Pitti Engineering Limited (PITTIENG) Q4 2026 Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Q4 and FY26 earnings call of Pity Engineering Limited. This conference call may contain forward-looking statements about the company which are based on the beliefs, opinions, and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Akshay S. Pitti, Managing Director and Chief Executive Officer, Pitti Engineering Limited. Thank you, and over to you, sir.

Good afternoon, everyone, and thank you for joining us for the Q4 and full year FY26 earnings conference call of Pitti Engineering. Along with me are members of senior management team and our industrial relations partners from SGA. Our financial results, revised investor presentation, and related disclosures are already available on the stock exchanges and on company's website. I hope you have had the opportunity to go through the same. Let me brief you a bit on our journey because it provides important context to where we stand today and where we are headed. We began our journey as a manufacturer of electrical steel laminations, essentially a basic engineering commodity with limited value addition. Over the years, we have consciously and steadily transformed the company from just electrical steel laminations into an integrated engineering solution provider with strong capabilities in machining, casting, fabrication, and high-value SMPs. Over the years, we have consciously moved up the value chain to sustain investment, customer partnerships, and capacity expansion. Today, value-added and integrated products contribute an increasing share of both revenue and profitability. On the macroeconomic conditions, FI25 was a challenging year for the industry, marked initially by tariff wars, followed by inflationary environment, and West Asia prices towards the close of the financial year. These developments impacted both broader economy and industries through shortages of commodity metals, supply chain disruptions, and rising prices across domestic as well as global markets. Despite these headwinds, global supply chains continue to diversify, with India further strengthening its position as a preferred sourcing destination, driven by cost competitiveness and well-established engineering capabilities. Although demand trends differ across end markets, the overall momentum remained healthy. Export-oriented business continue to demonstrate resilience, supported by improved visibility and relatively fair trade environment for Indian suppliers across key markets towards the end of the year. Against this by-drop, our core sectors maintained strong performance. Lamination business witnessed steady demand from sectors such as railway, mining, and power. While growth in wind energy moderated, it was effectively offset by robust demand from data centers and industrial motors. On the end-user industries, traction motors, railway components continue to be a key strategic focus area for us. Although domestic railway capex has moderated to some extent, our exposure remains well diversified, supported by meaningful share of international locomotives and metro project business. Demand from power generation sector continues to remain stable, driven by ongoing investments across DG sets and thermal and hydropower plants. Industrial and commercial sectors are benefiting from infrastructure development and broader revival in capital expenditure and modernization, while data centers represent one of the most promising mid-term growth opportunities, supported by new customer additions across multiple geographies in this category. In addition, mining, oil, and gas, and specialized motors continue to witness healthy momentum in new product development. But at 526, Traction motor and railway components contributed 33% of revenue, followed by power generation at 15%, industrial and commercial motors at 13%, special purpose motors at 7%, mining oil and gas at 6%, renewable energy at 3%, data centers at 3%, and other segments at 19%. On the volume side, in queue for FY29, total lamination and assembly's volume stood at 18,400 tons, a growth of 7.3% on bio-wide basis. For FY26, lamination volume increased to 69,500 tons, up by 10% compared to FY25. Within lamination, higher-value-added SMDs, integrated shaft and stator rotor SMDs grew faster than loose lamination, reflecting an improving mix. Total raw casting and machine components volumes for Q4F526 stood at 2,783 tons. There was a temporary softness on the ear end due to Sorry, sorry, there was a temporary softness in the year-end. For the full year, FY26 volumes grew by 15.4% to 12,012 tons. On the capacity utilization front, Q4 FY26 witnessed a meaningful improvement across operations. Sheet metal utilization stood at 80%. Machining hour utilization reached 87%. Casting utilization was 64% during the quarter. For the full year, utilization levels improved to 76% for sheet metal, 81% for machining, and 71% for casting, reflecting consistent execution and improved absorption of fixed cost. We continue to progress on the previously announced CAPEX aimed at enhancing manufacturing capabilities. Of this, nearly 100 pros has already been incurred, and the capacities are expected to become operational by end of H1 F527. Given the rising capacity utilization levels and healthy order pipeline, we are announcing a new CapEx program to further expand our capacities and address growing demand. We have announced a greenfield facility for casting and machine components business with a planned investment of 290 crores. A proposed capacity increase of 11,400 metric tons in the casting site, the facility is expected to be commissioned by Q1FI30. The project is expected to generate asset terms in the region of 1.2x. This greenfield facility is developed with a focus on significant opportunities we are seeing in machine components and castings for the mining, locomotive, data center, and power generation applications. Several of our global marquee clients, such as Progress Rail, Siemens Mobility, Caterpillar, Voight, and Waptek, among others, are witnessing strong growth in their own businesses. And we believe as an integrated casting and machining supplier, we are most well positioned to partner with them in their growth journey and their diversification of their supply chains. Accordingly, our topic strategy is built around three key pillars. First, improving efficiencies and de-modernizing existing capacities. The second is expanding capacities in areas where customer demand visibility is strong. And third, creating a larger platform for machine castings and integrated components. Which we believe will drive the next phase of the growth of the company. Moving to financial performance, for Q4 F526, our revenue from operations stood at 506 crores as compared to 472 crores in Q4 F525, a growth of 7%. For the full year F526, revenue from operations stood at 1,953 crores as compared to 1,743 crores in F525, registering a growth of 12%. Adjusted EBITDA for FY20 lines grew at 326 crores, up from 272 crore rupees in FY25, suggesting a growth of 20%, with adjusted EBITDA margin improving from 17% from 15.9%. Margins were also impacted on account of sharp changes in commodity and forex exchanges in Q4, but this is part of the business, and we see this now stabilizing, which will support the overall performance in the coming year. For the full year, adjusted tax would have 128 crores, compared to 123 crores in F525. On the other income front, we are planning to take the benefit of Maharashtra State Investment Promotion Subsidy for the capex which we have incurred in Aurangabad from F528 onwards to maximize our claim which will be beneficial for the company. FI 26 has been a year of consolidation, capacity building, and continued momentum of the value chain. We have delivered growth in revenue, improved full-year EBITDA margins, and expanded our product capabilities, increased value-added volumes, and laid the foundation of the next phase of growth. The pity of today is very different from the pity of the past. The next phase of growth will be driven by focus on value-added products, machine components, automation, working capital discipline, and customer-led capacity expansion. With that, I will now open the floor for the question and answer session. Thank you.

Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question comes from the line of Pala Subramaniam from Arianth Capital. Please go ahead.

Good afternoon, sir. Thank you so much for the opportunity. Sir, in that 290 crore greenfield facility, so if we could share some more details, what is the detailed roadmap for this CAPEX, and this CAPEX is for existing products or we are planning for new products, and that is it.

This CAPEX is for machine castings. In terms of, is it for existing products or new products? I would say it's for similar products. We make castings from 50 kilos all the way up to 4 tons single piece. We are catering this CAPEX towards the larger castings, which will be required for mining of highway and data center related applications.

Yes, sir. From the inventory side, I think…

On the machining side, we are also currently investing a lot of that money towards the machine hour expansion. That is going to happen in a modular manner. It will not be commissioned only in FI 30. It will start getting commissioned from FI 28 and FI 29 as well to support the machining growth that is required in the current machine components business. As we have already de-autominated the casting capacity to 24,000 tons by end of H1-FY20 stern.

Yes, sir. So the second question, we targeted inventory level of 300 crores. I think we have secured new supplies from Korea and Japan, and how do you look at supply side and inventory side in coming years?

So, we have already like diversified the supply chain and the steel availability has improved significantly over the quarter four and currently in quarter one as well. We see the inventory levels maintaining at around 390-400 crore level going forward as we continue to grow. On the working capital cycle, our days payable have gone down as obviously to reduce the inventory format high watermark, we have not procured as much. As we start procuring material and consuming the same inventory, the days payable will go up and our working capital will get released.

Thank you, sir.

All the best.

Thank you. A reminder to all participants, you may press star and want to ask a question. The next question comes from the line of Avnish Diwari with Makaria. Please go ahead.

Hi. Can you articulate how, over the years, in your experience, whenever the currency has depreciated in India compared to others, how has that impacted any existing order book or customers looking for future orders from a sense of your profitability or cost position relatively? Are you being all as equal because you have done a great job in qualifying in so many projects and visiting market clients?

Yes, so the currency position definitely helps India become more competitive as a destination. However, I would say it does not result in increased margins or anything, as we have a quarterly price change mechanism with all of our international clients. Wherein the benefit of any currency depreciation is passed on to them and in the unlikely event that the currency appreciates, they pass on the benefit back to us.

Okay. And have you created any benefit in terms of your discussion about new projects, or like you said, the benefits of your destination in terms of cost position? Has that phenomena you have experienced in the past, whenever the currency depreciates, or even recently in last month or something, where customers' engagements are getting more frequent or getting closer to the conclusion?

It definitely helps, but I don't think it drives anything in terms of customer decision making, as obviously these supply chains are very long term. It takes a long time to establish these supply chains and approve these products. So they are not looking at it from a quarter to quarter price change in terms of dollar strength or weakness. They are looking at India as a destination for low cost. Engineering goods as an alternative to China, and definitely the currency depreciation helps in bringing overall competitiveness when compared to other international destinations.

Okay, great.

Thank you.

Thank you. A reminder to all participants, you may press star and want to ask a question. The next question comes from the line of Vivek Ganguly with TGC AMC. Please go ahead.

Thank you. One simple thing we just were trying to understand in layman's term. So, in this table, you have given high-value-added assemblies, laminations, and laminations for motors, and then loose. If you can, in layman's terms, explain what this means in terms of value addition and how they are different and how, you know, while we are seeing the growth rates for the value-add is much higher than in the loose assemblies, it would be helpful if you can articulate in your own.

