Pitti Laminations Q3FY17 Concall Summary

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Company Background and Business Performance

  • Founded in 1983, Pitti Laminations Limited is India's largest and most reputed manufacturer of Electrical Steel Laminations, Motor Cores, Sub-Assemblies, Die-Cast Rotors and Press Tools. It is the largest exporter of laminations from India. The company has already diversified into manufacturing of Castings, Steel Fabricated Parts and machined components stator and rotor assemblies with plans of diversifying into forgings. Growth is targeted through continuous forward and backward integration plus enhancement of capacities.
  • The company has the distinction of being the first lamination manufacturer in India. 
  • During the quarter though the performance of capital goods sector experienced some improvement but the pace of improvement continues to remain slow
  • The company remains confident of medium term growth prospects on the back of the various initiatives taken by the government. Continued government focus on revival through increased infrastructure allocation is widely expected to drive growth in the sector in the near to medium term.
  • Overall volume registered a growth of 1.7 % YoY to 5005 MT in Q3, FY 2017 as compared to same quarter last year.
  • Domestic volume grew by 9.4% YoY to 4000 MT but export volume declined by 20.4% YoY to 1005 MT in Q3, FY 2017 as compared to Q3, FY 2016
  • Sales of stator frames saw good growth with total 91 units sold in Q3, FY 2017.

Financial Highlights

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  • The company registered a revenue growth of 8.6% YoY to INR 76.9 crores in Q3, FY 2017 on account of growth in domestic volumes and better price realization.
  • Domestic sales accounted for 60% of total sales while Exports accounted for 40% of total sales.
  • Domestic sales grew by 4.8% YoY to INR 45.4 crores and Export sales increased by 14.5% YoY to INR 30.7 crores in Q3, FY 2017 as compared to Q3, FY 2016.
  • Other operating income accounted for INR 0.8 crores.
  • EBITDA for the quarter more than quadrupled an increase of 321% YoY to INR 9.7 crores, compared to INR 2.3 crores in Q3, FY2016.
  • EBITDA margin for the quarter was 12.7%, an improvement of 9.35 percentage points from same quarter last year. 
  • PAT for the quarter was INR 1.9 crores, compared to a loss of INR 4.0 crores in Q3, FY 2016. PAT margin for the quarter stood at 2.5%.
  • Improvement in profitability for the quarter was primarily driven by increased exports, improved operating efficiencies and optimization of costs.
  • As on 31st Dec, 2016, Total debt of The company stands at INR 154.6 crore with INR 41.8 crore of long term debt and INR 112.8 crore of short term debt.
  • Cash and cash equivalents for the quarter stood at INR 13 crores, resulting in a net debt position of INR 141.6 crores. Net worth of the The company stood at INR111.6 crores at the end of the quarter. 
  • The company had a conservative leverage  profile with the total debt to equity ratio of 1.4 and Net debt to LTM EBITDA of 4.5.
  • The company expects the lamination exports to be in the range of 3000-3500 MT against the earlier target of 4500 MT for the entire FY 2017. It is because there has been deferment of order from Q3 to Q4. 
  • However, Exports as such has increased because there is an increase in stator frame. So, in revenue terms there is no deduction but in quantitative terms there has been shortfall against projection for laminations. 
  • The company expects exports to GE to be in the range of 4000-5000 MT in FY 2018 & FY 2019. 
  • On Domestic front, The company expects to do ~16000 MT in entire FY 2017 & ~18000 MT in FY 2018 as there is strong domestic demand.
  • Raw material price has started increasing and increased about INR 2.70 per kg in Q3.
  • This price rise will be passed on to the customers as it is mentioned in Price Variation Clause.
  • The company has already raised term loan from SBI and does not see any long term debt requirement in near future. 
  • Price realization for scrap is stable since last quarter. It is between INR 18-19 per kg.
  • The company estimates sales for FY 2017 to be in the range of INR 290-310 crores. It means expected sales of ~INR 100 crores in Q4, FY 2017.
  • Despite reduction in Top line estimates for FY 2017, The company would be able to meet its Margin projections because of higher operational efficiency. 
  • The company believes that with consistent margin improvement in coming quarters, they would be able to return to 13.5-14% EBITDA margin trajectory.
  • In Q3, FY 2017, Promoter infused around INR 25 crore as an interest free loan to the The company. This is unsecured loans from the promoters particularly for the CAPEX and working capital requirements of the The company. The company has been sanctioned a term loan by SBI for its expansion in Aurangabad & Hyderabad. And there is a stipulation to bring in the promoter’s contribution, so initially to start the work, The company wanted to immediately infuse the funds so they brought it as unsecured loan into the The company from the promoters. The company is going to convert the loan into equity by way of preferential allotment to the promoters. 
  • This fresh issue of share as well as convertible warrant so in total amount 251 lakh shares right. 
  • The company will go through a postal ballot to get the shareholders’ approval for preferential allotment. It is just an enabling resolution approval from the shareholders. The issue price will be based on SEBI pricing formula and the formula will apply from the date of allotment, when the allotment is considered by the board. That is after the postal ballot and all the statutory approvals. 
  • Due to certain reasons, SEBI has restricted the The company from raising funds for the equity and this issue has not yet been resolved. The open offer is pending with the SEBI for their approval of DLOF. The company has filed again fresh with SEBI requesting them to clear the document based on SAT orders. In the interim, the additional equity being brought in by the promoters is not restricted by pending open offer so this is a separate activity. 
  • This division between fresh issuance of warrants is just to avoid an open offer.
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CAPEX

