Isgec Heavy Eng Q1 FY25 earnings call
In brief
- Management's tone
- Cautious
- What was said
- Mixed
- Guidance
- Guidance held
- Analyst pushback
- Medium
- Stock, next session
- −2.18% (Nifty 50 +0.02%)
- Q1 FY25 consolidated revenue up 11% YoY to INR1,549 cr; PBT up 33% to INR96 cr on strong manufacturing margin of 13.5%
- Standalone order inflow of INR1,025 cr in Q1; consolidated order book at INR7,741 cr with INR1,316 cr international mix
- Manufacturing guided at low double-digit growth with margins improving to double digits over next 2-3 years; project business margins seen recovering to 7-10%
- Philippines CBPI plant operational but ran into INR29 cr forex MTM loss; management is actively pursuing strategic partner for divestment
- Net debt down 54% YoY to INR491 cr; company targets being net debt-free by year-end despite working capital and sugar subsidiary loans
An AI read of the company's transcript · the filing
The numbers
The quarter, Q1 FY25
| This quarter | A year ago | Last quarter | Margin | |
|---|---|---|---|---|
| Revenue | ₹1,540 cr | +11.1% | −17.6% | |
| EBITDA (excl. other income) | ₹125 cr | +20.5% | −9.3% | 8.1% (7.5% a year ago) |
| Net profit | ₹65.5 cr | +29.2% | −8.2% | 4.3% (3.7% a year ago) |
| EPS (₹) | ₹8.90 | +29.2% | −8.2% |
From the company's filed results for the quarter ended 30 Jun 2024 (consolidated), not from the call. EBITDA here excludes other income, so it can differ from the figure management quotes.
The numbers management led with
- Standalone order bookings: INR1,025 crores in Q1 FY25 vs INR816 crores YoY
- Consolidated order book in hand: INR7,741 crores as of June 30, 2024
- Consolidated borrowings: INR491 crores as on June 30, 2024, down 54% YoY
- Net debt: INR743 crores as of June 30, 2024 vs INR1,066 crores YoY
Guidance
Guidance on this call
| What | For | What management said | On the Q4 FY24 call |
|---|---|---|---|
| Consolidated revenue growth | FY25 | Early double-digit growth (7-10%) for FY25; reiterated from prior call (held) | — |
| Manufacturing segment margin | FY25 | Around 13.5% sustainable; hovering in 13-13.5% range (held) | — |
| Project business margin | FY25 and beyond | Single digit, improving to double digits over next 2-3 years (held) | — |
| EBITDA margin on engineering business | FY26 (Philippines at full ops) | 23-24% on Philippines asset once operational; 12% return on capital employed | — |
| Manufacturing business revenue | FY25 | INR2,000 cr on standalone basis vs INR1,700 cr last year | — |
| Capex | FY25 | INR60 crores in engineering business for FY25; execution may spill to FY26 | INR50 cr+ for FY25, plan not yet finalised |
| Net debt | FY25 end | ISGEC Heavy Engineering to be debt-free on net debt basis by year-end; Philippines and sugar working capital loans to remain | — |
| Philippines plant commissioning | FY25 (from Nov 2024) | Full capacity from mid-November on sugarcane availability; expected INR500-600 cr revenue run-rate | — |
Said on the Q4 FY24 call, not repeated on this one (6)
- Standalone revenue growth: ~15% targeted for FY25 (double-digit from 10% upward)
- EPC/Project EBITDA margin (new orders): Minimum 7-8% on fresh orders being booked
- Manufacturing EBITDA margin: 10-12% band
- Company-level EBITDA margin (aspiration): 11-12% in 3-5 years — described as practically possible
- Philippines plant annual revenue potential: INR480-500 cr at full 42 mn litre capacity (~40 mn produced)
- Order inflow (FY25): Much more than FY24; better-than-normal pace in Q1 FY25; no specific number
Guided on earlier calls, and what was filed
| What | For | Guided | Filed |
|---|---|---|---|
| Standalone revenue growth | FY25 | at least 15% (on the Q4 FY24 call) | 3.3%, below the range |
Filed figures are summed from the company's own quarterly results for the whole period (EBITDA excludes other income); where one sits against what was guided is arithmetic, not a judgement.
