3 March 2016
Pennar Engineered Building Systems
spotlight
The Idea Junction
Stock Info
Bloomberg
CMP (INR)
Equity Shares (m)
M.Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
PEBS IN
148
34.0
5.0/0.1
178/127
-3/-/-
Emerging player in nascent markets
Economic recovery to provide strong tailwind
Financials & Valuation (INR m)
Y/E March
2016E 2017E 2018E
4,703
561
270
7.9
4.2
63.1
12.6
19.5
18.6
2.3
5,325
644
320
9.4
17.0
72.5
13.0
19.9
15.7
2.0
8.8
6,189
780
396
11.7
25.2
84.2
13.8
21.0
12.7
1.8
6.6
Net Sales
EBITDA
Adj PAT
EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
Among the top 3 industry players, with 8% market share in the PEB industry; well
positioned to benefit from economic cycle recovery.
Nascent industry, with potential to post 15-20% CAGR over FY15-18 with capex cycle
recovery
PEBS Pennar to register 22% earnings growth over FY15-18, led by market share gain
and operating leverage benefit
Among the top 3 players in the PEB industry within five years of inception
PEBS Pennar, which commenced operations in FY11, has established itself as a
formidable player with 8% market share and is placed amongst the top three
players in the highly fragmented PEB industry (has more than 20 players in the
domestic market and 60% of the market is still with unorganized players) on the
back of its excellent a track record of timely execution of projects. Kirby building
systems of Kuwait, with installed capacity of 200,000mt in India, is the market
leader (15% market share).
EV/EBITDA (x) 11.0
Shareholding pattern (%)
As on
Promoter
FII
DII
Others
Dec-15
63.0
2.7
20.5
14.2
Key beneficiary of capex cycle revival
PEB industry is highly correlated to the economic recovery cycle. The industry
has a strong linkage with Gross Fixed Capital Formation (GFCF) as its demand is
primarily driven by construction activity in industrial, commercial and
infrastructure sectors; and PEB sector growth has averaged at 2.0x-2.5x of GFCF
growth rate over the last 7 years. With capex cycle recovery and improvement in
business confidence, GFCF is expected to grow at around 8-10% over the next
five years which will drive industry growth of around 15-20% over same period.
Stock performance (1 year)
Earnings to register strong 22% growth over FY15-18
PEBS Pennar has registered revenue CAGR of 36% over FY11-15 v/s industry growth
of 13%, driven by market share gain-has garnered 8% market share within five
years. We expect PEBS Pennar to register and revenue CAGR of 11% over FY15-18.
We expect better utilization of the facilities and pick-up in the US business to
improve operating margins by 220bp to 12.6% in FY18, which would help PEBS
Pennar register strong 22% earnings CAGR over FY15-18.
Our coverage universe is a wide representation of investment opportunities in India. However, there are many
emerging midcap names that are not under our coverage.
Spotlight
is our attempt to feature such stocks based
on fundamental analysis and site visits, without initiating formal coverage on them. Spotlight adopts a descriptive
rating system, which uses terms like Interesting, Cautious and In Transition (see definitions alongside). We do
not assign Buy, Sell or Neutral recommendations to the stocks under Spotlight. Investors should carefully read
Motilal Oswal Research in its entirety, and not draw inferences from the ratings alone. Ratings should not be
used or relied upon as investment advice.
Interesting: Currently, the analyst
believes that this is an interesting
stock based on its fundamental
strength
Cautious: Currently, the analyst
does not have adequate
conviction based on fundamental
assessment of the stock
In Transition: Currently, the
analyst thinks that the stock is in
transition from "Cautious" to
"Interesting"
Amit Shah
(Amit.Shah@MotilalOswal.com); +91 22 3029 5126
Ankur Sharama
(Ankur.Sharama@MotilalOswal.com); +91 22 3982 5449
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.
 Motilal Oswal Financial Services
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| Pennar Engineered Building Systems
Valuation and view
We believe that the company is favorably placed to benefit from the industrial
capex cycle revival. The company's status as top player in an emerging industry with
strong designing capabilities, robust execution track record and diversified product
portfolio will help it to post earnings growth of 22% CAGR over FY15-18. We remain
positive on the stock on a long-term basis. The stock currently trades at 15.7/12.7x its
FY17/FY8E EPS of INR9.4/11.7 respectively.
3 March 2016
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Emerging Player in a nascent industry
Market share improvement through geographical expansion
PEBS Pennar has emerged as a formidable player—8% market share in the PEBS
industry within five years of inception
Plans to further gain market share through geographical diversification in the northern
and western regions.
PEBS Pennar has entered into a JV with US based company for design and engineering
Services business, with gross margins in the ~80% range.