Okay, so the loose lamination is basically an engineering commodity. It's a piece of sheet metal which is 0.5 mm thick in which you do a stamping operation. So there's not really much value add that goes into it and therefore the margins also are lower. When we add low value added SMDs to that, we add that for a simple reason. Sometimes the customer says don't send it as loose lamination, just do a single weld and send it as a stack. By doing that, it does not become an assembly. Therefore, by nature of it becomes a much higher value add. It's a very low level of value add in that assembly. So that is why we bucket these two into this segment. I would say you should look at it more like an engineering commodity, the loose laminations and low value added assemblies. Now, when you move to high binary SMDs, firstly, these are possible in niche segments such as data centers, railways, wind turbine generators, special purpose motors, to name a few, whereas the motor complexity is much more when compared to the other applications such as DG sets or a ceiling fan, if you will. So, there are two different kind of end markets and end use cases. Therefore, different levels of value-add. So we classify them in a different category. If I have to give you a delta between a loose lamination to a high-value-added SMD, based on today's selling price, a loose lamination would be selling at approximately 1,80,000 rupees a ton, 1,70,000 to 1,80,000 rupees a ton, depending on the grade of scheme. A high-value-added SMD would trade somewhere between 2,20,000 to 2,30,000 rupees a ton. The second thing that happens is, you know, when you're going to this high value added assembly, it's not just laminations which are just welded together. There are multiple things which we call as child parts, which you can see in the line below of total lamination. These are other machine components going into the lamination assembly. That's what differentiates the high value from the loose and low-value-added SMD. When we talk of stator frame or rotor integrated shafts in the lamination business, these are basically these higher-value-added SMDs, wherein the customer wants us to either fix the shaft of the rotor or the frame of the stator and supply to them in a fully usable condition, where the only value-added remains is the winding of the motor or the generator. So, there we take these high-value-added SMDs and integrate them with the machine castings or machine shafts to get the final product. In terms of margin profile, obviously, this is going to be significantly higher when compared to the high-value-added SMDs as well.

Does that answer your question, Vivek?

Just another question. So, what is the borrowing at the end of 26 and the cost of borrowing?

You mean the total borrowing or the net borrowing?

Total borrowing.

The total borrowing is 698 crores.

And the cost of borrowing?

On an average cost basis, just give me a second, around 7%, 7 to 7.5%.

Okay, thank you.

Participants, you may press star and want to ask a question. Our next question comes from the line of Dheeral Shah with Philip Capital. Please go ahead.

Yeah, good afternoon, sir. Thanks for the opportunity. So, if I look at your Q4 numbers and if I look at your export segment particularly, so on a value-wide basis, there is still a big growth. So, any particular reason, what is that?

Because even if I look at overall effort to increase its numbers, the growth and the export Okay. So see, firstly, I mean, the answer for both the questions is interlinked. If you look at the Q4 numbers, there's a degrowth in the export numbers that is largely led by two issues. One, from 1st of March, there were severe issues with petroleum products, which are used in our foundry operations. So if you see, even our foundry output is lower in Q4. So that has impacted our, and that is mainly on our export side. So that has impacted our overall Q4 number, and more specifically, export numbers. Secondly, if you see on the lamination side of the business as well, where we were not impacted with the energy situation, the containers were still not moving out in most of March. So due to that, around about 20% of sales have not taken place, which would have taken place ideally. Mostly which were export-oriented. Okay, so will the revenue start very reflecting Q1 itself? It will be a slight slog because even now the energy situation is not fully normalized, especially on the LPG side as you know. You are living from moment to moment. Anything can happen in West Asia right now. So I don't know if you would like to comment.

Okay, so what is the overall growth that we are looking at at FI27 and for the next year at FI28 in terms of revenue and media margins?

So let me first give you on the quantitative side. On the lamination side of the business, vis-a-vis the 69,517 tons that we have done in FI26, we have targeted 78,000 tons of sales. And on the machine component, vis-a-vis the 12,000 tons that we have done, we are targeting around about 16,000 tons of sales. This should, in current commodity price terms, translate into roughly 2,300 close-off top line.

In terms of margins, I

think we should look at similar margins in terms of percentage. Going forward, like I said, if the commodity prices continue to rise, obviously your top line will grow more, but then the margin will be lesser.

Thank you. The next question comes from the line of Nikhil Purohit with Fitent Ascent Management. Please go ahead.

Hi, thanks for the opportunity. Just to understand on the capacity side, so by FY27, we will have 90,000 from standalone and 80,000 from PIPN, right?

Um, I would say you should look at it as we'll have 1,8000 tons of consolidated capacity because we are moving capacities between facilities for optimization, which is why we have not given any breakup in standalone and subsidiary capacities.

Okay. Okay. So, so 108K. Okay. So in FI 28, where will this, where will this be?

By FY28, this capacity will be the same. We have not announced any additional capex for the lamination side of the business.

But we'll be around at 80%, more than 80% utilization, right, in FY27?

FY27, we should be a little less than 80,000, 80% capacity. 78,000 would be roughly 72.2%. 72.2% it would be. Definitely, beyond FY28, we should, depending on the market situation, look at additional capex on the lamination side. The current capex is sufficient to take us to FY28.

Got it, got it. And can you give the revenue numbers for PIPL and DCPL individually, the subsidies?

Just one second.

I need someone to pull that up for me.

For the full year, revenue from Pitti Industries was 314 crores, and revenue from Dakshin Foundry was 67.65 crores.

