Pitti Laminations Q4FY17 Concall Summary

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Financial Highlights

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  • Company registered a revenue growth of 9.6% YoY to INR 84.2 crores in Q4, FY 2017 on account of growth in domestic volumes and better price realization.
  • Domestic sales accounted for 74% of total sales while Exports accounted for 26% of total sales.
  • Domestic sales grew by 50.8% YoY to INR 61.5 crores and Export sales declined by 37.2% YoY to INR 22 crores in Q4, FY 2017 as compared to Q4, FY 2016.
  • Revenue from GE India has started been recognized as It has been preponed by 6-8 months.
  • GE India has contributed ~INR 13 crores in this quarter and it would keep in contributing to revenues in coming fiscal years. It is a 10 year contract that would contribute about INR 50 crores revenue per year which can be translated into ~INR 13 crores quarterly revenue.
  • Other operating income accounted for INR 0.7 cr.
  • EBITDA for the quarter almost trebled to INR 10.5 crores, compared to INR 3.7 crores in Q4, FY2016.
  • In Q4 FY2017, Employee cost has significantly reduced with employee cost standing at INR 8.8 crores, 8.8% of total net income from operations versus 14.9% in Q4 FY2016.
  • EBITDA margin for the quarter was 12.4%, an improvement of 7.55 percentage points from same quarter last year. The EBITDA margin for FY 2017 stood at 13.2%.
  • PAT for the quarter was INR 1.6 crores, compared to a loss of INR 4.3 crores in Q4, FY 2016. PAT margin for the quarter was 1.9%.
  • Total debt of company stands at INR 179.5 crore with INR 57.7 crore of long term debt and INR 121.8 crore of short term debt.
  • Cash and cash equivalents for the quarter stood at INR 11 crores, resulting in a net debt position of INR 168.5 crores.
  • Net worth of the company stood at INR113.3 crores at the end of the quarter.
  • Company had a conservative leverage profile with the total debt to equity ratio of 1.6 and Net debt to LTM EBITDA of 4.4.
  • Company’s Debt has increased because of the promoters' unsecured loans which have to be converted into equity. Once converted into equity, Debt level would go down but that would be offset by term loans to meet Capex requirement for Hyderabad & Aurangabad plants.
  • For conversion of Debt to equity for the promoters, the postal ballet has been done and it is pending NSE approval for listing. Immediately after this, debt would be converted into equity.
  • Price is not yet decided. Out of the Rs.180 crores the debt level is including unsecured loans from promoters which is yet to be converted to equity which is around Rs.25-26 crores. It will be reduced from the debt levels and CAPEX will get added. Company’s loans and advances have significantly increased due to CAPEX and not because of any further loans to Pitti Castings.
  • Tax rate for FY 18 & FY 19 is going to be full tax rate at ~ 33%.
  • Overall volume registered a growth of 1.2 % YoY to 4,946 MT in Q4, FY 2017 as compared to same quarter last year.
  • Domestic volume grew by 20.2% YoY to 4347 MT but export volume declined by 52.9% YoY in Q4, FY 2017 as compared to Q4, FY 2016.
  • Sales of stator frames saw good growth with total 290 units sold in Q4, FY 2017.
  • Company had done ~19000 MT in FY 2017 and volume expectation for the year FY 2018, is total lamination of 22,000 MT. Breakup into domestic and export is 18,000 MT for domestic and 4,000 MT for exports in FY 2018. The reason for lower exports target is because GE India business would start and the supplies to US would get diverted to their local facilities in India.
  • The company has revised downwards the export volumes and ended up at 2800 MT in FY 2017. It is because GE India facility has started well in advance and some of the products that were considered to be direct export got shifted to domestic facility.
  • Going forward, the company is expecting 4000 MT exports to GE and about 2000 MT- 3000 MT supply to domestic segment of GE.
  • The company's volume has gone down but sales in value terms have increased because of value added products and higher selling price as cost of raw materials had also gone up.
  • Employee cost of the company came down to ~ INR 32 crores in FY 2017 as compared to INR 41 crores in FY 2016. The company estimates the employee cost to be around INR 32-35 crores in FY 2018 and about INR 38 crores in FY 2019.
  • Inventory has come down in volume terms but has gone up in value terms as company is producing high value added components which have a longer manufacturing and delivery lead time.
  • In quantity terms, Inventory is down significantly and total inventory for the year is down by INR 6 crores.
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Business Environment

  • IIP rose by 5% in FY 2017 while Capital Goods sector rose by 3% on YoY basis.
  • It is expected that increased government expenditure and improvement in private sector investment would give impetus to Industrial sector.

Capacity Expansion & CAPEX

  • Commercial delivery to GE India for Indian railway project has started one year ahead of schedule in Q4, FY 2017.
  • Company's plan for Plant 4 set up at Hyderabad with machining capabilities for Gamesa and Siemens orders is going as per schedule. It should commence production by Q1, FY 2018.
  • Hyderabad facility is a multi-purpose machining facility that would be producing the existing value added products and is expected to generate revenues of ~INR 90-100 crores at full operation in FY 2019. Hyderabad facility is not a wind power or windmill specific. The large clients are intended to be railways, wind, cement, oil & gas, mining.
  • Company is in process of shifting Pune operation to Aurangabad where operation should start by H1, FY 2018. The Pune facility is a rented one and was started as an exploratory facility for Maharashtra sales.  The company is now shifting operations to Aurangabad which is a fully owned set up.
  • Capex for FY 18 & FY 19 including CWIP for FY 17 is about INR 100 crores.
  • Company had plans for CAPEX of ~ INR 78 crores in FY 2017 but only INR 30-35 crores had been spent.
  • There would be ~ INR 70 crores of incremental Capex for FY 2018.
  • Out of INR 100 crores of CAPEX, INR 60 crores is for Aurangabad & INR 40 crores is for Hyderabad Plant. To meet the total CAPEX, the debt portion is expected to be about Rs.52 crores.
  • The company is also undertaking modernization and technology up-gradation initiatives across facilities to improve their efficiency.
  • The company is also targeting Alstom but Alstom is slow with their bid process and so it would take time for Alstom to come in. It does not expect Alstom contract to be as lucrative as GE, as Alstom deal is for electric locomotives whereas GE deal was for electric diesel locomotives.

Growth Prospects & Future Outlook

  • Company is expecting Net revenue of about INR 380 crores in FY 2018 as compared to net revenue of INR 283 crore in FY 2017. The key reason behind increase in net revenues is value added products like stator frames.
  • As export volumes are increasing and exports offer higher EBITDA percentage, it is expected that margins would improve in forthcoming quarters, however, by a small margin of 0.5%-1%.  Thus, Company expects to maintain EBITDA margin of ~13% in FY 2018.
  • GE orders have already started coming in since last quarter for small quantities and It is expected to ramp up to the full level by October.
  • Targeting INR 1000 crores of revenue in 3-4 year timeframe with some inorganic growth by acquisition of businesses in allied sector as company is a leader in its own sector.
  • Organically, company is targeting INR 600-800 crores in next 3 yeare
  • In domestic market, company has witnessed strong double digit growth of 20%-25% YoY in past 2 years in lamination segment on account of strong power sector growth. 
  • Transportation and Industrial segment are going to drive future growth.GE transport orders are already there in Transportation sector.
  • In domestic market, the company is in discussion with Alstom for contract as Alstom has received orders from Indian railways and would come to buy into markets. 

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