which is booked in the other expense, and the second is your employee cost. It is significantly higher because we are gearing up for the higher level of operations and the capacities that we are commissioning.
Akshay S. Pitti: So those will get spread over a larger base going forward. That is just the way it is going to be in the initial period as we set ourselves up to grow.
Rabindra Nath Nayak: Okay. Regarding this other income, this around INR 70 crores of the approval for the Maharashtra incentive is already done or it is still in the process?
Akshay S. Pitti: Sorry, 70 crore?
Rabindra Nath Nayak: No. The receivables from the Maharashtra government, it is already received, or it is in the process?
Akshay S. Pitti: No, it is in the process for disbursement.
Rabindra Nath Nayak: Okay. That will, up to some extent, help us with CapEx going ahead. Is it correct?
Akshay S. Pitti: It will help us definitely, but we are not linking that to our CapEx plans per se. It will help in
Rabindra Nath Nayak: Okay
Akshay S. Pitti: managing the overall debt level.
Rabindra Nath Nayak: Okay, sir. Thank you and all the best. Thank you.
Akshay S. Pitti: Yeah. Thank you.
Operator: Thank you. The next question is from the line of Lavia Bardota from Zensar Finance. Please go ahead.
[Analyst] (Zensar Finance): Hello. Thank you for giving the opportunity. My only question was, which sector in the next two to three years do you see growing the fastest in your business model?
Akshay S. Pitti: In terms of fastest growth, over three years, it is very difficult to predict, but given the current outlook, I would say mining off-highway for the next two years looks very robust. Power gen, overall, should also from its current level, grow the fastest.
[Analyst] (Zensar Finance): Okay. What about data centers?
Akshay S. Pitti: Data centers, again, if you talk of a longer-term view, like I said, we are cautiously optimistic. Potentially, it can grow very fast, even faster than the others. In the short term. Longer term, again, like I said, it is better to wait and watch. Potential to grow is there.
[Analyst] (Zensar Finance): Okay. Thank you so much.
Operator: Thank you. The next question is from the line of Pranay Roop Chatterjee from Burman Capital Management. Please go ahead.
Pranay Roop Chatterjee: Hello, sir. Am I audible?
Akshay S. Pitti: Yes.
Pranay Roop Chatterjee: My question is, I am actually slightly confused how to tie the two guidance numbers you gave, which is 17,000 tons of castings and 82,000 tons of laminations with slide 6 which gives the detailed sales breakup by volume. Q2 FY27, I see total laminations is 20,612, 20,612, and then you have other machine components going in of about 1,059, and you get 21,671. The 82,000 ton number is as against which one of these? 20,612 or 2,161?
Akshay S. Pitti: 82 is against the 21,671.
Pranay Roop Chatterjee: Okay.
Akshay S. Pitti: The total.
Pranay Roop Chatterjee: Are you-
Akshay S. Pitti: In the past, just to give you some context, sorry to interrupt you. In the past, we never gave the breakup of other machine components going to lamination assemblies. There was a disconnect among people as to what was a lamination and what are the other stuff that is going into the weight of the product. That is why we started giving this line as a separate thing so that people can clearly understand the quantum of lamination going for sale.
Pranay Roop Chatterjee: Perfect. Understood.
Akshay S. Pitti: We broke it up into this.
Pranay Roop Chatterjee: Got it. Understood. Now when you say 17,000 tons of castings, you are-
Akshay S. Pitti: Yes
Pranay Roop Chatterjee: not referring to just the 3086 castings and machine components, right? You are also adding in the 1059, which is going into lamination. Total would be around 4,100 in Q2.
Akshay S. Pitti: No. What we are doing is the 3086, the number like I said, about 1,000 was the raw casting.
Akshay S. Pitti: Now, the remaining is machine casting, which is getting sold, not related to lamination. Right?
Pranay Roop Chatterjee: Okay.
Akshay S. Pitti: Now, when we machine these castings, you have a scrap that is generated from those castings. The raw casting obviously goes as the finished product when we are selling it as raw.
Akshay S. Pitti: And the remaining gets machined, 2,000 tons. That portion, if I equate it to a casting output. Someone had asked a question as to how do you tie this to your capacity. I was explaining over there that 17,000 tons of casting was produced, or the casting we produced and then sold either as machined or as raw. I hope I am able to clarify or if you are following.
