Epack Prefab Technologies (NSE:EPACKPEB) Q2 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to the Q2 and H1 FY 'twenty seven Earnings Conference Call of EPack Prefab Technologies hosted by DAM Capital Advisors Limited. As a reminder, all parts finance will be in listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I would now hand the conference over to Mr. Asim Bande from DAM Capital Advisors. Thank you, and over to you, sir. Mister Nikhil Bhutra, executive director, and mister Rahul Akarwal, CFO on the call. So we'll begin the call with mister Singhania for his initial thoughts, and post that, we can open the floor for questions. Thank you, and over to you, sir.

1:16 Investor call. So let me start with the full picture first. The revenue of the company for H1 grew by 19% to $8.67 crores and quarter two was our biggest quarter ever at INR $50.01 crores revenue. But that growth did not flow through two things. One is the profit, and the second is the cash flows. And I will tell you why. The profit grew by two percent, but the operating cash flow was negative. So two things happened here. First is the steel and other input cost rose faster than we could pass them through on orders already being executed.

2:03 So our gross margin fell by almost 2.3%. And during our first investor call of this financial year, I've already spoken about the impact of steel price increase on our earnings. The second was the working capital went up by sixty... Went up to almost sixty days. Our guidance has always been around forty to forty five days with the working capital. So there is a slippage of almost fifteen to eighteen days there. So there are two reasons for this. First is over the last six months, we have executed large industrial and renewable projects on milestone based billing, and every one of those receivables is backed by letter of credit. So the money is secured, and the question is only about timing.

2:56 So in this note, the LC process is linked to the milestone billing, and there has been certain delays in that. So due to that, the receivables went up by almost 144 crores. But the good thing is since we are backed by LC, so we expect this to normalize in this quarter three. We also... The second part was, you know, we built the inventory of the steel deliberately, and that resulted in a working capital increase of almost 92 crores for us. So while that results in the increase of working capital, but that also protects us against further price increase and secures our steel availability for the entire quarter.

3:43 So as a result of this, we expect our margins in the current quarter to be better than what we have delivered in the entire h one. Now I will tell you a few things, you know, what we are doing here. So every new order is now priced on current input cost, and we have long term sourcing arrangements in place. We are also pushing for price escalation clauses with our large customers. Yes. Some of the customers have agreed, but it has... Hasn't become a standard practice yet. So I won't claim it. Collections are the single best... Biggest priority for us in the h two, and I will be personally reporting working capital to you every quarter till we normalize it.

4:36 The investors, what gives me a lot of confidence in our business is demand and capacity. Order inflow in H1 grew almost 71% to $11.24 crores. During our first call in this financial year, I had to know, like, say that our target was to do order booking of 2,000 crores in this financial year. So in the h one itself, we have done 1,124 crore of order booking. And this is a testimony of the execution which we have done over the past three, four years and also of the strength of our team and our brand.

5:22 And our order book today stands at $14.62 crores, which gives us a clear visibility of revenue over the next eight to nine months. Also, on October 30, about three, four well, last week only, we have added 13,000 tonnes of steel capacity, processing capacity at our Gilot greenfield project that is Unit 5. And we also commissioned our sandwich panel line in Gilot, Rajasthan, which will cater to the sandwich panel business for the northern market. One of the important developments that the company is also doing is the greenfield project in Gujarat, which will strengthen our presence in the West.

6:13 And as conveyed earlier, we plan to get this new plant in Gujarat commissioned in the fourth quarter of the current financial year. On guidance, we are maintaining our FY 'twenty seven outlook of INR 1,900 crore of revenue with a 10% to 10.5% EBITDA margin. Our Q2 margin already recovered to 10.1% from 9.4% in quarter one. And as to we'll see more of our orders priced at current input price as well as the inventory buildup has given us a lot of confidence that we'll be able to improve upon our gross margin in this quarter and the quarter next to this.

7:08 We remain net cash positive. ICRA has reconfirmed our A plus rating, and we will continue to deploy our IPO process with discipline. H1 has showed that the demand is real, and H2 is all about showing you that we can convert it into margin and cash. So with that, I'm happy to take your questions. Thank you. Thank you very much. We will now begin the question and answer Anyone who wishes to ask question may press star in one on the touch tone telephone. If you wish to remove yourself from question queue, you may press star in 2.

7:56 Participants are requested to use handsets for asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue is assembled. The first question is from the line of Rohit Taparia, an individual investor. Please go ahead. Hello,. Thank you for taking my question, and congratulations on a great set of numbers. My question is basically on the guidance for April 27, you have mentioned that nineteen hundred to nineteen hundred fifty crores with an EBITDA margin of approximately 10 to 10.5%. And what is the long term guidance for FY 'twenty eight and FY 'twenty nine if the company can give any?

