Pennar Industries Limited

Stock Opportunities
1

Pennar Industries Limited is a Hyderabad-based company that is engaged in
providing engineered products and services.

Products manufactured by Pennar Industries Limited include:
Cold-rolled steel strips
Precision tubes
Railway coaches and wagons
Pre-engineered building systems
Sheet metal components
Solar module mounting structures

The company’s products have a presence in several sectors, such as Infrastructure,
Railways, Automobiles, Power, General Engineering, Building and Construction, and Solar.

Source: http://www.pennarindia.com/company.html

Market Capitalization: Rs. 801 Crores

Current Price per share: Rs. 66.55

Price-to-Book Value Ratio: 1.47

Price-to-Earnings Ratio (TTM): 16.17

Debt-to-Equity Ratio: 0.54

Source: Pennar Industries Ltd financial results and price chart - Screener

The company has four business units:

Systems and Projects (railways and solar mounting module structure components)

Industrial Components (general engineering and automotive components)

Precision Tubes (electro resistance welded and cold drawn welded tubes)

Steel Products (cold-rolled steel strips and formed sections)

The company has three subsidiaries:

Pennar Engineered Building Systems Limited (custom designed building systems and
solar module mounting structure systems)

Pennar Enviro Limited (process engineering plants and specialty additives)

Pennar Renewables Private Limited (solar power plant assets [28MW])

Source: FY2016-17 Annual report, http://www.pennarindia.com/annual-report.html

The company has recently entered into an agreement to sell its stake in the third subsidiary listed above, and as a result it plans to reduce debt by Rs. 101 Crores, see https://nseindia.com/corporate/LettertoSE-11082017_11082017152405_399.zip

Investment Rationale: The company appears to be in a transition phase;
it is focusing less on low-margin products such as cold-rolled steel products
and focusing more on high-margin products such as pre-engineered building systems,
railway coaches, and solar module mounting structures. The management expects
significant growth from its railway and solar vertical. The management has projected
double-digit growth for its Precision Tubes business unit over the next few years.
The management also projects significant growth for its subsidiaries over the next
few years. See below for supporting evidence.

Pages 8-11 of the FY2016-17 annual report, http://www.pennarindia.com/annual-report.html

Received orders worth Rs. 252 Crores:
http://www.pennarindia.com/pdf/Earnings%20Releases/sep-pressrelease17082017.pdf

Investor Presentation for Q1 FY2017-18:
https://nseindia.com/corporate/PennarIndustriesQ1FY18InvestorPresentation_17082017093100_057.zip

Negatives:
Low promoter holding (36.36%).
Company has not been paying out dividends for the last three years.

Below are the Profit-and-Loss statement, Balance Sheet, and
the Cash Flow statement. Source: Pennar Industries Ltd financial results and price chart - Screener

pennar_industries_profit_and_loss.png1707×828 61.4 KB

pennar_industries_balance_sheet.png1704×571 41.6 KB

pennar_industries_cash_flow.png1707×286 25.8 KB

Disclosure: Pennar Industries constitutes 19% of my portfolio;
purchased in October 2016, with average purchase price Rs. 52.
I’m a novice, and I am hoping that the experts here will dig deeper
than I have, in order to determine if this is a worthy investment
opportunity.

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Thanks for initiating this thread. Pennar looks like a safe bet for long term investors .
Dollly Khannas blog also had recommended this stock few months back…
https://dolly-bestpicks.blogspot.in/search?q=pennar
Disclosure: Invested in Pennar industries. Avg holding price Rs.51

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Thanks for the link Mr. Chandra. The write-up there is more thorough.

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Disclosure…i have been tracking Pennar Industries since past two years, but invested in it only 2 months ago…adequately invested @53/54 level…

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Does anyone know if the dolly khanna blog is from real dolly khanna? there are other fake places for dolly khanna like facebook.
Thanks a lot for your response

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The blog is under a fake name but the analyst who publishes it is one of the best, and the research reports better than any from most. It has been a wonderful discovery to the list of blogs I follow. No shame at all in admitting it. It has very high quality research.

