Pennar bets big on pre-engineered buildings arm

Pennar Engineered Building Systems is executing a 450,000-sft building for Reliance?s national distribution centre at Pune

Hyderabad-based Pennar Industries Limited (PIL) is betting big on its pre-engineered buildings subsidiary, which recorded over 68 per cent growth and contributed 20 per cent to the net revenues in 2011-12.

Last year, Pennar Engineered Building Systems (PEBS) executed 78 projects and posted revenues and net profit of Rs 279 crore and Rs 10.4 crore respectively.

PEBS executive director, PV Rao, told Business Standard that the subsidiary, engaged in design, fabrication and erection of pre-engineered steel buildings, had targeted a turnover of Rs 350 crore in the current year and Rs 1,000 crore in the next five years.

PEBS contribution to the Pennar group is going to be significant considering PIL’s gross sales and net profit during the first quarter of the current year declined 5.6 per cent and 43.8 per cent respectively. PIL recorded a turnover of Rs 329 crore and a net profit of Rs 10.9 crore in the quarter ended June 2012 as against a turnover of Rs 348.7 crore and a profit of Rs 19.4 crore posted during the same quarter in the previous year.

PEBS is now planning to construct a second plant in north India with an initial investment of Rs 50 crore. The capacity of the new plant is expected to be 30,000 tonnes per annum (tpa). Its existing plant in Hyderabad has a capacity of 90,000 tpa.

“Currently, we are not able to penetrate north as well as Gujarat markets in view of freight disadvantage. That is why we are planning to construct our second plant in Rajasthan or Gujarat. We are also looking for expansion through the inorganic route in the north,” Rao said.

According to Rao, transportation of material from its existing unit to the northern markets will cost about Rs 6,000 a tonne. Besides, it will take 7-10 days to send the material. Hence, the company cannot be competitive to execute works in north India.

Keeping this in view, PEBS is looking for industrial lands developed by government in the north for setting up a greenfield facility. The plant is most likely to be located in Gujarat, which has ports that facilitate exports. “Alternatively, we are also looking at suitable companies in Rajasthan and Gujarat for acquisition,” Rao said.

PEBS, which has a technical collaboration with the NCI Group of the US, is stated be having an engineering team comprising 25 experienced structural engineers.

“Our fundamental strength lies in our engineering capability and in our project execution capability,” Rao said, adding this was the reason behind PEBS having a blue-chip clientele within a short period of three years of its inception.

On Tuesday, PEBS clientele include L&T, UltraTech, ACC, ABB, Schneider Electric, Dr Reddy's, Bosch, Toyota, HCC and JSW. It is currently executing a 450,000-sft building for Reliance’s national distribution centre at Pune. L&T has rated PEBS as the preferred vendor for its projects across the country.