Interview with Pitti Engineering Ltd

Interview with Pitti Engineering Ltd

by 5paisa Research Team Last Updated: 2022-03-30T11:50:32+05:30

The transition of increasing value-added products is the major growth driver for our business, states Akshay S Pitti, Vice-Chairman and Managing Director, Pitti Engineering Ltd.

Can you give some insight on the ongoing and future capex expansion and your debt reduction plans?

The company is on track for its expansion plans in Aurangabad and has acquired adjoining land to its existing facility. The capex will be completed by end of FY24 with incremental capacity enhancement starting from Q1FY23. Capacity by end of this year would stand at 48,000 metric tons vis-à-vis the current 41,000 metric tons. We will be having about Rs 100 crore of capex being capitalized in FY22, another Rs 100 crore in FY23 and about Rs 70 crore in FY24. The funding will be a combination of internal accruals and additional debt.

Our debt profile as of December 31, 2021, would be about Rs 330 crore. The debt will come down because we will have the repayments of the previous debts. So, close to Rs 40 crore debt is up for repayment in the next 12 months. Whereas, we are going to add about Rs 120 crore to Rs 150 crore of capex over the next year, with 1:2 debt-equity proportion. So, about Rs 80 crore of total debt will get added, Rs 40 crore will get repaid. So, the net position will be about Rs 40 crore. Then, for the subsequent year, we have Rs 70 crore of capex for FY24, again at 1:2 debt-equity, adding maybe over Rs 25 crore or Rs 30 crore of debt. And again, will have a huge repayment, so the debt should peak out at Rs 370 crore in FY24, which includes both long term and working capital debt.

What are your key growth levers?

Capacity expansion of our lamination from the current 48,000 tons per annum to 70,000 tons per annum by end of FY24 is the biggest growth driver for the company to meet the increasing demand for our user industries like industrials, transportation including railways, power generation and other emerging sectors like data centres, desalination projects and EVs. We are currently operating at the highest capacity utilization at 80%, which is the optimal level for our industry and we would continue to operate at the same level by end of FY24, which would produce 56,000 tons of electrical laminations per annum. Currently, 80% of our product mix is value-added products and the rest is loose laminations.

This transition of an increasing share of value-added products is the major growth driver for our business in terms of increasing our pie of share among our existing customers. This has also remained the single differentiator, which made us leaders in the electric laminations industry. We are actively working with EV players across the segments like two-wheelers, three-wheeler, buses and passenger vehicle manufacturers both in domestic and international markets and have received letter of intent (LOI) from some of the players and some orders too. This is going to change our product mix besides adding multiple new products from our existing segments like wind power generation, etc.

At the moment, what are your top 3 strategic priorities?

In terms of growth strategies that we are implementing or the reason that we are so positive and bullish and are able to project a strong growth is that for the last 5 years we diversified our products into machining sharps, assemblies. So now we are supplying ready to use components and sub-assemblies to our customers rather than supplying them with individual components.  

Especially during Covid when the supply chain of our end clientele was disrupted very heavily, they realised that having a vertically integrated supply chain from one single supplier can be very valuable because if everything is done in-house at our end, they don’t need to be worried about having mismatches in inventories and products. So that strategy is paying dividends especially because of Covid and the kind of supply chain disruptions that happen. And because of this, the end clientele wants to reassess the supply chain.

What is your earnings outlook for the upcoming quarter?     

We are estimating Q4 would be better than Q3. So, we will end the year somewhere around Rs 130 crore to Rs 135 crore in EBITDA. In terms of tonnage, we have done close to about 24,000 metric tons. And again, as I said, Q4 looks flattish because of lack of new equipment coming in. So, the tonnage, we should end close to 32,500-33,000 metric tons; which would give an EBITDA of somewhere around 40,000 metric tons, for the full year.

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