The business
The industry, as management sees it
Management views overall industrial demand as encouraging with strong export inquiries. Captive power and waste heat recovery markets expected to remain robust as process industries invest in efficiency and decarbonization. Some moderation in growth expected for 1-2 years due to elections and global uncertainties. Export strategy is meant to offset any domestic demand softness.
Risks management named
- Philippines CBPI plant drag with INR29 cr forex MTM loss in Q1; recovery contingent on full-capacity operations
- Sugar subsidiary cyclicality tied to cane pricing, ethanol off-take, and agroclimatic conditions
- Global uncertainties and post-election demand softness in domestic market
- Working capital and retention money stuck in legacy project receivables
- Project business margins remain volatile; civil/site work intensity pressures
Q&A
Q&A was dominated by margin sustainability questions (manufacturing 13.5% defended as a mix of product execution and capacity utilization, but project margins guided to single digits with double-digit recovery in 2-3 years). The Philippines plant was a major theme with multiple analysts pushing on the INR29 cr forex MTM loss, asset value of INR900 cr, and disposal prospects. Order book composition and deleveraging drew the most analytical focus. Management was relatively candid on the sugar subsidiary and project business challenges but deflected on specific capex beyond FY25.
Not answered directly
- Specific revenue numbers for captive power and WHR market sizing
- Exact timeline for Philippines plant disposal
- Capex plans for FY26 (still under review)
- Detailed capex composition by segment
Every question, with its answer
1. Captive power and WHR market outlook
Nirav, ASK Investment Managers
Question. What is your assessment of the captive power market in India for FY25? How big is the waste heat recovery market in terms of mega wattage for the next couple of years?
Answer, Aditya Puri, Managing Director. Demand for captive power plants will remain robust because process industries require steam in addition to power, and people are investing in efficiency improvements and decarbonization. The market will remain robust; we can't give specific numbers.
Follow-up. Any specific inquiry pipeline or growth visibility you can share for captive power?
Answer. We can't give you any concrete numbers. We think the market will remain robust.
Partly answered.
2. Thermal power plant strategy
Nirav, ASK Investment Managers
Question. How do you see the thermal power plant market? Are you looking at large 800 MW boiler plants?
Answer, Aditya Puri, Managing Director. Market seems buoyant for thermal power plants. Most orders are from one player. We are not planning to get into large 600 MW or 800 MW plants; we may bid for some small packages where scope of work is handling plants, material handling, some piping, air pollution control.
Follow-up. So the scope of work would be balance of plant, not the complete plant?
Answer. Correct. Our scope would be focused more towards the balance of plant.
3. Subsidiary profit breakdown
Nirav, ASK Investment Managers
Question. Standalone profit was INR550 mn and consolidated PBT is INR96 cr. Can you help us understand the profit of subsidiaries?
Answer, Kishore Chatnani, CFO and Whole-time Director. Out of INR28 cr profit before tax from subsidiaries: Saraswati Sugar Mills INR20 cr, ISGEC Hitachi Zosen INR5 cr, Eagle Press INR9 cr. Adjusted for dividend of INR22 cr from subsidiaries, recurring PBT is around INR6 cr. Philippine company has a loss of INR29 cr (largely forex MTM), other companies have minor amounts.
Follow-up. Can you also tell me how the order pipeline and inquiries for the rest of the year are shaping up?
Answer. Order pipeline and inquiries for the rest of the year are also buoyant. It seems that the order booking for the rest of the year should be good as of today.
4. Manufacturing margin sustainability
Abhijeet Singh, ICICI Securities
Question. On margin sustainability, you reported a strong 13.5% margin in manufacturing. Is that sustainable? What are the levers?