  • The 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.
  • The 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 would now be shifting operations to Aurangabad which is a fully owned set up.
  • Also, maintenance capex would not be a high number for FY 2018, similar to the case for FY 2017.
  • In order to fund CAPEX, The company has raised a term loan from SBI and an unsecured loan of INR 25.6 crores from promoters which would be converted into equity preferential allotment.

Growth Prospects & Future Outlook

  • All three segments in which The company operates viz. transportation, generation and industrial are doing well right now. Particularly during the last quarter there was improvement in the transportation. 
  • The company has an estimated target of INR 400 crores sales in FY 2018 and EBITDA margin of 13%-15% which depends on product mix as well.
  • For GE India, materials are already under the sampling stage, some of the samples have been already approved and some documentation is going on. 
  • The company expects to start the commercial supplies by Q2 FY2018. 
  • It will be INR 50 crore worth of order for every year right for the next 10 years. However, there is uncertainty for getting this order in FY 2018 but from FY 2019, it will be INR 50 crore a year order. The EBITDA margin for these orders may be 14%-15% depending upon the product mix.
  • Other than lamination, machining is one of the majorbusiness that The company is growing with GE. So machining of the castings is the reason for this expansion of plant 4 in Hyderabad is planned. 
  • The company's casting business received order from Gamesa for machining, whose first phase is ~3.5 ton casting.The company is in discussion for the lamination business with Gamesa so that would come as a new development for lamination in next year.
  • Other than that most of the major client is with The company in lamination so there is not much scope in large lamination.
  • For small laminations, Crompton would be the major clientele that will start for commercial production in next year. 
  • 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. The company 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.

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Kei Industries Q3FY17 Concall Summary

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Financial Highlights

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  • Net sales were at 716.19 Cr, Operating profit at 77.89 Cr and  operating profit margin at 10.88% in Q3FY17
  • PAT for Q3FY17 is 27.18 Cr and PAT margin is 3.8%
  • Growth of Net Sales growth rate against Q3FY16 is 28% while that of Net PAT against Q3FY16 is 83.03%
  • Net sales in exports in 9 month FY17 is 304 Cr , a growth of 128% against 9 month FY16
  • Net sales through dealer network in 9 month FY17 is 564 Cr , a growth of 9.3% against 9 month FY 16
  • Financial costs margin of 9 month FY17 Is 4.89%
  • The segmental wise revenue breakup is as follows:-
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Working Capital