8:48 Yes. Thank you, Rui, for the question. Yes, we are guiding the market to crores plus revenue for the current financial year with EBITDA margin of 10% to 10.5%. And going forward also, like, you know, we are doing this year. We are growing at 25% to 30% CAGR. And going forward also, that will be our endeavor to grow at 25% to 30%. The reason being the market, the demand cycle is supporting us at this time. So I'm very much sure, you know, we we have the capacities and the and the and the and the team to deliver with... To deliver, you know, like, the growth of 25% plus year on year for the next couple of years.

9:35 Okay. So for next couple of years, I mean, mean, for the next, say, two to three years? Yeah. I'll say for the next couple of years, yes, we'll grow at 25% plus. Okay, sir. And currently, what are companies having the... What will be the peak revenue potential for the company at the current capacity? Yeah. That's a great question. So with this... With the plan that you've just commissioned at the law for the sandwich panels, plus the one which is coming up in Gujarat. With that, the total capacity of the company would be to do a revenue of close to INR 2,800 to 3,000 crores.

10:25 Okay. 2,800 to 3,000 crores. So, basically, 1,900 if we add 50%. So here, further, we may have seen that we will be doing a 25 to 30%. So so that we would be doing any CapEx? For 2728, actually, we won't need any CapEx... New CapEx. The idea on '20... Or 2728 would be to do the utilization of the new plants that we've set up. So, you know, like, after IPO, what we have done is we have increased our structural sea capacity through a brownfield expansion in Mumbai to Andhra Pradesh. And so idea would be to, like utilize that capacity and then this greenfield project at Gilat for the sandwich panels in Gujarat. So in 2728, basically, we'll be utilizing. The idea will be to utilize all the plants and do a capacity utilization of 80%, 85% there.

11:23 And in case we feel that order book has been really strong in 2728 as well, then definitely we'll add some more capacity. But it can be in the form of a brownfield also because in Gujarat plant, if you talk of the plant that has been set up, we are just putting up two lines to start with, whereas the capacity is to add four or five lines there. So if we had five lines, we will be in a position to produce around 80,000 tons from that plant, but we are starting with only 50,000 tons there. Okay. Okay. You, sir. I will... For further questions, I will join again join the queue. Thank you, sir.

12:10 Thank you. A reminder to all the participants, you may press star and 1. Participants, press star and 1 to ask question. The next question is from the line of Devang Patel from Soxmensha Capital.

13:05 Sir, on the steel price issue, in earlier calls, you had mentioned we would also be, you know, getting some compensation from existing orders. So were we able to get some escalations on ongoing orders because of this sharp steel price increase? Yes. I mentioned that the existing orders that we have in hand, we get the price increase. And, yes, we were able to get to the price increase. And that is the reason the margins, if you see in this quarter, has improved as well from 9.4%, it is 10.1%. So mainly driven by that. Although at the same time in this quarter itself, the raw metal prices have gone up by as much as 17% to 18%, but still the margins of the company improved.

13:55 Okay. And secondly, on working capital terms with customers, are we able to get more favorable terms or more better customer advances given that the demand is very strong. So are things turning in our favor on the working capital side on new contracts? On the working capital front, I think our focus in the last couple of years has been market penetration. And I think we have reached a considerable scale now to be able to not only command better margins, but also to command better payment terms. So, yes, in in the last few months, you know, we have started to focus on getting better payment terms from our customers. So I think over the period of next two to three quarters, we will start to see the change as well.

14:52 So if if you can just give an idea, what is the customer advances you get on orders on average? It varies. You know, like, typically, it is changed by payments. So there are multiple stages of supply as well as of execution. So in supply, typically, we'll have around five stages. And the stage one is advanced, and then, again, you're doing approval. That is before dispatches. And then on dispatch and after dispatch and finally handover. So these are the five stages typically over which, you know, like, the entire payment is distributed. So it all depends on how do we structure these, you stages. So now the idea would be that we want to get maximum payments in the first two stage that is even before the supplies have commenced.

15:41 Okay. On the order book, this should be executed over the next eight to ten months. And if you can just clarify the large £165 of order it mentions has to be executed in four months. So is that a supply point right, or is that a full turnkey that you'll be exhibiting such a large project in such a short time? Yeah. So as I said, the current order book... Pending order book is 1,462 crores. And with a run rate of run rate in the prefab of close to INR 150 crores that we know, like, assume that we'll be able to do easily. So it gives us a visibility of eight to nine months. And as far as this large order is concerned, happy to share that in that order, about 95% of the building has already been done till date.

