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Ladies and gentlemen, good day, and welcome to the Pennar Industries Limited Q1 and FY '24 results conference call hosted by PhillipCapital India Private Limited. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]This conference 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 are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. I now hand the conference over to Mr. Vikram Suryavanshi from PhillipCapital India Private Limited. Thank you, and over to you, sir.
Thank you. Good morning, and very warm welcome to everyone. Thank you for being on the call of Pennar Industries Limited. We are happy to have with us management of Pennar Industries today for question-and-answer session with the investment community. Management is represented by Mr. Aditya Rao, Vice Chairman and Managing Director; Mr. Shrikant Bhakkad, Chief Financial Officer; Mr. Manoj, Head Corporate Planning; and K.M. Sunil, VP, Investor and Media Relations. Before we start with the question and answer session, we'll have some opening comments from the management. Now I hand over call to Mr. Aditya for opening comments. Over to you, sir.
Thank you. I'm grateful for the moderators and all of our stakeholders present on this call today for their participation in today's discussion on Penna Industries Q1 FY '24 financial results. If my voice is inaudible or if there's a problem hearing me, please let me know. We will begin by discussing our profitability followed by our liquidity and growth. Subsequently, our CFO, Mr. Shrikant will share his insights on our financial performance. After his presentation, we will be open to answering any questions you may have. So let me start off with our summary. In the first quarter, we reported net sales amounting to INR 748.9 crores, with a PBT of INR 29.5 crores. This reflects a 7% increase in our net sales and a substantial 57.2% rise in PBT. Our cash profit for the quarter was INR 38.2 crores compared to INR 29.9 crores in Q1 of last year.The quarter is in line with our forecast, and we are confident that our profitability will continue to grow and scale in the coming quarters. Now for Q1, PBT, as I mentioned, stood at INR 29.5 crores, reflecting a margin of 3.9%. In line with our commitments, we anticipate enhancements in our PBT margin as we shift from revenue with lower margins to revenues for higher margins and superior capital efficiency. So our cash PAT for Q1 amounted to INR 38.2 crores and this was achieved at a margin of 5.1%. As of June 30, our working capital days stood at 74 days, the annualized growth for the quarter was 21.7%. Now we have previously communicated our goal to surpass a ROCE of 20% by March 2023, which we had achieved and we are pleased to announce that we continue to trend above that.Now for the financial year, we aim for a ROCE of 22%. And our long-term target for our ROCE is at 25%. We've set a target of achieving 72 days in working capital by September, and we're confident we'll be able to achieve that. Moving into the next quarter and the fiscal year. There are primary growth catalysts projected to be our PEB division, our U.S. subsidiary, PGI, our body in white business and our industrial components business, specifically Hydraulics revenue, which will scale well over the course of this year.So our ongoing initiatives in Hydraulics, large diameter tube and our module business are in progress, and we are optimistic that once finalized, these business units will play a pivotal role in driving our revenue growth for this year and the next. In conclusion, that encapsulates our performance for the quarter, highlighting our profitability, liquidity and growth trajectories, I'd now like to pass the conversation to Shrikant for his insights.
Thanks Aditya. Welcome to the shareholders of the first quarter of FY '24 Earnings Call. The key metrics, as you have already would have seen the increase in terms of revenue by 7%, EBITDA by 32%, PBT by 57% and cash PAT has increased by 28%. With our continued focus to improve the margins and cut down on the sales with a lower margin sales, we see the increase in the profitability.And the sales revenue remained flatted because of the decrease in the sales of certain margins, certain jobs, which we are not doing. Interest cost has been high due to the increase in the working capital in the business, which has slightly increased. And we expect this to moderate definitely over the next quarter, but over the next 2 quarters. Our other income includes deposit income, income from mutual fund, incentives, write-back and the collection of old receivables.Salaries have increased due to the deployment of higher manpower in our growth to higher growth verticals, which as BIW, Boiler, PEB and also due to the increase in our Ascent revenue and increase in the business. With this, I would like to hand over the call to the moderators for the Q&A session.
Thank you very much, we will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Dilip Kumar Sahu, an individual investor. Please go ahead.