Pranay Roop Chatterjee: I will probably go back and read the transcript again. But, in case it is easy to answer, when you say you will sell 17,000 tons of casting in the year, is there a number on this table against which it is comparable?
Akshay S. Pitti: No. You will have to actually put a utilization factor. So like I said, in the past we have just given the raw casting sold and the machined casting sold. 17,000 tons will be the casting produced to make those sales.
Pranay Roop Chatterjee: Okay, then let us-
Akshay S. Pitti: If you take the 1,059, some part of those machined components are castings which are produced in our own company. The remaining 2,000 tons of machined components are produced in our company. If I take those machined castings, either going into the lamination assembly or as machined components, and add the raw casting, that gives a utilization of about 17,000 tons of castings.
Pranay Roop Chatterjee: Got it. Okay, let me then ask this question in a more simplified manner. At today's prices, in Q2 prices, if you were to achieve
Akshay S. Pitti: Yes
Pranay Roop Chatterjee: these targets, what would be your revenue for FY27?
Akshay S. Pitti: For which number? For 82,000 and the sales of machined components and castings?
Pranay Roop Chatterjee: Correct. You do 82,000 and you sell 17,000 tons of castings, you do exactly
Akshay S. Pitti: It would be about INR 2,350 to INR 2,400 crores.
Pranay Roop Chatterjee: Got it. Understood.
Akshay S. Pitti: At Q2 FY prices. Sorry, at Q2 FY27 prices, right?
Pranay Roop Chatterjee: Mm-hmm, correct.
Akshay S. Pitti: That would be closer to 23, not INR 2,350, INR 2,400. That would be based on Q3 pricing.
Pranay Roop Chatterjee: Okay. Basis Q3 pricing, INR 2,350 to INR 2,400 crores is what you are saying?
Akshay S. Pitti: Yes.
Pranay Roop Chatterjee: Got it. How much CapEx do you foresee for the rest of the year, FY27, across all the programs? I think we did INR 250 crores in H1.
Akshay S. Pitti: We did not do INR 250 crores in H1. We capitalized INR 100 crores in H1, but that was already pre-spent, a large chunk of it.
Akshay S. Pitti: In terms of expenditure, I think about INR 90 odd crores is expended in H1, in terms of cash flow. If you see the other non-current assets, that is predominantly the capital advances given in the balance sheet. In addition to that, maybe about INR 40 or 50 crores of land would have been purchased.
Pranay Roop Chatterjee: Got it.
Akshay S. Pitti: INR 140 crores would have been the cash outflow on CapEx.
Pranay Roop Chatterjee: Understood. If I can slip in one last question. Again, I am coming back to the same casting thing. Against the 17,000 ton number, which I will figure out what it is, how much was the number in H1 against the 17,000 target for FY27?
Akshay S. Pitti: I need to pull that out. Like I said, it is not there on this table here.
Pranay Roop Chatterjee: Okay.
Akshay S. Pitti: I will have to get that number out. I think for the next call, we will try to simplify this and give the production numbers.
Pranay Roop Chatterjee: Yeah.
Akshay S. Pitti: Earlier, what used to happen is that if you gave the production number, people would not be able to understand if that much is produced, why so little is sold.
Pranay Roop Chatterjee: Yeah, I understand.
Akshay S. Pitti: Trying to simplify it, I think it is oversimplified, in one way to put it. So we will probably try to get the production numbers in play.
Pranay Roop Chatterjee: Sure.
Akshay S. Pitti: Like I said, the capacity utilization, unfortunately, in the past, before the foundry was merged in, we never gave the utilization of foundry, we only gave the utilization of our machining. So there are some issues in that as well. So we will try and clean this one up.
Pranay Roop Chatterjee: Got it, sir. Okay, sir, thanks a lot. Thank you.
Akshay S. Pitti: Yeah. Thank you.
Operator: Thank you. Due to time constraints, we take this as the last question. I now hand the conference over to the management for closing comments.
Akshay S. Pitti: Thank you everyone for your time and joining us today. We appreciate your continued interest and support. As we move into FY27, our focus remains on disciplined execution, improving working capital, completing ongoing CapEx and scaling machined components, strengthening our position as an integrated engineering partner for our customers across India and global markets. Thank you once again, and goodbye.
Operator: Thank you. On behalf of Pitti Engineering Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
