Pennar Industries Ltd
NSE:PENIND
Earnings Call Analysis
Q3-2024 Analysis
Pennar Industries Ltd
Pennar Industries' third-quarter results were a reflection of calculated strategies aimed at financial growth and margin improvement. Net sales climbed to INR 744.75 crores, a 7.6% rise, while profit before tax (PBT) leaped by 20.08%, reaching INR 33.07 crores. The focus on high-margin business sectors, such as pre-engineered buildings (PEB Ascent) and engineering services in the U.S., is anticipated to further amplify both revenue and margins in the forthcoming financial quarters.
Despite positive growth trends, Pennar is experiencing elevated working capital levels, leading to increased finance costs. The company is actively managing its capital and expects improvements, projecting a reduction of their debt-to-equity ratio from 0.85 over the coming quarters. Additionally, there's a planned decrease in the working capital cycle, with targets set at 75 days by March '24, with aspirations of achieving 60 days in the future.
The PBT margin has shown improvement, hitting 4.4% in Q3, as Pennar emphasizes higher-margin businesses. Over the next 1-2 years, they aim to reach a PBT margin of about 7%, aligning with their objective of a 5% profit after tax (PAT) margin. This objective is reinforced by the fact that their pre-engineered building businesses and engineering services sectors are experiencing robust growth and are key drivers for the company's financial health moving forward.
With a sprawling market for pre-engineered buildings in the U.S. worth over $5 billion, Pennar holds a relatively low market share but views this as an advantage for potential growth, with projections of revenue and profitability increasing significantly in the 2024 financial year.
Geographically, Pennar experiences varying contribution margins, with the U.S. operations at 28% and Indian operations at a modest 15%. This discrepancy is attributed to the varied manufacturing practices and efficiency levels between the two countries, with most engineering done cost-effectively in India resulting in better margins. Segmental EBIT expectations for the metal building business are set at around 10% in India and 15% in the U.S.
The company expresses confidence in sustaining double-digit growth and profitability in the near future. This is largely due to their increase in revenue from five high-margin, scalable business units. This strategic shift is expected to result in a boost for profit and margins, a trend that has been consistent for the past two years.
With the company's aspirations aimed at growth beyond 20%, the executives are certain that exiting low-margin businesses and bolstering high-growth verticals such as PEB and hydraulics will lead to significant revenue growth over the next financial year. Despite attrition in some sectors, Pennar is actively expanding capacity across multiple verticals, setting the stage for even higher scalability and revenue potential.
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Ladies and gentlemen, good day, and welcome to Pennar Industries Limited Q3 FY '24 Earnings Conference Call hosted by PhillipCapital (India) Private 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. The statements are no guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vikram Vilas Suryavanshi from PhillipCapital (India) Private Limited.
Thank you, Aditya. Good morning, and a very warm welcome to everyone. Thank you for being on the call of Pennar Industries Limited. We are happy to have with us management of Pennar Industries for question-and-answer session with the investment community. The management is represented by Mr. Aditya Rao, Vice Chairman and Managing Director; Mr. Shrikant Bhakkad, Chief Financial Officer; Mr. Manoj, Vice President, Corporate Planning; and K.M. Sunil, Vice President, Investor and Media Relations. Before we start with the question and answer session, we'll have opening comments from the management. Now I hand over the call to Mr. Aditya for opening comments. Over to you, sir.