So the first question to Aditya is regarding the steel tubes business. For quite some time, you have been talking about the scale-up in this business. And if you look at the sector as a whole and the participants in that everybody, I think, did extremely well. So my question is that why is our huge business in general in steel tubes is a very small portion, I understand, is not really reflecting the market optimism. That's question number one. And question number two, for quite some time, we've been talking about this capital efficiency, 3% interest rate, 75 days working capital days, etc. But there is no stability in that number, sometimes we do well, sometimes we slip. Of course, there are reasons always. But somehow, we are not bearing a stable capital efficiency metrics. That's my second question. If you can just go through and can give a detail about the Ascent business in terms of what is happening there? What is the numbers in [indiscernible] that will help.
Thank you. With regards to your steel tubes your question on our tubing business unit, you're absolutely right. There has been a very moderate level of growth in profitability and not much growth in revenue as far as our tubes business is concerned. The reason for that is we've been prepping our entry into the large diameter tube business, which we believe can increase our revenue by a significant amount.That project is currently underway. It will be commissioned over the next few quarters. I'll have an exact date for you as we get closer. But you are right in that what we have seen in the market where other tube manufacturers are scaling quickly, we have not followed that because we have not quite frankly expanded capacity or commission expanded capacity. We are now doing that, and we're doing it for a product range, which has higher margin than our existing tubes operating margins and also has tremendous export potential as well. It also has some applicability internally where Hydraulics business as an input raw material can take some of those large diameter tubes as well.So I'm confident that this business is going to scale in the future. We have defined steel tubes as one of our major growth verticals over not just one year but over the next 5 years. So we will be completing our capital deployment in this business, and we will make sure we will scale. From a capital efficiency point of view, you're right, interest costs this quarter trended higher. This is a temporary output of us having stocked up on a certain larger order book, a certain amount of current asset. We expect this to moderate very, very quickly. I mean it's already, frankly, moderated over the last couple of months since the end of June.And we expect this by the next quarter, you will see a very significant moderation in this number. Additionally, from a ROCE point of view, we do target, as I said, about 20% in the longer term, while you may see hysteresis is on a quarter-to-quarter annualized basis, I can commit to you that we are targeting 25%. And year-on-year, you will only see our ROCE, return on capital employed and our return on equity increasing. We have now reached a double-digit return on equity as of this quarter annualized, and we expect to be able to improve on that as well. So capital efficiency within a quarter hysteresis as we look at acquiring current assets for certain reasons, maybe with strong material price increases or a head of a certain price increase or supply availability issues. You may see some. But overall, I can commit to you about 20% annualized we will always meet. And a consistent improvement over year-on-year to 25% is also something that I can comment. That's the capital efficiency metric answer to your question.
Specific to Ascent business, the thing that I wanted to know is, obviously, you have extremely bloated up people cost in Ascent business. In anticipation of both profitability and volume of business, so is the business now profitable, number one. And number two is, what kind of optimized revenue you're looking for Ascent to justify that kind of investment, both in people as well as in fixed capital that we have spent?
So Ascent, which is our subsidiary in the U.S. currently is our most profitable business. It comprises about 30% of our overall yearly profit and that trend is supposed to continue, which is one business unit doing it. And from a growth aspect, they are continually improving their profitability. This quarter compared to last quarter, you may see Q1-to-Q1 because we did have a large order go out last year in the comparable quarter. But if you compare the year in question, you will see consistent revenue rise, consistent profitability rise. The reason for that is Ascent's addressable market in the U.S. is much larger than our metal buildings market in India. In India, it's about $1 billion or $2 billion. In the U.S., our addressable market is about $5 billion, $6 billion, and it's growing as well. Nonresidential construction in the U.S. is doing very well right now. Our order books also for Ascent are on the upswing. We're right now probably at a peak order level higher than it's ever been in excess of about $45 million. So I would not worry about Ascent. I think it's a high-margin business. It will continue to be a PBT of 10% or 10% plus also. And I'm confident that we will continue to scale. And on the longer term, over the next few years, you can count on Ascent growing by double-digit rates every year. That much is for sure.
Can I ask one more last question? So with regarding the services business, you said your presentation was INR 29 point some crores, which I think is very high compared to INR 50 crores, INR 60 crores yearly you used to do. So is there some one-off for this quarter in the services business in Europe? Or is it a run rate we can just multiply by 4 and EBITDA growth would be fair?
No, it's not a one-off. I think one of the things you can count, one of the things you can take to the bank our profitability will continue to increase. We are not seeing any in our modeling in our forecasting any possibility or decline on an overall basis, but also specifically on engineering services, we expect this business to do very, very well for us over the next few years. So there is not a one off. In fact, you will see increases over the next few quarters in engineering service profitability.