Among the top 3 players in the PEB industry within five years of inception
PEBS Pennar, which commenced operations in FY11, has established itself as a
formidable player with 8% market share and is placed amongst the top three players
in the highly fragmented PEB industry (has more than 20 players in the domestic
market and 60% of the market is still with unorganized players) on the back of its
excellent a track record of timely execution of projects. Kirby building systems of
Kuwait, with installed capacity of 200,000mt in India, is the market leader (15%
market share).
Exhibit 1: Top 7 players account for 52% of market share
Tata Bluescope, 5
Everest Ind, 5
Kirby, 15
Apex buildsys, 5
M&B Eng, 6
PEBS, 8
Source: Industry Reports, MOSL
Interarch, 8
Exhibit 2: Installed capacity and utilization levels of top 9 players (2014)
Installed Capacity
46
47
51
61
42
48
33
utilisation (%)
72
58
215,000
120,000
90,000
30,000
75,000
30,000
50,000
50,000
72,000
Source: Industry Reports, MOSL
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Design and engineering services to further propel growth
PEBS Pennar has entered into a design services outsourcing agreement with US-
based company (amongst the top three metal building system players in US with
24% market share) for providing designing and engineering services. PEBS Pennar
has set up a strong engineering team, which exclusively works on these projects—it
has a 160-member design and engineering and has recently opened office in
Vishkhapatnam. The design and engineering services business clocked revenue of
INR10m in FY15 and the management expects to increase it to INR80m in FY16. The
business is a high-growth one and has contribution margin of ~80%. Going forward,
PEBS Pennar intends to leverage its design and engineering experience to
concentrate on receiving big orders from overseas and domestic markets.
Plans to strengthen positioning through geographical expansion
PEBS Pennar currently has a strong presence in the southern and western markets
(90% of revenue). However, the company’s competitive edge is nullified while
catering to (northern, eastern and some parts of central and western) markets due
to increasing logistics cost and delays.
States like Madhya Pradesh, Gujarat, Chattisgarh, Rajasthan, Maharashtra and
Orissa have accounted for 53.4% of the Industrial Entrepreneurs Memorandum filed
during CY15. To increase the market share, PEBS Pennar plans to have a pan-India
presence and enhance its addressable markets through setting up of manufacturing
facilities in the northern and western regions so as to cater to the demand of
northern markets. The company plans to put up additional facility of 30,000mt with
a total capex of INR600m. Pennar will also utilize its pan-India integrated service
delivery model of sales offices at Mumbai, New Delhi, Ahmedabad, Pune, Bengaluru,
Kolkata, Chennai and Vishakhapatnam to scale up the business from the existing
base.
Leverages its designing and engineering capabilities to offer diversified
products and solutions
Over the years, Pennar has established itself as an integrated solutions provider
having presence across various levels of pre-engineered buildings component value
chain ranging from product conceptualization, designing, manufacturing, testing,
supplying and assembling. PEBS Pennar has also diversified from providing core
manufacturing solutions for pre-engineered building systems to providing design
supply and erection of solar module mounting structure, constructing structural and
high rise steel building. PEBS Pennar has already executed two steel building.
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Economic Recovery to provide strong tail wind
Expect industry to register 15-20% CAGR over FY15-18
Weak economic activity has resulted in a moderate 13% growth for the PEB industry
over the last five years.
Government emphasis on Make in India and economic revival will ensure pick-up in
industrial activity in the medium term.
The industry will be the key beneficiary of the capex cycle revival, with high
correlation of 2-2.5x of GFCF growth. We expect the industry to register 15-20% CAGR
over FY15-18.
Key beneficiary of economic recovery
PEB industry is highly correlated to the economic recovery cycle. The industry has a
strong linkage with Gross Fixed Capital Formation (GFCF) as its demand is primarily
driven by construction activity in industrial, commercial and infrastructure sectors;
PEB sector growth has averaged 2.0x-2.5x of GFCF growth rate over the last 7 years.
With capex cycle recovery and improvement in business confidence, GFCF is
expected to grow at around 8-10% over the next five years— which drive a industry
growth of around 15-20% over the same period.
Exhibit 3: Industry-wide FY15-19 CAGR expected at 21%
Indian PEBS Market (000' Metric tonnes)
2,500
2,000
1,500
1,000
500
0
FY12
FY13
FY14
FY15E
FY16E
FY17E
FY18E
FY19E
Source: Industry Reports, MOSL
18.7
15.0
10.4
2.3
20.1
Growth (%) YoY
20.7
21.4
21.9
Exhibit 4: PEB market growth highly linked to GFCF growth
PEB Market Growth (%)
11
11
4
8
2
1
0
-12
FY09
FY10
FY11
FY12
FY13
FY14
Source: Industry Reports, MOSL
Gross Fixed Capital formation growth (%)
28
12
10
2
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Key demand drivers for the PEB industry
The global PEB market is estimated at around USD7.9b (2014). The US is the
largest market, followed by China and India.
