Value added products and long standing relationship with marquee customers to drive growth
Company Profile
Incorporated in September 1983, Pitti Engineering Ltd (PEL) was promoted by Mr Sharad B Pitti of Hyderabad, Telangana. PEL manufactures value-added and assembled components through machining and lamination processes for several end-user industries in India and international markets. It has the distinction of being the first lamination manufacturer in India and the first company in the state of Andhra Pradesh to be certified as an ISO 9002 company. The company has state-of-the-art manufacturing facilities, located at Hyderabad (Telangana) and Aurangabad (Maharashtra) with a capacity of 15,000 and 35,200 MTPA respectively as of FY23). It manufactures electrical steel laminations, sub-assemblies for motor cores, sub-assemblies for generators, die-cast rotors, and machining of metal components. The end users of the products of PEL include Power, Mining, Transportation, and Heavy Industrial Motors segments.
PEL is one of the largest manufacturers and exporters of electrical laminations
in India and one of the market leaders of assemblies for large alternators and motors
in India.
Investment Arguments
New business opportunities– key growth drivers for the company
The company has successfully expanded its presence and capabilities to service new
value-added businesses. The company has added dedicated manufacturing lines/units
for new applications segments which include railway undercarriages, components for
EV (Electric Vehicle) motors, drivetrain systems, gear cases, unique engineered
product solutions for wind turbine applications, and medium and heavy fabricated
machined components. The company has a diversified product portfolio that caters
to diverse end-user industries including Power, Mining, Transportation, Hydro generator,
Electric Vehicle Motors, etc. PEL exports its products to more than 12 countries
deriving a revenue of around 40% of total revenue as of Q3FY24.
Long–standing relationship with a marquee customer base
PEL is an established player for stamping and lamination segments in both domestic
as well as overseas market and its clientele comprises renowned names in the industrial
motor manufacturing industry such as Wabtec Corporation (WC), General Electric (GE),
Siemens Limited, ABB India Limited, Larsen & Toubro, Suzlon Energy, Mitsubishi
Electric, Wabtec Corp, Titagarh among others from whom the company garners repeated
orders. A strong relationship with the marquee customer base should
enable the company to garner repeat orders.
Capacity expansion to cater to strong industry tailwinds
PEL’s investment in capacity expansion will help in increasing its offerings
and reach customers quickly. It has proposed capacity expansion of sheet metal to
72,000 tonnes (current 50,200 tonnes) and machining to 648,000 hours (current 460,800
hours) – which is to be operational by Q1FY25, and which will further strengthen
its revenue earning potential. In addition, debottlenecking and automation exercises
at Hyderabad will add to profitability levels. It has already set up its facility
at Aurangabad, Maharashtra, and since Maharashtra accounts for ~60% of its domestic
business, this move will help PEL to reach customers faster, easily source raw materials,
and significantly reduce its logistics and operational costs.
The company’s Maharashtra facility is under the Mega-Project Incentive Packaging
Scheme 2013, PEL will receive incentives from the state government by way of SGST
reimbursement (on sales made from the Aurangabad plant) based on the capex –
if PEL’s capex is ~`700mn, then its incentive will be `100mn p.a. by way of
SGST reimbursement spread over seven years. This will also boost profitability.
Capacity at the plant in Aurangabad can be easily extended to 100,000 MT without
any requirement for additional land.
Capex-driven economy to support robust order book
In FY23, PITTI’s order book significantly improved by 149% YoY to Rs 823 Cr
backed by a) a diversified product basket, and b) robust demand from the domestic
market on account of economic growth and increasing enquiries from the international
market. We expect the company’s order book to further improve given the increasing
growth and demand from the Railways, Power Generation, and Industrial sectors for
the company’s products. To cater to this demand, PEL has already carried a
major Capex of Rs 467 Cr in a phased manner from FY21. This has increased PEL’s
production capacity by ~56% in the last 3 years. Earlier, PEL used to supply products
to 100 windmills a year whereas, with increasing demand in the renewable energy
segment, PEL is currently supplying its products to 100 windmills per month. This
supply is expected to further increase as many players have made India a hub for
sourcing for its South Asian country's needs. Capex is pegged at Rs.223 cr by
H1FY25.
Value-added products yield higher realizations
PEL has strategically evolved its products to meet market demands, resulting in
the company's profitability improvement. These value-added products have also
helped the company to enhance its competitive edge and attract more customers. These
value-added products have also helped the company to enhance its competitive edge
and attract more customers. The company achieved the highest ever Export Revenue
per quarter ₹ 118.29 Crores. Similarly, with increasing demand in the renewable
energy segment in the international market, we believe the export market will significantly
aid in PEL’s revenue growth and improve its profitability moving forward.