16:34 And that is a supply plus execution contract. It... Yes. But that contract, the execution was supposed to be completed by October 31. But due to the delays from the customer side on providing the civil front, I think the handing over should be happening sometime in the month of December end. Okay. In our presentation, we mentioned getting data center and semiconductor orders. Is that something... Are you putting capacity for heavy structures to get ready for that? And if it is semiconductor, are we looking to participate as turnkey again or supply orders for the heavy structure?

17:28 Yeah. So we we are getting our first order of structural steel supplying to the data center in this quarter, and it is a heavy structure. But but in fact, the best part is whatever investments we have done in the past, a lot of investment, accommodates both heavy structure as well as the PV buildings. So we don't need to do some additional CapEx to meet the demand of the data center right now on whatever inquiries we are getting from them. And your next part was about the your next part of the question was one of... One one was one was about the data center. The second part was about?

18:13 Semiconductor also. How are you gearing up for participating there? And is there something in the pipeline for us? Yeah. So on the semiconductor front, we haven't done any building for the semiconductor. But right now, there are few inquiries and the the discussion going on for the semiconductor. And with the... And the other part of the question was whether we will be giving a complete turnkey solution. No. We won't be giving a complete turnkey solution. We are a Prefab pre engineered building company, and that is the, you know, like, our expertise and will be remaining in that sector only. When you mentioned the data center, we'll be supplying some additional within our existing capacity.

19:01 For for what... And and then, you know, or what are we able to work to with some our existing capacity? Yes. Typically, in beta structures, what happens is the bit of the web matters. So what, you know, like, in the lines, our data clients are basically equipped to manufacture up to two meters of web width of any thickness. So, typically, I would say that data center, most of the web would be in the range of 25 maximum. So we are equipped to do that, up to two meter width. Okay. And if you can update us on the subsidiary we floated for data center products.

19:50 Where are we on that? What is the timeline? CapEx and revenue, just can you have an idea on that? Yeah. This data center company, which we floated in the last quarter, is related to one of the opportunities that has come our way. So it is still under discussions. It is one big large customer to whom we are talking to to, you know, like, make some DSM products for them, the FMA products for them. So it will take some time. I'm not sure, you know, whether that will materialize within this quarter or will get extended to the next quarter. So very difficult for me to comment at this moment. Okay.

20:36 On the MCR region, given the cost related to environment, are we having any facing any issues or delays with any of our projects? It is a great question. Yes. And see, typically, post Diwali, the graph starts and the delays in construction do happen. But the best part of pre engineered buildings is the construction of pre engineered buildings can carry on during this time if the civil works or the civil front of the customer is ready. So that doesn't affect us much, firstly. And the second is whatever orders we have in hand, the customers have, you know, like, given us a go ahead to supply the material. So, yes, the supply will continue, but maybe the disruption can happen in execution, which will go post the release of.

21:30 Okay. And, Gujarat, the whole 50,000 capacity is coming up at one go? Yes. It is coming at the first phase. As I say, totally, the design capacity of that plant is 80,000 tons plus. But in the first phase, we are doing 50,000 tons. Okay. So that's that's all from the. Thank you. A reminder to all the participants, you may press star and one to ask question. The next question is from the line of Karen Kuvedia from EPACKPEB Technologies. Sir, my question is that as the new plant is commissioned last month, will we see a ramp up in the production and manufacturing from next few quarters.

22:39 And also, want to know what the margins will improve the margins because of that. And my next question is, can I expect the H2 will be better than H1? These are my questions. So the growth ramp up, the new sandwich panel line, ramp up will definitely happen over the next five months of this financial year. And, you know, like, our presence in the North market for sandwich panels has been over the last seventeen, eighteen years. We know, like, we know a lot of customers, and we have served them in the past. So I'm very much sure that the ramp up of this plant will be much better than it was in the South. South was a new market for us, and it took some time.

23:31 And as far as the margins are concerned, since, you know, during the ramp up period, the idea is to increase the volume rather than building on the margins. So margins would be the same as it has been in the past. And what was your third question? I think you you put a lot of questions together. My next question was, is the s... Will be the s two better than the h one? I mean, much improvement will be seen or not? Definitely, yes. S two will be better in terms of both in terms of revenue as well as in terms of margin. Revenue because we already have a strong order book and margins because we have built the inventory to protect us from any steel price increase, which may affect our margins.

24:19 Okay. Thank you, Happy New Year. Thank you. Thank you. The next question is from the line of, an individual investor. Please go ahead. Hello? Am I audible? Yes, sir. Sir, how do you hedge against metal steel prices? And also, there are many... Some of your clients are putting up their own factories. Do you feel do you face any competition from them as well? I didn't get the first part of your question properly.

