Nrupender Rao Chairman
Pennar Engineered Building Systems commenced commercial operations in 2010 and hasquickly grown to become one of the largest companies in the custom designed buildingsystems space in India. I intend to use this opportunity to present this companyshistory as well as the way forward as we implement our growth strategy.
PEBS journey so far:
Pennar Engineered Building Systems (PEBS) added engineering capabilities to
Pennars existing strengths in the manufacture of building components. Pennar madea wide variety of building components but the addition of structural engineeringcapabilities and project management helped scale up the company. We undertook a detailedmarket survey to map the companys addressable market size. We focused on building astrong core team and with Mr. P. V. Rao coming on board as the CEO we created aneffective and experienced management team.
The companys management team exceeded our expectations. I am glad to share thatPEBS reached the gross turnover of H500 crores in FY15-16. It is a remarkable achievementin a span of just five years. Profitability was achieved in the very first year. Thecompanys long-term debt initially at a 2:1 Debt Equity level wascompletely re-paid and the company become long term debt-free and is now a stronggenerator of free operating cash flow. From an initial capacity of 30000MT the companykept adding capacity and currently has 120000MT of production capacity (in the Hyderabadand Baroda plants). The company was able to grow its market substantially by providingSolar MMS (module mounting systems) high rise buildings structural fabrication andengineering services. We are proud of PEBS management team led by Mr. P. V. RaoManaging Director and I have every confidence that we can further scale in the future.
The markets for our products and services are currently primarily in India withthe exception of engineering services. While we have historically exported to othercountries in Africa Nepal and Sri Lanka the vast majority of our revenue is derived fromIndia.
Over the past five years the Indian infrastructure sector has not performed well. Theconstruction power (with the notable exception of wind and solar) automotive and processindustries have all witnessed growth rates ranging from very low to negative. Howeverthis same period has seen PEBS grow its revenues by an average 40% CAGR. The rationalebehind this growth has to do with PEBS value proposition to cut project executiontimelines for customers and also bring in value engineering and optimisation throughsolutions. This has allowed us to differentiate not only from conventional constructionbut also from competitors in the metal building space. We expect that this competitiveadvantage will continue to persist as we continue to scale our revenue in the metalbuildings space. This will allow us to implement a five-year strategy that evolves us intoIndias premier structural solutions company.
PEBS currently operates in the following business verticals:
Pre-engineered buildings Solar module mounting systems Structural steel fabricationEngineering services These four verticals have generated gross sales of H508.63 Crores(including all taxes) in the financial year ending March 2016. The company achieved anEBIDTA of H65.04 Crores and a PAT of H30.16 Crores.
PEBS has engineering offices in Hyderabad and Vizag and its manufacturing plants inHyderabad and Baroda. The engineering offices of the company boast one of the largestaggregation of structural engineers in the country. The manufacturing plant for thecompany is in Sadashivpet near Hyderabad and is the first Gold-rated Green Factory inIndia under the LEED 2.0 rating system of the Green Building Council. The company hassales offices across India. These sales offices are the primary points of generation ofenquiries that are converted into orders and revenue and positive operating cash flow.
The company has an operating cycle of three months and maintains two operating cyclesworth of revenue in the form of an order book. The companys order book as of March2016 was H424 Crores.
Our total employee strength in the company is 509. These include our engineering teamof 182 manufacturing operations team of 133 sales team of 51 supply chain team of 5and the project management team of 12 and 79. The other members make up ouradministration finance corporate planning and legal team. PEBS strong engineeringand manufacturing strengths augmented by an excellent project management capabilityallow to provide services to a wide variety of industries and engineering sectors.
Over the course of the last financial year the company invested in growing itsmanufacturing strengths with capacity augmentation and new product development. Thecompany also invested in improving its structural engineering team and reaped the benefitswith high growth in this vertical.
Expectations for the next financial year and the medium-term:
We are confident that the initiatives undertaken by the company as well as our orderbook position will allow us to grow revenues over the next year. As a result of eachbusiness verticals growth strategy we are confident that growing market share willallow us to expand each vertical.
Pre-engineered buildings cater to the industrial engineering warehousing andcommercial sectors. The order book for the sector remains strong. Our references includeone of the largest single buildings in India with a covered area of 1.4 million squaremeters a 100-meter clear span buildings a one-kilometer-long building a 250MT live loadcarrying building. The expansion of our manufacturing capabilities to Gujarat will alsoallow us to tap the North Indian market. The Solar Module Mounting Systems vertical hasexhibited strong growth and we are sure of this growth in the financial year ending March2017. Driving this growth in order book and revenue is the expansion of the grid connectedsolar photo voltaic market in India. Indias National Solar Mission followed byindividual state solar policies have resulted in a virtual explosion in the installationof grid connected solar photo voltaic power plants. Consequently the demand for MMSstructures is at an all-time high and projected to continue growing. The cumulativeinstalled capacity of PV power plants in India as of March 2016 was 7 Gigawatts and plansfor the current financial year are to add a further 7 gigawatts. As one of the marketleaders in this space PEBS will continue to deliver optimised MMS solutions to developersof Indias power projects.
Engineering Services started a year-and-a-half ago. The company intends to leverage itslarge structural engineering team to provide design detailing and other engineeringsolutions to companies in the metal buildings and structural engineering space in the USand other geographies. The company is the process of building a strong customer base inthe US and is also looking at potential acquisitions to boost the sales and projectmanagement presence in the US. The current financial year will see a good proportion ofthe companys EBIDTA from this vertical.
We believe that the company is in a strong position to record high growth in thefinancial year ending March 2017. We will continue to focus on retaining and growingbalance sheet strength and look forward to ensuring all the companys verticalscontinue to be good cash flow generators.
Over the long-term PEBS core strengths of strong engineering and executionliquidity low debt and international presence will allow us to craft a five-year strategythat will help us evolve into one of the largest building solutions players in India. Someof the opportunities that can be game-changers include high-rise buildings rooftop solarengineering services building facades and composite construction.
On behalf of PEBS management team I welcome all new shareholders to the PEBSfamily. It will be our focus to keep you informed of our plans to grow the company. Itgives me a lot of pride and comfort to know that I can count on your support and I lookforward to working with all of you to ensure we meet your expectations.