Financial Highlights:

Q4FY25 Result Highlights
Pitti Engineering Ltd. (PEL) delivered a mixed set of numbers for the quarter ended Q4FY25. Consolidated revenue grew by 40% YoY to Rs.469 cr as compared to Rs.336 cr in the same quarter of the preceding fiscal.  EBITDA reported was at Rs 80 crs, up 54.27% YoY. PAT was at Rs 36 crs, down by 21.45% YoY. PAT drop attributed to the incentive booked in Q4FY24, not in Q4FY25. Other income was Rs 4 crs, down 88% YoY. Sales volume increased to 17,185 MT as compared to 11,435 MT in Q4FY24; up 50.28% YoY. Net debt as of 31st March 2025 stands at Rs 439.04 crs, and Net Debt to Equity Ratio stood at 0.49. The company became a Tier-1 supplier to BLW (Banaras Locomotive Works) for a wide range of locomotive components (castings, laminations, machining).

Other Key Highlights

• Major capex cycle is complete. New capacity commissioned at Aurangabad Sheet metal capacity: 90,000 MT Machining capacity: 648,000 hours Casting capacity (currently usable): 18,600 MT Mold side capacity: 28,200 MT (limited by power availability)
• FY25 Consolidated Revenue stood at Rs 1,743 Cr, up 35% YoY, Consolidated EBITDA stood at Rs 271 Cr, up 50% YoY, PAT was Rs 122 Cr, up 36% YoY
• FY25 Lamination Sales Volume: 63,215 MT, up 49.43% YoY
• In FY25, exports totalled ~Rs 500 Cr, with Mexico contributing 60–65% (of which ~70% is indirect exports to the USA), USA 30–35%, and Europe Rs 40–50 crs currently—expected to grow to Rs 150–200 crs in two years—driven by key clients like Siemens Energy, Siemens Gamesa, and Indar in clean energy and marine propulsion.
• Finance costs peaked in Q4FY25. No new major capex commitments and net debt expected to reduce gradually.
• Machine components FY25 revenue: Rs 250–275 crs (Rs 375 crs including internal consumption). IC & EV segments: currently 0.7% of revenue with long-term growth potential. Complexity in tracking exact machining revenue due to integration with lamination assemblies.
• Consumer durables: low-margin, selectively pursued. Wind domestic demand is strong, exports are weak, and pumped hydro has stable demand. Bharat 6 impact easing; recovery visible in Q4FY25 & Q1FY26.
• Other Income rose from Rs 14 crs (FY23) to Rs 30 crs (FY25), driven by incentives, interest, and scrap sales. Depreciation is expected to remain flat in FY26 unless new capex occurs.
• Subsidiaries' performance was Bagadia Chaidra: Rs 17.34 crs EBITDA (FY25). Induction: Rs 12.5 crs EBITDA. Consolidated synergy via cheaper parent-supplied RM.

Key Conference Call Takeaways

Margins, Raw Material Costs & Inflation

• Electrical steel prices up ~7% (April vs January). 12.5% safeguard duty imposed on CRNO imports; BIS expiry blocks Chinese supply. Full domestic supply may take 6–9 months; JSW is the only significant alternative. Expected inflation is ~5%.
• 10% volume growth and efficiency gains expected to offset margin pressure; rising RM prices could boost revenue even with flat EBITDA.
• PIS license expiry to raise RM costs in the next 6–9 months. Targeting a 75 bps margin improvement despite inflation. 100% RM cost pass-through via quarterly contracts. Margin support also from acquisition integration, and machining capacity scale-up.

Segment & Industry Dynamics & Defence and Aerospace strategy

• Smaller segments (auto, data centers, pumps, appliances) are expected to contribute 10–12% revenue in 2–3 years. Railways (traction & components): 30–35%; Power Generation: ~14%. Industrial motors to remain flat at 11–12%. Renewable & data center demand strong; special purpose motors expected to recover long-term.
• Railway exports dominate: Rs 400 crs export vs Rs 200 crs domestic in Rs 600 crs traction business
• Defence is not a core focus due to limited application. Aerospace entry planned via acquisition post-valuation correction. Civil aviation is perceived as more profitable than defence.

Capex & Capacity & Segmental growth

• No bulk capex; demand-led, tactical investments preferred. Machining capacity: current 6.3 lakh hours → needs 7.5–8 lakh hours for Rs 750 crs revenue. ~22 machines needed at Rs 50–60 crs capex. FY27 minor lamination capex (~Rs 15 Cr) possible.
• Motor segment: 25–30% CAGR over the last 3 years. US rail market weak; Brazil & Kazakhstan growth offsets Wabtec slowdown. Refurbishment market strong; BS6 normalization underway.