Got it, got it. And just to understand on quarter four, our gross margins were hit in this quarter, right? They're down 100 bids, I think. And this is after we had indicated that BCPL, the production will ramp up from January onwards and margins should ramp up even higher. So why did we see this, just to understand?

Two factors. Like I mentioned, we couldn't execute around 20 crores worth of sales of the machine components and export lamination, which are a higher value-added product. So that's lying in our inventory. So obviously, the gross margin has not been accounted for, only been accounted for when we sell it. And secondly, in terms of energy costs, we were on a very high energy cost regime in the month of March. And typically, our price change mechanisms are on a quarterly basis. So this was like a black swan event where, you know, there's a sharp increase in energy cost. Mid-quarter, post the price change.

Okay. Okay. And like you mentioned, quarter one should also be slightly slower on that side, right?

Yes. Quarter one will continue to be slightly slower on that side as well as on the lamination side. It will not be worse than quarter four, but you will not see a sharp recovery in quarter one.

Got it, got it. And on the debt side, with our inventory levels maybe stabilizing, how do we see net debt reducing our finance costs? And do we see our finance costs basically going back to FY25 levels as our inventory levels normalize?

I think it will be somewhere in between FY25 and FY26 levels. To be very honest. In terms of debt, what we are looking at is about 125 crores of credit are increasing. So our payables will increase by 125 crores, which should help offset interest costs to that extent.

Okay, okay. And you mentioned in the opening remarks that the Maharashtra scheme for the Aurangabad plant coming in from FY28. Can you maybe quantify that and do we have any benefit in FY27?

So, we are eligible to take the benefit in FY27. Typically, these incentives schemes are given for seven or nine year basis. So, we have invested roughly about 400 crores in Maharashtra facility over the last four years, which we are now eligible to recover. Unfortunately for us, the government has approved a seven-year recovery plan. So the recovery per year is very, very high. The requirement to recover per year is very high. And the current Maharashtra sales will not support maximum recovery. So we are doing two things. We are also looking to work with the government to allow us to recover this money over nine years, in which case it becomes very simple. We can start accounting for and therefore start receiving these cash flows in the next 18 odd months. However, if that does not happen and we still have to recover in seven years, we feel we have a better chance to recover more money if we delay the accounting by one year because by then the local shares in Maharashtra would ramp up further and thereby resulting in better recoveries.

Got it. Got it. That was clear. Just one last question, a bookkeeping question. So, I was just comparing FY25 full-year numbers and noticed some changes in figures to other expenses and employee expenses. Like, has there been any reclassification here? If you could clarify that.

One second.

Sure, sure.

Other expenses, I don't think there's any reclassification, uh, from what I understand.

22 has become, so in FY25, if you, it was earlier 22 something, now it is 27, uh, 619, this is the FY25 number.

Uh, for Q4?

Uh, no, I'm talking about the whole year, FY25. 27 has become? 27, 6, 1, 9 is the current number, other expenses, right?

2, 7, 8, 1 crore, yes.

Yeah, so that was earlier 2, 20 crore approximately. Is that right? FY25, if you look at it. And so, I mean, your other expenses has reduced and your employee benefit has increased. So, is there some declassification there? No, there is no declassification there.

Let me just check on that. I'll make a note of it. But as far as I know there is no declassification, all we have done is we have started giving you the adjusted EBITDA on the investor PPD slide, wherein the employee cost is slightly reduced to the extent of the impact of ESOP cost. Got it, got it, okay. And, and one more thing which we have done is we classify the forex loss on contracts on our potential receivables in OCI as per the standard. However, last year there was hardly any value to that number. Most of it is only in quarter four.

Got it, okay, got it. Those are my questions. Thank you.

Yeah, thanks.

The next question comes from the line of Mohit Jain with DR Chokshi FinSurf. Please go ahead.

Hi, XSR. Good afternoon. Can you hear me?

Yes, please. Hello. Hello. Yes, please go ahead with your question.

Yes, yes.

Hello.

Okay, sir. Basically, hello. Hello. Yeah, can you hear me? Yeah. Yeah, I can hear you.

Hi. Hi. Good afternoon.

So, basically, my question is on the segmental side. So, traction railway segmental revenue dropped from, you know, 38% as a percentage of revenue to 33%, especially in Q4. In absolute terms, I guess we have done around 165 Watt Crores versus 178 last year, same quarter. We have seen an actual decline in the segment, especially on the quarterly basis. So I was just saying, I was just checking on that WebTech was described as, you know, consistent and growing customer of ours. So either other customers, you know, in their local media pullback, or what is the case that has been in this quarter, especially in the traction site?

No, so if you see, again, like I mentioned, there was about 20 odd flows worth of sales impact in this quarter due to various issues, including the energy situation and the dispatches that didn't actually get affected on produced material due to shipping constraints. And that is mostly and entirely what I export market, which is largely traction motor and railway components, both to WAP tech and Siemens mobility.

All right, and got it. Akshay, my second question, basically I joined the call late, so I don't know if this has been answered or not. There's this newly announced KPEF of 290kb field facility, especially for blasting. Where will this be located?

Hyderabad. It is adjacent to our existing facility, so we are in process of acquiring land, right, adjacent to the existing Poundry facility.

Got it. Got it. Thank you, Assistant. Best wishes.