Thank you. On behalf of Pennar Industries, I extend my sincere appreciation to all of our stakeholders for joining today's investor conference call for Q3 2024. Your participation is highly valued, and we thank you for your continued interest and support. As usual, today's agenda will commence with an overview of our performance for the quarter. This will include insights into our revenue, our profit before tax, our working capital utilization, as well as our strategic growth initiatives. Subsequently, Mr. Shrikant Bhakkad, our CFO, will provide his analysis of our financial outcomes. And following his presentation, we welcome questions from all of you, from all the participants. Let me start with a summary of our Q3 FY 2024. During the third quarter, Pennar Industries reported net sales of INR 744.75 crores and a PBT of INR 33.07 crores. This reflects a revenue increase of around 7.6% and a PBT growth of 20.08% alongside a cash profit of INR 42.92 crores. So this performance aligns well with our projections. It underpins the forecasted framework we had communicated in the last quarter, and revenue, profit, and our margins will continue to grow in the framework that we have mentioned. The strategic realignment from lower- to higher-margin revenue streams results in moderated revenue growth for the next quarter or 2, but positions us well for significant enhancements in both revenue and in PBT in the forthcoming quarters. Particularly across our growth business units in PEB Ascent, which is our metal buildings business in the U.S., Hydraulics, process equipment and engineering services, we forecast very strong growth over the next financial year. Moving on to profitability metrics. Our PBT margin for Q3 stood at 4.4%. This improvement is attributed to our evolving revenue composition, which I just mentioned. And we are favoring higher-margin businesses, and we are vacating low-margin businesses. We anticipate further margin enhancements also in the following quarters because of this. Moving on to working capital management. On December 31, our working capital cycle days were 77. Efforts are ongoing to optimize our current assets within the sector as we are transitioning away. So there's a significant amount of current asset which we are covering -- which are there on our books in revenue streams which we are vacating. So collecting this long tail takes a little bit of time, but we aim to finish this by the end of this fiscal year. We're quite confident that, that will bring our working capital back to our target working capital days by the end of this financial year. Moving on to key growth areas for us. As I mentioned in the upcoming fiscal year, we have identified several critical growth vectors. PEB, both in India and the U.S., are growing and growing strongly; hydraulics, process equipment and boilers and engineering services. Our expansion in these areas is expected to significantly contribute to our revenue and profitability. And just these vectors growing -- we have other revenue streams in the company. There's growth in those vectors as well. But just the growth -- the rupee value and the dollar value growth that these vectors bring in is enough for us to sustain a high double-digit growth rate in our profitability. And notably, each vertical presents a significant market opportunity, and our current market penetration in these segments remains low, which means that our growing order backlogs in these areas will ensure that our revenue grows. So it gives us a lot of confidence and sustained future growth because the combination of us increasing our capacity and increasing our order backlogs in these businesses makes it very easy for us to predict future growth. That concludes my overview and my remarks on our financial performance. I now invite Mr. Shrikant Bhakkad to further elaborate on our financial performance.
Thanks, Aditya. Welcome to the shareholders of the third quarter FY '24 earnings call. Just to first to give you an overview of our key metrics. Revenue has INR 744.75 crores, up by 7.6% from INR 692.22 crores. There has been improvement in our margin. Increase in EBITDA to 11.02%, up by 149 basis points; PBT to 4.44%, up by 49 basis points; and PAT has increased to 3.41%, up by 33 basis points. PAT in terms of the amount is at INR 25.37 crores compared to INR 21.12 crores, up by 20%. With our continued focus to improve the margins and cut down the sales of the low-margin businesses which we are exiting, you'll see the increase in the profitability of the services. Though we are doing better in terms of metrics perspective, but the revenue has relatively been flattish due to the lower raw material prices in our subsidiaries. Other income includes our deposit income, income from mutual funds, incentives, and certain write-back. Salaries has decreased due to onetime bonus which we had last quarter in one of our subsidiaries and we expect the salaries to stay relatively at this level or increase slightly from here. The next important part that we would like to communicate to the stakeholders is on the finance costs. When you're growing and you're investing for the growth, you tend to increase the finance costs, and this is what is happening. The interest cost is higher due to the increase in the interest rate from the last year at the same time as well as due to the stuck assets, which we are cutting down due to low-margin businesses. The amount that we have invested for the growth also contributes to the increase in the finance cost. Working capital for the above reasons seems to be high. This leads to higher finance costs. Once we collect the stuck assets, revenue from our new vertical starts expanding. In terms of revenue, we expect the finance cost to moderate as a percentage of our sales. There is an increase in the working capital cycle, and we expect this to get moderated in the next 2 quarters once we collect the old stuck assets. Our debt-to-equity ratio is at 0.85 and we are confident to reduce as we go along. Our profit in subsidiaries has remained flat for the reasons explained above, due to decrease in raw material prices. Our order book of our PEB has increased. Now it is at INR 580 crores. Railways at INR 90 crores. Boiler has increased significantly to INR 140 crores. And the Ascent is at $37 million. While we have sent out the detailed presentation to the investors, we are happy to take any questions from the investors. I will hand over the call now to the moderator.