For FY14, the Indian PEB industry size is estimated to be around INR55b. The
industrial segment (industrial sheds and manufacturing facilities) accounts for
71% of the market share, followed by commercial (including warehouses and,
retail shops)—accounts for 19% of the market. Share of infrastructure segment
(railway stations, metro station, aviation hangars and others) is at 8%, which is
low compared with the global average.
However, with the industry evolution, revenue is expected to shift to
infrastructure and other segments from industrial.
Investments in the industrial segment are expected to be the major driver of the
said growth. Investment requirement for the industrial segment is estimated at
INR2.5t for the Twelfth Five Year Plan; the strong investment is expected to
create demand of INR250b for the PEB industry over the next five years
In the commercial segment, warehousing is expected to be a major driver—with
more than 100msqft of space being added every year. Infrastructure capex
(government has earmarked ~ USD1t in the Twelfth Five Year Plan) is also
expected to pick up, with strong demand for railways, ports and metros stations.
Exhibit 5: Industry-wise breakup of PEB demand in India
Infrastructure,
8%
Community and
others, 2%
Commercial, 19%
Industrial, 71%
Source: Industry Reports, MOSL
Advantages of PEB over RCC structures
The advantages that PEB have over conventional RCC mode of construction
include shorter timeframe and faster delivery of structure, lower maintenance
and flexibility of making the desired changes at a later stage. Also, a PEB
structure is a ‘green’ building, which results in lower carbon emission during the
construction phase.
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Exhibit 6: Advantages of PEB over RCC structures
Sr.
No
1
Parameters
Cost
PEB
1.
2.
3.
4.
1.
2.
3.
1.
3
Technical
2.
3.
4.
5.
1.
1.
2.
Lower project cost due to better delivery timelines
Lower maintenance cost
Lower freight cost (up to 8-10%)*
Salvage Value exists for the PEB
Faster delivery times as 'standardized' sections are produced en-masse (reduction of delivery times by
30-40%)
Site foundation and steel framing can be done simultaneously
Curing not required as it doesn’t involve concrete
Lighter: Frame geometry matches internal stress shape and reduces the material requirement. Weight
can be 30% lower than conventional buildings (uses tapered sheet as against I sections of conventional
buildings)
Standardization of design makes design process more time efficient and cost effective
Factory fabrication allows better quality control as against site fabrication of conventional buildings
Allows more clear span than a conventional structure (useful for industrial/manufacturing segment)
Low-weight frames offer high seismic resistance
Expansion is easier as the PEB design is modular
PEB construction is energy efficient vis-à-vis conventional buildings (it can save up to 15% over
conventional construction)
High recyclable content (PEB buildings are ~70% recyclable, given that steel is 95% recyclable)
Source: Industry Reports, MOSL
2
Time
4
5
Flexibility
Environment impact
*
FICCI-INSDAG Seminar – Delhi, February2011
Exhibit 7: Key industry risks
Parameters
Manpower
Raw material (Steel)
Risks
Scarcity of skilled manpower
PEB requires semi-skilled labor for welding and bolting activities during structure erection
Steel form 67% of input cost, making it the critical raw material
Variation in steel prices for the open position order book
Absence of industry body
There is currently no regulatory body on the lines of ARAI to certify and regulate industry (providing
confidence to customers)
There is no official industry association
Lack of standardization makes interoperability lower and drives costs higher
High working capital requirement, driven by requirement to store steel and turning over the inventory
PEB industry faces myriad taxes—excise duty, VAT, sales tax, service tax and work contracts tax
Moreover, tax structure varies across states—making it difficult to operate
Source: Industry Reports, MOSL
Lack of standardization
Business risk
Tax structure anomalies
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Expect earnings to register 22% CAGR over FY15-18
Return ratios to improve
Robust Volume growth of 21% CAGR over FY15-18 to drive revenue CAGR of 11%, led
by expansion into new geographies and market share gain.
Operating profit margin to expand 220bp to 12.6% in FY18, led by improved operating
leverage and better realizations.
Free cash flow generation to turn positive post completion of capex in FY17.
Demand from end-consumer segment drives strong revenue growth
PEBS Pennar has registered revenue CAGR of 32% over FY11-15 v/s industry growth
of 13%, driven by market share gain—has garnered 8% market share within five
years. We expect PEBS Pennar to register volume growth of 21% CAGR over FY15-18
and revenue CAGR of 11% over the same period. Despite volume robust volume
growth, moderate sales growth would be mainly on account of the soft steel prices.
We expect revenue growth to be driven by geographical diversification and market
share gain.