Thank you. The next question comes from the line of Sahil Sharma from Dalmas Capital Management. Please go ahead.

Hi. Thank you for having me.

Hello. Sahil, you are not quite audible.

Sir.

Hello. Sahil, please use your phone on handset mode in case if you are using it on a wireless mode.

Hello.

You are still not audible, Sai. Hello. Yes, go ahead, please.

Yeah. Yeah. So, I just wanted to understand of the new CAPEX program. So, what are the expected margins and, you know, working capital investment requirements for the same?

So, see, once it's fully operational, we are estimating a 1.2x asset term with approximately a 25 to 28% EBITDA margin.

Okay. And working capital requirement would be how much?

Working capital requirement would be roughly 90 odd days in this. 90 to 120 days. Net working capital.

So, it's going to be a little heavier on the working capital side.

Okay, got it. Thank you.

Yeah. Thank you. The next question comes from the line of Rahul Kumar with Vakaria Fund. Please go ahead.

Yeah, hi. Just one clarification. Out of these machine components and, you know, the high value assembly, what is the mix between domestic and exports? So, if I have to give you, let me start from the stator frame and motor shaft integrated SMDs. I would say that's about 50-50 ballpark. On the high value added SMDs, I would say it's about one third to 40% export and the remaining domestic.

Okay. And in the machine components part?

On the machine components part, export and domestic, you're asking? Yeah. Yeah. That would be about 80% export and about 20% domestic right now. Okay. Okay. Got it. So, just some exports. I think last time we had mentioned about a couple of, you know, new clients, customer acquisition. So, what is the development on that front? So, the products are under development. We have made the samples on some of the parts and the remaining parts are in process of sampling. We would expect revenue from Q3. And this is for the competitor of our existing customer, right?

Yes, it is for the competitor of our existing customer.

Okay. Okay. And we have mentioned that in total, I think we are speaking to two, three more customers on the exports trend. So, what is the progress on that, those two companies? Sorry, it was a little unclear. I couldn't fully hear your question. If you can repeat it.

No, I was saying we were speaking to a couple of more customers apart from the,

you know, on the traction motor front. So what is the progress on that? So, we are already working with seamless mobility, as I mentioned in my speech, through our Dakshin Foundry, and then those parts which were going as raw, exposed, are now getting machined progressively and being shipped out. Obviously, progress rate has been added as a new customer, and ASPOM is already a customer in India, and we are exploring opportunities for their international requirements. If you take into account these three, sorry, these four customers, including WapTech, I think you cover majority of the railway, locomotive, metro, client customers globally, ex of China. I mean, the Japanese, Mitsubishi, and Toshiba are the only ones left. For the FY27, I think you had given a guidance of volumes and the EBITDA margins. Would you be comfortable sharing, you know, the bottom-line PACT number for the next one year or two years? Can you share your guidance for the PACT for FY27 and 28? That would be a little difficult for me to predict. As this capex which is going on, when does it get capitalized and how the depreciation will start getting accounted?

Okay. Okay.

And how much is the KPEX? The pipeline is something which will be slightly more nuanced as we keep going forward.

Okay.

Okay. How much is the KPEX, the ongoing KPEX for the new casting and lamination facility? And as of 31st March, if your 100% was already spent, 50% of cash flow was yet to be spent. Okay, okay. And this use, you mentioned that it will be, you know, commissioned by H1 of FL27.

Yes. Okay.

Okay. In the opening speech also, you mentioned about adding a couple of clients on the data center part of the business. Yes. Can you just talk about a bit more on that, right? Are they export customers or, you know, and what products are these? So we have two products that we've added for the export side. Both are existing clients. It's just the application is new for the client. One is casting for data center. This is basically your housing for data center generators as well as certain engine parts which we are looking at now for the data center turbine engine. On the casting and machining side. The other client, again, based out of U.S., it's basically right now those laminations are going to them for assembly in the U.S. Once we get that relationship into a mature level, they will then explore taking these high-valuated assemblies out of India from us. So, it's a two-step program with them. And thirdly, there's again an existing client in the diesel generating space based in India, which is looking for the data center assemblies, again, for their domestic and export requirement. But for us, those would be domestic sales. So, these are the three additions on the data center site. Okay. I understand.

I understand.

Understood. Thank you.

Thank you. The next question comes from the line of Harsh Patel, with Share India Securities. Please go ahead.

Hello, thank you so much for the opportunity. I just wanted to understand that what would be our total consolidation level, the debt, on considering working capital as well as long-term debt for up by 27-28.

Yes, like we had an approach that we would go for debt-free, so what would be the debt reduction plan going forward? So, see, as of now, the net debt is around 570-odd crores. We expect a 125 crore release from working capital. So, that should take our net debt down to about 470-odd crores before any current year earnings and cash generations. Out of the 290 crores of new capex and the 50 crores of pending capex from the previous announcement, we intend to spend about 100 crores from own funds, and the remaining is going to be funded to net debt. So whatever cash you generate, I believe should flow through to your net debt numbers going forward.

Okay, okay. So for FY28, FY29, what would be our net debt expectation?