Thank you very much.
The next question is from the line of Nilesh Shah from Arrow Investments, please go ahead.
Hi Aditya and Shrikant, congratulations on great numbers. I have 2 questions. The first question is with regard to the Raebareli plant. So what is that plant coming up for, for which product category? And what is the CapEx involved in setting up this plant? And will we have the plant already on our books? Or did we make a fresh purchase total cost towards the Raebareli plant, that is one? And the second, I would like to know the input costs that are in cold-rolled steel that is right now. If you can throw some color on what the trajectory of the input costs that are going to happen for the coming year.
Thank you Nilesh. Raebareli project is for our engineered building capacity expansion into the north of India. Right now, our addressable markets for our PEB metal buildings business are West and South, our North revenue is near 0. That's because for a metal buildings plant, you can really only go from about 700 to 1,000 kilometers radius around the plant, after which it becomes prohibitively expensive.Now to combat that and to make sure our addressable market grows, we have implemented the Raebareli plant. It will, in the next couple of quarters come online, and it will dramatically improve our revenue in the PEP business. The land for that was acquired a long time ago actually, because our intent was always to have a North India plant. But judging by the strength of the order book that we have, we are in a position now, we are effectively refusing orders right now. Because of that reason and making sure that North India if orders remain a significant portion or become a significant portion of our revenue, rather, we are setting up that plant. The total CapEx renovation is about INR 40 crores for that all-inclusive and we expect the revenue increase from that to be at a pretty high asset flip, and we expect a 2-year payback period on our investment for that project.
On the input cost pressure, are you seeing any marginal cost pressures on the input materials or steel?
For cold rolled steel, we are actually seeing a decline and flatness right now. Our indicators from our supply chain is that they're trying to increase pricing by about INR 1,800 per tonne. I believe that will not be possible. In fact, there's some optimization they're looking at in terms of importing steel from internationally, which is actually allowing us to actually maybe perhaps can reduce our input costs. So we do not project a reduction in our selling price per tonne right now, if that's the question. And our input costs will not increase.
All right. You just gave an indication in your speech about 3.8% as a margin. So how sustainable is this going forward for the year? For the quarter, I think you mentioned 3.8?
I think you can continue to expect profit PBT value increases and PBT percentage margin increases. That is a stated goal for us to improve our PBT percentage margin. Let me speak of what's going to happen for the next quarter and for the financial year. You will see improvements on our current margins in the next quarter, and for the financial year in question, you will see an improvement from last year on margins, yes. So I think that we can comment.
And just the last point, in terms of what is the current order book price that we have to be executed over the next quarter?
For the overall order book, I'll just handle to Shrikant to describe it right now.
Yes the overall order book for the PEB is close to INR 740 crores. Railways INR 110 crores. Ascent we are standing at $45 million. Not all of our businesses comes with an order book, but some of these businesses comes with an order book backlog, and boilers business, of course, with close to around INR 130 crores.
And this is for the next quarter, coming quarters to be executed?
Yes. This generally contract gets executed in a period of a slagger period in 3 months to 6 months period, while railways will take a little longer time, PEB are a little shorter period.
Thank you so much for answering and wish you all the very best. Thank you so much.
The next question is from the line of Deepak Poddar from Sapphire Capital, please go ahead?
So I have a few queries. So you did mention in your opening remarks that you are letting go revenues with lower margins, right?
Yes, sir.
So how do we see the growth then? I mean, are we compromising on the growth part? Or how do we see than the growth that we kind of in visage this year?