[Operator Instructions] Our first question is from the line of Ashish Soni from Family Office.
Sir, last con call, you mentioned that PEB business in U.S. can grow multifold. So when do we expect it to grow multifold? Because order book is still okay, okay, I say. So like it will take a few quarters? Because you said we can up our market share to 3% and so.
Thank you. So the PEB U.S. market is massive. So the way we tend to map revenue growth for any business is we first define the market, then we define the addressable market, which is a proxy for quote activity or scheduled customers being added. In this case, it is quote activity. And then a high conversion rate from quote activity to order book is what we look at. So on those metrics, right now in the U.S., market for pre-engineered buildings is in excess of $5 billion. So that's a very large number. Because we are a newer entrant, our market share has been low, which is a good thing in this case, because we are not curtailed to the market to grow. Our quote activity is currently increasing and our capacity also is increasing substantially. So from what I see for the next few quarters, revenue in 2024, and they follow the calendar year, was higher than 2023 -- sorry, 2023 was higher than 2022. And revenue in 2024 will be even higher than that. They are projecting a very healthy growth rate in their revenue and profitability for this financial year. But right now, with our U.S. business being at around $80 million in revenue, we expect substantial growth to come in, in that in this financial year and the next financial year as well. So order books are growing. They will, we believe, be at a record high at the end of March. So we don't have any concerns on the growth of our U.S. business.
And regarding your low-margin business, when do you think you can completely exit out of this low margin? Like any particular quarters you are thinking it will be completely out?
So we define that we have exited a business completely when our quick assets in that business go to 0. What that means basically is that we have collected all of our accounts receivables, liquidated all of our inventory, and any accounts payable has been paid out. So those are the metrics we use. Right now, we have exited, so far, in the last 1.5 years, our water EPC, our solar EPC, our retail business. So combined this accounts for a revenue of close to about, I would say, as much as INR 150 crores to INR 200 crores a quarter. We have replaced this with newer higher margin revenue. That's why you are seeing revenue and profit increase. However, some of our receivables, specifically in our water EPC business and also in our solar EPC business are taking some time. The retention periods for our cash flows, there are completion of our existing order books, which we had booked, where our customers or sites, their sites not being ready or they are ready and we have executed, but they're taking time to evaluate the liability period, all of that is taking some time. From a working capital point of view, there will not be any more increase. The liquidation of all of this and that hitting our financials will take, I suspect, about 2 quarters more, but worst case scenario about maybe 4 quarters more. But the vast majority of it is coming in and coming in quickly. And goes without saying, we don't anticipate any write-offs or anything in these businesses. So all of that has to be provisioned has already been provisioned and is out of our P&L. So about 2 to 4 quarters is what we presume we'll be completely exiting these businesses.
And lastly, this PAT margin of 5%. When do you think we can achieve that? Because I think last time you gave a guidance, I think, of 4 to 6 quarters, if I recollect correctly.
So PAT of 5% needs a PBT margin of about 7%. We are right now at about 4.4% for the quarter. You will see continued sustained improvements in this PBT margin. Us getting from where we are right now, which is around 5% to around 7% would take us about 1.5 years, 2 years, but we will give you better clarity on that as we -- but you will see sustained growth increase. And as you have mentioned, that is our growth -- our goal is to get to 5% PBT.
And last thing, I think you have empaneled a BCG for some strategic road map. Do you think you can share something for the investors also maybe for the next financial year for...
I'm not sure how you are aware of that, but we have worked with BCG, but the conclusions of that study are still ongoing. We are still working with them. So suffice it to say that we are very excited about the strategy -- about our growth strategy. We don't believe the market will prevent us. So our job is very clear. Just build strong assets in these 5 growth verticals, which we are continuing to scale. And the combination of our large addressable market and good quality assets on our side will make sure that our revenue and profitability grows and our margins grow. So that's the formula we are following. And we will have more for that only as we implement our plans, but no further guidance or clarity on the current strategy exercise. That's being debated within the company right now.
Our next question is from the line of Rehan from Equitree Capital.
