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Q1FY26 Result Highlights Pitti Engineering Ltd (PEL) reported a 17% YoY revenue increase despite relatively modest volume growth. For the quarter, capacity utilisation stood at 82% for machined hours, 70% for sheet metals, and 69% for casting, indicating substantial headroom for volume expansion. PEL delivered 30% YoY EBITDA growth during the quarter, with a 168 bps improvement in margins. Gains were driven by better operating leverage from increasing volumes and ongoing cost optimisation measures. Management expects further margin expansion, aided by synergies from business integration and higher utilisation levels, with a guided improvement of 75–100 bps by FY27. The company expects steady improvement in utilisation levels, supported by strong demand from key end markets, enabling it to achieve its targeted 10% volume growth for FY26 and revenue of Rs 2,000 Cr.

Key conference call takeaways

Company Performance: Consolidated revenue for the quarter increased by 17% YoY to Rs 457 Cr, while EBITDA grew by 30% to Rs 75 Cr (excluding other income). EBITDA margin improved to 16.5% (168 bps improvement YoY), while PAT increased by 18% YoY. PAT growth was impacted by higher depreciation and finance costs as debt increased due to higher working capital requirements.

Capex: The company has approved a capex of Rs 150 Cr to expand the manufacturing capacities of itself and its wholly owned subsidiaries—Pitti Industries Private Limited and Dakshin Foundry Private Limited. The planned expansion will increase consolidated sheet metal capacity from 90,000 MT to 1,08,000 MT, machine hours from 6,48,000 to 7,20,000, and foundry capacity from 18,600 MT to 24,000 MT. With current capacities operating near optimal levels, the expansion aims to support growing business demand and capitalize on upcoming growth opportunities. The project will be implemented in phases over the next 18 months and funded through a mix of internal accruals and debt.

Capacity Utilisation: The present utilisation capacity of sheet metal is 70%, machining hours 82%, and casting capacity 69%.

Volumes (QoQ): Overall lamination volumes increased to 16,000 MT. Stator frames – core drop registered a 28.0% volume growth, shafts – machined components increased by 19.8%, stator frame or rotor shaft integrated assemblies – laminations grew by 15.8%. High value-added assemblies – laminations decreased by 3.1%, machined component volumes declined 2.7%, and loose laminations and low value-added assemblies declined by 16.8%.

Exports: Exports grew by 30% YoY, contributing to 31% of overall revenue. Of the total exports, ~30% are contributed by the USA, 55-60% by Mexico, and the remaining to various other countries.

Update on supply chain challenges: The management mentioned that the industry is likely to continue experiencing supply-side challenges related to electrical steel due to the expiration of licences of Chinese players and quality control norms. As a result, the company’s inventory levels were elevated during the quarter, which in turn increased debt levels. However, the company mentioned that quality control norms have been relaxed for Japanese and Korean players and supplies should start normalising from September 2025.

Capex: Announced a new capex of Rs 150 Cr for enhancing manufacturing capacities of the company including Pitti Industries Private Limited and Dakshin Foundry Private Limited. Planning to increase sheet metal capacity to 1,08,000 MT from 90,000 MT annually, machine hours capacity to 7,20,000 hours from 6,48,000, and castings capacity to 24,600 MT from 18,600 MT. Expected to be funded through a mix of internal accruals and debt. To be completed in a phased manner over 18 months.

Net Debt and Other Operational Highlights: Net debt stood at Rs 525 Cr as of quarter end, compared to Rs 439 Cr as of March 31, 2025. While debt levels are temporarily elevated due to higher working capital requirements, the management expects net debt to reduce by FY26-end. The newly announced capex will be funded through a mix of debt and internal accruals, but debt levels are likely to remain under control as the company expects to generate robust cash flows going forward

Outlook: The company sees robust demand in key end markets, especially in the domestic market, encouraging it to prepone capital investments (earlier expected to be announced in H2FY26 or later). The company continues to work on building synergies and improving capacity utilisation, which are expected to support better margin performance. As a result, while the management remains cautious about ongoing geopolitical and international trade uncertainties, it has maintained the 15% revenue growth target for FY26. The management also expects around 75-100 bps improvement in EBITDA margin in the next 12-18 months. The newly added capacities are expected to be commercialised starting Q1FY27, which may help the company exceed the FY27 revenue targets set earlier. However, owing to current uncertainties, the management has been conservative and has not given a definitive upward revised revenue number at this stage.

Outlook & valuation

The company remains on track to achieve its FY26 and FY27 guidance. Steady demand from key end-user industries, despite short-term fluctuations, is expected to drive improved utilisation levels. Recently announced capacity additions will further support revenue growth in FY27 and beyond, with a meaningful earnings contribution from FY28. Revenue growth is expected to remain robust, supported by margin improvement as economies of scale strengthen and the share of value-added products increases over time.

The management indicated that demand from end-user industries remains robust, supported by healthy order enquiries and bookings. Domestic demand trends are strong, while exports continue to grow at a steady pace. The company expects to achieve its FY26 revenue growth target of 15% despite ongoing macro uncertainties. Based on the current run rate, optimum utilisation of existing capacities is anticipated by Q4FY26. Consequently, the company has announced brownfield capacity expansions ahead of schedule, with the phased addition to be executed over 18 months and the first commissioning targeted for Q1FY27. At a CMP of Rs.927, the stock is trading at 17 FY27E. We maintain a HOLD rating on the stock.