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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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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Pitti Laminations Q1FY18 Concall Summary

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Company Background & Business scenario

  • 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. The present installed capacity is 32,000 TPA of laminations and is being expanded further, in stages to 50,000 TPA
  • IIP contracted by 0.1% YoY in Q1, FY 2018 as compared to Q1, FY 2017, mainly driven by 6.8% contraction in capital goods
  • Better Industrial output expected in near term on account of good monsoon, 7th pay commission and restocking of inventories post GST.

Financial Highlights

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  • Pitti Laminations registered an exceptional revenue growth of 58.7% YoY to INR 92.1 cr. in Q1, FY 2018 on account of growth in domestic volumes and better price realization.
  • Domestic sales accounted for 70% of total sales while Exports accounted for 30% of total sales.
  • Domestic sales grew by 68.7% YoY to INR 64.2 cr. and Export sales grew by 40.5% YoY to INR 27.2 cr. in Q1, FY 2018 as compared to Q1, FY 2017.
  • Other operating income accounted for INR 0.7 cr.
  • EBITDA for the quarter increased by 44.4% to INR 12.5 crores, compared to INR 8.6 crores in Q1 FY2017.
  • EBITDA margin for the quarter was 13.5% and PAT for the quarter was INR 2.5 crores, an increase of 292% from Q1, FY 2017. PAT margin in the quarter was 2.7%.
  • In Q1 FY2018, 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 Q1 FY2017
  • Total debt of company stands at INR 223 cr. with INR 67.9 cr. of long term debt and INR 155 cr. of short term debt
  • Cash and cash equivalents for the quarter stood at INR 14.5 crores, resulting in a net debt position of INR 208.5 crores
  • Net worth of the company stood at INR115.1 crores at the end of the quarter.
  • Company had a conservative leverage profile with the total debt to equity ratio of 1.21
  • Overall volume registered a strong growth of 15.1% YoY to 4,895 MT, with domestic volume growing by 7.2% YoY to 3955 MT and export volume growing by phenomenal 66.4% YoY in Q1, FY 2018 as compared to Q1, FY 2017.
  • Sales of stator frames witnessed huge growth of ~11 times, from 36 units in Q1, FY 2017 to 440 units in Q1, FY 2018.
  • Volume expectation for the year FY 2018 is total 22000 MT of lamination. Breakup into domestic and export is 18,000 MT for domestic and 4,000 MT for exports in FY 2018 & ~6000 MT in FY 2019 as compared to 2600 MT in FY 2017. 
  • The company expects to produce ~26000 MT in FY 2019.
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CAPEX

  • The plant 4 set up at Hyderabad with machining capabilities for Gamesa and Siemens orders is completed. Company has successfully completed trail production and commercial production has started for this plant on 12th August 2017
  • Pune operation is expected to be shifted to Aurangabad and start operation there by Q3, FY 2018. The facility will have both laminations and machining capabilities.
  • Debt has increased on account of CAPEX. The total expenditure has been INR 78 crores for setting up two plants, one in Hyderabad called Plant 4 and other in Aurangabad.
  • Capital expenditure on modernizing certain machineries and equipment is ~ INR 30 crores. The Debt would have a payback cycle of 5-6 years with regular repayments.
  • Total capacity of machining after complete reorganization will be 201,000 hours per annum. This will include Aurangabad, Hyderabad existing Plant 2 and this Hyderabad new Plant 4
  • Apart from abovementioned CAPEX, no future CAPEX requirement is seen in near to medium term.

Growth Prospects & Future Outlook

  •  The company has a target of achieving Topline of INR 1000 crores in 3-4 year timeframe
  • The company expects lamination business, as well as machining business to contribute up to 30%-35% to total revenues as compared to 6%-7% at present
  • The companyis still considering the idea of merging its casting company into Pitti Laminations and other inorganic growth to accomplish the target of INR 1000 Crore Topline in next 3-4 years. Merger can be expected by FY 2019- FY 2020
  • Pittil Castings is a Promoter Group company. Its annual revenue is ~ INR 80 crores and EBITDA margin is 16%.
  • In exports market, company does not see and such long term contract coming in. Exports market is expected to remain stable and Domestic market is expected to gain traction with mainly lamination and value added products
  • Stator frames, among the value added products, offers a good margin and it is currently being supplied to GE against the 10 year contract. Its demand will remain the same as it would be supplied in equal quantity over the 10 year period. It along with other parts is expected to give revenues ~ INR 50 crores-55 crores per year.
  • Sales of Wind turbine generators are expected to remain stable with present order book position.
  • Company is seeing pick up in transformers business and it is getting good orders from transmission side, with companies such as Bharat Bijlee.
  • In domestic market, Company is in discussion with Alstom for contract as Alstom has received orders from Indian railways and would come to buy into markets. The contract is roughly estimated to be worth INR 200 crores- 300 crores with 7-8 years of tenure.
  • The company is going to produce small laminations for Crompton from their Aurangabad Plant. The annual quantity would be 1000 tons at price realization of INR 100 per kg. The quantity may grow up to 3000 tons per year in future.

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