So if you're talking of revenue growth, our revenue this year will be higher than our revenue last year. But obviously, on a quarter-to-quarter basis, you may see as we exit some of these businesses, we've exited our solar MMS business. We've exited because we felt there's no long-term viability for that business. We've exited a solar EPC business. We've are in the process of exiting the water EPC business. These are lower margin, lower capital efficiency businesses for us at least. There may be others who are doing a good job with them. And we want to stick to business verticals, which have large addressable markets and large capability.So the output of focusing on that is, one, you have more capital devote to these businesses, which can scale. And we firmly believe that the only reason companies fail is either they have bad addressable markets or they have bad assets. If our addressable markets, which we define as "activity is high" then our order booking will be high, then our revenue will be high. If our assets are good, then we make a good quality product, and I would include human assets in that, we'll design products well. And we ultimately will be able to operate in a way that our profits are good.So that's the driving alignment the way we are thinking about this. We have no concerns about our ability to scale revenue. As of right now, we're putting in plans from our current gross sales last year about INR 3,500, we want multiples of that as our revenue over the next few years. So we are not going to be shy on revenue growth. It is important to consistently grow revenue to also grow profitability. And while you may have moderate growth, like I think this quarter's growth was 7% on gross sales, you may have that from a quarter-to-quarter basis. But on a financial year basis, definitely on a year-to-year basis our plans for revenue growth are solid set, our regional building business, for example, will grow at double-digit rates. Our industry components business will also grow towards the later half of the year, Hydraulics is doing quite well.Our BIW business made double in size. Our U.S. business is growing. Our railways business too has seen an increase. So, I can without any reservation commit to you that our story is a revenue growth story and a profit growth story. We're not going to be stuck at the revenue level if that's the question you're asking or we're not going to see moderation on [indiscernible] basis, you can expect growth.
So on a year basis, maybe what mid-single digit to high single-digit growth would be the range we might be looking at, right?
For this financial year, I would say we are pleased to assume that, sir. But for the next financial year, not on revenue, on profitability growth will be [indiscernible] because not only are we replacing old revenue, we are growing. What's growing is growing quickly enough to actually deliver overall growth. But from a profit point of view, because of margin expansion, you will see far higher growth rates, double digit growth rates [Multiple Speakers]
I am trying to understand the revenue trend. Profit growth obviously should be higher because you did mention that PBT margins should be higher on a Y-o-Y basis, right?
Yes.
So high single digit is a fair estimate, right? I mean, in that range?
Yes, I would prefer to continue to give quarter-on-quarter projections. But yes, you can assume that for the year, that is what we are looking at. And there may be some improvement on that towards the end of Q4 when our new Raebareli plant comes online, our Hydraulics capacity comes online, our aerospace capacity comes online. Ascent's going through CapEx phase right now, that also gets commissioned in [indiscernible], so you may see some higher revenue growth rates in Q4. But over the next few quarters, next financial year, for the financial year, you will see growth and revenue growth is a very, very important part of our overall growth strategy.
Understood. And secondly, I was looking for some thoughts on your railways business scale up because if you see, I mean, railways are giving a lot of orders, right? And our order book of INR 110 crores looks very small in the kind of orders they are giving. So are we looking to scale up this railway business? Or do we have the capability to do that. So any kind of thought process in that area would be helpful?
Right now, we are not looking to scale up our railways business in the sense that what is there is there, we have an asset block. So you will see a certain percentage growth rate in our railways business, but it is not a focus area for us. You're not going to see this number, see this business 3x or 4x over the next few years. The businesses which we are looking to grow at a very fast clip is our pre-engineered buildings business, Hydraulics, our boilers business and are also our BIW. Engineering Services also, while it is low in revenue but it operates at a 20% PBT. Also, we'll see very high growth rate. So these 6 business units are the one which will drive our future growth. Railways will not reduce our dye, but we are not focusing on that area as a growth area.
But what is the reason for that, sir?
Just the way we are structured, sir, I think there are many opportunities when our technology footprint gives us access to automotive, infrastructure. Yes, railways and aerospace. But as well for any one capital is always going to be a constraint. And I think it's better for us to focus on these 4, 5 business opportunities and make sure we hyperscale them as opposed to trying to grow all 8 or 9 of our business verticals. That's the thinking. It is not a judgment on railways and as you yourself have said, there are a lot of people who have very large order books in railways, but we prefer the private sector. We prefer the capital goods sector.
And sir, my third question is on your PAT. I mean, I had the aspiration of 5% PAT margin, right? So what is the sort of timeline we are looking at to achieve those sort of margin?
So you will see steady creep up quarter-on-quarter on our PAT percentage margin. On a timeline for 5%, I do have the answer, but I don't know if it will be a forecast. Let me get back to you on this. But it's not multiple years from now. It's quite soon. But please excuse me if I don't give you an exact quarter.
I mean 1 to 2 years would be a fair range?
Yes 100%, that is for sure.
And your other income, I mean, it has been quite volatile, right? I mean, how do we see that? I mean in some of the quarters, we get what INR 2 crores, INR 3 crores of other income, in some of the quarters we get less than INR 12 crores of other income rate?