  • Working capital has moved up in terms of number of days in the EPC division because inspite of whichever contracts gets executed, the retention money has accumulated which gets released once every 3 months which is result in its decrease
  • Working capital days in EPC division=135 days; receivables cycle=90 days
  • Working capital has increased because of completion of projects in Mathura and Bareilly.
  • Company expects the receivables ot come down because of a few big projects releasing their retention money.
  • Roughly 60 cr. of the receivables money is retention money
  • Payables around 482 cr. which is lower when compared to the previous quarter which shows that working capital loan has gone up by 100 cr.
  • However, this increase in working capital loan has not been reflected in the interest cost because of payment of term loans worth 40 Cr
  • Bank borrowing is at 320 Cr of which term loan is 227 Cr , unsecured loan and hire purchase loan=11 Cr while acceptance) comes under creditors) is at 120 Cr
  • Working capital days in cable division is at 90 days
  • Receivables cycle in of 15 days in consumer business indicates that turnaround capital employed is better in the consumer business.

Orderbook

  • In the EPC division, the orderbook is around 2052 cr. With 1700 cr. From UP and 350 cr. From other states mainly Goa, Jammu & Kashmir and Himachal Pradesh
  • The company expects that development will continue irrespective of the election result of U.P. where it has an orderbook of 1700 cr. Which it expects to complete in 2 years. However it cannot predict the direction of order flow after election
  • Company cannot predict how much L1 it is in overall order pipeline but its bids are strong in both IBDS projects and metro projects.
  • The company expects bid success rate to be 15%
  • In EPC division for the third quarter the total order intake was around 500 cr. And for 9 months the total order intake was around 2000 cr. And including the cable division, it comes to 3100 Cr
  • Total execution in the 9 months is 450 Cr including cables  and 320 Cr excluding cables
  • 25% of the 2052 cr. Order book in the EPC division is cable orders
  • Company is targeting a 50% non-UP order book in the coming next 2 years.
  • Most orders in the EPC division are government orders while in the case of cables they are around 15-20%.
  • Company has not yet planned to go into electrical appliances for the next 1 year.

Financial Costs

  • For the 9 month period, the interest on term loan is 17.6 cr., working capital is 20.67 cr., bank charges are 18.59 cr. And processing fees=5 cr. Totaling 92.55 Cr
  • Rate of interest has reduced by 1.5% and interest rate is expected to decrease
  • Company credit rating has improved from BBB+ to A- which can result in a 2-2.5% reduction in working capital demand loan.
  • Company expects credit rating to improve to A in this financial year.
  • The increase in interest cost to 115 cr. Is mainly due to bank guarantee charges which have increased due to order received in EPC division
  • The revision of the interest cost will have its impact from Q4.

Debt

  • The debt level has increased mainly because of the increase in working capital and inventory. Term loans have not decreased
  • Total term loan paid in the quarter=40 cr.
  • Total term loan to be paid in the financial year to be 60 cr.
  • Total debt level expected at the end of the year is 600 cr.

Dealer network

  • Company expects to add around 100 new dealers yoy
  • Current number of dealers=1086 with 160 dealers added in the last 1 year
  • Company is opening up in newer areas pan India which result in dealer growth
  • The revenue generated from dealers and distributors accounts to 25% of sales.

Turnkey Projects

  • Profits are not recognized in projects with completion rate<25%
  • In FY16, 12.5% EBITDA margins have been achieved in turnkey projects
  • Company expects the EBITDA margins to improve in the following years.

EHV segment

  • Productivity in this segment has suffered and revenues are at 100 cr. A quarter
  • The company expects that it can achieve a revenue of 250 cr. In the next year
  • The EBITDA margin in the EHV segment is around 15%.