Exhibit 8: Revenue growth of 11% CAGR over FY15-18E led by market share gain
Revenue (INR M)
68.5
4,492
2,486
2,900
3,670
22.4
26.5
16.7
FY12
FY13
FY14
FY15
4.8
FY16E
13.3
16.3
4,706
5,330
Growth (%)
6,197
FY17E
FY18E
Source: MOSL, Company
Portfolio diversification and operating leverage to drive margins
PEBS Pennar’s operating profit witnessed 26% CAGR over FY11-15, driven by strong
revenue CAGR of 33% over the same period. Operating profit margins declined
200bp over FY11-15 to 10.4%, led by incremental capacity addition of 60,000mt and
on account of additional engineers hired to focus on the design and engineering
business to be generated from the US. With front loading of employee cost, US
business still in nascent phase and capacity utilization low at 60% in FY15, margins
got impacted in FY15. We expect operating margins to improve 220bp over the next
three years to 12.6% in FY18, led by better utilization of facilities driving operating
leverage benefits and pick-up of the US business improving additional manpower
utilization. We expect capacity utilization to improve from 60% to 80% over the next
two years, led by improvement in demand from the end-consumer segments.
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Exhibit 9: Margins to improve, led by better operating leverage
EBIDTA (INR M)
11.9
11.7
12.4
10.1
EBIDTA Margin (%)
10.4
12.0
12.2
12.7
183
FY11
290
FY12
355
FY13
371
FY14
467
FY15
564
FY16E
649
789
FY17E
FY18E
Source: Company, MOSL
Strong cash flow generation
We expect PEBS Pennar to generate strong free cash flow from FY17 onwards owing
to the normalization of working capital cycle (117 days in FY16 to 68 days in FY17)
completion of the intended capex to set up facility in the northern region and tap
the northern and western markets.
Exhibit 10: Cash flow generation to turn positive
308
114
(2)
(90)
(540)
FY11
FY12
FY13
FY14
FY15
FY16E
FY17E
FY18E
Cashflow (INR m)
34
300
254
Source: MOSL, Company
Working capital cycle in near term to elongate given inventory and
receivable build up
PEBS Pennar’s working capital cycle will get elongated in near term as company has
booked inventory in anticipation of rise in steel prices on account of the
implementation of MIP. This has led to inventory pile up of almost 120-130 days.
Even receivable days has witnessed expansion on account of execution of a large
order for which it had not received payment (debtor days increased from 71 to 97 in
1HFY15) and is expected to receive payment post April 2016. These two factors will
lead to near term working capital elongation to 117 days for FY16. However we
expect the working capital cycle to normalize to 68 days in FY17.
Exhibit 11: Working Capital Cycle to elongated by by inventory and receivables built up
168
Net Working Capital (INR m)
NWC - Days
117
74
56
103
FY12
63
651
FY15
1,384
FY16E
68
48
651
FY18E
39
49
FY13
44
357
FY14
142
FY10
284
FY11
855
FY17E
Source: MOSL, Company
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Key risks
Price volatility, availability and quality of raw materials used in production
Steel and its variants such as hot rolled plates, galvanized steel coil sheets, sheeting
coils, hot rolled sections, bought outs and other consumables are the key raw
materials in the manufacturing of pre-engineered building components. PEBS
Pennar does not enter into long-term contracts with suppliers, and prices are
normally fixed at the time when the contractual arrangements are entered into. Any
unexpected price fluctuations, shortage, delay in delivery and quality defects may
interrupt supply and impact the company’s business, financial performance and cash
flow.
Non-exclusive technology knowhow license arrangement with NCI Group
PEBS Pennar has entered into a technical knowhow license arrangement with NCI
Group to manufacture, distribute, market and sell NCI Group’s Double-Lok roof
system along with all accessories and components directly related to it. PEBS
Pennar’s license arrangement with NCI Group is on a non-exclusive, non-
transferable basis, with no right to sub-license either the product or the mark.
Hence there is a risk that the company might not be able to continue to provide the
Double Lok roof system on an exclusive basis in India if any of its competitors enter
into an arrangement with NCI Group for licensing the right to manufacture and sell
the system; this might hurt the financial performance and cash flow as the demand
and sales of PEBS Pennar’s ‘prime
build’
products will be distributed among
competitors and the PEB business.
Execution delays to impact PEBS Pennar’s financials
PEBS Pennar is dependent on suppliers and building contractors for timely delivery
of raw materials and services. In carrying out its services, the company outsources
the site preparation and other related work to building contractors. Suppliers or
building contractor’s failure to deliver on time and/or its inability to deliver
materials, equipment and services might increase PEBS Pennar’s obligations to
customers. Also, a building contractor’s failure on contractual obligations and work
specifications might lead to PEBS Pennar being unable to provide services in
accordance with quality, timelines or specifications pre-agreed with the customer.