See, again, this is without looking at any further capex in the lamination side. As I mentioned in my previous response to one of the questions, the current lamination capacity is sufficient in FY28 requirements. So, ideally speaking, if the market supports us, we should be looking at further capex in 28. Having said that, if you don't look at any capex happening in 28, I would estimate that your net tax should be down to about 250 odd crores. Sir, one more thing. On the consolidated side, our tax rate has increased to 30%.

So, is there any deferred tax adjustments going forward or what would be our

sustainable tax rate for about 27-28? There are deferred tax adjustments which are there and unfortunately they will continue. One which is relating to ESOPs which is not permitted as an expense under income tax computation. Secondly, in terms of hedge accounting that we do, so the forex losses especially the ones which are uncrystallized on open contracts are again not considered in income tax. And the difference in depreciation. So these are the three reasons why your tax rate is different from your, and looking at around 33%. Going forward, I think this, this would be similar. It may come down slightly, but it'll be similar. This, this issue is not going to go over to the ESOP and the difference in depreciation rates goes away.

Okay, okay, so it will stay for at least a couple of years too.

The next question comes from the line of Keshav Kumar with Nivashay. Please go ahead.

Yeah, thanks for the opportunity.

So, sir, like, on the data center side, do we supply anything to the global giant like caterpillar, especially for the insects?

That is a customer which is under development, which I mentioned in my opening remarks. So one of the key clients is Caterpillar, both directly and indirectly, directly for their data center housing and engine related components, which are machine castings, and indirectly for the generator part, the stators and rotor assemblies, which we are supplying to their vendor. So, these two are under development, and we expect, again, Q3 for start-off commercial revenues on these two products.

God, it's a time frame. That's a time frame. Thanks.

Thank you. The next question comes from the line of Avni Sriwari with Vicarya. Please go ahead.

Hi. Capitalization or depreciation, you mentioned. So, that is regarding the 50 crore of capital work-in-progress you have, or is there a more capex which you think will have an impact on depreciation, which is hard to predict right now?

See, the 50 crore of investment, which is pending from the 150 crore announced last year, that is pretty well predictable. Out of the 290 crores of current capex that we have announced, there are two parts to it, which is why we have to give the revised slide. The greenfield foundry will take two to two and a half years for commissioning and then becoming operational. However, the machine art capacity that we are increasing is for immediate consumption. So, how quickly these machines will get delivered given the current global environment and how quickly we will be able to ramp up will determine the rate of depreciation. Out of the 290 crores for the foundry side, it's only about 110-120 crores of investment. The remaining is largely going into the machining centers.

Right, right. So those depreciation rates are tougher to predict how much and how fast can you start? How much and how fast?

Both. Yes. More so because they are under lease finance arrangement.

Correct. But they will start getting revenue in EBITDA also as soon as they start getting capitalized.

So there will be profit accretion rates. Yes, obviously. Obviously. I mean, EBITDA will shoot and only then the depreciation will come in. Correct.

And beyond that machine component part, if you just look at the pace, the depreciation rate should be largely at the rate currently we are at and plus 50 crore, which is not yet capitalized, or is there any other moving part on depreciation?

Yes.

Okay, so there is no moving part other than that, right?

No, nothing else.

Great.

Thank you.

Thank you. The next question comes from the line of Dheeraj Reddy with AlphaSquare. Please go ahead.

Hi, sir. Thanks for the opportunity. I have two basic questions. First, please. Hello. Yeah, I mean, I mean, hello. Hello.

Yes, yes, yes, you're audible.

Yes, yes, thanks. I have two basic questions, sir. One is, like, how should one think about margin structures for basic casting, machining, I mean, casting plus machining, sub-assembly, and integrated assembly? Like, these are four different things done by a company. Like, how are the margin structures different for these four works?

They are vastly different. It's a good question. So if you look at raw casting, right, at a gross margin level, they would be somewhere around 50-55% gross margins. And in terms of EBITDA, it would be roughly around 30-35,000 rupees a ton, kind of EBITDA, on the raw casting. The minute you move to machine casting, firstly, the weight drops. You are machining away some of the casting elements, right? Thank you. And you're putting in a lot of value eyes. The sale price, you know, shoots up somewhere around 350 odd kind of rupees. And you look at, you know, again, about 55, 60% gross margins. However, the flow to EBITDA is much better. Here, you would look at almost 80,000 to 1,000 rupees a ton as your EBITDA margin. Okay, okay. So, sir, if you can mention the percentages, that would be much better, actually. I think percentages is misleading because, as you know, we have a full pass-through on costing. Barring a black swan event where towards the end of a quarter you have energy cost, all costs are passed through to the customer. So when the prices go up, the percentage goes down. When the prices go down, percentage margin goes up. So we are always more comfortable giving you in per ton basis because that is what is the actual margin that is negotiated with the customers. Understood, understood. And how about sub-assemblies and integrated? Now, when you go to lamination side, I'll finish the lamination in the second part. When you talk of the stator frame integrated casting, if you are already accounting for the machining margin in the casting, then you have to look at it slightly differently. If you are only looking at stator frame related thing from a lamination side, it's a different thing. Otherwise, you will double account the margin. So, if you now look at the lamination side, your loose lamination and low-value-added assemblies are roughly 15,000 rupees kind of a margin, 15 to 18,000 rupees EBITDA margin. Your high-value-added assemblies are somewhere between... 30,000 to even 60,000. It all again depends on the type of high value that there is. There is no definition for high value added assemblies, right? So if it's a very complicated product, if it's a limited quantity, then it's a higher margin. If it's a regular high running volume and not as complicated, we are lower margin. So it is very variable there. So you have a very wide band in that. Now, when you come to the state of frame and rotor shaft integrated SMDs, it's nothing but a high value added lamination SMD which is integrating with the machining casting. So, there you can add the margin of both and then something on top of that for processing.