Utilisation Rates

  • Current utlisation rates at Chopanki plant=35%
  • Utilisation rates in Bhiwadi and Silvassa=95%(excluding extensions).

Expansion Plans

  • Company expects a 15% growth in volume which may vary according to commodity prices
  • Company expectsa conservative 15% growth in exports and expects around 400 cr. In exports with competition from China
  • Company sees export growth mainly because of itself getting approved in many utilities mainly from the Middle East(around 50%) which have resulted in good and sustainable growth in FY17.
  • Company has higher exports than imports and is managing its currency exchange risk by maintaining an edge between receivables and payables in forex.
  • The company has a 236 cr. Order book in the EHV segment which has a market of 1500 cr. Which is mainly met through imports because of lack of qualification by Incianmanufacturers and KEI intends to meet these requirements.
  • The company expects to generate revenues around 300 cr. In EHV cables.
  • The company does not have any CAPEX plans set for FY17
  • It has maintenance Capex of 10-12 cr. Every year.
  • Company increases its capacity by 150-200 cr. Every year and expects that current capacities can take care of demand in FY 18

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Kei Industries Q4FY17 Concall Summary

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Financial Highlights

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  • Net sale in Q4FY17 were at 746 Cr ; operating profi tat 80.86 Cr and  operating margin at 10.84%
  • PAT in Q4FY17 was at 31.62 Cr an  increase of 55.84% against Q4FY16 while PAT margin came in 4.24%
  • Growth in sales against Q4FY16 was up at 17%
  • Net sales in FY17 was at 2669 Cr, EBITDA at 10.67 Cr while  PAT was at 98.63 Cr
  • Growth in sales against FY16 is 15% while Growth in EBITDA against FY16 is 15%
  • In FY17, export sales have grown by 96% to 375 Cr
  • Net sales through dealer network has improved 13% to 813 cr. and 15% in terms of volume. The total number of dealers have improved to 114
  • The financial costs have reduced to 123 crores from 127 crores in FY16
  • Total pending orders are 2783 Cr out of which EPC is 2000 Cr and EHV cable is 200 Cr
  • The segmental wise revenue breakup in cr. is shown below:-
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Orderbook

  • EPC orderbook is close to 2000 cr. in which 1817 cr. comes from EPC and the remaining 177 cr. belongs to service station business
  • Order intake in the EPC business comes roughly around 200-300 cr. and the problem is execution owing mainly due to demonitisation and U.P elections
  • Company expects order inflow in EPC to be around 1500 cr. because of its focus on execution and not taking further orders to maintain.
  • Geography-wise, the orderbook remains the same with 75% coming from U.P and the remaining mainly from Goa and Himachal Pradesh
  • Company is actively bidding in all the states so as to minimise political risk.
  • Company has already started recognising profits as per the appropriate completion in projects so as to ensure smoothening in profits.
  • Earlier, it used to recognise profits only if more than 25% was completed
  • Under IDPS scheme, most of the states have come out with tenders for Phase 1 and U.P has already placed orders last year and awarding contracts tendering has begun.
  • Total ordering under IDPS is 6000 Cr  while under DDU scheme is 11000 Cr

Working Capital

  • The receivables have increased significantly over FY16 mainly because of the increase in retention money ofr EPC and increased sakes of cable division in Feb. And Mar
  • Company expects the working capital to remain the same because it has got around 50 cr. from EPC division as result of the U.P. elections
  • There is a rise in capital employed mainly due to the funds released by the central government which has resulted in payments not getting delayed from PEC and REC
  • In cable business, debtors has grown only due to rise in sales.
  • Increased receivables over FY16 is 144 Cr out of which EPC is 86 Cr and cable at 59 Cr
  • Company expects the receivables to increase to 825-850 cr. by next year.
  • Company expects the days in receivables in the cable segment to go down from 30 days to 20 days because of increase in the company’s channel financing
  • The working capital cycle in exports which is expected to grow at 10-12% is 75 days.

