Pennar Indistries Ltd. :- Potential Mega Multibagger In Making

 Company Background

Established in 1975, Pennar Industries Limited is a leading engineering organization
with expertise in providing engineering products & services. It manufactures
precision engineering products like cold-rolled steel strips, precision tubes, railway
wagons/coaches, pre-engineered building systems, sheet metal components, road
safety systems, hydraulics and warehousing solutions. Pennar offers products and
solutions through four strategic business units:
i) systems and projects ii) industrial components
iii) precision tubes iv) steel products
And three subsidiary companies
 Pennar Engineered Building Systems Limited and

 Pennar Enviro Limited.

 PENNAR  RENEWABLES PRIVATE LIMITED.

Pennar Industries Ltd (Pennar), a manufacturer of engineering
products, is well poised to capture the growth potential envisaged
in the solar, railways and pre-engineered building systems
industries. It is expected to be a direct beneficiary of the
government’s thrust on solar energy, railways, infrastructure,

‘Make in India’ and ‘Smart Cities’ campaign. 

Pennar Industries Limited is one of the leading engineering organizations in India well known for its expertise in providing engineered products & services. An epitome of quality, precision, and perfection, Pennar is driven by an unrelenting desire to excel with experience spanning over three decades. 

Our quest for engineering excellence began in 1988, with a strategic decision to establish our first manufacturing plant at Isnapur, near Hyderabad with an installed capacity of 30,000 MTPA to manufacture Cold Rolled Steel Strips (CRSS). Our decision catapulted us from a start-up to a profitable organization in the very first year of our operations. The company was growing at a rapid pace and thus to incorporate its expansion and demand, Pennar increased its manufacturing capacity to 50,000 MTPA in the year 1997. 

The advent of liberalization gave us the much needed impetus to expand our business horizon. We embarked on a series of strategic acquisitions and expansion plans, most notably among them being acquisition of Nagarjuna Steel Ltd.; Press Metal, a unit of Tube Investment (TI) near Mumbai and the more recently the assets of Wayne Burt Petrochemicals, erstwhile Bailey Hydro, for venturing into Hydraulic Cylinders segment. We also established a new manufacturing facility at Chennai and set up an assembly unit at Hosur, near Bangalore to meet the requirements of Auto Components.

Today, with an annual production capacity of more than 350,000 MTPA, we are a multi-location, multi-product company manufacturing precision engineering products such as: Cold Rolled Steel Strips, Precision Tubes, Railway wagons / Coaches, Pre-Engineered Building Systems, Sheet Metal Components, Road Safety Systems ,etc. Recently we have also added Hydraulics and Warehousing solutions as two new products in our portfolio. Our company’s products have a significant presence in sectors like Infrastructure, Automobiles, Power, General Engineering, Building & Construction among others. Pennar is offering solutions for various types of Storage systems.

Pennar Industries has a pan-India presence with six manufacturing facilities situated across the country. These facilities include laser cutting, plasma cutting, transfer presses and CNC machines that enable it to make products of very high quality. All the plants are ISO certified. Pennar Industries endeavours to achieve ‘total customer satisfaction through total quality management’ and is committed to produce and provide steel-based products and associated services of the highest quality to customers all over the world. 

Driven by our guiding philosophy of maximizing customer satisfaction with products and services par excellence, today, we have successfully established our identity as a Powerhouse of Engineering Excellence.

 CDW tubes business scaling rapidly :-

Pennar mainly manufactures two products – CDW tubes and ERW tubes. ERW
tubes are an input raw material for manufacture of the higher margin CDW
tubes. The Company has developed several new products applications of CDW
tubes for all types of commercial vehicles. The company has achieved marginal

success in improving its market share from leading players such as Jindal Steel.

Systems & Projects to be the key revenue driver for the company :-

The company has successfully introduced new products in its railway portfolio -
Modular Frames & Cross Members for LHB (Linke Holfmann Bush) Coach
Applications. It has filed tenders for ICF (Integral Coach Factory) as well as
Wagons which will contribute to future revenues of the company.
Solar is another sub segment of S&P which is growing at a rapid pace. Currently
only 3 states in India are aggressive on solar capacity build up. Considering the
ambitious plans of the present government of adding 100 GW of capacity by
2022, other states are also expected to join in and hence Pennar should be a big

beneficiary of this largesse.