This may impact the company’s financial performance and operating cash flow.
Competition from domestic/overseas players
The global PEB industry is intensely competitive, and competition in India might
intensify due to continuing globalization. Given the favorable business dynamics in
India, established players from the Middle East like Kirby, Zamil and Tiger have
entered the country and some more global players in might expand their business in
India in future through JV route. International competitors with strong experience,
global scale, advanced and innovative technology and significant financial resources
can increase the competitive intensity in the domestic market. Increased
competition from domestic and international players can lead to market share
erosion and reduce operating margins for PEBS Pennar.
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Sluggish capex activity might impact the company’s business
PEB industry is a cyclical one—dependent on capex cycle for growth levers. The PEB
market is strongly linked to GFCF as its demand is primarily driven by construction
activity in industrial, commercial and infrastructure sectors; consequently, the
growth of PEB business is dependent on the revival in capex cycle across these
sectors. Continuation of the sluggish capex environment or any further slowdown in
Indian industry’s capex cycle may hurt the demand for PEBS Pennar’s products,
thereby impacting the company’s business.
Company background in brief
Established in 2009, PEBS Pennar is an end-to-end solutions provider (design,
manufacture, supply and installation) of cost-effective pre-engineered steel
buildings and building components for industries, warehouses, commercial
centers, multi-storied buildings, aircraft hangars, defense installations, sports
stadia, etc.
PEBS Pennar currently has manufacturing facility spread across 29,000 Sq
meters in Hyderabad with an installed capacity of 90,000 MT per annum, which
can manufacture, fabricate and supply high-quality and complex steel buildings.
Its customers include P&G, Reliance Retail, Volve, ACC, L&T, Godrej, HCC, ABB,
Thermax, Honda, JSW, Shapoorji Pallonji & Co, De Reddy’s, HBL Power Systems
Ltd, Esmech Equipment Pvt Ltd.
It is a subsidiary of Pennar Industries Limited (PIL)—the flagship company of
Pennar Group, which is listed on the Indian stock exchanges.
Key Product offering
PEBS Pennar’s products find application in a variety of building constructions—
commercial, industrial, retail, residential and institutional.
Pre-engineered Building Systems
Pre-engineered buildings are steel buildings that are uniquely designed and
fabricated for end-user’s requirements in accordance with global standards. The
fabrication of PEB components is carried out in PEBS Pennar’s manufacturing
facility under stringent quality control as per the detailed shop drawings. Pre-
engineered buildings provide enhanced delivery and erection, flexibility in
expansion, and can withstand extreme temperatures.
The buildings are available in large multi-dimensional spans; lean to roof at all
required heights and side claddings. They feature a structural steel framework
of primary and secondary members (rigid frame, beams, purlins and grits,
trusses and columns) to which cladding and roofing components are attached.
Pre-engineered buildings mainly consist of three groups of components: Primary
members, secondary framing members and sheeting (cladding systems). All the
three components—roof cladding (sheeting), secondary framing members and
primary members—are dependent on one another, and all of them are designed
to work together.
Primary Framing
Primary framing members mainly consist of the main frame structure items, which
are mostly tapered “H sections” fabricated from plates. Flanges and webs of such
11
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built-up members are joined by a continuous automatic submerged arc welding
process. The primary framing structure of a pre-engineered building is an assembly
of I-shaped members, often referred to as I-beams. In pre-engineered buildings, the
I beams are usually formed by welding together steel plates to form the I section.
The beams are then field assembled (e.g., bolted connections) to form the entire
frame of the pre-engineered building. Primary members are main components of
the building and can be considered as skeleton of the building. The entire building
depends on the load-bearing capacity of primary members, which are fabricated
from high-strength hot rolled steel plates.
Secondary Framing
Secondary framing members are mostly the roof purlins and the wall girts, which are
roll-formed “Z” or “C” sections. Sheets used for cold forming are pre-galvanized with
zinc coating of various specifications. Cold formed Z- and C-shaped members are
also used as secondary structural elements to fasten and support the external
cladding. Secondary members used in a pre-engineered building include purlins, side
runners, eave struts, fascia channels, door posts, window posts, rafter stays and
column stays base angles and other miscellaneous structural parts—these are small
parts and secondary skeleton that go into a building. Purlins are used on the roof,
grits on the walls and eave struts at the intersection of the sidewall and the roof.
Secondary members have two functions: They act as a support that helps in resisting
part of the longitudinal loads that are applied on the building such as wind and
earthquake loads, and they provide lateral bracing to the compression flanges of the
main frame members—thereby increasing frame capacity.
