Interarch is undergoing expansion in two new facilities as well as upgradation of existing facilities + zero debt status (not so for pennar ind) + their debt to equity is going out of control (as per concall)
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Concal Notes
Order Book
- Current Order Book: INR 1305 crores (as of January 31, 2025)
- Recent Secured Orders: INR 405 crores secured between October 28, 2024, and January 31, 2025
- Key Clients: Projects include Tata Semiconductor and Tata Agratas Energy (lithium battery plant in Gujarat), Order related to the Birla Copper project (Hindalco), Vikram Solar (currently not included in the order book)
- Over 70% of orders are repeat orders, underlining strong customer retention
Bid Pipeline
- Total Pipeline Value: Approximately INR 4000 crores
- 2500 crores already submitted (Confirmed Bids)
- 1500 crores under active bidding discussions (project in discussion)
Constraints
- Large orders that previously took 10-12 months are now expected to finish in 8-9 months
- The current ability to take on new orders is limited by the company’s execution capacity. This has led to them loosing on some orders.
- To overcome this issue, they are exploring production outsourcing to overcome in-house capacity limitations. They are partnering with companies that have spare capacity to expedite project completion.
Export
- There is an increased export focused, from completing one export building per quarter to one per month
- Emerging export markets include Africa, Sri Lanka, and Nepal and opportunities in countries seeking to reduce dependence on China. USA is also a huge opportunity.
Capex
- Greenfield Expansion (Gujarat Facility)
- Facility development to begin post-monsoon and to start operations in the third quarter of the next financial year.
- It has an estimated cost of INR 80-90 crores
- The capacity is of 40,000 MTPA and 500 crores sales
- Initial utilization estimated at 75% in the first year (ramping up to 100% subsequently)
- Brownfield Expansion
- Andhra Pradesh – Phase 2 and Kichha – Phase 3
- Anticipated to be operational in the first quarter of FY26
- Also, enhancements in existing facilities at Tamil Nadu and Pantnagar
- Current Average Order Value: INR 12 crores (up from INR 4 crores three years ago), this growth is driven by larger orders (50+ crores), which support faster business expansion
JSW Partnership
- The collaboration is with the Naveen Jindal Group, not the entirety of JSPL.
- JSPL offers advanced heavy fabrication facilities used in high-rise structures, data centers, girders, and metro/road projects.
- It is a joint marketing and bidding activities which combines Interarch’s engineering and design strengths with JSPL’s production capabilities
- The tie-up is designed to cater to contracts where 20%-30% of the building requirements are for heavy structures—such as microchip plants, data centers, or lithium battery plants.
- There is no commodity purchase arrangement between the two
Disc: Tracking very closely
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Tracking Interarch for sometime and invested some amount but i have a few areas of concerns and would like to understand the views from fellow members
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What is the expansion in PEB space and what percentage of that is moving into organized segment ?
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Company has highlighted that they are not turnkey player since they also design. I dont think they are selling design as an independent service. Does it really count as differentiator and will they be able to command any premium margin ? Any other player who provide these type of consulting or high end service generally command a premium on their service.
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Company has almost 70pc of their revenue in fixed revenue projects. I believe this exposes them to significant cost risk which may be raw material price risk or delay in execution. I understand that they do maintain inventory of 3 months to protect against price increases but average duration of mid sized project execution is around 6 months. Large size projects - they did highlight that they go for variable pricing but is it always the case since almost 50 pc of revenue is from large projects and only 30 pc of revenue is variable pricing. I see margin compression as a key possible risk
Thus i am not sure what is their exact differentiator
- Expertise : This does not seem to be the case since margin is not great and they are largely dependent on smaller size projects to build their order book.
- Cost control : This also doesnt seem to be the scenario since margin has expanded only in recent years and before this they were operating at low single digit margins.
I agree that Growth in the industry can drive their business growth and thus looking to understand the industry growth itself. Since they are big player in the segment, they will benefit from tailwinds.
Sincerely appreciate your views on growth and margin.
5 Likes
On a related note, given this is a heavily commodity-dependent business without a huge amount of technological differentiation, is the project management part of the business sufficient to create entry barriers. If not, it’s a matter of time before JSPL (for example) enters this space directly. The capacities are quite meaningful. JSPL steel capacity is 1.32 MTPA while IBL’s capacity is 300 ktpa, so almost 25%. I understand that not all the steel that JSPL produces may be of a good enough grade for PEBs, but just wanted to lay out the relative sizes for context. Since steel manufacturers go through their own cycles and pricing volatility, this will be a nice forward integration to dampen this volatility somewhat unless there is meaningful operational complexity that makes it challenging for them to enter this business.
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Moats are not always obvious. High ROCE, ROE compared to competitors is a good indication of an existing moat. I think their design and delivery capability is a huge moat in this sort of industry.