No, no, this is very helpful, sir. This is very helpful. Sir, if I may ask you one more question. See, fundamentally, I think the company overall profitable structure and growth structure has changed a lot in the last five years, if we see, right? What has led to this kind of inclusion point and how do you see the next four to five years because we have moved that phase and what are the next complicated or areas which the company is working on which are very, very hard to replicate or where fundamentally there is a moat which the company is trying to establish?

On the loose lamination side, it's very strange, but we are always doing the higher value-added assemblies and the stator shaft integrated assemblies in the past. Our exposure to loose lamination, low value-added assemblies was lower. So the inflection point for the company was that we tried to grow this lower margin volume-based business. Therefore, you know, increasing our overall capacity and ability to absorb the higher fixed cost that we have. So that is what has led to the inflection point number one. Inflection point number two was this whole consolidation of pithi casting into pithi engineering, vertically integrating a casting facility which has both iron casting and steel casting facilities, along with a machining supplier. So with that, the ability of the company to, you know, offer solutions to customers, especially in the challenging environment of the COVID years, which, you know, are not. which are fresh in our memories, where the supply chains are all disrupted. And our ability to execute across lamination and machine testing for these customers helps us grow our capabilities as well as our base. Now, you know, we have gotten into a virtual cycle, I would say, wherein, you know, the demand for such kind of products is increasing due to trade wars with China, US. Buying iron castings from India is cheaper than to buy from China now due to the duty structures. There are FTAs coming in. So it is leading into a cycle wherein India is more and more emerging as a strong contender for being the next supply chain solution to China for most of the global OEs. And if you have demonstrated capabilities in terms of products or facilities, obviously your name is on the top of the list with all these clients. So that's how the future is evolving from that inflection point.

And if you may ask one more question here, how can a company actually extend their capabilities into new metal areas? Like, for example, today, Piti has both steel and iron capabilities, right? How can someone really expand their capabilities into titanium, nickel, or like some of the more complicated areas where the future is also like growing a lot in terms of space or be it aerospace, defense, etc. Right? I mean, those are the applications where we are currently hearing. So how can one company even expand their capabilities into those areas is pretty engineering, pretty even thinking about it, etc.

See, in terms of ability to explain, I would say we have. Maybe 60 to 65% of the tools required in our toolkit in terms of understanding how to do those machining, understanding how to do the simulation, pattern making, etc. In terms of doing the other stuff, which is, you know, institutional knowledge of how a particular metal would behave when it is being casted or how it reacts with certain sands and coatings. Those are things that you learn as you, you know, go through the journey. So if you ask me, it would take like three odd years for us to expand into the non-ferrous side. I won't just say titanium. I'm saying like non-ferrous castings. It would not be a far leap from where we are. However, today we are not looking at it as a sector for growth because our core competencies, which is iron casting and steel casting, we are seeing a huge requirement. And the things that you mentioned are typically used in aerospace and defense, where the volumes are smaller, obviously your values are higher, but then the sustained growth across such core sectors such as mining, off-highway vehicle, locomotives, these are more sustainable businesses which we understand very well. And we don't need to reinvent anything. So, today, we are not looking at anything on that side.

Thank you. Thanks. Thanks a lot. I'll join back with you. Thank you. The next question comes from the line of Rahul Kumar with Vakaria Fund. Please go ahead.

Yeah, hi. Just one question on this ESOP cost. So, till when this ESOP cost will continue to, you know, The expense? I believe we have given a schedule of ESOP cost. If we have not, we'll be shortly updating it on our website. I think this 10.3% ESOP cost, which is booked per annum, this would be there for the current year, and then after this year, it starts tapering off. So, we can give you a small Excel sheet, which has this accounting treatment over the next seven years, how it will keep going downwards.

Okay, understood, understood.

And second question on this, you know, this value-added products in the lamination, I think... How do we see this growing forward? Do we see the share going up, or do you believe that the next volume growth is going to come from lower-value-add laminations? See, both are going to grow. They are completely different drivers. Now, when we qualify something, say, as a DG set, we would put it in loose and low value-added lamination because of the value add that there is into it. So, we are seeing all of those sectors still growing. And again, some of the wind lamination assemblies goes loose. Some of the railway-related lamination that we supply within India go loose. So those sectors are still continuing to perform strongly. And if you ask me how I see the mix in FI28 for something like a 90,000 tons, I would say that loose lamination and low-value-added SMDs would be something like 65-odd thousand tons. And the remaining would be high-value-added and straight-up-stream lamination. So the growth rate in Luz would be slower, smaller, the growth rate in the others would be higher. However, the base effect is such that, you know, that is still going to grow exponentially. And this 90,000 ton, which you mentioned, is the total lamination volume, including the lamination as well as assemblies. Yes.