Answer, Aditya Puri, Managing Director. Q1 margin improvement was driven by better mix in the ISGEC Hitachi Zosen product business plus high-margin executions. Saraswati Sugar contributed INR20 cr profit (dividend). For full year, margins will hover around 13-13.5% in manufacturing, but we are not dependent on any one segment. We are seeing better profitability in the project segment, though growth moderation likely for one to two years due to global environment.
Follow-up. Will the project business margins be in double digits?
Answer. Project business margins will improve but going to double digits in the next 2-3 years is very difficult. Margins will improve in industrial projects.
Partly answered.
5. Project business margin sustainability
Deepesh Agarwal, UTI AMC
Question. On sustainability of present margin in project business on a consolidated basis. Is 13.5% sustainable?
Answer, Aditya Puri, Managing Director. The 13.5% is because of sugar season tail catch which gave a INR22 cr boost. Excluding that, Q1 margin would have been around 12%. The number of equipment orders got bunched, sometimes they don't, so there is no extraordinary execution. Going forward, manufacturing should be around 13.5% on sustainable basis. Project business margins will improve but are difficult to forecast.
Follow-up. What is the execution risk you see in the industrial project business for FY25?
Answer. Some moderation in growth in Q1 across the industry due to elections, global uncertainties. We are concentrating more on exports, so if there is any fall in domestic demand, we hope to get compensated from exports. We are focusing on technology-led, shorter-duration projects with less site work.
Partly answered.
6. Philippines plant loss and revenue potential
Deepesh Agarwal, UTI AMC
Question. What about the Philippines project? You mentioned a loss - is the INR29 cr loss forex related?
Answer, Kishore Chatnani, CFO and Whole-time Director. The INR29 cr loss is forex mark-to-market because the Philippines Peso depreciated against the dollar compared to the INR. It is a reported loss, not a realized loss. The plant will operate at full capacity from mid-November for about a year. We expect INR500-600 cr revenue and 23-24% EBITDA when the plant gets operational.
Follow-up. Are you looking to dispose of the Philippines plant?
Answer. We are putting efforts to run the plant well, but as I mentioned, it is not the easiest thing to dispose of. We are working on running the plant, and if we have any news on disposal, we will share.
Partly answered.
7. Manufacturing order book outlook
Deepesh Agarwal, UTI AMC
Question. Is the manufacturing order book flat? What is your outlook for growth in the manufacturing order book over next 3 years? How much of the order book on FGD legacy orders?
Answer, Kishore Chatnani, CFO and Whole-time Director. On the standalone basis, manufacturing order book is INR540 cr vs INR743 cr last year. We have exited from certain types of project business. Industrial project order book on FGD and other projects is INR1,049 cr. Except for one FGD plant, two of the three should be completed within this financial year and the third one will continue into next year.
Follow-up. How much money is stuck in retention receivables on these projects?
Answer. On the two we are completing this year, we are hoping to receive about INR400 cr of milestone payments. Of that, INR400 cr, maybe INR325-350 cr out of that in this year, and INR50 cr or so will spill over into the next year.
8. Philippines ethanol revenue recognition
Sandeep Bait, Independent Investor
Question. On the Philippines business - how much was the sale of ethanol in the first quarter? How is the revenue of the plant being recognized?
Answer, Kishore Chatnani, CFO and Whole-time Director. Plant has sold about 3.5 million litres of ethanol, but it's not reflecting in revenue. Both auditors (KPMG in Philippines) and our auditors are not showing it as commercial revenue since the plant is in trial operations. They are continuing to show it in current CWIP, and the revenue generated during trial run is being adjusted against the CWIP. We expect to capitalize it in September quarter and start booking revenue.
Follow-up. What is the total capital employed in the Philippines project as of date?
Answer. The Philippines capital asset figure is about INR900 crores. We can get the figure for you in a few minutes.
9. Full year revenue and margin guidance
Sandeep Bait, Independent Investor
Question. On consolidated basis for full year, would you like to give some revenue guidance? And what kind of margins can we look at for industrial project and manufacturing for the full year?
