NTERARCH and Pennar industries are set to grow at a good pace for next many quarters to come. Pennar does PEB for US markets as well where margins are very high
While Inter is delivering 50% growth in north India by the end of Q2 PENNAR has also commissioned a plant in Raibareli UP. Both Inter and Pennar are expected to deliver very good earnings growth for next 6-8 quarters.
Shows the benefits of Adoption of PEB. Capex done at fast pace. With the time and man hours it takes for approvals - PEB can be a cost efficient way to increase turnaround and capacity bump up
This one was by e pack but Pennar is doing almost the same thing and that too on US Soil which makes it a larger TAM
Pennar Ind to form JV with Zetwerk Mfg & others for mfg & sale of solar modules
Pennar Industries Limited (PIL) is a leading engineering building company headquartered in Hyderabad. It has presence in India, US and France and offers a dive portfolio to six key sectors - infrastructure, automotive, railways, construction, general manufacturing, white goods and solar.
PlL has 13 manufacturing facilities in India, in the states of Telangana, Tamil Nadu, U.P., Maharashtra and 3 facilities outside.
They cater to all the B2X segments.
In B2B sector, supplies to automotive and industrial OEMs.
In B2C, it supplies to dealers, sub-dealers and retailers.
In B2G, they serve railways (no direct to government)
They have 2 main sources of revenue -
Diversified Engineering
Contributed 52.43% to the total turnover with over 1000 precision engineering products.
Business Activity includes Railways-Wagons, Steel, Solar Module Mounting solutions, Industrial Boilers & Heaters, Chemicals & Fuel Additives, solar panels, precision tubes, BIW, hydraulics and auto components
Custom Designed Building Solutions & Auxiliaries
Contributed 47.57% to the revenue
Business Activity includes Pre-engineered Buildings, construction equipment and Engineering Services
They are strategically shifting from low margin to high margins and to do so, have identified 5 growth verticals:
PB (India)
PEB (US)
Hydraulics
Process Equipment & Boilers
Engineering services
Guidance
Near Term (2-3 years)
Exit lower margin business which contributes 35% of the overall revenue base.
Improving working capital management to 72 days
Aim to reach 7% PBT and PAT margins of 5% and double digit revenue growth.
Long Term
Exceed $1 Billion in Revenue in the next 5 years
As they move away from low margin business, there will be an increase in the EBIDTA margins
Expanding capacity in the key verticals and gaining market share
Products
We can divide their product verticals into commodity and VAP segments
Commodity
Steel products and profiles
Railway components
Value Added Products
Pre-Engineered Buildings (PEBs)
Gross margins for their Indian business is 18% while market leaders have 28-30%
Gross margins in the US is 30% and could move higher
They expect EBIT to be 10% for India and 15% for their US business going forward
Hydraulics
OPM are of around 20%
The revenue is export-oriented
Boilers & Process Equipment
Engineering Services
Operating margin is about 30%–35%
The TAM for the railway products, primarily coach and wagon components and subsystems, is about Rs 2,000 crores. They had 250 crores revenue last year from this vertical however, it’s not a primary growth vertical as it’s highly competitive with limited product development.
Have completely exited from their water treatment business as there is a very low entry barrier and low growth and scaling opportunity.
They expect the PEB (US) to be their fastest growing business.
Body in White is a slow growth product and hence not their core focus.
Their low margin business achieve PBT margins of 2-3%
They have established a production facility in Hyderabad for catering to aerospace markets.
Geography
Export accounted for 7% of the revenue.
Commissioned a PEB plant in Rae Bareilly to tap into the North and Eastern markets and expanding capacity in the West India.
Establishing a new plant in US focusing on metal buildings and high-rise structures.
Scaling their global presence - in the US, European and Australian markets, to increase export contributions.
Subsidiary
North America
Pennar Global Inc. (PGI): providing engineering services and marketing Pennar Products across the USA.
Pennar Global Metals, LLC: Step down subsidiary
Ascent Buildings, LLC: Step down subsidiary, focused on PEBs and plays a significant part in PILs growth
Europe
Pennar GmbH: Based in Germany, spearheads the company’s expansion in the European market, provides engineering services to European clients
Cadnum SARL: A step-down subsidiary which is located in France and it Engineering and precision company
India
Enertech Pennar Defense and Engineering Systems Private Limited: Focuses on the defense and aerospace industries within India
Pennar Metals Private Limited
Clients
Have over 500 customers across various industries with no single customer contributing more than 10% to the company’s revenue.
Over 50% of the PEB order book comes from repeat customers.
In the U.S. market, their competitors (Nucor and Cornerstone) for metal building companies are also customers for engineering services.
Their CEO in the U.S. is Kimbell, who previously built Cornerstone into a successful brand.
The BIW division’s main customer is Stellantis, a $300 billion company. It takes a lot of time for them to acquire business in this segment and they are working to add three more blue chip automotive component manufacturers.
Raw Material
The raw material cost is the major cost component and accounted for 60-65% of total cost of sales.
They use steel (Steel strips) as a primary raw material in its manufacturing processes and 55-60% of the total raw material consumption.
Steel price fluctuation will have an impact on the companies revenues and margins
Capex
Rae Bareilly plant which should reach max capacity by September 24, will increase the production capacity by 25%-30% with a revenue growth potential of 300 crores. It will start contributing to revenue from Q3 FY25
They are nearly doubling capacity in the US throughout FY25.
They expect the boiler plant to double its revenue in FY25
They are expanding capacity in Hydraulics and process equipment and investing capital into our large diameter tube business
For Industry analysis and more detailed deep dive in the PEB industry
Notes
The order book stood at 840 crores as of Q2 FY2 for India and $54 million for US in PEB while for railways it stood at 100 crores.
They expect to execute their PEB orders in 6-8 months however they face capacity constraint especially in the US.
They are witnessing strong order books for PEB, Hydraulics, Boilers and Process Equipment
Exiting lower-margin businesses, including solar, water EPC, and solar MMS and they will either be liquidated or absorbed into other business units
The market leader in hydraulics, Wheels India Ltd in India has annual revenues of approximately 2,000 crore while PIL is very small currently.
They have sub 2% market share in the U.S. in the metal building and PEB space
There are lot of clear indications of margin expansion along with a more diverse product space and International exposure with higher margins. As others have mentioned, need to track the implementation by the management along with how fast are they exiting the low margin business.
I don’t think WIL business is 2K crore in hydraulics segment. As per the annual report FY24, hydraulics generated ~160Crs and management clarified to double this segment in 2 - 3 years as the demand is robust. Below snippet from AR about Sundaram Hydraulics.
Yes that’s there overall revenue. I also had check that they had 150cr from hydraulics however their total revenue is around 2k crores. It could be possible that WIL is not the market leader?