Pitti Casting (PCPL) Merger and potential acquisition
PEL recently announced the merger of Pitti Castings Pvt. Ltd. – a group company
engaged in the manufacturing of high-quality casting in grey iron, ductile iron,
low carbon, and alloy steel grades. Post-merger, PCL’s revenue is expected
to grow significantly on account of robust demand in the components business, leading
to higher operating margins for the company. In FY23, PCPlL’s revenue stood
at Rs 150 Cr, in which PEL contributed Rs 80 Cr. This merger will aid the company
in ensuring a consistent supply of high-quality casting products and will have enhanced
control over the supply and inventory management of raw materials. PEL is also looking
into potential acquisitions to further increase its market share and sales volume
by 20%.
Key Growth drivers for the company
Significant investment by railways will drive PEL’s growth
The Indian Railways’ capex outlay for FY24 stands at a substantial ` 2.4tn,
which is more than 9x its 2014 capex. Railways will be net-zero by 2030 and will
introduce more semi-high-speed [Vande Bharat trains by 2030. The aim is to roll
out more than 800 operational Vande Bharat trains by 2030. Siemens (to whom PEL
supplies) recently bagged a ` 250bn project from the railways, manufacturing 1,200
electric locomotives with a horsepower of 9,000. All these initiatives will boost
PEL’s revenues.
EV is the new revenue driver for PEL
EV sales in FY23 increased by ~174% YoY to 1.25mn units. The Indian government has
set a target to achieve 30% electrification of the country's vehicle fleet by
2030 and has introduced several incentives and policies to support the growth of
the EV industry. The industry was given a major boost in the FY24 Union Budget to
produce electric vehicles, adoption of hydrogen fuel, and embracing changing technologies,
etc., with a budget of ~ ` 350bn.
China+1 is a big opportunity for fabrication services
The convergence of supply-chain constraints and the strategic adoption of the ‘China
Plus One’ approach offers the potential for PEL to capitalize on the growing
demand for fabrication services, establishing a strong market presence and driving
sustainable growth in this dynamic industry. Recognizing the potential of this business,
PEL made a strategic investment of ` 70mn to establish a dedicated production line
equipped with state-of-the-art technologies such as fibre laser cutting for sheet
metal, automated CNC bending machines, robotic welding solutions, specialized heat
treatment, and painting lines.
Government’s plans for 500GW renewable energy by 2030
The government has outlined plans to increase renewable capacity from 166GW at present
to 500GW by 2030; for this, the transmission capacity needs to be augmented (higher
gestation period vs. generation). Accordingly, investments have been planned out
in phases over FY23-30 at an estimated cost of ~ `2.44tn.
The Pump Market is another strong business opportunity for PEL
The global pump market is valued at US$ 96bn in 2022 and is estimated to touch US$
119.39bn by 2028, at 6.3% CAGR. Exports have been growing at 10-12% annually, with
India exporting pumps and valves to 100+ countries, serving different segments.
The exports of all types of pumps from India were valued at US$ 98.7mn in 2022,
rising 25% to US$ 123.5mn in 2023.
Global traction motors are poised for strong demand
Governments worldwide are actively promoting the adoption of electric vehicles and
electrification of transportation systems to reduce carbon emissions and combat
climate change. Such incentives are encouraging manufacturers and consumers alike
to embrace electric propulsion technologies, thus fueling the demand for traction
motors. Also, as countries strive to modernize and expand their railway networks,
the demand for traction motors for locomotives, high-speed trains, and other rail
transport vehicles is witnessing a notable upswing. Industries such as automotive,
transportation, and industrial equipment are increasingly seeking efficient and
powerful traction motors to enhance their products' performance and energy efficiency.
Favorable government policies and subsidies have played a crucial role in bolstering
this industry.
Q3FY24 Financial Performance
Pitti Engineering delivered robust earnings growth for the quarter ended Q3FY24.
The company achieved the highest-ever sales volume of 10,572 MT in Q3FY24, with
YoY growth of sales volume is 15.54% as against 9,150 MT in Q3FY23. Total revenue
for Q3FY24 is ₹ 296.92 Crore as against ₹ 239.08 Crore in Q3FY23, registered a growth
of 24.19% on year-on- year basis and achieved the highest ever Export Revenue per
quarter ₹ 118.29 Crore. EBIDTA for Q3FY24 grew by 13.58% year-on-year growth to
₹ 44.09 crore, the highest ever EBITDA registered for the quarter. The Company has
achieved net profit of ₹ 13.32 crore in Q3FY24, achieving a year-on-year growth
of 9.81%.
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