Pitti engineering concall may 2022
1…Sectorial growth
=Metro, Freight and Passenger Rail segments continue to grow significantly. We are seeing strong
demand continuing from the wind energy segment. Encouraging progress is visible in Electric
vehicle and Automotive segments as well.
=We have healthy business visibility and an order book
of Rs. 1,078 crores as of 31 March 2022.
=Renewable energy, especially windmill is currently projected to grow very strongly based on our interactions with our customers. We are seeing tremendous growth coming from
there.
=Traction motor, railway and metro will grow.
=EV and the automotive will start
contributing significantly and special purpose motors will also grow.
=Predominantly in consumer durables, although they contribute less than 1% of our revenue, that’s
the only place where I am seeing de-growth or pressure on some demand side.
= Apart from that, all of the other sectors are also growing, but not at 30% obviously. Mining, oil, and gas are the other one, which are going to grow significantly because of the off-highway vehicles and price
in oil going up.
2…Capex
A=On the CAPEX front, we have spent Rs. 137 crores out of the Rs. 270 crores planned CAPEX,
and the residual entire capex is on track for completion by FY23 itself.
B=The Company has also recently decided to invest an additional Rs. 197 crores for FY24 and
FY25. This incremental investment is towards replacement of old equipment and modernizing of the Hyderabad facilities, further automate the Aurangabad facility and enhancing of
machining capabilities and capacities.
= The Hyderabad facility is aged. It was set up in 2004 and 2005 and with this automation, we should be able to see EBITDA increase to Rs. 48,000 per ton, once CAPEX is
done.
=This CAPEX will start not before FY24 and out of the Rs. 197 crores and I am just giving you broad numbers, around -Rs. 70 crores is for replacement of the existing lamination facility in
Hyderabad, about
- Rs. 55 crores is towards the additional machining hours from 600,000 to 648,000 and the
- remaining is towards automation and general CAPEX that we would require to upgrade the infrastructure in Hyderabad and Aurangabad to accommodate this new CAPEX
3…Debt
=Peak debt at the peak of the implementation of CAPEX cycle will not exceed Rs. 360 crore
=Will be debt free after about 5 to 6 years from now.
4…Current quarter Q1 of FY23, we have the strongest and healthiest order book that we’ve ever had in the history of the Company.
5…Domestic@80%
=We are not losing any clients in exports. We see the domestic market growing disproportionately
vis-à-vis the export market. Exports also have grown. If you see, we have exported Rs. 296 crore
of sales, which is again much higher than the previous year, but the domestic customers are
growing at a faster rate than our exports, which is why we see that going forward domestic will
become close to about 80% of the total revenue mix.
6…EV capacity
=There is no separate capacity for EV. It is the same product as far as we are concerned whether
it goes in the electric scooter, it goes in electric bus or in the traction motor, the process is the
same. So, you can, in one way, say that the entire capacity is for EV.
7…In our industry, about 80% of the average capacity utilization that you can expect.
8…Shifting
=We are not shifting machining facility from Aurangabad to Hyderabad, we are shifting the
lamination from Hyderabad to Aurangabad and focusing on machining in Hyderabad. So, the
existing facilities, which are required for the lamination related operations of machining, like
shaft, will continue in Aurangabad. Where the lamination is required for machining, that will
come to Hyderabad. So, the shaft we wound not be transferring it from Aurangabad to
Hyderabad. Only the lamination, which is required in machining will get transferred from
Aurangabad to Hyderabad.
9…Working capital
=we are continuing to improve our working capital cycles and
we have already got it down to 96 days for the full year and we expect this to continue to go
downwards towards 75 days and even eventually further down to 60 days.
=This is driven from both the debtor days reduction as well as inventory days reduction. As we
continue to reduce our dependency on imported materials, we will be able to reduce our
inventory days as well. So, there you will not actually see any hit on margins.
10…Margin improvement
A=Value added products
If you take the products of the company, the simplest product that you make is a loose sheet
metal lamination. Now, obviously over there, your margins are going to be much lower and the
most value-added product that you make is a fully core-dropped stator frame and a fully
assembled ready-to-use rotor where the shaft is attached, the copper is put in by us. So, the value
add on the final, I am just giving you the two extremes. So, as you improve the product mix,
from just plain vanilla laminations to assembled and then in assembled also more value add as
you keep doing, your margin per ton will keep on increasing.
…The demand is for the more value-added kind of products.
B= Economy of scale
Second reason where your
margins will improve is that you have invested for 72,000 tons of capacity and you have scaled
up your operations as such. So, once your utilization factors go to 80% on 72,000 tons,
obviously, economies of scale kick in.
C=Automation
And the third one is automation. So, we are heavily focused
on automation. I would invite you to our Aurangabad facility to have a look at the kind of automation that we have already done, that will simplify and explain to you what kind of margin
improvement can take place due to automation. Just to put in perspective
11…Market size
=firstly let’s take the market size and opportunity in India. The stated market size for this
product in India is about 500,000 tons. We are at mere 32,000 tons. We are not even 10% of the
market. We are the largest, but we are not anywhere close to even 10% of the current demand.
As India grows, this product demand and requirement will increase. As you adopt EV, as you
adopt green power, the requirement for these products will increase and we see that even if we
can target to maintain our existing market share or even improve it slightly, we have great
opportunities of growth in the existing products.
12…Unorganised segment
I think about half the market is still coming from the
unorganized segment and as more and more people start buying from the organized, it will
definitely lead to more opportunities for us.
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