Answer, Kishore Chatnani, CFO and Whole-time Director. Last meeting we said revenue for the year would be up 7-10% (early double digits). We continue to expect that. Industrial project business, we just said that it will be around 13%, will be double digits. In manufacturing, we have already said the margin that we should assume is around 13.5%. For the current year, going to be around the same level. As Mr. Puri said, we have changed philosophy of order book composition - more technology-led orders coming in.
Follow-up. On the sugar business for India - how is cane price and ethanol off-take outlook?
Answer. Agroclimatic conditions are slightly less good till date but better than last year. Sugar season should peak at end of March, and working capital loans should come down. The cane crop is good in our area, agroclimatic conditions are good.
Partly answered.
10. Manufacturing margin drivers
Amit Kumar, Determined Investments
Question. Manufacturing vertical margin seems to have improved 370 bps sequentially. How do you explain the high margin in this particular quarter? Was there any special high margin execution or delivery?
Answer, Aditya Puri, Managing Director. Q1 margin improvement was due to the number of equipment orders getting bunched in that quarter - sometimes they do, sometimes they don't. There is better profitability in the consolidated ISGEC Hitachi Zosen product business plus a profit this quarter in the standalone itself. The 13.5% margin also reflects high margin product execution in the iron foundry and container panel businesses where we have expanded capacity and booked orders at good prices. We have also been making investments in increasing capacity for certain products.
11. Capex guidance for FY25 and FY26
Manas Thakkar, MT Advisors
Question. On capex for FY26 - what is the plan? And for the upcoming financial year '26, is it planned?
Answer, Aditya Puri, Managing Director. We have plans for INR60 crores of capex in the engineering business for this year. The execution may get spilled over to the next year, but as of now, INR60 crores we plan to spend. We will probably decide about INR60 crores of the investment for next year, but that is still to be decided.
12. ISGEC Hitachi Zosen orders and CBPI Philippines status
Jainam Jain, ICICI Securities
Question. What was the order inflow of ISGEC Hitachi Zosen subsidiary in this quarter? You said consolidated order book was INR7,741 cr with INR1,022 cr from Hitachi Zosen. What is the status of CBPI Philippines? It had losses in last two years.
Answer, Kishore Chatnani, CFO and Whole-time Director. As of end June 2024, we are well booked with INR1,050 cr of order book in ISGEC Hitachi Zosen. We did not book too many orders in this quarter (only INR71 cr). CBPI Philippines has started operations, had trial operations, generated 3.5 million litres of ethanol. They sold us about 3.5 million litres; the plant will run at full capacity from mid-November on sugarcane.
Follow-up. What is the profitability of Eagle Press & Equipment?
Answer. Eagle Press has shown a profit this quarter, probably for the whole year. North American EV car market is not picking up as people were expecting. The prospect is a little uncertain, but we are putting our best effort to see that the plant runs well. There is a shortage over there.
Partly answered.
13. Manufacturing vs project business growth
Sandeep Bait, Independent Investor
Question. On consolidated basis, you mentioned early double-digit growth for the full year. Can one assume that the growth rates will be similar for both your industrial project and manufacturing business? What is the outlook for industrial project vs manufacturing growth?
Answer, Kishore Chatnani, CFO and Whole-time Director. Manufacturing business will be INR2,000 cr on standalone basis. Last year we did INR1,700 cr. ISGEC Hitachi Zosen is also going to be better than last year. Project business will grow, manufacturing will grow. We are talking about early double-digit growth. The growth on the projects business will be higher than the manufacturing in percentage terms.
Follow-up. Are you including the sale of ethanol in the projected INR520 cr turnover from Philippines?
Answer. Yes, INR743 cr. 23-24% EBITDA margin on the Philippines asset once it is running. Last year we talked about 30% margin, in INR120 cr odd crores. That would translate into 12% return. Capital employed in Philippines is about INR743 crores. I don't have anything more that I can add here.
Partly answered.
14. Net debt and deleveraging timeline
Sandeep Bait, Independent Investor
Question. You mentioned net debt of INR743 cr on consolidated basis. By the end of the year, would you expect the company to be debt free?