 Three Subsidiary Companies :-

1- PENNAR  ENGINEERED  BUILDING SYSTEMS  LIMITED

OVERVIEW 

Pennar Engineered Building Systems Limited (PEBS Pennar)
was set up in 2008 with a vision to emerge as a leader in
the pre-engineered buildings and structural steel industry
space. The Company is engaged in designing, fabricating
and installing pre-engineered steel buildings, supplying
structural steel and components for manufacturing
industries, warehouses, aircraft hangars, commercial
buildings, high-rises, metro stations, stadiums and power
plants, among others. The Company is also engaged in
designing, fabricating and installing solar module mounting
structures, telecom transmission towers and cold- form
buildings for low-cost housing projects, among others.
The Company’s clientele includes UltraTech, L&T, HCC, P&G,
Godrej, Dr. Reddy’s Laboratories, ABB, JSW, Schwing Stetter,
Honda, Toyota, Ambuja Cement, Bharat Biotech, My Home
Industries, Schneider Electric, Reliance, IOT Infra, Volvo,
Toyotsu, Jayabheri, ACC, Schindler, Audi, Hindustan Unilever

and MRF Tyres among others.

HIGHLIGHTS 2016-17 

• Reported a gross revenue of Rs.547.61 crore; EBIDTA
of Rs.56.35 crore; PAT of Rs.24.40 crore
• Executing a 20 storey high-rise commercial steel
building comprising, slated to be one of the largest
steel buildings in India
• Successfully executed solar power projects in
excess of 240 MW
• Finished the year under review with an order book

of Rs.425 crore

OUTLOOK 

At PEBS, FY 2017 is expected to be one of the strongest,
resulting out of a robust order book translating into
attractive topline growth.
• Seamless integration of Engineering and Design
capabilities will lead to conversion of current outsourcing
orders into in-house manufacturing, reducing project
costs and ramping up bottomline growth
•Solar to continue its strong growth – in-house
capabilities developed specific to solar requirements will
ensure the same
• Increased focus on High Rise Steel Building – both
commercial as well as residential, and on Cold Form
structures for low-cost housing project, among others
•Expansion into US market providing for engineering

services paving way for additional revenue line.

Joint Venture : 
Your company has invested USD 90,000 in M/s. Pennar Global INC
on 3rd July, 2017 to cater its products and services in United States
of America. Your company wish to convert this into a Joint Venture
with its other subsidiary M/s. Pennar Engineered Building Systems

Limited.

2- PENNAR ENVIRO  LIMITED

 PEL (Pennar Enviro Limited) provides process 

technology solutions including water and waste-
water treatment, specialty additives, civil projects
and instrumentation. PEL covers a range of solutions
for industrial water, wastewater and specialty additive
treatment packages for combustion efficiency and also
for water treatment and operations and maintenance
services for various kinds of industries. Multiple
technology collaborations allow PEL to provide a wide

range of solutions to process industries.

OFFERINGS :-

Fuel Additives: Fuel additives and application in a
variety of industrial needs (including additives for
heavy and light fuel oils, storage stability additives,
additives for solid fuels and other industrial and agro
products). PEL pioneered the manufacture and supply
of fuel additives with a technical collaboration with
Total.
Water treatment chemicals: PEL produces range of
high performance specialty water treatment chemicals
(brand PENNTREAT), addressing the treatment of boiler
water, cooling water, raw and effluent water using
micro ltration, ultra ltration and reverse osmosis.
Standard pacakaged plants: PPEL’s modular packaged
water treatment plants offer several advantages over
conventional water treatment for smaller volumes
resulting in economies-of-scale. Pre- engineered
modular components allow wastewater treatment
plants to be sized specically around customer needs.
These products can also be designed to handle a variety

of in uent low rates and loadings to address discharge requirements.  

Our standard plant capabilities make it
possible to provide fabricated structures / skids and
pressure vessels.
Turnkey solutions: EL provides EPC and O&M services in
the water and environment infrastructure businesses.
The turnkey environmental- friendly solutions
address the industrial and municipal segments (water
treatment plants, sewage treatment plants, effluent
treatment plants, effluent recycling plants, zero
liquid discharge plants as well as sea/ brackish water
desalination, among others). The business also offers

processing and treatment solutions.