Just in attribution, I think we discussed with our auditor what they want us to use in the revenue attribution. My request would be that you combine other income in regular sales and then look at the overall number. I agree with you, it's very confusing when order income moves around so much. But effectively, a lot of the classification also has to do with what is being concerned. Obviously, it's not just interest income. There's a lot of other things on that. My request would be that you give us a leeway to add other income and look at the total income because that's how we see it as well. And the attribution of it is very volatile based on what our stat auditors says is the way to do it. So we request your understanding on that.
Understood. But what is the nature of this other income? I mean how much would be the interest income? And what is the nature of other part of this other income?
Our interest income would be small about INR 2 crores. The other part of it can include scrap sales. It can include incentives that we get, it's forex fluctuations gets accounted there yes, all of those things. Which is why if we have a certain product which goes high in a quarter, we look at it on an overall basis but the attribution by accounting standards, we need to put this forex fluctuation, if there is interest income, if there is scrap sales. So there are a lot of components in that. That's the reason it moves around a lot.
How do we calculate ROCE? I mean, because you said that FY '23, we had a ROCE of about 20%. But if I see your debt and equity in FY '23, our total capital employed is about INR 1,450 crores. So I am getting ROCE of about 10%, 11% for FY '23. So how do we calculate ROCE of 20%? So what do we exclude in capital employed?
Basically, we take EBIT and divide by the capital employed. Basically, total assets minus the current liabilities.
Because I mean, ideally, we take what debt and equity, right? So that is about INR 1,400 crores totally.
Yes, you can take total assets minus the current liabilities, and that's how you calculate the capital [Multiple Speakers] 949 capital employed.
Yes. So that's what you're taking is INR 949 crores is what we are taking. So I think we're not removing the current liabilities. That's probably why, I think you're taking total assets. I think we're removing the current liabilities, which gets us to INR 949 crores. That's the difference of the calculation. And our cancellation is the approved one, if you want to call it that, because that's the actual capital that we're actually deployed in the business.
I think that's it from my side. All the very best to you sir, thank you so much.
The next question is from the line of Keshav Garg from Counter-Cyclical PMS, please go ahead.
Sir, I want to take from the previous participant's question about return on capital employed, sir. I don't know why you are taking out current liabilities. Sir, actual the calculation should be total assets by EBIT divided by total assets. So if we should add the debt plus a network and minus whatever cash that we have. So it should come to around INR 1,263 crores for FY '23. And on that, sir, the EBIT is basically INR 235 minus the depreciation of INR 60 crores, which is around INR 169 crores. So the return on capital employed is actually 14%, and that is the normal way of calculating across companies.
We've used this last quarter. So if you would like us to change and start working on that deflation, we can do that as well.
Yes, sir. And sir, why have the margins declined quarter-on-quarter from 10% to 8%. I'm talking about Q1 versus Q4? And sir, despite the increase in scale of operations?
Yes. So we do have some orders that come in the fourth quarter, which had to be higher margin. These include our BIW tooling revenue, which comes in and gets recorded once a year. So that tends to push up Q4 margins. But on an overall year basis, obviously, in this year, too, we will have the same impact of some of our revenue for BIW tooling projects getting recorded is in their entirety in the fourth quarter. If you were to look on a year-to-year basis, you will not see a decline in our margins.
Sure, sir. And sir, you mentioned that the aspiration is to reach 5% net profit margin that too let's say, in the short to midterm of, let's say, over the next 2 years. Sir, but if you look at our current net profit margins, they are approximately 2.8%. So that means we are almost talking about doubling the net profit margins in the next 2 years. So you think that's a reachable goal?
Yes. We do believe that to be a reachable goal on the back of us focusing and shifting our revenue attribution to higher-margin businesses. That plays a massive role, frankly, that's the largest role. In addition to that, when you scale revenue a little bit, which we may not see a tremendous amount of that in the next quarter or 2. But for the whole year and of course, the next year, what we do definitely have a lot of confidence in is that the revenue scale up combined with which makes your fixed cost, of course, you can distribute it over a larger asset base, that combined primarily with focusing on higher-margin products will ensure that our net profit margins increase dramatically. So that we are confident of.
Sir, that is very reassuring. And lastly, sir, we are doing share buyback every year, and that's really great. And last year, we did in September 22. So 1 year is about to get over, so I hope that we, again, do some share buybacks, especially considering the great plan and the bright future that we are projecting. So that's a request from all the shareholders.