Answer, Kishore Chatnani, CFO and Whole-time Director. On a consolidated basis, on a net debt basis, there will be debt, certainly ISGEC Heavy Engineering will be debt free by the end of the year. The Philippines company will have its loans. The sugar season should be at peak at end of March, will have small amounts of working capital loans. But the overall debt position is going to be less than what it is now.
What was said
Topic by topic, in the order it was spoken
Q1 FY25 Financial Performance · Aditya Puri (MD)
- Standalone total income up 7% YoY to INR1,243 cr; standalone PBT up 42% to INR111 cr
- Consolidated total income up 11% YoY to INR1,549 cr; consolidated PBT up 33% to INR96 cr
- Manufacturing revenue increased as capacity additions and investments from prior years have come into operation
- Profit before tax of subsidiaries (Saraswati Sugar, ISGEC Hitachi Zosen, Eagle Press, Canadian co) collectively around INR28 cr, with INR22 cr being dividend that gets eliminated in consolidation
Balance Sheet & Deleveraging · Aditya Puri (MD)
- Standalone net surplus of INR133 cr as at end June 2024 vs net borrowing of INR356 cr same period last year
- Consolidated borrowings down 54% YoY to INR491 cr as on June 30, 2024
- Consolidated net debt at INR743 cr as of June 30, 2024 (improved from INR1,066 cr a year earlier)
- Sugar season should peak at end of March, then working capital loans will come down
Order Book & Inquiries · Aditya Puri (MD)
- Standalone order bookings of INR1,025 cr in Q1 FY25 vs INR816 cr YoY; consolidated orders booked INR1,124 cr vs INR1,152 cr
- Consolidated order book in hand INR7,741 cr as on June 30, 2024
- Order mix: 69% project business and 31% manufacturing; ISGEC Hitachi Zosen contributed INR1,022 cr
- Order book well-diversified across sectors; overall demand trend encouraging; export inquiries have picked up including Philippines
Philippines Ethanol Plant & Market · Aditya Puri (MD)
- Philippines ethanol plant related construction, partial road, grains, flooring etc. has been completed
- Plant sold about 3.5 million litres of ethanol between April-July 2024; temporarily shut for some corrective actions
- Plant can restart later this month; expected to operate at full capacity by mid-November on sugarcane availability
- INR29 cr Q1 loss largely forex mark-to-market on Philippines Pesos depreciation vs INR; not a realized loss
Demand Outlook by Sector · Aditya Puri (MD)
- Captive power market for waste heat recovery plants expected to remain robust as process industries invest in efficiency and decarbonization
- Boiler market dominated by one player; ISGEC will bid for small packages, not 800 MW big plants
- Supply diversified across many industries including sugar, large number of process industries
- Some slowdown in chemicals; getting orders from other sectors, oil and gas composition unchanged
In their words
We are going in for smaller duration projects, we are going in for projects which have a comparatively lesser portion of civil and site work. Because that's where most of the difficulties are being felt. And as this proportion of these orders reduces, we can expect some improvement in the margins.
On a net debt basis, the net debt figure is about INR743 crores as of June 30th. By the end of the year... there will be debt, certainly ISGEC Heavy Engineering will be debt free by the end of the year. The Philippines company will have its loans. The sugar season should be at peak at end of March, will have small amounts of working capital loans.
Plant can restart later this month. The plant is temporarily shut for some corrective actions pointed out by local government authorities. We are working on running the plant, and if we have any news on disposal, we will certainly share.
Transcript
We have not transcribed this call's recording. Read the company's transcript (PDF).
The stock after the call
| After the call | Close | Stock | Nifty 50 |
|---|---|---|---|
| Next session Wed 14 Aug 2024 | ₹1,360.45 | −2.18% | +0.02% |
| 5 sessions Wed 21 Aug 2024 | ₹1,473.70 | +5.97% | +2.61% |
| 20 sessions Wed 11 Sept 2024 | ₹1,354.20 | −2.62% | +3.23% |
From the close of Tue 13 Aug 2024, ₹1,390.70: the close before the call day (the call's time is not on file). Adjusted daily closes; the move includes everything else that happened in those sessions.