Cladding System or Sheeting
Cladding system consists of zinc-aluminum alloy coated steel sheets, which are roll-
formed into corrugated sheets of various sheeting profiles. These panels are
available either with mill finish or with pre-painted finish. The roof sheet is profiled
out of plain galvalume and can be a trapezoidal profile or a leak-proof standing
seam. The wall sheet is usually in colored galvalume and of trapezoidal profile. In
addition to the steel sheets, wood, tensioned fabric, precast concrete, masonry
block, glass curtain-wall or other materials may be used for a building’s external
cladding.
Cold-form Buildings
Cold-formed structures are small pre-engineered structures of 1 to 4 MT—used
mainly for small closed cabins, houses, schools or enclosures for both residential
and office use. The primary advantages of cold-formed structures are portability,
modularity and ease of assembly. Cold-form buildings can be mass manufactured,
with wide-ranging end-market applications.
Structural and High-rise Steel buildings
Comprising steel plants, cement plants, towers and high-rise buildings, structural
steel buildings have complex design and detailing requirements and entail heavy
fabrication. PEBS Pennar has existing in-house capabilities for designing and
manufacturing structural steel buildings.
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Solar Module Mounting Structures
PEBS Pennar designs, supplies and erects structures that are used for mounting solar
modules. The product finds application in solar photo-voltaic plants, solar canal
tops, solar roof tops, solar thermal plants and solar car parks.
Engineering Services
PEBS Pennar has a well-trained in-house engineering team, and competent design
and detailing experts. Order management and project management departments
work in conjunction with the engineering team to deliver the most appropriate and
customized designs for manufacturing of products for customers. The company has
also entered into a design services outsourcing agreement with a US-based entity
NCI Limited, pursuant to which PEBS Pennar offers design services to them by using
the US-based entity’s software for manufacturing of pre-engineered buildings for
their overseas customers.
Mr. Nrupendra Rao, Chairman
Mr. Nrupendra Rao is an alumnus of IIT Khagarpur and has done his Master’s in
Operations Research and Industrial Engineering from Prude University. He is the
Founder Chairman of Pennar Industries Ltd.
Mr. Aditya Rao, Vice Chairman and Managing Director
Mr. Aditya Rao is an alumnus of Cornell University in and is responsible for founding
the subsidiaries Pennar Engineering Building Systems (PEBS) and Pennar Enviro.
Mr. P V Rao, Managing Director
Mr. P V Rao is the MD of Pennar Engineered Building Systems Ltd. He has over 30
years of experience. He is a Graduate Engineer in Civil Engineering from College of
Engineering, Kakinada, A.P (JNT University). He worked as General Manager in Kirby
Building Systems and as COO in Tata Bluescope. Mr Rao is an active member of the
Institution of Engineers.
Mr. Mukul Gulati
Mr. Mukul Gulati is the co-founder and Managing Partner of Zephyr Peacock
Management India Pvt Ltd. Mr. Gulati has 18 years of experience in the investment
business, including private equity, investment research and general management.
Previously, he worked at Multex—where he was involved in setting up and
managing the firm’s quantitative equity research business.
Mr. Manish M Sabharwal
Mr. Manish M Sabharwal is currently the Chairman and co-founder of Team Lease
Services, India’s largest temporary staffing firm. Mr. Sabharwal is a member of the
Prime Minister’s Council on Skill Development, has served on the Planning
Commission’s Steering Committee on Labor and Employment for the Eleventh Five
Year Plan (2007-12) and is a member of the CII core group on labor reforms.
Management structure
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Mr. Kamalaker Rao Bandari
Mr. Kamalaker Rao Bandari is a non-executive independent Director of the
company. He holds a Bachelor’s degree in Engineering from IIT, Delhi and an MBA
from FMS (University of Delhi). Mr. Rao has been a member of the Andhra Pradesh
Legislative Council and was also a senior spokesperson for Andhra Pradesh Congress
Committee. He has an experience of 45 years in management consultancy,
management and financial services.
Mr. Varun Chawla
Mr. Varun Chawla is a non-executive independent Director of the company. He
holds a Bachelor’s degree in Science from Cornell University. He has more than five
years of investment banking experience with Goldman Sachs in U.S. and India and
over four years of fund raising experience. He is the co-founder of My Guest House
Accommodations Private Limited and Springboard Solutions Private Limited.
Ms. Sita Vanka
Ms. Sita Vanka is a non-executive independent Director. She holds a Master’s
degree in Arts and Philosphy and has a doctorate from Osmania University. She has
over three decades of teaching experience in the areas of women studies,
educational management, human resource management and entrepreneurship. She
has worked in the Institute of Public Enterprise, Hyderabad (IPE).