Thank you for that. And we do take, as you must be aware, we have done buybacks many, many times over the last 10 years, I think we would have done 5 buybacks, if not more. But the Board will take calls on corporate actions on a very frequent basis. We meet very often and we meet during the quarter. As and when the Board determines the timing is right for the buyback, we will absolutely communicate that to shareholders. But thank you. But we agree with you that buybacks are a good instrument for retiring low-cost equity.
Sir, and one thing, SEBI is phasing out open market buyback, so this is the large open market buyback. And hence, from next year onwards, we can only do a tender offer wherein a premium needs to be paid over the market price. So you can just keep that in mind. Thank you.
We'll do that sir. And whenever we've done a buyback, we'll always turn it at a premium to what we have offered. I mean there's a range that is offered, and that's always been market price plus. But I will try to educate ourselves on any precise change in rules before any corporate action declaration is made.
The next question is from the line of Dilip Kumar Sahu an Individual Investor. Please go ahead.
Two questions, a lot has been talked about 5% PAT in 2 years. If I look at the products versus project business, the PATs are very different, right? So are you saying that you're going to restrict the project business going forward to increase the PAT margin? Or do you think that we will grow at 18%, 19%, 20% and still meet PAT of 5%?
So project business, no we're not saying that at all. So I think our project business, which is pre-engineered buildings is very big component of that. We'll scale. We believe that there's a very high addressable market for us. And as I mentioned on the call, we are setting up a new plant in North India, we're expanding capacity in Hyderabad and in Chennai for pre-engineered buildings. We're also expanding capacity in our U.S. plants right now. So our project businesses will scale. Yes, you are right that right now, project businesses comes under a lower PBT than product. But what is going to happen is as the revenue of these businesses increases, I think the entirety of our project business also moves into the high PBT margin. And the combination of all of our project businesses will trend by itself above 5% PAT.So for example, we are projecting in the U.S. that we reached 10% PBT. So no challenge there, sir. We will be able to grow our projects business and make sure that we take care of the bottom line. So that is where we're not [indiscernible]
Good to hear. Only that it's very difficult to do India project business at the kind of margin we're talking about. Most of your competitors are not doing that. Anyway, that's a comment. My second question is regarding the stainless steel business expansion you mentioned. We have been talking for quite some time, right, almost a year or so on starting this project and you have the land and this is obviously a business where demand is ahead of supply. So is there some seriousness in terms, because everybody is coming with capacity. So we should be coming to the capacity when the demand is falling short, right? So that would be double whammy [indiscernible] side. Any thoughts on that stainless steel expansion and investment? And in general, what is the investment outlook for the next 24 months?
So 2 parts. One, I'd just to refer back to the last question, I don't want to hurt myself on this. But actually, our competitors in PEB is doing higher margin than us. It's something that's why we are improving now because we've decided to [indiscernible] The largest company, I won't name names, but the largest pre-engineered building company in India who are 2.5x our size in terms of revenue actually had an 11% PAT.So it's not going to be difficult for us to reach 5% plus for our projects business. Regarding [indiscernible] seriously do you mean our stainless steel tubing?
Yes, stainless tube. I think you had plans of expanding this even very small capacity in stainless steel tubing and there was a plan, if I remember correctly 1, 1.5 years back, to expand that [indiscernible] to substantial capacity.
We did but our current capacity of stainless steel tubing in [indiscernible] even after the capacity expansion is not very high. Right now, we are focusing for tubes, we are focusing on large diameter tube which would be 8 inch and above tubes, we can use that for [indiscernible] tubing, we can use that for Hydraulics, we can use that for automotive as well. That is a massive high-margin market that we want to cater into. And it's right now served by very few players in India and even internationally.As you may be aware, we supply a lot of tube to the U.S. as well from our India plant. So we also want to grow that aspect of it. SS Tubing continues to be a focus area for us, but we are not going to be deploying capital into that business. Now for our large diameter tube, we will be deploying about INR 30 crores in terms of our CapEx in this financial year. I think those are your questions.
If you can just tell me the investment plan budget for this year, that is basically the next 18-odd months overall for the company as a whole?