Could you highlight what would you attribute to the improvement in EBITDA for the quarter specifically? Like where did you see the highest driver? What was the key driver of the same?
The key growth vectors for us from a year-on-year comparison basis, the growth has primarily come in our pre-engineered building businesses and also our engineering services businesses. Hydraulics, while it's well placed for very good growth, it's the order book that has grown by a lot. But converting that into revenue is this quarter, next quarter, the next 2, 3 quarters. But the previous quarter, most of the growth has come in primarily from these 2 business units.
Right. Secondly, what would be the margin profile difference between doing a PEB in the U.S. versus doing PEBs in India? If you could share some light on this?
So it's a complex equation, but let me answer it from a market point of view first. So the operating margin or the contribution margin after variable for any business is typically derived from the market. In the U.S., we get about 28%; and India, it's about 15%. Yes, so it's 15% versus 28%. And 28% in the U.S. is on the lower side. We can do better than that also. But right now, it's at that number.
These are contribution margins, correct?
Correct.
Okay. And could you share any EBIT number for the same or EBITDA numbers for the same specifically?
I'm not sure we give segmental EBITDA numbers. We've had some conversations with you over the last few quarters -- you as in our shareholders over the last few quarters to bring this in. We will try to bring more clarity on this so it's more easily understandable. But from an EBIT point of view, we expect, going forward, about 10% in India and about 15% in the U.S. for the metal building business, but those are rough market benchmarks of what we should expect. We will try to obviously have more clarity on that for you as we [indiscernible] segmental revenue in the U.S. separately and India separately.
Sure. But just on the same note, as per my humble opinion, it has been understood, the market leader in PEBs for the U.S., specifically, somewhere around gets EBIT margins of between 6% to 8%. So could you attribute as to why do you feel these margins of, I think, double digit, which you mentioned, are more sustainable in the longer term?
I believe that we will be able to get better numbers than those than the market leader in the U.S. I mean, you could either be talking about Cornerstone or you've got -- the reason we would have better margins is because at our current revenue run rate of $80 million to their revenue of about over $1 billion, I think there's a significant difference there. And our engineering is all done in India for that. While we have our design teams there, most of the high man hours get done in India, and there's significant cost arbitrage based on that. Another reason why our margins would be a little bit better than their margins would be the fact that we can also backward integrate into other metal products. So our more diverse steel buying experience also gives us an additional margin. And potentially, this is not something on the table that we have right now, but one of the reasons we are more confident about margin expansion also is it is possible for us to produce in India, especially long lead end up and ship to the U.S., and that would contribute to a much higher operating margin in the U.S. as well. Right now, everything that's manufactured is manufactured in India. Having this interplay for us gives us a lot of confidence that we can sustain these higher margins. But also, in terms of -- our actual numbers right now are also substantially higher than the market leaders' numbers that you have.
Our next question is from the line of Deep Gandhi from Astute Investment.
I also had a similar question about your U.S. business. So is it fair to assume that the entire difference between your consolidated and stand-alone broadly is because of the Ascent business? Can we do that math?
Yes. That would be accurate. We do have a small revenue stream in Europe for our aerospace business. But the high-growth verticals which are growing are the metal buildings in the U.S. as business. So broadly speaking, yes.
Sir, if I do that math, broadly, currently it seems like the India EBIT of the PEB business is higher as compared to the U.S. I don't know -- I mean, you were explaining that the margins in the U.S. are better, but can you elaborate more about this?
Because it's a mix, I guess it wouldn't be an apple-to-apple comparison, but most of the revenue coming in is Ascent. EBITDA-wise, Ascent would be higher than PEB. It would be higher. We'll look at the numbers and get back with more clarity. But as of right now, they're substantially higher. Our EBIT in the U.S. is much higher than India.
Okay. Sure. And sir, just another question I had about the India PEB. So what would be the current order book as on date?
In India, right now we are at about 550. And I just spoke to my CEO on that before this. And we are quite excited about that by March it would be a substantially higher number. So it's growing quickly, and we are picking and choosing our orders. So no reduction in the market. And we're quite confident that with our North India plant opening up in Rae Bareli in the next few weeks, we believe that we will be very well placed to increase revenue in that business unit.