Mr. C. Parthsarthy
Mr. C Parthasarty is a non-executive independent Director. He is a Chartered
Accountant and is the Chairman and Managing Director of the diversified financial
services Karvy group
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Annexure
What are pre-engineered buildings
These buildings are available in large multi-dimensional spans, lean to roof at all
required heights and side claddings. They feature a structural steel framework of
primary and secondary members (rigid frame, beams, purlins and grits, trusses and
columns) on to which cladding and roofing components are attached.
Exhibit 12: Applications of PEB
PEBS finds
application in a
variety of industrial,
commercial and
residential building
constructions world
over
Source: Company, industry Report
Exhibit 13: Manufacturing process of PEBs
Raw
Material
Cutting &
Punching
Fit up
Welding
Finishing/
Shot-blasting
Primer
Painting
Inspection &
Dispatch
Source: company, Industry Report
Raw material:
HR steel plates (for primaries and secondaries), HR/CR Coils (for
secondaries and claddings)
Cutting & punching:
HR plates are cut into required sections usually through
shearers for formation of I-beams. Holes (for fasteners and other fittings) are
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punched on these sections. HR/CR coils for claddings are formed into desired
profile by passing them through dies.
Fit-up:
The cut sections for I-beams are fitted into proper shape with
appropriate dimensional control.
Welding:
The fitted I-beam sections are welded along the edge to form the
primary structure components. Pull-through welders are used to provide
uniform welding at higher speed.
Finishing:
I-beams are finished to remove excess welding. Shot blasting is used
to improve the surface finish and remove contaminants before the coating
process.
Primer:
Primer is applied on steel parts to prevent corrosion through rusting. It
also provides a solid surface for paint to adhere to the metal and prevent
peeling. Secondaries and claddings can be coated with materials other than
primers for specific applications (for example, acrylic coating for Z and C sections
to provide superior finish).
Painting:
Painting protects the metal from corrosion and adds to the aesthetic
appeal of a building. The quality of painting can vary depending on the desired
properties (corrosion resistance, fire resistance, etc.).
Inspection and dispatch:
The finished components are inspected for quality
control and finally packed for dispatch.
Advantage of PEB over the conventional EPC way of building construction
Design and versatility:
Large structures are easily designed, providing increased
flexibility for plant layout. PEBS’ efficient pre-engineered building design
ensures lightweight structures and lower steel consumption. Moreover,
buildings are easily expandable, allowing future modular expansion.
Completion:
Customers in the construction industry segments such as office
buildings and warehouses value faster delivery. A PEB structure has significantly
shorter project execution timeline than traditional construction. Conventional
construction projects in India are increasingly encountering issues related to lack
of skilled construction labor and cost/time overruns.
Cost savings:
Pre-engineered buildings have lower lifetime costs than
conventional construction due to faster execution and lower maintenance costs.
Faster completion of a building can have direct positive impact on the revenue
in sectors such as manufacturing, commercial and retail.
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Exhibit 14: Typical structure of a pre-engineered building
Source: Company, industry Report
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Operating metrices
Exhibit 15: Key operating metrices
Revenues
Pre Engineered Buildings
Structurals
Cold form buildings
Solar EPC
Engineering services
Exports
Total Revenues
Contribution
Pre Engineered Buildings
Structurals
Cold form buildings
Solar EPC
Engineering services
Exports
Total contribution
Contribution Margin
Pre Engineered Buildings
Structurals
Cold form buildings
Solar EPC
Engineering services
Exports
Total Contribution Margin
Net Working Capital (Days)
Net Cash / (Debt)
RoCE (%)
RoE (%)
Operating Cash Flows
Valuation Matrix
P/E
P/BV
EV/EBIDTA
142
(297)
3.2
0.9
(194)
284
(456)
19.6
20.5
(4)
103
(453)
27.6
24.7
161
49
(202)
27.5
20.4
364
357
(30)
25.2
17.0
154
651
(87)
24.6
16.9
52
FY10
FY11
FY12
FY13
FY14
FY15
FY16E
3,182
691
-
700
80
-
4,670
FY17E
3,469
760
-
875
150
-
5,288
FY18E
3,989
874
-
1,006
225
-
6,146
732
145
-
77
65
-
1,006
815
160
-
96
121
-
1,180
909
173
-
99
180
-
1,347
23
21
11
81
22
1384
(154)
19.6
12.6
(286)
23.5
21
11
81
22
855
349
20.0
13.1
1030
22.8
19.8
9.8
79.8
22
651
905
21.1
14.0
804
-
-
-
-
-
-
-
-
-
-
-
-
29.6
5.0
14.6
24.9
4.2
11.8
22.2
2.8
11.0
18.6
2.4
8.7
15.0
2.1
6.5
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Financials and valuations
Income Statement
Y/E March
Total Revenues
Change (%)
Raw Materials
Staff Cost
Other Expenses
EBITDA
% of Total Revenues
Other Income
Depreciation
Interest
Exceptional Items
PBT
Tax
Rate (%)
Adjusted PAT
Extra-ordinary Income (net)
Reported PAT
Change (%)
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Minority Intetest
Loans
Deferred Tax Liability
Capital Employed
Gross Fixed Assets
Less: Depreciation
Net Fixed Assets
Capital WIP
Investments
Goodwill
Curr. Assets
Inventory
Debtors
Cash & Bank Balance
Loans & Advances
Other current assets
Current Liab. & Prov.
