Shilchar Technologies: Q2-25 Earnings Call Highlights
Positioned to capitalise on strong demand for transformers, in renewable energy sector. Capex driving growth. Focus on operational efficiency. Price pressure may emerge as new capacity enters market
shilchar.com | BOM: 531201
1. Key Takeaways
1.1 TLDR
STL is well-positioned to capitalise on the robust demand for transformers, particularly in the renewable energy sector.
Capacity expansion is driving strong financial performance, and further expansion is being considered to meet future demand.
The company's focus on operational efficiency and strong customer relationships contribute to its competitive advantage and higher profitability.
While some price pressure may emerge as new capacity enters the market, STL is confident in maintaining healthy margins for the foreseeable future.
1.2 Operational Highlights:
Current Order Book: ~ ₹450 Crores (executable in 6-9 months)
FY25 Revenue Target: ₹550 Crores
FY26 Revenue Potential (with full capacity utilisation): ₹750-800 Crores
Per MVA Realisation: ~ ₹10 Lakhs
Revenue Split (Domestic vs Export): ~ 55:45 (subject to fluctuations within a 60:40 or 40:60 range)
1.3 Key Themes:
Strong Demand Environment: The transformer industry is experiencing strong demand driven by growth in both domestic and international power consumption, particularly in the renewable energy sector.
Capacity Expansion: Shilchar has successfully commercialised an incremental 3500 MVA capacity in August 2024, bringing the total installed capacity to 7500 MVA. The company is targeting a turnover of 550 crores in FY24-25 and 750-800 crores in FY26.
Financial Performance: The capacity expansion resulted in notable production increase in Q2, leading to year-over-year and quarter-over-quarter growth. This enabled positive operating leverage and healthy gross margins, resulting in improved EBITDA margin and higher profitability.
Sustained Growth: The management is confident of achieving its growth targets for FY25 and FY26, driven by strong demand and increased capacity.
Maintaining Margins: While some price pressure is expected as competitors expand capacity, Shilchar is confident of maintaining healthy margins due to its efficient operations, low overheads and lack of finance costs.
Focus on Renewable Energy: Around 60% of Shilchar's business is focused on the renewable energy sector, with the majority of sales coming from oil pool distribution and power transformers for this sector.
Export Market: Shilchar is seeing increasing demand in the export market, primarily in North America and the Middle East, which contributes to approximately 45% of sales. The company is also exploring the European market and has recently secured its first order.
Lead Time Advantage: Shilchar's focus on maintaining competitive lead times is a key strength that attracts customers and differentiates it from competitors.
Focus on Core Business: The company has no immediate plans for backward integration or venturing into higher MVA transformers, preferring to concentrate on its existing product range and cater to the strong demand in that segment.
Customer Relationships: Shilchar benefits from a strong customer base, with the majority being repeat customers. The company prioritises existing customer relationships while also adding new clients.
1.4 Key Quotes
On future demand: "We are, you know, expecting a demand for coming, you know, next four to five years for sure."
On potential capacity expansion: "We will be taking a call in coming December or January, whether to go for an expansion, further expansion and at what capacity."
On Shilchar's competitive edge: "Our biggest strength is our quality, our service, our brand value and our lead time."
On focus on existing product range: "We would like to concentrate on, you know, producing transformers rather than anything else. So we don't have any plan at present for any backward integration."
On maintaining margins: "We are quite confident to maintain our, you know, margins, at least for next couple of years."
1.5 Industry Tailwinds
Buoyant Demand Outlook: STL anticipates strong demand for transformers across domestic and export markets for the next 4-5 years, driven by:
India's Power Consumption Surge: The country's peak electric demand is projected to exceed 270 GW by 2026 and 500 GW by 2035, necessitating significant investment in power generation and transmission infrastructure.
Renewable Energy Push: Government initiatives supporting renewable energy are fueling demand for IDTs, with India targeting 25-30 GW of annual solar and wind installations.
Ageing Grid Infrastructure & Global Power Consumption Growth: Investments in upgrading existing grid infrastructure, particularly in western markets, are also contributing to robust demand.
"The demand scenario for transformer industry remains buoyant across key market segments. India's power consumption is on the rise, with the country gearing up to meet this surge in demand through substantial capacity addition in both renewable and conventional energy sources."
Shilchar Technologies Limited FAQ: Q2 & H1FY25 Earnings Call
1. What is the current demand outlook for the transformer industry?
The transformer industry is experiencing robust demand both domestically and internationally. This is driven by rising power consumption in India, significant investments in renewable energy, and upgrades to aging grid infrastructure in western markets. Shilchar Technologies Limited anticipates strong demand to continue for the next four to five years.
2. What steps has Shilchar Technologies Limited taken to meet growing demand?
Shilchar Technologies has increased its production capacity to 7500 MVA by adding a new 3500 MVA facility in August 2024. The company is also onboarding and training new employees and streamlining production processes to ensure they can fully utilize this increased capacity. The company aims to reach a turnover of 750-800 crores by fully utilizing the incremental capacity in FY26.
3. What is Shilchar Technologies Limited's target revenue for FY24-25?
Shilchar Technologies Limited's revenue target for FY24-25 is 550 crores.
4. What is Shilchar Technologies Limited's current export market focus and how does this impact profit margins?
Currently, 45% of Shilchar Technologies' sales are from exports, primarily to North America (US and Canada) and the Middle East. While the company is exploring expansion into the European market, export sales generally yield higher profit margins compared to domestic sales.
5. What are the key factors contributing to Shilchar Technologies Limited's higher profitability compared to competitors?
Shilchar Technologies Limited attributes its higher profitability to operational efficiency, low overhead costs, and the absence of finance costs.
6. What is Shilchar Technologies Limited's strategy regarding backward integration?
Shilchar Technologies Limited currently has no plans for backward integration, preferring to focus on transformer production.
7. What is Shilchar Technologies Limited’s current order book and estimated execution timeframe?
Shilchar Technologies Limited currently has an order book of approximately 450 crores, which they estimate will be executed within the next six to nine months.
8. How does Shilchar Technologies Limited manage the risk of fluctuating raw material prices, such as copper?
To mitigate risks associated with commodity price fluctuations, Shilchar Technologies Limited employs a fixed-price order policy and strategically hedges its raw material needs by booking materials as soon as orders are received. This approach ensures stable margins and profitability despite potential market volatility.
Source: Link to Earning Call Transcripts
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