Pritika Auto Industries August 2024 Concall Highlights: Growth Driven by Value-Added Castings and Strategic Initiatives
Pritika Auto Industries Ltd. (PRITIKAUTO) reported a strong start to FY25, marked by increased production volumes and an improved EBITDA margin. The company highlighted the benefits of its recent demerger and merger of manufacturing units, which have enhanced operational efficiencies and synergies. The management expressed optimism about the future, emphasizing the growth potential of its expanded product portfolio and strategic initiatives focused on capacity expansion and new market segments, particularly in the tractor and railway sectors.
a. Financial Performance:
Pritika Auto Industries' revenue in Q1 FY25 reached INR 88.80 crores, a significant increase compared to the same period last year, though not directly comparable due to the demerger. The company witnessed a 10,026-ton production volume in Q1 FY25, a marginal increase over the 9,988 tons produced in Q1 FY24. EBITDA stood at INR 14.42 crores, a 356 basis points year-on-year improvement, with the EBITDA margin expanding to 16.24% from 12.68% in Q1 FY24. This growth is a result of synergies from the demerger and operational efficiencies. However, profit after tax (PAT) declined by 15.32% year-on-year to INR 4.47 crores, primarily due to higher finance costs and depreciation associated with previous quarters' mergers and capital expenditure.
b. Operational Updates:
The company currently operates across multiple facilities in Punjab and Himachal Pradesh, with a consolidated annual capacity of approximately 75,000 metric tonnes. It plans to incrementally increase this capacity organically and through acquisitions, aiming for an installed capacity of 100,000 tons by 2027. The management indicated that its current capacity utilization is around 60%-65%, with plans to increase it to 70-75% in FY25, followed by 80% in the subsequent year. Management highlighted the strategic location of its facilities, situated near a high concentration of tractor manufacturers in a 500km radius, benefiting from its proximity to customers.
c. Management Insights:
Harpreet Singh Nibber, Chairman and Managing Director, emphasized Pritika's long-standing commitment to quality and innovation, citing its 50th-year anniversary as a testament to this dedication. He stated, "Our commitment to delivering world-class products has earned us a strong reputation in the industry." He further detailed that the company is focused on expanding its product portfolio to include more value-added offerings, like central housings and blocks, positioning it for sustained growth. Nibber also highlighted the company's vision to be a leading machine casting producer in India and to become the first choice among Original Equipment Manufacturers (OEMs) in this sector.
d. Strategic Initiatives and Future Plans:
Pritika Auto Industries outlined a clear strategic path for growth. The company is actively pursuing opportunities in the railway and defense sectors, aiming to capture new market segments and strengthen its competitive position. The management highlighted the strong growth potential of the railway sector and is developing critical components to cater to this demand. Narinder Kumar Tyagi, CFO, mentioned that the company is strategically targeting niche product categories where competition is less, leading to more favorable margins. Capacity expansion will be a key driver of future growth, along with the introduction of new products.
e. Q&A Session Highlights:
- Capacity Utilization and Future Plans: Management expects capacity utilization to increase to 70-75% in FY25 and 80% in the following year, with the new capacity addition coming into operation by FY27. The management indicated that the installed capacity target of 100,000 tonnes by 2025 was delayed due to market conditions.
- Shift to Value-Added Castings: The management indicated that a significant portion of future revenue growth will come from large and value-added castings, which are in high demand and have fewer competitors.
- Industry Outlook and Tractor Demand: Management sees a positive outlook for the tractor industry, with a predicted growth of 5% this year and potentially higher growth in the next two years. They believe that increased government support and favorable farming conditions are supporting this demand.
- Railways and Defence: The company is developing products for the railway and defense sectors, with initial revenues expected in the latter half of FY26 for railway-related projects.
- Supply Chain and Distribution: The company primarily utilizes the Ex-Works (XXR) model for its distribution network, with customers managing their own logistics. The exception to this is for strategically located customers like M&M in the North region.
Conclusion:
Pritika Auto Industries' Q1 FY25 results demonstrate a solid foundation for future growth. The company's strategic initiatives, including a shift towards value-added products, capacity expansion, and forays into new market segments like railways and defense, are expected to drive its performance in the coming years. While the near-term outlook is positive, management is also cognizant of potential challenges like seasonal variations and global economic headwinds. Overall, the company appears well-positioned to capitalize on the growth prospects within the Indian tractor and automotive components industry.
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