Okay.

What is 69,517 today? Yeah.

I'm talking about that.

Okay, got it, got it. And a similar question on the casting side also, how do we share this, see this machine component share, you know, going forward? So, uh, uh, the target that we have for current year of 16,000 tons, I would say that, uh, your machine castings going into SMDs will expand to maybe about 2,000 tons and, uh, total machine components, uh, the second line in the slide number eight, that should, uh, rise to the somewhere around six and a half, six, six and a half thousand tons and the remaining would be in the raw casting, uh, bucket. And this may change depending on how quickly we get our machines and how quickly the ramp-up happens. It goes back to your same question on the depreciation side, right? So it's all related to that.

Understood. Thank you. Thank you. The next question comes from the line of Khushan with Asian Broking. Please go ahead.

Hello. Yeah, sir, I just wanted to know one thing.

In your concourse, you have said that you do not hedge. I just want to know the reason behind it. As far as I know, the entire business is surrounded around the electrical steel. So there should be some correlation with steel prices and all.

There should be hedging possible from not on.

See, there are two things. We 100% hedge our forex. I don't know which hedge you're talking about. So if you're talking about the forex, 100% hedge. So commodity hedging is not required in our business. If you look at our business, we typically hold one month worth of inventory with us in raw material stage. If you look at historically over the last two and a half years, and the way the price change mechanism works with our clients is that you have a quarterly price with them, and we have a quarterly price with our raw material suppliers, which is stable. Quarter, four price change the customer is staggered by one month. So for example, my new prices for Q1FI27 that my client would get implemented from 1st of May. So, the one month of inventory that we hold, the low-cost inventory which will be lying in our books in April, gets consumed at April pricing, which is the last quarter pricing. Similarly, in an environment where the steel cost is coming down, if I'm holding high-cost inventory, it will get liquidated in April and the lower prices get implemented from 1st of May. This largely works and there's no reason to hedge. The contract structuring is in that way. Okay, so raw materials are priced every quarter, like new prices and all, or it's priced every quarter for customers in Agriba? Yes. Okay, okay. Take care. Thank you, sir.

Yeah. Thank you. The next question comes from the line of Abhijit Mitra with Ionius Alpha Investment Management. Please go ahead.

Yeah, thanks for taking my question. Just to sort of understand the mixed change as machining capex comes in, you mentioned that currently this year 2,000 tons will be machine casting into assemblies, you know, machine components will be 6,500 tons and almost 7,500 tons will be raw casting. So as machining hours pick up, 7,500 tons will move from raw casting to the machine components bucket.

Yes, I would say that is the right way to look at it and also new products which are getting developed. So the 16,000 also will rise further and that all that development that is happening is in directly a machine component. Got it. Got it. Got it. Yeah. There are certain segments and clients, such as pump casings and cement mixer related plants, where the machining is not so value-accredited for us. So we are not focusing to do that today in-house.

Got it.

So we should have done by...

Yeah, so the machine component, 6,500 tons will be the number which will keep growing as you move to 24,000 tons and then to 36,000 tons.

Yes.

Okay. Yes, absolutely.

Got it. Got it. And also the machine cutting into assembly is at 2,000 tons. That will also grow.

Yes. That will not grow significantly. That will grow significantly over the next 12 to 18 months. This is part of a transition of certain clients where they are taking more value-added products from us to offset the duty structures in the U.S. If you recall, I had mentioned that about a year ago, and this is a longer-term plan. So that is now playing out. Okay, got it. So, some of the high-value added SMDs that you see will move into the state of frame and integrated the SMD bracket, and some of the machine components will move up the bracket into the machine casting, going into lamination SMDs.

Understood.

Understood.

And just to understand, Ria, it's the margin numbers which you mentioned earlier, you mentioned that Good morning, everyone. So, machine casting, I mean, raw casting, the beta is around 30-35,000 rupees per ton, and machine casting would have, what, around 80,000 per ton? 80,000 to 1,000 rupees per ton. 80,000 to 1,000 rupees per ton.

Okay, got it, got it.

And for integrated casting, you have to sort of add machining and... I mean, on top of that, on top of that lamination, which is essentially 20,000.

Yeah, add machining, add lamination, add the other machine components going into assembly. So these are basically tasks or they are basically like other machine pieces which come from say, forging or bar steel that we buy and machine. So all of those values plus then something on top of all three. Got it, got it.

Got it. Great. That's all from my side.

Let me show all of it. Thank you. Thank you. Ladies and gentlemen, due to time constraints, we will take that as the last question for today. I would now like to hand the conference over to the management for the closing remarks.

Akshay sir, please go ahead. Yeah, sorry.

Thank you everyone for your time and for joining us today. We appreciate your continued interest and support. And as we move into FY27, our focus remains on disciplined execution, improving working capital. Thank you, sir.

Ladies and gentlemen, on behalf of PT Engineering Limited, that concludes this conference call. Thank you for joining us and you may now disconnect your lines.