25:10 How do you hedge against steel prices? Against? Come again? How do we hedge against? Steel steel steel Steel prices. Yeah. Yeah. Because And the Yeah. Some of your common clients also putting up factories for PEVs. Do you face any competition? Okay. So as far as, you know, clients putting their own facilities, I'm not aware of any of our clients putting up a PEP facility, so I won't be able to answer that. And on the steel hedging, you know, basically, we hedge in two to three ways. First is, typically, our steel exposure, we cover almost 48% to 50% of our steel exposure.

26:01 So since, you know, our the pending order book is spread over the next eight to nine months, we are covered for the next three to four months. So that is one area where we cover almost 50% of our exposure of this deal. The second is the new orders that come into the system almost every week or every month. So new orders are always against the existing pricing. And thirdly, the new orders are also coming as a natural hedging for us. So these are the ways through which we, you know, put it ourselves. But especially in cases like, you know, it happened over the last three, four months given by the war situation in The Middle East and other few other incidents that has happened in this industry related to the import duty protection for the industry.

26:49 We are in 11.5% of the safeguard duty was imposed on the steel. So to take care of such situations, what we do is we go back to our customers and ask them for the price increase. And most of the time, especially in case of large orders, the customers are open to discussion because it's a transparent mechanism. And so, you know, like most of the time, we have been able to get the price increase there. Also, if bar persists, can we able to maintain the same mark in that case? Sorry, I'm not able to understand you. If Iran and Middle East war persist, will we able to continue to maintain the margins? Or will our margins keep eroding? See, our margin, if you see in quarter one was 9.4% against the last year's average of 10.5%.

27:42 So there was an impact of 1% on the overall margin of the company. But again, we have recovered in the Q2, and it is 10.1%. So, know, like... And also the steel prices, they have a limit to go up. The steel prices now at sharp prices almost INR 70,000 a ton, and they are at their peak ever. So I do not foresee any more increase in vessel prices to happen in the near future. You. Thank you. All the other questions, next set of questions will be taken by Nikki, the Executive Director of the company. The next question is from the line of Kush from.

28:31 Please go ahead. Hi. Good evening. So my question is on... So I'm... I joined the call in the middle of this. I'm not sure it's already answered. So my question is on the growth growth guidance for the FY '27 and FY '28. And do we see a higher capacity utilization in the h two and FY '28? Especially on the final panels, the new capacity which has been added last year. Yeah. So I think you joined late in the call. So, you know, in terms of growth, we are still maintaining, you know, our commitment of 1,900 crores for this financial year.

29:18 So we have already, you know... In the h one, we have achieved revenue of $8.67 crores. So balance, we are... You know, our order book is good to cater to that, you know, pending revenue that we need to get in the h two. And also our next two year looking at the demand that we have seen in terms of order intake and the CapEx that is happening in the country, I think, you know, the growth of to 30% for the next couple of years is still intact. That will be there. And the second part was on the sandwich panel utilization. Yes. The ramp up has happened. We know in in q one, our capacity utilization for Mumatu was around 35%, which rose to around 47%, 48% in Q2.

30:10 And current order book is also above five lakh square meters pending order book in hand for sandwich panels. So we can see the ramp up in h 2, you know, and it will be much better in terms of capacity utilization compared to H 1. And, sir, in this thing, we are already... I guess, we are already at at the in the other segment is already at, if I'm not wrong. So do we have any CapEx plan going forward? Yeah. Our ramp up is happening. See, our CapEx, we have added the line in Mumbatu, and our Gujarat plant is also under construction, and we'll be, you know, starting the manufacturing in the last quarter of this financial year.

31:06 So our capacity ramp up is happening. I mean, by the end of this financial year, we will have enough capacity to meet the growth demands for the next year as well. So that plan is already in place and ramp up is happening. The CapEx is happening in that June. Okay. Okay. And the and the and the PEB segment, what... At least with the addition, what is the next revenue we can generate? Yeah. So overall, you know, with the CapEx that we have done in this year and the pending CapEx that we will be doing by March end, we can easily get a revenue of around 2,800 to 3,000 crores. And, you know, that's combining both the PEB as well as the sandwich panel capacities that we have.

31:57 Okay. Okay. Thank you. That's all. Thank you. The next question is from the line of from Spark PMS. Please go ahead. Hello, sir. Am I audible? Yeah. Yeah. You're audible. Question is largely on the demand scenario. So can you just elaborate a bit on the demand? Because all the players in the industry are going on adding capacity. And as we have seen that because of the cost pressures, we also have increased our realizations. So price increase we are passing on from 3Q onwards, like you said. So based on this, are we seeing deferment of the new CapEx from our customer side?