HIGHLIGHTS 2016-17  

• Recorded high revenue growth, registering a 15%
growth from FY 2015-16 and reached Rs.115 crore
in gross sales
• Created a strong engineering team with
capabilities in process design, optimisation and
project management
• Signed a deal with P & D Creative USA for new
range of products in chemicals
• Completed and commissioned large scale projects
that have paved the way for further bidding

in larger projects with increased ticket value.

OUTLOOK

• Robust order book assuring strong growth in
revenue and profitability over the next few years.
• Further planning for export orders under way – 2
export orders already on verge of confirmation for
FY 2016-17
• Expanding technical tie-ups will allow further

expansion of the addressable market size.

3- PENNAR  RENEWABLES PRIVATE LIMITED 

Pennar Renewables Private Limited has recorded a

revenue of Rs 26 crs with Net Profit of Rs 3.6 crores. 

The company is into the business of supply of solar power

to Telangana DISCOMS. 

PROJECTS DETAILS 

• Spread across 3 sites, 2 in Karimnagar and 1 in
Medak and domiciled under a single SPV
• Commercial Production commenced in April
2016 and have Power Purchase Agreements(PPA)
with Northern Power Distribution Company
of Telangana Ltd. (“NPDCTL”) and Southern
Power Distribution Company of Telangana Ltd.
(“SPDCTL”) for supply of power on long term basis

i.e. 20 years

HIGHLIGHTS 

• Attractive Tariff of Rs 6.45/kWh
• Projects are located in Telangana which has one
of the highest generation potential in the country
• Long term 20 years PPA with a significant residual

life

INDIAN SOLAR POWER SECTOR
OVERVIEW :- 

Power is one of the most critical components of
infrastructure and is crucial for the economic growth
and welfare of any nation.. Energy security through
non conventional sources is of paramount importance
to a country such as India which depends on exports
for 80% of its energy needs. Electricity demand in
the country has increased rapidly and is expected
to rise further in the years to come. In order to meet
the increasing demand for electricity in the country,
massive addition to the installed generating capacity
is required.
India ranks third among 40 countries in EY’s Renewable
Energy Country Attractiveness Index, on back of strong
focus by the government on promoting renewable
energy and implementation of projects in a time bound
manner.
Indian power sector is undergoing a significant change
that has redefined the industry outlook. Sustained
economic growth continues to drive electricity demand
in India. The Government of India’s focus on attaining
‘Power for all’ has accelerated capacity addition in the
country . Total installed capacity of power stations in
India stood at 315,426.32 Megawatt (MW) as of February
28, 2017. In order to meet the future demand mass
additions in installed and generated capacity is needed

for economic growth. However, a continued downward spiral of power tariffs fueled by price wars between existing players, and an uncertainty in module prices and tax regime pose significant threats to the viability of the market.

GOVERNMENT INITIATIVES SOLAR 

10 years of tax exemption is given for all solar projects
to promote investments into renewable energy sector
The Government of India announced a massive
renewable power production target of 175,000 MW by
2022; this comprises generation of 100,000 MW from
solar power, 60,000 MW from wind energy, 10,000 MW
from biomass, and 5,000 MW from small hydro power
projects.
The Government of India plans to start as many as
10,000 solar, wind and biomass power projects in next
five years, with an average capacity of 50 kilowatt per
project, thereby adding 500 mega-watts to the total
installed capacity.
The Ministry of New and Renewable Energy plans
to introduce a fixed-cost component to the tariff for
electricity generated from renewable energy sources
like solar or wind, in a bid to promote a green economy.
The Ministry of Power plans to set up two funds of US$
1 billion each, which would give investment support for
stressed power assets and renewable energy projects

in the country. India is slowly shifting its energy base from traditional
energy to renewable energy model. So solar energy is
going to play a lead role in conversion from conventional
energy to renewable energy sources. The past few
years witnessed several big-ticket investments in
the solar power sector . However, downward-spiraling
power tariffs brought about by price wars amongst the
major players combined with prevailing GST-related
ambiguities may reduce growth and capacity additions

in this sector.