Financial Costs

  • The company expects the credit rating of the company to improve which can reduce interest costs on account of expected decrease in working capital in the future
  • The financial costs have decreased due to lower utilisation of working capital and lower interest rate which is 11.45%.
  • The interest expense breakup is as follows:-
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EHV segment

  • Company expects to do around 275 cr. to 300 cr. of EHV sales
  • Company expects to achieve 20%+ growth in revenues in this segment.

Debt

  • There has been a sharp increase in short-term debt from 141 cr. to 51 Cr
  • This is because debt includes bad credit which is part of creditors.
  • Company expects total debt reduction with 50 Cr worth term loan paid every year.

Expansion/Future Outlook

  • Company expects 13-15% growth in LT and HT despite HT having a 12% decline yoy.
  • This is mainly due to production suffering in the Chopanki plant due to installation of new machinery and reconstruction of the building.
  • Company has a 10-15% bid success rate in the tenders
  • Company has 1500 cr. of order in the EPC division in the next year
  • Company expects 20% growth in the house wire division which might be more if the real estate sector improves
  • Company does not foresee any impact due to pricing of commodities such as copper because it has 75 days of inventory and there is a balance between inventory and orders booked
  • Company has no capex planned for FY18 and 15-20 cr. of capex is planned to increase operational efficiency
  • Major capex plans will be drawn in the later months of the year
  • Company expects to grow a lot in the metro business which contributes 7-8% of the business because of metros coming up in various cities
  • Company is growing in the railways segment and expects capex. In railways to go up

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Kei Industries Q1FY18 Concall Summary

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Financial Highlights

Kei Ind Q1FY18 financial
  • Gross sales=823 crores; 37.7% increase when compared to Q1FY17
  • PAT at 27.47 crores; PAT margin=3.34% which is a 78% increase when compared to Q1FY17(1.87%).
  • EBITDA margin=9.52% which is a 6.1% increase when compared to Q1FY17 at 8.97%
  • 28% increase in growth in sales of wires and cables
  • 28% increase in net sales of export from 85 Cr in Q1FY17 to 109 Cr in Q1FY18
  • Segmental wise revenue breakup is as follows:-
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Expenses

  • Finance costs are at 29.94 Cr at Q1FY18, an increase of 7.8% over Q1FY17
  • However the financial cost margins have gone down to 3.64% from 4.64% in Q1FY17
  • Huge increase in other expenses singled down to product mix and EPC business which are a part of variable expenses.

Expansion plans/Capital expenditure

  • Addition of a 100 dealers during the quarter on a YOY basis with focus to increase dealers in terms of their selling capabilities and grow existing dealers in terms of business
  • Expected dealer network to be around 1500 dealers by next year(current dealers=1246), a 10-15% increase in number YoY
  • Strategy to increase presence in A,B,C class cities simultaneously where sales forces has increased to cater to retail segment but focus is build up the market overall
  • Small expansion plan devised to increase the capacity of LT cables, LT power and control cables
  • Investment of nearly 50 cr. In building and PPE to build up additional capacity of Rs300 cr. Per year for LT power and control cables at a land owned by the company located near its Chopanki factory in Rajastan expected to be fully operational by April 2018.
  • Capex plan for FY 2018 to be around 50 cr. For expansion capex And 10 cr for maintenance capex.
  • Company estimates that the market size for 400kV EHV is currently met only through imports and with growing power requirements in metros, most power transmission companies are upgrading their systems from either 220kV to 400kV or from 132kV to 220kV which will result in greater demand