Creditors
Other Liabilities
Net Current Assets
Application of Funds
E: MOSL Estimates
FY13
2,900
17
1,748
181
616
355
12.3
9
31
115
218
74
34
144
-
144
38
FY14
3,680
27
2,085
223
1,001
371
10.1
28
33
77
289
106
37
183
-
183
27
FY15
4,492
22
2,677
269
1,079
467
10.4
21
58
97
333
114
34
219
-
219
20
FY16E
4,703
5
2,665
309
1,167
561
11.9
23
47
135
403
133
33
270
-
270
23
FY17E
5,325
13
2,984
340
1,357
644
12.1
25
64
127
478
158
33
320
-
320
19
(INR Million)
FY18E
6,189
16
3,411
392
1,606
780
12.6
28
69
148
591
195
33
396
-
396
24
FY13
275
430
705
-
494
13
1,213
547
84
463
137
44
-
456
634
259
124
260
1,732
1,074
90
1,164
1,213
FY14
305
773
1,078
-
346
27
1,451
742
117
625
61
255
-
650
693
61
205
91
1,701
1,123
68
1,191
1,451
FY15
307
989
1,296
1
405
41
1,743
812
159
653
-
260
-
674
1,270
58
149
120
2,272
1,380
63
1,443
1,743
FY16E
340
1,805
2,145
2
565
41
2,754
1,039
206
833
-
287
-
1,646
1,336
123
133
125
3,362
1,657
74
1,730
2,754
FY17E
340
2,125
2,465
3
534
41
3,043
1,439
270
1,169
-
615
-
1,065
1,337
263
148
139
2,952
1,610
85
1,695
3,043
FY18E
340
2,522
2,861
3
620
41
3,526
1,539
339
1,200
-
1,060
-
913
1,543
454
169
158
3,237
1,871
103
1,974
3,526
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Financials and valuations
Ratios
Y/E March
Basic (INR)
Adj EPS
Cash EPS
Book Value
Valuation (x)
P/E
Cash P/E
EV/EBITDA
EV/Sales
Price/Book Value
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios
Debtors (Days)
Inventory (Days)
Creditors. (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
Cash Flow Statement
Y/E March
PBT before EO Items
Add : Depreciation
Interest
Less : Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
(Inc)/Dec in FA
Investment in liquid assets
Others
CF from Investments
Free Cash Flow
Inc / (Dec) in Networth
Inc / (Dec) in Debt
Less : Interest Paid
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
FY13
5.2
6.4
25.6
FY14
6.0
7.1
35.4
FY15
7.1
9.0
42.2
FY16E
7.9
9.3
63.1
FY17E
9.4
11.3
72.5
FY18E
11.7
13.7
84.2
20.7
16.3
10.5
1.1
3.5
18.6
15.9
9.7
1.2
2.3
15.7
13.0
8.2
1.0
2.0
12.7
10.8
6.6
0.8
1.8
20.4
27.5
17.0
25.2
16.9
24.6
12.6
19.5
13.0
19.9
13.8
21.0
79.7
57.3
135.2
68.7
64.5
111.3
103.2
54.8
112.1
103.7
127.8
128.6
91.7
73.0
110.3
91.0
53.8
110.3
0.3
0.3
0.3
0.2
0.1
0.1
FY13
218
31
115
(74)
74
364
(138)
(21)
103
(56)
308
25
(20)
(115)
(110)
198
61
259
FY14
289
33
77
(106)
(139)
154
(119)
(211)
174
(156)
(2)
30
(148)
(77)
(196)
(198)
259
61
FY15
333
58
97
(114)
(322)
52
(9)
(5)
(3)
(17)
34
-
59
(97)
(38)
(3)
61
58
FY16E
403
47
135
(133)
(738)
(287)
(227)
(27)
-
(254)
(541)
580
160
(135)
605
65
58
123
FY17E
478
64
127
(158)
515
1,026
(400)
(327)
-
(727)
299
-
(32)
(127)
(159)
140
123
263
FY18E
591
69
148
(195)
185
798
(100)
(446)
-
(546)
252
-
86
(148)
(61)
191
263
454
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NOTES
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PEBS PENNAR
No
No
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