BUDGET 2016-17 PROPOSALS 

The AMP (Automotive Mission Plan) 2016-26 is a collective vision
of the Government of India and the Indian automotive industry
where the vehicles, auto components, and tractor industries
should reach over ten years in terms of size, contribution to
India’s development, global footprint, technological maturity,
competitiveness, and institutional structure and capabilities.
The vision is to make the Indian automotive industry among
the top-three in the world by 2026 in engineering, manufacture
and export of vehicles and auto components, encompassing
safe, efficient and environment-friendly conditions for
affordable mobility of people and transportation of goods in
India comparable with global standards, growing in value to
over 12% of India’s GDP and generating an additional 65 million
jobs. AMP 2026 envisages that the Indian automotive industry
will grow 3.5-4x in value from its current output of around
Rs.464,000 crore in 2015 to about Rs.16,16,000-18,88,500 crore
by 2026, based on base case of an average GDP growth of 5.8%
and an optimistic case with an average GDP growth of 7.5%

during the period.

INDIAN RAILWAYS SECTOR OVERVIEW

Indian railways is growing at a very good pace and is
expected to grow at a 10 % growth rate in 2017-18. Indian
railways is expected to be the third largest railway
market in the coming five years. The government’s
initiatives towards proper utilization of railway assets
for revenue generation along with increased capital
expenditure into railway projects will push growth in
railway sector moving forward. Improvement in FDI and
development of cold storage chains along the railway
networks will substantially increase the revenue
generation in future. development of cold storage
chains along the railway networks will substantially

increase the revenue generation in future.

INDIA’S INFRASTRUCTURE OVERVIEW :-
 
The Indian Infrastructure sector is one of the key
drivers of the Indian economy. The sector is largely
responsible for propelling India’s overall development
and enjoys intense focus from the Government policy
making that would ensure time-bound creation of
world class infrastructure in the country
The Road Transport & Highways Ministry has invested
approximately Rs.32,000 crore (US$ 47.7 billion), while
the Shipping Ministry has invested around Rs 80,000
crore (US$ 12.0 billion) in the past two and a half years
towards building world class highways and shipping
infrastructure in the country. The Government of India
is expected to invest sizably in the infrastructure
sector, mainly highways, renewable energy and urban

transport, prior to the general elections in 2019.

Financials :-

Pennar Industries’ Standalone H1FY18 Gross Sales at Rs 608 Crores; up 20% YoY 

H1FY18 EBITDA Margin up 200 bps at 9.2%

H1FY18 PAT up 46% YoY at Rs. 14.3 Crores

Key Risk Factors 

 Subdued Macro Economy may delay growth
The growth in the steel market is expected to be muted in the short term on
account of poor growth in core consumer sectors such as infrastructure and
construction. However, the demand is expected to rebound in the latter half of
2017. 

 High competition across segments
The competition in the steel industry and more specifically in the S&P
segment is growing tremendously. Particularly in the tubes segment the
company faces stiff competition from large players like Jindal Tubes. 

 Delay in Accounts Realization could inflate interest costs
Pennar has been facing some issues in working capital management due to
delays in debtor realizations. A few large debtors, such as L&T, are seeking
longer credit cycles leading to Pennar having to resort to securitization of its
receivables leading to inflating its interest costs to around 17-19%. If the

issue persists then the working capital management cycle could get extended

I think the company has been investing in new CAPEX to expand its product profile and increase the markets. This has already shown results by achieving highest sales and EBIDTA. Most of these activities are planned through internal sources so long term investors with time frame of 3-5 years consider pennar industries around cmp 68.5 and dips towards below 60 if any in lots for conservative target price of 130++ all the best guys and happy investing... [ Disclosure : holding shares hence my view may be biased so kindly do your own research before taking any positions ]

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The information herein is used as per the available sources of bseindia.com, company’s annual reports & other public database sources. Author is not responsible for any discrepancy in the above mentioned data. Investors should seek advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents

This is not a buy / sell / hold recommendation on the stock. The views expressed are for educative content purposes only. Future estimates mentioned herein are personal opinions & views of the authors. ]