EPC division

  • Net sales in EPC division=170 cr.; sales to EPC projects of company=71 cr.; Growth in sales from Q1FY17=102%
  • Overall Pending order book is around 2478 cr. Out of which 1850 cr. Belongs to the EPC division with the remaining in cables and extra high voltage cables out of which export orders are about 120 cr. Which are yet to be executed in the second quarter and the management feels that exports will increase with more inflows coming in.
  • Management is positive that the momentum in terms of growth in sales will continue and the order book position is very healthy
  • Total focus is on order execution which is why order inflow is low in the last 6 months and the company is expected to have a new order inflow of 500 cr. In the next 5-6 months
  • EPC business to be limited to 800-900 cr. So that bidding and taking out orders occur based on that target figure
  • Company expects EPC business to grow by 60% and sales to increase from 600 cr. To 900 cr. In this financial year including the cables

Impact of GST

  • Company expects that sales will grow as a result of GST and no pre-buying has been observed before the applicability of GST on July 1st regarding the house wire segment.
  • Inventory levels are normal as compared to last year and has been at nominal levels
  • Since GST has been launched from July 1st, there is no excise duty provisions on the closing stock. Excise cost is only readjustment on the closing stock provision where it used to be applied.
  • No hits on margins due to fluctuations in metal prices or increased GST as all taxes are payable by the customer extra actual at the time of dispatch.
  • 100% GST impact has been passed on to the customer from July 1st and company is quoting taxes extra as applicable at the time of supply.

Orderbook

  • Pending orderbook at 2478 cr. Out of which 1850 cr. Belongs to the EPC business.
  • UP contributes to 65% of order book and contributes to 70-75% of sales.
  • Company expects the order mix to change significantly by next year.
  • Present focus on underground cable projects under IPDL in the EHV segment which is being mostly executed and this helps the company’s own plant because it is their self-manufactured product
  • Company has already completed and charged one GIS substation of 132 kV which became operational in March 2017 with another 220kV substation to be charged in October 2017. A substation of 132 kV has been commissioned from PowerGrid and a fourth substation which will be completed by March 2019.
  • Huge number of orders coming from metro business with orders coming from Nagpur, Pune ,Ahmedabad metros, expansion of Bangalore and Chennai metros. Currently, the company is catering to the Lucknow metro.

Utilisation levels

  • Utilisation levels in EHV cable=35%;utilisation levels in LT and HT cables=90%
  • Overall utilisation level in Chopanki plant=70%
  • Expected Utilisation levels in EHV cable=50% for the whole year and company expects the utilisation levels to improve as credentials become stronger year on year
  • The utilisation levels are worked out through the tending system
  • Company expects minimum volume growth to be greater than 15%.
  • Utilisation levels are at 50% in EHV segment mainly due to delay in major qualifications because of state utility levels at many places which makes it hard to achieve the qualifications.
  • ROW issues present in state and non execution of orders is mainly because of ROW not getting period.

Expected future earnings

  • Company is showing a very conservative growth figure of 20% despite not expecting any weakness in third and fourth quarter
  • Company expects that there will be a 100-150 basis points improvement in EBITDA margins in the next year with consecutive improvements in the next 2 years.

Debt

  • In the next 3 years, 150 cr. Worth long term debt will be fully repayed while the working capital debt will remain in the range in the 350 Cr -450 Cr
  • Receivables=796 cr. As per Ind-AS.
  • Total debt(working capital+long term debt)=559 cr vs 573 cr in March 2017.
  • Total debt including VAT credit=685 cr. vs 713 cr. in March 2017
  • Trade payable has increased from 482 cr. to 584 cr. and this has resulted in a positive working capital cash flow
  • Receivables have seen an increase far greater than the revenue increase mainly because of the year-end sale and the Retention moneywhich is isaround 140 cr.

Pricing Issues

  • In all IDPL projects, the increase in prices of items like cables, conductors, transformers with respect to the metal content has a price variation clause
  • Underlying cabling which is gaining popularity over overhead cables costs 2.5-3 times the cost of overhead cables mainly due to excavation and civil work required to build the road.

Promotional Activities

  • 12-13 crores to be spent on brand building in the current financial year
  • Company has taken sponsorship with Kings Eleven Punjab

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