32:50 So just wanted to understand the demand and supply scenario for our industry. So can you elaborate on that? Yeah. Sure. You're right. You know, a lot of, you know, companies are expanding capacities in our industry, and that is because the demand is also growing. We are not seeing any, you know, delay in CapEx or any pushback because of steel price increase because the building cost is, you know, a small part of the overall CapEx that any company is planning to do. So we're not seeing a huge pushback or, you know, slowdown in that space because of price increase. The demand is good. We have a very strong pipeline. I know one of those new sectors that we are doing in the the logistics sector, the warehousing sector is always, you know, up and growing. The automobile sector is also there.

33:45 Construction material... Building material sector and the new age industries. Like, Sanjay, you said, you know, we are, you know, on the verge of doing the first order for data centers, the PEB Building, and we have been doing a lot of sandwich panel supply and installation in data centers. So those kind of, you know, demand are already there, and we are seeing huge inflows of big inquiries. So I don't see, you know, any challenge in terms of pipelines or order book as of now. Okay. So can you let us know the realization that we have made in 2Q in PEB, right, and what is the increase that we have taken in 3Q? In terms of realization, see, our EBITDA was 9.8% in last quarter h '1. So overall, you know, we are seeing that is because of the price, you know, there was little reduction in the overall margins.

34:50 But going forward, I think the end of this financial year, 10 to 10.5% is looking, you know, in shape. So we'll still maintain that range of margins. So against 17 to 18% of steel price increase, so 10% plus is the relation that we have increased? No. I'm not talking about the realization. I'm talking about the margin percentage that we'll be maintaining. Realization fee, in the old orders, we have taken price increase from the customers. And the new orders that we are booking, we are passing on the pricing. So our gross margin, if you see, has reduced by around 2.3%. So gross margin is because of the drop material price increase.

35:39 And this quarter and the next quarter, we will try to maintain and, you know, push it back to the original level so that we can have the overall 10 to 10.5% margin EBITDA level. Got it. Got it. Thank you. Thank you. The next question is from the line of Moksha from Motilalu, sir. Hello. Good afternoon, sir. Congrats on the great set of numbers on revenue. My first question is what is the customer concentration during the 1H?

36:31 And how many new customers have we added during this period? Yeah. Good question. So the exact number of how many customers we have added, if you see, you know, our order book stands at 1,420 odd crores, and our concentration is not very high, being the highest order, you know, that we received is around 10% of our total revenue of last year. So overall, you know, concentration is not very high. Our average order value is rapidly increasing every year in PV. So overall, you know, this year, we'll have an average order value of over 10 to 12 crores between that range in PV segment.

37:24 So our concentration is not very high because, you know, we are product agnostic and industry agnostic. So we are operating in, you know, almost every industry and sector that we, you know, we can see growing. So overall, we are not, you know, having a high concentration of few customers. Okay. Any new customers or any data of that? Any new customers? Yeah. Means have we added any new customers in one h? Yes. Yes. We have added many. I think we've added more than the new customers including the EPB as well as, you know, at least 20 to 30 new customers in sandwich panel, cold storage industry, and 40 to 50 generic customers. So overall, more than customers we have added new. So that is our ever growing. See, our our concentration is not with new customers.

38:26 So it it is not that we push the product and someone will buy. It is the need based product. Right? So anyone who is expanding will will be sending us the inquiry and will be taking material from us. So for us, you know, getting new customer, adding new customer is very, very important. And overall, that has been our focus as well to penetrate in the industry in every region as well as in every sector. So we focus on expanding, you know, and more or less, if you see from our revenue around 70% would be from new orders that we have received from new customers. Okay. Thank you. That's all. I will just I will just add to what Nikhil has said. Our top five customers contribute around 28% to 30% of our existing order book.

39:14 So the concentration risk is not there. And in terms of new customers, typically, over the last three to four years, our new customers account for 60% of the order book and 40% comes from the existing customers. For us, this ratio of 40% of the existing customers may look a little low as compared to our peer group. But since, you know, like, we have been growing at 40% plus in the last four years. So if you look at that factor, so our our new, like, repeat orders from the good clients is increasing year on year. Okay. Okay. Understood. Thank you. Thank you. As there are no further questions from the participants, I would now hand the conference over to management for closing comments. Over to you, sir.

40:24 So thank you, everyone, for joining the investors call today, and look forward to meeting you all virtually in the next call. Thank you. Thank you. On behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us, and you may now disconnect the lines. Thank you.