So I will get back to you on that next quarter, sir. Let me hear me out. The reason why I cannot give you that number right now is has not been finalized. We are still debating the exact outflows we will have for our Hydraulics business. We have also our BIW business, where we have some visits from our technology partners. So it has not been frozen yet, so I cannot give you this year. I know it is very late in the year, but unfortunately we have not been able to close our overall CapEx outlay. But I can tell you what has been decided, which is our pre-engineered building line that goes on and that is about INR 40 crores, and the tubing line, which is about INR 30 crores. That has been finalized.Ascent will be growing, but most of the CapEx has already been spent. So there's only a couple of million left. That's about INR 15 crores, INR 16 crores left for Ascent. So that's what's been done, done so far. I will not be able to commit on an overall number for the year right now.
Sure, and in terms of the railway business, for this INR 110 crores typically they have 3 to 4 months of cycle time in [indiscernible]. So are you talking about INR 300 crores, INR 350 crores of railways business this year?
So the order book we have for railways is longer-term gestation sir, it can go into 1 year also. It's actually our longest gestation order book. Everything else is a lot shorter. So the revenue base we're expecting for railways is not INR 300 crores. But again, we will not be able to give you an exact number for the year, but it's not INR 300 crores, it would be lesser than that.
Yes. Because you reached a peak of INR 300 crores, INR 350 crores, I think in 2017, '18 or something like that. That is a highly profitable business from what I understand?
It continues to be a good profit business sir, but we are not targeting INR 400 crores on that business. I think this pre-engineered building for us can be a multi-thousand crore business. Hydraulics can be a multi-thousand crore business. BIW can be INR 10,000 crore business for us over time, not right now. So we are focusing on those. Railways will continue to be a good margin performer. We'll scale it at a certain rate, but we are not looking at massive investments in that business for the reasons I mentioned on a previous question.
The next question is from the line of Chirag Shah from Nidara Capital. Please go ahead.
Congratulations on a good set of numbers. I had a couple of questions around the PEB business. Is there any seasonality that you see quarter-on-quarter in this business?
Usually, there is. Q2 tends to be the lowest. But in the current circumstances where our order books are extremely loaded and there's a lot of pressure on us to supply and also we've expanded capacity at our Hyderabad plant. Even before the larger plant capacity comes online, you will not see this traditional seasonality this year. You will see an increase in sales inPEB.
All right. Sir, one more question on PEB. So is it possible for you to give the revenue Q1 FY '24 versus Q1 FY '23, the EBITDA margins and the order book comparison compared to last year. So we get some idea on [indiscernible] category?
[indiscernible] Segmentally, we have given out this information in the segment reporting pattern. So if you see custom design building solutions and ancillaries, that's why the information is already included.
Sir, compared to last year, is there more positivity in the sector? Or how do you see the growth spanning out for the next 1 year or 2 years?
Quite high. As I said right now, it's taking a push from us to convince our CEO in that business to expand order book because he is full. But the movement or additional capacity, and it's a very significant addition of capacity comes on then the larger order book. An order book is always pre-booked. So considering that the capacity increase is imminent, I can project this year compared to last year our PEB net sales growth, profitability will be quite high and that trend should continue, both in India and in the U.S.
And sir, specifically with respect to India, how do you see the margins improving with new capacity coming on and your order book fill up? How do you see the improvement?
Margins there are about 15%, including credit cost-to-cost. And way to look at it is every additional dollar of revenue in the U.S., every additional rupee of revenue we had in India, we're adding at 15% here. And in the U.S. it's even higher. So we don't anticipate any margin issues. I think scale should give us the ability to expand margins in this. I think we have said 5% is our target. We'll attempt to beat that.
At the PAT level?
Yes sir.
Alright, thank you so much sir.
Thank you, the next question is from the line of P. Jha, an Individual Investor. Please go ahead.
Yes. It's always really refreshing to listen to you. So forthright and so encouraging with positive outlook. I have 2 very specific questions. One is definitely, you're not a real estate company. What is the surplus land, the value of surplus land that we have, which you are not going to be putting to use in your manufacturing activity or any business activity for that matter? Number one. And number two, I would be interested in knowing the list of customers in your railway-related businesses, the coach primarily or the metro other than Bombardier and ICF and Titagarh and Texmaco, if there are more, just the list of them. Because as some of the previous speaker said, we still believe that this is one business which looks evergreen for the next decade with the INR 3 lakh crore investment every year and which is happening. So perhaps even scalability to the extent of INR 500 crore, INR 600 crores with a decent margin is a great margin to look for in order to achieve your stated goal of 5% PBT.And regarding the real estate I always believe that if you are debt reduced company or that fund to be utilized in your bank early, it would be in everyone's interest primarily in the company's interest and followed by the holders' interest. That's my opinion, thank you.