High-Value Assemblies & Margin Strategy

• High-value assembly growth slower than expected (~2.94% since FY20).
• Focus remains on product mix shift toward high-margin items.

Other Key Highlights

• WebTec discussions ongoing; North America faces macro uncertainty (tariffs, recession). No new Vande Bharat tenders; limited short-term growth. Business skewed to private capex; limited dependency on government capex (except Indian Railways).
• Price variation clauses ensure RM price pass-through. Inflation impacts the % margin, not absolute earnings. Margin growth to come from scale and product mix, not price arbitrage.
• RFQs up 200%, with 10+ new/month (US/EU mid-sized clients). Order sizes: $0.5M–$50M/year. The strategy is to focus on cost-competitive, high-quality opportunities, avoid tariff-driven ones. Targeting cost-effective segments like shafts, avoiding non-competitive areas like washing machine laminations.
• FY26/FY27 company is expected to shift from volume to value and margin-focused growth, and key drivers are expected to be product mix improvement, lower capex, and debt reduction.
• While the company met the lamination volume forecast of 62,000 tons for FY25, it now anticipates a FY26 lamination volume forecast of 68,000 tons for FY26 and 72,000 tons for FY27, with revenue potential of approximately Rs 2,100 – Rs 2,200 crs in FY26.
• Capex in H2FY26/H1FY27 planned for capacity expansion beyond 72,000 MT if demand supports. It plans to reduce debt to Rs 200–250 Cr; and FY26 guidance is Rs 100–120 crs debt reduction by pausing capex, building cash reserves.
• Sales volume increased to 17,185 MT as compared to 11,435 MT in Q4FY24; increased by 50% YoY.
• Consolidated sheet metal capacity stood at 648,000 machine hours!! Machining capacity stands at 648,000 machine hours. Combined casting facilities' capacity is 18,600 MT.

Guidance

• FY26 margin guidance: 16.5–17%; revenue growth 10–15%, net profit growth 15–20%.
• FY26 volume growth target: 10% in India, depending on RM price stability. RM inflation is currently suppressing higher domestic growth.
• Company anticipates a 75 bps to 100 bps increase in EBITDA Margins over the next 12-18 months.
• For FY26, the management is targeting Rs. 2000 cr with a volume of around 68,000 tons.
• For FY27, with a peak capacity of 72,000 tons, revenue is expected to be around Rs.2100-2200 cr.
• The machining components business is on track to achieve a revenue of Rs.750 cr in the next 18-24 months.

Outlook & valuation

Pitti Engineering delivered mixed Q4FY25 earnings. We believe that PEL's diversified product portfolio across various sectors such as renewable energy, power generation, and mining, oil & gas helps mitigate risks associated with any single sector and provides stability to the overall revenue stream. PEL's recent acquisitions, including the merger of Pitti Castings Pvt. Ltd. and the acquisition of Bagadia Chaitra Industries Pvt Ltd. are expected to further enhance its revenue and operating margins. These acquisitions will also help the company expand its presence in key markets and strengthen its product offerings.

The expansion of Pitti Engineering's Aurangabad facility is a key strategic move, enhancing its capabilities in lamination, sub-assemblies, and the production of larger shafts for more powerful motors. This will not only deepen the company's position in the value chain but also drive higher-margin growth by tapping into more advanced, high-performance motor applications. The expanded facility underscores Pitti Engineering’s commitment to strengthening its manufacturing capabilities and capturing greater market share in the growing demand for advanced motor components. It is also focusing on increasing the share of value-added products, which, along with rising international demand and the addition of new businesses, supports its long-term growth prospects. While value-added products and exports generate higher margins, the combination of increasing volumes and improved capacity utilization is expected to enhance operating leverage, as fixed costs remain largely unchanged, thereby driving margin expansion.

We remain constructive on the company’s growth prospects due to its higher focus on value-added products, established relationship with marquee customers, stronger domestic portfolio, focus on exports, and diversifying industry mix – railways, auto, traction motors, renewable energy, etc. Capacity expansion directly results in a strong improvement in the company’s order book. The Merger with Pitti Casting will add to margins and strengthen the components business. PEL’s target is to garner more than 80% revenue through assembly and value-added products, which will also help in increasing EBITDA per tonne in quarters to come. The increasing demand for renewable energy and marine applications in the international market is expected to significantly aid in PEL’s revenue growth and improve its profitability moving forward. Management highlighted that the challenges in the LV motor market are being resolved. While there are uncertainties related to US tariffs, the company is cautiously optimistic about demand. It continues to witness healthy demand across its major end-user industries, including railways, wind and hydro (under green energy), pumps, and power generation.  At a CMP of Rs.961, the stock is trading at 18x FY27E. We maintain a HOLD rating on the stock.