Interarch has tons of experience in the industry, just because it got listed recently does not mean there is no track record. There are a lot of structural tailwinds. The gap between the top 3-4 players and the rest of the smaller players in terms of experience and network if clients is huge. Additionally, none of the top players are competing too heavily with each others, as there are more orders than anyone can execute.
The only reasons why this is not a mouthwatering investment idea for me is the valuation (margin of safety is a bit low) and the supply side is constrained. I am open to discussion and to change my mind.
12 Likes
Ratings update:
IMP Points:
Crisil Ratings has upgraded its ratings on the bank loan facilities of Interarch Building Products Limited (IBPL) to ‘Crisil A/Stable/Crisil A1’ from 'Crisil A-/Stable/Crisil A2+’.
The upgrade in the ratings reflects improvement in the business risk profile of IBPL as witnessed in healthy revenue growth and improvement in the operating profitability in fiscal 2024 and first nine months of fiscal 2025.
The operating income grew ~15% to Rs 1,294 crore in fiscal 2024 compared to Rs 1124 crore in fiscal 2023. The revenue further improved 9.2% to Rs 990 crore in the nine months ended December 31, 2024, compared to Rs 908 crores in similar period last fiscal owing to strong order book, and better execution capabilities.
The operating margin has also improved to 9.4% in nine months ended December 31, 2024, from 8.1% in similar period last fiscal due to operating leverage benefits with increase in scale of operations.
Disc: Invested
4 Likes
Risks-
- RM volatility- Steel Prices.Steel is 60-70% of their total cost.
- Slowdown in private capex
- Competition - KP Green Engineering foray into PEB - KP PLant
- Delay in ramp up of new capacities
- Requirement of skilled manpower.
- Operating de-leverage, if revenue growth does not come, because of delay in order execution.
- The components are made off site, hence transportation and logistics are very crucial in the industry.
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Interarch secures India’s largest ever single PEB order in public domain worth 300cr.
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Q4 FY25
Attaching some important and interesting slides from the ppt.
Concall Summary
- Best ever quarterly and annual financial results and secured a record-breaking single order of over 300 Crores. 13.4% increase in the total volume produced compared to past fiscal.
- On track to achieve 2300-2400 Crores in turnover by 2027-28 with improvements in margins, supported by a strong order book of 1645 Crores as of 1st May.
- Aiming for about 17.5% growth in sales volume for the upcoming year with similar PBT and EBIDTA growth and hope to achieve 20% growth in FY27, as they’ll have even more capacity available.
- Capex
- 65 Crores on capex in FY25 and each of the new plants costs around 70 to 80 crores in capex.
- Finishing up expansions at their existing factories in Andhra Pradesh and Kichha which will add 40000 metric tons to their total production capacity which will be operational by next month.
- Bought an additional 20 acres of land right next to their current plant in Andhra Pradesh to build a new facility for heavy steel manufacturing by September 2026.
- Currently build structures where individual pieces usually weigh around 3 to 4 tons (light engineering buildings)
- There’s a growing demand for heavy structures where each piece weighs 5 to 10 tons or more in projects like ports, steel plants, fertilizer plants, large data centers, high-rise buildings.
- Overall process remains same however due to heavier components - different factory equipment, machines, and crane are required.
- Instead of relying on outside partners, building the first dedicated production line for heavy structure to cater to the segment of business which they are not able to serve.
- Acquired land in Gujarat for yet another new manufacturing plant.
- Setting up two new engineering offices in India to increase their design and engineering capabilities.
- Expect the company to grow 1.5 to 2 times faster than the overall industry
- Don’t see a slowdown in the business at all, will have a clearer idea of the demand situation in the next 2-3 months. Currently, the biggest growth is in new-age sectors like semiconductors, batteries, renewables and electronics
- Moldtek has a big presence in India for design and engineering, and they can help in getting business from their US clients who didn’t have access to this type of product before.
- Current export is very low however they have exported buildings to the US and Canada. They are also looking at Africa and the CIS countries for potential export business.
- Exports do offer better margins however, don’t expect them to be a major part of total sales for the next one or two years. More of a image/brand building exercise at the moment.
- Average order value three years ago was around 3.5 to 4 Crores, and now it’s 10 to 11 Crores. About 50% of their current orders are from projects worth over 20 Crores.
- Currently, there’s no project in the order book that will take longer than a year to complete.
- Profit margins tend to vary by quarter - the fourth quarter is typically the best, followed by the third, with the first and second quarters usually being lower. Expect similar seasonality pattern to happen this year as well.
- Reasons include weather, client companies aim to finish their projects by March.
- As the sales volume increases in a quarter, the margins also go up
- Margin improvement over preceding year is due to increased capacity and operational efficiency and not because of steel price changes which have been going down during the year.
- The percentage increase in other expenses (around 15-16%) which included outsourcing work charges, erection charges, stores and spares, etc. is slightly higher than their sales growth (around 13%) which leads to gross profit not translating to EBITDA completely.
Disclaimer: Biased, do your due diligence
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