[Operator Instructions] Our next question is from the line of Deepak Poddar from Sapphire Capital.
So just wanted to understand in more detail. You did mention that in the next 2 to 4 quarters, we expect that we can completely exit the low-margin business. So what does it mean for our overall company as a whole, growth? I mean, do you expect that our growth will be flattish because your low-margin business will ideally be replaced by high-margin business? And effectively, we'll have some margin improvement as well. So how would we see that? Yes. That would be my question.
I think the best way to answer that question is, as we exit low-margin businesses, we are adding high-margin revenue. So from a revenue point of view, you will see growth, but you will see moderate growth. Now that can mean anything in the range of 5% to 15%. Please bear in mind this 5% to 15% would be probably a good -- the comparison would be, if there was no exit of the low-margin businesses, it would be perhaps 25%. But exiting the low-margin businesses is about minus 10%. So that comparison gets us to about a net growth rate which is moderate. However, on the profit side, not only are you getting the benefit of that net revenue increase, but on the remainder also, the margins are increasing. So effectively, the impact on bottom line is quite high. And we are quite confident of sustained double-digit growth and profitability for the next few quarters. Our confidence in this comes from a very simple formula. We are increasing our revenue in about 5 high-margin high-scale businesses, all of it with double-digit operating margins, some of them with high double-digit net margins as well, if you look at our engineering services business. So as we bring this revenue in, our overall profit, even accounting for the reduction in the low-margin businesses, tends to go up by a lot. So overall, even you can look forward to moderate revenue growth over the next few quarters, which will also speed up as these business units pick up, specifically Ascent, hydraulics, process equipment, engineering services. As these 4 verticals and 5 verticals continue to scale up, you will have strong revenue growth as well, but that will take a quarter or 2. But from the bottom line point of view and margin point of view, you will continue to see -- this is a part we've been on not for the last quarter or 2. It's exactly what's been happening for the last 2 years. And if you map it out, that's been happening. Our revenue has been growing at a steady pace, our profitability has been growing at a stronger pace, and our capital efficiency has been improving, coming down from 100 days to 90 days to 80 days to now 77 days, and we expect further improvements on that front as well. So that's the base narrative of what's going to happen over the next few quarters.
Yes. I understood. That's very helpful, sir. Just 1 more clarification. By FY '24 end, what is our working capital target?
Our internal target is 60 days, sir. We will give you quarterly projections on what we expect to finish. Right now, we're at 77. If we did not have the long tail of businesses we're exiting, we would be substantially better than that. And that will happen. Over time, this -- I mean, Shrikant, do you have color to add on this? What will our working capital be?
Yes. So the overall working capital, as you would have seen, this is constantly increasing, and the plan here is to -- by the next quarter, to have at 75. And in a quarter or 2, as I've explained in my previous conversation, with the increase in the revenue that it is needing and the revenue that will come from the amount that we have invested for the growth businesses, it would water down further from 75 days as well.
Okay. But our target is 60 days by March '24. Would that be right?
No, no. March '24, 60 days is not possible. 75 days by March '24.
Our next question is from the line of Riddhesh Gandhi from Discovery Capital.
Congratulations on the quarter and actually achieving everything you've been speaking about over the last 6 -- 9 months or so. Just a couple of quick questions. Our interest rate is about the INR 30 crores roughly run rate a quarter, so that's about INR 120 crores on about INR 150 crores of debt. Isn't that slightly high, as our credit rating has been enhanced? And if you could throw some amount of light on the potential optimization of your interest cost and the reason it's so high?
Yes. I would like to take these questions, Riddhesh. See, as I've explained in my brief, these are combinations due to multiple things that it happens. And when you say finance cost, it includes a broad base, which includes the LC opening cost, the processing charges towards those LCs. And the interest also includes the finance cost, whether it is short-term or the long-term loans add-back. So with the combination of all these things, interest represents a very large number as a component of the total debt. But if you see our overall debt, we have not significantly increased our either the short-term debt or the long-term debt. So we have the capability to increase our short-term loans as well. And with the increased credit rating which we have got last quarter, we have further gap which we can use. But overall, we want to curtail our usage of the borrowings. And that's the reason the utilization of the short-term debt have been lower. So to answer your question in action, the interest cost in future as a percentage of revenue is what we will have to compensate. As a percentage of revenue, we'll start lowering it down.