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thanks valuestudent, I think the stocks on the blog have gone up, but we are in a bull market, I am not sure if its a good blog,time will tell, this forum is a great resource too and probably better because most of the discussions are useful and also the posts also include things like risks in various stocks

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Pre- engineered buildings as an industry is in an uptrend.
People who know the nitty gritty of the industry mints money [ design/Engineering strenght is the critical aspect in the industry].
In INDIAN mkt steel is bought at USD 550-700 PER MT and finished product is sold at USD 1100 - USD 1300 PER MT.

The rough break down of the consumption of raw materials is as follows :

RAW material Buying price = USD - 550 - 700 PER MT [Depending ON YOUR PURCHASING POWER].
Consumabls = USD - 100
Labour cost = USD 100
Wastage = USD 50
MISC = USD - 50
Sales and marketing cost = USD 50 PER MT [ ROUGHLY 5%]
Painting of finished steel = USD 150

PBT = USD 50 TO 200 PER MT Depending on the strength of sales and mktg and engg team and complexities of the projects taken.
Pennar has a capacity of 10000 MT PER MONTH.
If they can get a capacity utilization of 75% , we are easily talking abt posttax bottomline of 45-50 crore which is twice the current bottomline.

PEB is glorified commmodity business.
Roughly Pre engg building [PEB] business is a 4-6% net margin business [Of course, above the break even point].
If you have a good design team, you easily make 10% net margin on sales.

The only deciding factor will be to see how ethical the promoters are.
If the promoters are honest, we cannot lose money in PEB business.

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Excellent news for Pennar and superb future outlook & focus from the management. Already more than 500 Cr worth orders earned in last 2 months.

disclosure - invested at avg price of 57 (14% of portfolio)

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That is close to 50000 MT - Order book for the 12 months more added in the last 2 months …
They are sitting on an order book of 18 - 20 months as of now.

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There was a big news item everywhere that Pennar will sell renewables business to Greenko.
I remember reading that this deal will reduce the co’s debt by 101 Cr.
In case anyone has more details about the value of this deal (or details about when) it will help all of us.

Also, given that the company constantly reports new orders being won, what sort of results can be expected on 10th Nov ?

Disc: I have been tracking Pennar Inds since last month, I am yet to make investments.

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This tripping of revenue in bussiness is on standalone basis or consolidated basis ?

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I think on consolidated basis they will do better then that as PEB and water treatment will grow much faster .

Expert comments please.

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According to the letter below, Pennar Industries has entered into an agreement to sell its stake in its subsidiary Pennar Renewables Private Limited to Greenko Solar Energy. I don’t know if the deal has been closed yet.

https://nseindia.com/corporate/LettertoSE-11082017_11082017152405_399.zip

In the Q1 conference call, the management suggested that they expect Q2 results to be positive:

http://www.pennarindia.com/pdf/Unclaimed%20and%20Unpaid%20Dividends/q1fy18-concall-transcript-aug-2017.pdf

There is also commentary on the proposed sale of the subsidiary in the transcript; see page 5.

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Thanks for the response. Appreciate the Links posted as well.

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Pennar has posted decent numbers. Q2 PAT stands at Rs.7.72 Crs, compare to Rs.6.53 Crs of Q1 (18.22% rise QoQ), whereas the YoY profit rose to 40.88%. Here’s the quick numbers from results.

image

Here’s Full report:
http://www.bseindia.com/xml-data/corpfiling/AttachLive/b6d3a94c-ce69-476c-b951-983168008807.pdf

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Results look excellent. More than that the outlook for rest of F18 and order book look very convincing.

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What’s even more impressing is the 200 basis margin expansion more than anything else. Not paying dividents and promoter pledging, promoter holding are the negatives…Fundamentally strong but still not convincing enough

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Will this move be positive for pennar?

http://www.livemint.com/Companies/u7wRNGojGa38gEkY9rksyL/Eight-Capital-Centrum-eye-stake-in-Hindustan-DorrOliver.html

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Pennar Industries is a wonderful company to invest in if given a time frame of 3-4 years.

Amalgamation of Pennar Engineering building systems and penner industries will provide immense synergies once completed.

Major growth to come from PEBS, Railways, Solar and system & Projects.

Stock Price should not be looked at on a day to day basis

Disc: Holding 1.5L