Thank you sir. So your first question, as you said, we're not a real estate company. So while the company holds on to substantial land assets, these typically either are land assets where there's an existing factory, which is operating or there are assets which we have acquired like Raebareli was acquired a few years ago with the intent of putting up a plant at that location. Shall we say the liquid land that comes up, which can be sold, which is not going to be used, typically tend to be those assets, which are currently being operated or have just stopped being operated because either the city has grown beyond that range or because of whatever reasons, we are not looking forward. It has become more expensive to operate over there.By that metric, I think 2 of our plants suffice, one is Patancheru, and one is Isnapur. These are substantial land assets, but we, as of right now, not made a plan to liquidate them. We've liquidated some portion of our land about 2 years ago. I think we are looking to [indiscernible] eventually once we have removed all of our manufacturing assets from these locations, we will look to liquidate. But as of right now, I don't have anything to share with you. There is a discussion on the Board on this issue, but we will look to liquidate.On our railway business, as you have said, we supply for coaches and wages. We supply components and subcomponents. So for coaches, for example, we make end walls, sidewalls, roof assemblies, trough floors, under frame components. For wagon, we make wagon components, which are integrated by the wagon manufacturers such as which at Titagarh. But ultimately, our ultimate customer is always the railway board. And I know that they are giving a lot of orders. And in fact, for Train 18 what's called the Vande Bharat Express in fact, a lot of the product development was from a structural components point of view was us.As I said, it's a multi-hundred crore business. It will continue to be a multi-hundred crores business, and a good margin. But I think there are primary customers, for example, coaches as ICF and MCF and I don't believe, it's my opinion, what we have taken a call as a corporate. We don't believe that a multiyear sustainable revenue plan can be made based on our current profile, our current value proposition to railways.If we do want something like that, we need far longer-term contracts. We need lock-ins in terms of what the capacity and outflow our customers want is the current environment where there's a lot of announcements made, but has there actually been an increase in the number of rigs produced by ICF, my thinking is no.So we have decided as an organization that we will make railways grow at a certain rate, we will deploy capital. But since the Railway Board ultimately controls most at least if you're India-specific business, ultimately, whether it's Western railways, whether it's wagon manufacturers, whether it's coach manufacturers, such as ICF, MCF, whether it's the Bombardier, all others, ultimately, it all comes to the Railway Board, and we don't like single customer businesses.So we have decided that we will scale it in a certain way but the businesses which we have prepped for hyper growth, railways doesn't figure in that. And there's nothing wrong with that per say in our view, because just focusing on our Hydraulics, BIW, our engineering services, our pre-engineered buildings business and focusing on the India, the U.S. and Europe as geographies is giving us revenue growth, is giving us margin growth. Capital efficiency, I mean, we're not very, very happy with where it is, but look forward to making it better and better. So in my view, sir, I think we have a robust growth plan for revenue. We have a robust growth plan for profitability. That's fine. We don't need to chase every opportunity that is possible for us. So railways the answer is no.
Fair point, till such time it keeps happening, why not, get on with it. And basically it just reminds me of perhaps the conference call of first quarter of earlier year or whereabouts around that time, wherein you had specifically mentioned that the margins in the U.S. is as high as 20% or is it likely to be 20% or some such thing. Do you think that we have achieved or you are likely to achieve in the near future?
So on the PBT margins from an operating margin point of view, we're well above 20%. Now we are closer to 32%. From a net PBT or PBDT point of view, we do believe that 10% to 15% is absolutely achievable, and we are trending above that, as of right now we're trending at that level.
And $45 million is current order book and likely to [indiscernible].
Projected revenue this year will be far higher than that. It's a very short order book cycle.
And it could be double of this?
It would be close to that, sir.
Ladies and gentlemen, we will take that as a last question. I would now like to hand the conference over to Mr. Vikram Suryavanshi for closing comments. Over to you, sir.
We thank the management for giving us an opportunity to hold the call. And thank you all for being on the call. Sir, any closing comments on your side?
No, thank you. I'm grateful for the question. I'm grateful for the participation, and we look forward to executing on the plans that we have talked to you about. Thank you very much to all of you.
Thank you. On behalf of PhillipCapital India Private Limited, that concludes this conference. Thank you for joining us.