And how low could this actually end up going to? I mean, if we look at the write-off -- and is the reason that it's appearing to be slightly high optically because you've included the BG costs? Or is there some amount of factoring of having done a receivable, that's the reason it's especially higher?
Yes. There are 2 questions that you have asked. One is in terms of BG costs. And second is in terms of factoring. So we don't do any factoring substantially of our receivables. Receivables are stated. The factoring, even if it is there, it's just healthy discounting and just 15 days or so it will be there. But yes, predominantly, our huge cost of finance also includes the BG costs. And the BGs are given for the PEB business, which is close to around 5% to 10%, depending upon the job and the order. And this BG cost includes a large amount of the finance cost portion as well. And we expect this to come down over a period of time due to better collections and due to better advances that we will be collecting from the PEB business.
And the other question I had, on an earlier executive con call, you guys had indicated that you were already at a ROCE north of 20%. But when we look at it, the EBIT is about INR 240 crores on about INR 1,500 crores of the capital employed. So just wanted to understand the discrepancy between how you guys look at it and how we are looking at it in terms of your ROCE calculations.
Yes. See, the total ROCE is on EBIT of INR 235 crores as we speak. The total assets are INR 2,500 crores and the current liabilities are close to around INR 1,500 crores. So which gives you a capital employed of INR 1,050 crores. So your ROCE is well above 21%. And when you do this, I would request you to do at a consolidated level rather than the stand-alone, because there are a lot of things which gets eliminated due to intercompany transactions between the standalone and consolidated. So these are consolidated numbers. You can look at those numbers and we are well above 21%.
But even when consolidated effectively, your EBIT, if you just annualize EBITDA, INR [ 106 ] crores, and effectively another depreciation of about INR 18 crores odd, we get to roughly about INR 240 crores of EBIT, right? And when I look at in the reserves, it's about INR 750 crores. And your borrowing is about another INR 750 crores. So I'm getting at a capital employed of about INR 1,500 crores...
For EBIT, you just take the current liabilities reduced from your total assets. When you take the capital employed, it comes to total assets minus the current liabilities only is what you carry out. You don't remove all the long-term liabilities into that. With that, capital employed will be INR 1,050 crores.
Our next question is from the line of Ashish Soni from Family Office.
Regarding this capacity utilization. So what's sort of capacity utilization for different verticals? And your new capacity is also coming online. So when do you see capacity utilization like in 3, 4 quarters going up to like 50% or more?
Thanks. So for our PEB India business, we are at capacity. We are outsourcing production. With the new plant capacity coming online next month, we expect that we should be able to exceed that one. So we would have a much higher capacity -- we would be able to increase our actual output by quite a lot over the next quarter. But right now, it's at a very high number. It's close to about 80%, 90% in India. The same stands for the U.S. as well. Our capacity expansion program there has -- it's taking a little longer because there's a lot of -- U.S. is also doing quite well economically. And consequently, the time it's taking for us to increase our capacity is off by a quarter or 2. But by the middle of the calendar year, which is, let's say, by the first quarter of the next financial year, both India and the U.S., the new capacities will be up. And based on what's happening to our order book, our growth and scalability in those businesses is a very high probability. Consequently, hydraulics also, we are expanding capacity as much as we can. Hydraulics, it takes a long time to add to order backlog, because there is a protractedly high product development cycle in excess of 9 months. However, been through that pain, we have gone ahead and made our order book much higher than it was this time last year. So even hydraulics, with the capacity expansion coming in over the next month, we will be able to grow. Same goes for process equipment. And in engineering services, the capacity here is more man hours. And we are adding as much capacity as we can. Unfortunately, we are also having a lot of attrition in engineering services, specifically in our building information modeling businesses, our structural engineering, and our body-in-white design teams. But we are scaling this up as quickly as we can, and that should drive growth. So capacity expansion right now in most of our growth verticals this quarter, including tubes also. We will be -- over the next financial year, we'll be adding capacity as quickly as we can, and that will drive up revenue. But in the next 1 month itself, I think a very significant amount of capacity comes online. So yes.
