About the company
About to enter its fourth decade of operations, Pitti Engineering is a globally renowned manufacturer of electrical steel laminations. It is India’s largest manufacturer and exporter of electrical laminations in India. It is an end-to-end assemblies and components provider.
Pitti’s products contribute significantly to the growth of the manufacturing industry in India in many sectors like Electric Vehicles, renewable energy, and traditional industries like steel, cement, construction, mining, thermal power, locomotives etc.
They export products to 12 countries deriving close to 40%* revenue from exports and have long standing relationships with renowned Indian and global companies.
Pitti Engineering Ltd (PEL) reported strong numbers in the fourth quarter of the financial year 2022.
- The revenue stood at ₹271 crores a 59% growth year on year and an increase of 2.5% over the previous quarter. This beats our estimates of ₹236 crores.
- Gross profit stood at ₹72 crores a 22% growth from Q4 of FY 21 but a 23.4% drop from Q3 of this year.
- Gross margins contracted by 808 bps to 26.4% vs 34.5% in the same quarter last year. This reduction is an impact of the increase in raw material prices which showed an 8% jump from Q4 of FY 21.
- EBITDA stood at ₹35 crores, a 32.3% jump over the same quarter of last year. This is better than our estimate of ₹30 crores. EBITDA margin contracted by 266 bps to 13% vs 15.7% in the same quarter last year.
- Profit After Tax stood at ₹20 crores (a 5.7% year on year drop, while a 73.7% increase over the previous quarter. The profits were a little disappointing as we were expecting, PAT of ₹ 22 crores. Meanwhile, the PAT margin contracted by 508 bps to 7% vs 11.9% in Q4FY22.
Capacity expansion is on the track: The company added 6,400 MT to sheet metal capacity in Q4FY22. The total sheet metal capacity stood at 46,000 tonnes per annum. The company is expected to reach 72,000 tonnes per annum by the end of FY23. The company added 40,400 machining hours in Q4FY22 and total machining hours stood at 4,03,200 hours. The company is expected to reach 6,48,000 machining hours going forward.
Focusing on domestic business led to a reduced working capital cycle: In Q4FY22 revenue stood at ₹ 271cr, and the domestic and export mix stood at 70:30. In FY22 revenue stood at ₹ 954cr, and the domestic and export mix stood at 69:31 vs 61:39 in FY21. The company is on track to increase domestic revenue to 80% and maintain export revenue to 20%. The focus on domestic demand would reduce Day Sales Outstanding (DSO) resulting in working capital cycle reduction going forward.
Improvement in realization per tonne: in Q4FY22, Sales realization per tonne stood at ₹3,13,851 , which is an improvement of 25.4% year on year and 1.2% over the previous quarter. EBITDA realisation per tonne stood at ₹40,893 a 4.1% growth over Q4’21 and a 1.9% increase over the last quarter. The increase in realization is driven by automation and machining capabilities. The assembled and value-added components bring higher realization.
Order book and recent developments: The order book stood at ₹ 1,078 crores as of 1st Apr, 2022. The company has developed various machine components for off-highway application and locomotive application & other machined parts for locomotives which are expected to bring revenue potential of ₹95 crores annually and these developments are expected to start from the second half of FY 23.
Outlook & Valuation:
PEL has preponed its capital expenditure plan to reach 72,000 tonnes per annum by the end of FY23. It has also planned an additional capex of ₹ 197 crores for modernizing the plant, continuous improvement in realization, focus on domestic demand, order execution and getting new orders from customers. The company has integrated manufacturing plants with cutting edge technology, differentiated product offerings, marquee clients, and diversified end industries with higher demand. These factors would lead the growth going forward.
Based on Discounted Cash Flow valuation, we have a “BUY” rating with a Target Price of ₹436 per share; an upside of 78.9%.
EBITDA – Earnings before interest, tax, depreciation and amortization is a financial metric used to evaluate the company’s operating performance and allows you to compare a company with its peers without the effect of accounting entries.