ValuePickr Forum

Pennar Industries Limited

Anybody attended the concall today? Please share notes if possible. Thanks

This company will most likely always remain cheap and will struggle to grow and will need more and more debt.

The cash flows are poor. And they have a receivable pile that is the size of their entire market cap!

Recievables have gone up from 122cr in 2010 to 450cr as of 2018 half year. Debt has also been going up well.

That must be sorted out. It is cheap for a reason and it will perhaps remain cheap.

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Yes. Agreed . This is one of the reason why the market is not re - rating this company.


  1. Accounts receivables - I dont think there is anything wrong with the accounts recievables as you have stated. Infact the accounts recievables will only keep on increasing as the company grows its topline. MOST of the companies business is in the form of quarterly contracts with customers whom they have been associated with for many many years. the working capital for most of thier verticals is 2-3 months except PEBS.If you read the Q2 concall you will find the answer to this question you have raised. They have very strong checks in place with regards to thier accounts recievables and i dont think that should be a worry at all.

  2. Cash Flow - Your concern regarding the cash flow is correct and this is something that the management admits to and knows is a concern (pls read the Q2 concall). The high growth rate and Capex ultimately leads to a negative cash flow status but i am quite confident that they will find a way out in the next few quarters.

  3. Debt - Pennars long term NET DEBT is quite low at about sub-100 Crs and the rest is just working capital debt. The business model is such that as the topline increases the debt will also increase but the management has commited to keep the interest cost @ 3.3-3.5% of gross sales. The high growth that this company is achieving comes at the cost of working capital. Plus please note the company is sitting on close to 120+ crores cash on thier books.

On a personal Note - The last 14-15 months has taught investors (including me) a great number of things and for me the biggest learning of all was QUALITY OF MANAGEMENT. The one thing that i assure to you is that the management of this company is incredibily honest and they are commited to growing thier company and that is a big plus point.


On Q3 results:

PEBS continue to struggle with profitability. Now that they are sitting on highest ever order book, high growth in volume is expected. However, unless steel prices stabilize or fall for couple of quarters, profitability will remain in question.

Pennar (standalone) - another good quarter and profit growth is expected to continue for another few quarters based on strong momentum in railways, auto and white goods sectors.

Attached doc has some notes from the concalls of both entities, please add/correct in case anything is missed/incorrect -

Concall Q3 notes.docx (14.6 KB)

best - rajat



could you please elaborate on these points mentioned in the concall notes:-

  • Receivables q3 - S 260cr 60 days
    ***** Liquidity issues with clients -
    _ * >180 days receivables declined for Pennar_ **
    *** Finance - 12 cr cash debt charges, rest is non cash borrowing

Thank you for the notes though :slight_smile:


hi, please see below for explanation. Please do not hesitate to reach out to me in case there are any follow ups

Receivables q3 - S 260cr 60 days - standalone receivables are at 260Cr; and usually they hover around 60 days

***** Liquidity issues with clients - >180 days receivables declined for Pennar - clients are facing liquidity issues. receivables older than 6 months have declined for pennar in this q.

Finance - 12 cr cash debt charges, rest is non cash borrowing - interest/finance costs shown in P&L consists of two types of costs - 1) cost of debt (long term/short term) and 2) LC/BG (letter of credit/bank guarantee) facilities availed to finance working capital without taking any debt on books (in cash form)


Thanks Rajat. @armchairinvest_

1)Just read the Concall yesterday and I found one common question being raised from participants pertaining to negative cash flow of company.

Is negative cash flow presumably a bad thing even though if the company is growing at such high rates? It’s quite obvious that after adjusting for working capital changes (2-3 month cycle) and taking into account 25%-30% growth pennar will land up with a – cash flow. Management has clearly stated that the – cash flow is not something that one should look at deeply and that it is here to stay.

The company is constantly reinvesting its capital into businesses that are generating much more than the cost of capital + the management has clearly guided that the pennar will witness 20%+ growth for the next many quarters. What are your views here ?

  1. Is the interest coverage ratio a matter of concern to you?



Pennar has embarked on expanding quite a few of their verticals in the last couple of months. (Enviro, Engineering, Hydraulics).

There is also some news (not sure) that a new plant for railways is coming up in Rae Bareily.

A New Website for their engineering division was launched recently Business has huge scope for growth.

Current market scenario feels like small and midcap will evaporate into thin air !!

Pennar is available at 390 cr market cap (not taking debt into acct). Intrinsic value of PEBS is much higher than current market cap of pennar

Markets don’t act rationally sometimes.

As investors the greatest gift than we can get is a big margin of safety while investing .

The merger is approved by NCLT -

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Sorry for late reply. Cash flow should definitely be considered. Not being able to make positive operating cash flow during growth phase is a negative point about the business. The day growth cools down (during down cycle), business shall start throwing enough cash flows as seen by history of this company.

Interest coverage is fine since most of the debt is working capital debt. As long as inventory does not go obsolete and receivables don’t go bad, there is no concern in my view.

Best - rajat

thanks Rajat. My thinking was on the same lines.

so what you are trying to say is that we let the management get away with these metrics during the growth phase of the company and at one point of time in the future when the growth moderates the businesses will start throwing up cash ?


I think we should not be too bothered about Debt. Long Term Debt would be paid off from the Hyderabad factory land sale in the next 2-3 years and working capital like it was rightly pointed out is not a problem till we don’t have inventory or receivable write offs.
Pennar to me is a growth, value migration and margin expansion story. Margins and Valuation Multiples should expand as they move up the value chain - we need to track that closely.

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@deeps2884 @armchairinvest_ @rohitbalakrish_

Did PEBS just deliver a really good quarter of earnings ??:smiley:

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Yup excellent results.

Anybody attended the concall ? Please share notes if possible.


Hi - you can listen to the con call on research bytes for free

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How many days it would take to get Pennar Ind shares swapped with Penpebs?