And when we exit this low-margin business, do we think we can grow revenue of 20-plus % year-on-year sort of thing? Is that our aspiration or our aspiration is low-single digits?
No, no. Aspiration is even higher than 20%. And I'm quite certain that once we exit low margin, once PEB India, PEB U.S., process equipment, engineering services, hydraulics, and frankly, some of our other businesses as well, as they -- they're all high-growth businesses. So at some point of time, as whatever we've replaced is out of the system, so then all of the growth in revenue comes to the overall growth of the company. So I'm sure we will achieve double-digit growth in revenue next financial year. That is our goal, and we're prepared for that as well.
And just last question on the solar EPC. Do you think we want to play anything there, or you want to completely exit? Because a lot of capacity or there's a demand coming across the world.
So in some of these businesses, which I'm not talking about, specifically, our railways business and our solar business, it's not that the markets themselves are bad, it's just they are growing. And as you have noticed, I mean, it is a big space, but we have to pick and choose. We can't grow -- one of the lessons we have learned over the last 2 years is we can't grow everything. Everything looks good, but we can't grow everything. We have to focus on these 5 growth verticals and make sure they have the capital, the management man hours to grow. And the good news is that these 5 verticals itself is not curtailing our growth rate. We can grow as big as we want to be from a revenue and profit point of view. Right now if our gross sales -- and we tend to think on gross sales, if they are near INR 4,000 crores, doubling that over the next few years is not really a very hard challenge if we just focus on these. Hydraulics, our revenue is small, but the market leaders is about INR 2,000 crores. PEB India, we are at about INR 800 crores, and the market leaders is about INR 2,000 crores -- more than that. The U.S., same picture. So if we just execute in these 5 verticals itself, all of which support each other, all of which have cross competencies, if we just execute in these sectors, in these segments, we'll be able to get our revenue growth, profit aspirations. So we will have to -- some markets which are good also, we will not be doing. It's a conscious decision we have taken. It doesn't mean there's anything wrong with solar in itself. It's a good space, but not the space we have chosen.
Our next question is from the line of [ Dilip Kumar ], an individual investor.
So the question is regarding the stand-alone businesses, the India to India business. The BIW business particularly, it was a single customer, single platform business, and it's not growing. So can you throw some light on what's the outlook for that in the long run? Are we going to add more customers, more projects, more platforms? That's one. The second question is regarding the vacated businesses. While you said there's going to be a long tailwind of collectibles, what happens to the fixed assets and the people? Is that going to be a drag on our ROCEs and our costs? That's the second question. And the third question is regarding services. While we had -- you said that there's some attrition issues, et cetera. How do you see the momentum in that business?
Thank you. Good questions. So body-in-white is a very good space. It's a very large space. I mean, large companies there are INR 11,000 crores, INR 12,000 crores. I think we're spending time to understand that business a little better. As you said, we have 1 customer in that, but they're a large customer, they're a $300 billion customer. So we're growing our footprint with them. We have new programs which are coming online in the next 2, 3 months, I think. So by June, we will see quite significant growth on that. Compared to last year to this year, you should see a very high double-digit growth in that business as well. The challenge there is that the asset flip in the business is very low. So for most of our businesses, if we, let's say, put INR 100 crores of CapEx in, we typically get anywhere from 6 to 7 or 8 assets. So we get INR 700 crores, INR 800 crores. Unfortunately, in BIW, it's lower. The payback period and the IRRs are quite decent, but we have to take care of both revenue and profitability in the long run. So we will continue to focus on growing those 5 verticals that we have. BIW is being looked at more strategically. So we have good capabilities, we have worked hard over the last few years, and it is going to grow. I'm by no means saying it's not going to grow. So the future will be good for that business. But we have to figure out a way to augment our capabilities there that addresses that asset flip question, and we are working on that. But it's a healthy business, and it will continue to do well. I've had several discussions with our customers there, and we will add another customer as well. There's a lot of tool development and product development capabilities we've added. We also do BIW design. So it's a good space to be in, and we will continue to scale that. But it is not quite the same opportunity as the top 5. Coming to your question on fixed assets and people. Yes, as we liquidate, there are some assets which aren't performing. So