Aditya Narsing Rao, Vice Chairman and MD, Pennar Industries Limited

Steel prices in India have historically been stable with a general increase of around 5% on average every year.

Oct 11, 2018 10:10 IST India Infoline News Service

Aditya Narsing Rao, Vice Chairman & Managing Director, Pennar Industries Limited
Aditya Narsing Rao, Vice Chairman & Managing Director, Pennar Industries Limited (PIL), India’s leading value added engineering products & solutions company. Aditya is Vice Chairman in group companies Pennar Enviro Limited (PEL) and Pennar Engineered Building Systems Limited (PEBS). Aditya has been associated with PIL since 2006 and has been instrumental in new product development and adding new business verticals such as solar and environmental business. Under his leadership, PIL has achieved gross revenue of over Rs2000 crore in FY18. 
 
In an interaction with Shweta Papriwal, Editor, IIFL, Aditya Narsing Rao, Vice Chairman & MD, Pennar Industries Limited, said, “We have an order book of approximately Rs450cr however, it is difficult to ascertain an order book amount of many business verticals.
 
Kindly brief us about your business and segments.
Pennar Industries Limited (PIL) is India’s leading diversified engineering company. PIL primarily services the automotive, railways, solar, white goods, environment treatment and building materials segments.
 
Headquartered in Hyderabad, PIL has manufacturing facilities in Patancheru, Isnapur, Sadashivpet, Mallapur, Velchal (Telengana), Chennai (Tamil Nadu) and Tarapur (Maharashtra). Pennar also has engineering centres in Hyderabad, Chennai and Vizag and sales offices across India. PIL’s customers include domestic as well as global industry leaders from diverse sectors such as infrastructure, automobiles, power, general engineering and construction.
 
For the financial year 2017-18, PIL posted gross revenue of Rs2,043cr with PAT of Rs107cr, an increase of over 100% over the previous year. For Q1 FY19, the company posted a consolidated revenue of Rs466.5cr and a PAT of Rs13.1cr.
 
What is your outlook regarding solar and renewable going ahead? How are you faring in the solar segment?
The solar vertical has been facing significant challenges due to a slowdown in the implementation cycle. Around 7GW of solar capacity was added to India’s energy grid last year and we expect a similar figure this year. Consequently, we believe the revenues for this vertical will be flat in the short term.
 
What is your current order book status?
PIL makes engineered products for multiple business verticals. Some of PIL’s businesses have order book whereas in some businesses we have long term fixed monthly supply contracts. Our Pre-engineered Building Systems (PEBS) business, we have an order book of approximately Rs450cr however, it is difficult to ascertain an order book amount of many business verticals. Having said that, let me tell you that order flow across our business verticals is extremely healthy and for many business verticals, we are actively considering enhancing our production capacities. Recently, the company received multiple orders aggregating to Rs306cr for its railway, solar, industrial components and value added engineered steel products from the existing as well as new customers.
 
What is your take on the commodity prices, especially steel, considering the macroeconomic scenario?
Steel prices in India have historically been stable with a general increase of around 5% on average every year. However, for the past couple of years prices have been extremely volatile with swings in excess of 20% in a year. We believe that this volatility will continue to persist driven primarily by raw material variations for steel companies, persistent weakness in the rupee and due to steel companies attempting to pass through all input price increases as quickly as possible.
 
What is your outlook on margins and profitability for FY19?
At PIL, we don’t provide specific revenue or profit guidance. What I can share with you is the long term and short term targets that we have set for ourselves. We plan to grow our top line by 3 fold in 5 years i.e. from FY18 revenue of about Rs2000 crore, we have a business plan to grow our revenue to Rs6000 crore by FY23. In the short term, we see our revenue and profits growing at a higher double digit at about 20% plus. 
 
How is the wagons/ coaches segment performing? What is your order book in this?
There is a huge demand supply gap in Wagons and it could turn out to be a fantastic opportunity for us, but in the last few years it has been very, very volatile so we do not really map wagon orders because they are very intermittent. Wagon business by its very nature is so unstructured that there is no way for us to really project order booking and revenue for this vertical. For example, two years ago, our wagon revenue was Rs70 Crores, last year it was Rs40 Crores whereas for this year (FY19) it could be substantially higher than that. This represents double digit reduction and growth in revenue over the past three years which is very volatile.
 
In our Coaches business, on the other hand, we have a fair amount of clarity. Our order books for our coach business are now full for the next two years. We are adding new products and new verticals specifically relating to interior modular frames and also bogies, so that will allow us to further increase our addressable market and our revenue base, which will result in further order book and revenue growth. We expect this vertical to grow at a high double digit rate for the next few quarters.
 
What is the revenue break-up for domestic and exports?
Pennar Global, a 100% subsidiary of PIL undertakes export business. The export business is growing quite well and expected to contribute about 10% to FY19 revenue with approximately 50% y-o-y growth. We export a diverse portfolio of products and services including hydraulic systems, CDW tubes, structural engineering services and industrial components.
 
How are the subsidiaries i.e. PEBS & PEL performing?
Pennar Engineered Building Systems Limited (PEBS) is Rs600 crore business and the second largest player in the industry. The company recorded significant improvement in profitability during FY18. While Q1FY19 was not very good for overall PEB industries and for the company as well, we see things have started improving in the current quarter. Recently, the company has received orders worth 208 crores towards its various products like Warehouse, Factory buildings, Hanger building, components, Piperack structure, solar structures and communication towers. We are very optimistic about business opportunities and the synergies that we have, to capture a significant share of the market opportunities.
 
Pennar Enviro Limited (PEL) has scaled well over the past five years recording sales of Rs122cr in the financial year ending March 2018. This company has been expanded to a global platform with a strong marketing and business operations team. We have multiple growth engines for this vertical and the business will see a similar growth path as the parent company.
 
At what stage the company is for its proposed merger of PEBS and PEL? Can you explain the rationale of the proposed merger?
For the proposed merger of PEBS and PEL with Pennar Industries Limited, we have received approval from the exchanges, we have received approval from SEBI, we have received NOCs from all of our bankers. With these approvals and NOCs, we have now approached NCLT which will guide us on EGMs.
 
The proposed merger is expected to create leaner group structure, result in better synergies and optimisation of costs and fund utilisation. It will also result in PIL having a better capital structure, pooled resources and synchronised growth plans. All this is eventually expected to lead to focused growth, higher profitability and shareholder value creation. 

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