what we are trying to do is to convert those assets to our businesses which we are trying to grow and scale. And so far, we've been quite successful at that. I don't believe any significant asset will become completely nonperforming. That will not happen. And the people also, the technical talent required, there are overlaps. So for a good period of time, we will actually be able to transfer some of our good resources, from the business units which we are not growing, to other business units. That includes water, it includes solar. So water can move into process equipment, for example. Solar can move into our pre-engineered building businesses. There are overlaps there because, let's say, in solar MMS design and solar in metal buildings, there is overlap. It's not quite the same thing and I maybe overcommitting. But I think there's overlap there, but that will leave a pool of assets and resources which we can't quite use. And there, unfortunately, we have to take some tough decisions. There's no choice in that. We are a for-profit entity and we have to act accordingly. So services business, the attrition has more to do with -- I think it's an industry feature. All of our competitors also have a high attrition rate. I think we are debating how we can lower that and get to a rate which is perhaps -- if we benchmark ourselves not just on revenue per employee or usage of man hours, but also on our retention rate. We are monitoring and trying to be not the worst company or not above average in that. But unfortunately, in the engineering services space, it's the standard. I mean, it's important for us to retain, yes, but we have to accept a higher attrition rate in our other verticals. That's just the way it is. However, we don't believe that will impact our revenue. We expect this to be INR 100 crores business next financial year at a very high margin. I mean, the bottom lines are above 20% in that business. So it's a good business for us to be in, it fits in well, and has a lot of tie-ins with our other businesses as well. In building construction, there's building information modeling. In automotive, there's BIW, process engineering as well. So we will make sure that our growth in engineering services does not get impacted by attrition.
Sure. If I may ask one more question. This is regarding the investment for the strategic growth areas. Last quarter, you said you are working on the numbers. But if you haven't tied up the numbers yet, if you have the numbers, that will be great to know how the investment is going to be for next year. And if you haven't tied the numbers, if you can give an outlook on what is the broad idea in terms of these 4, 5 strategic areas, how we are going to make the investment?
So we will not need to -- let me go BU by BU. We do have a capital allocation overall strategy, but let me not give you an overall number. If you were to look at our pre-engineered building business, the majority of the CapEx has already gone in now. So there's not going to be extremely high capital investments in order to grow that business for the next year or 2 as well. We're talking low, maybe around INR 10 crores, in terms of CapEx for that business. In our U.S., we are sitting on a pretty large treasury block. So we will utilize some part of that for our growth, specifically to add another -- almost double our capacity over the next year or 2. So that will involve substantial capital investments, but it will be around INR 30 crores, INR 40 crores range. So that's something I can comment. On our process equipment and hydraulics also, over the next 2 or 3 years, there will be not very heavy capital going in. So you shouldn't see massive investments in the future for growing our businesses. In the next 1 year also, there won't be too much, because what had to be spent has already been spent. Now we're commissioning these business units, so -- sorry, this capacity increase. So for the next 1 year, not so much, sir. Over the long term, yes, you can assume, for every INR 100 crores we spend, we -- or let me put -- for every INR 700 crores, INR 800 crores of revenue growth, on average, we'll have to spend something approaching INR 100 crores in fixed -- in gross block. That is what we expect. However, the good news is, we expect to be able to pay back period wise. We expect to recoup our investments at a pretty high IRR, so above 30%. So whatever we spend, we do get back very soon.
Yes. So the investment in tubes -- large dia tubes business is done? I mean, you were planning last year...
Yes, you're right. So that project is underway. We have completed Phase 1 of that project. Phase 2 and Phase 3 will be completed in the next financial year.
Ladies and gentlemen, that was the last question for the day. I now hand the conference over to management for the closing comments.
Thank you for your participation and attention. I'm confident that we have your support to grow the company along the lines of what we have discussed. And the questions on our growth rates, on our markets, on our margins, our interest costs, and other, whatever, raised, we are cognizant of those, and we will make sure that we improve on all of the metrics I promised. Thank you again, everyone, for your support.
Thank you. On behalf of PhillipCapital (India) Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.