Walchandnagar Industries LtdQ3 FY18Industrial Manufacturing

Walchandnagar Industries Ltd

Q3 FY18 Earnings Call Analysis

Management growth scorecard

Revenue

Category 3

Margin

Category 3

Fundraise

N/A

Order

N/A

Capex

N/A

0 of 2 growth signals are positive — mixed outlook.

Revenue guidance

Category 3

→Company focuses on high-margin core manufacturing business (80% revenue mix), shifting away from low-margin EPC projects.
→Expect growth in defense, nuclear, aerospace, and missile sectors (DNA business) due to strong government/public sector demand.
→Missile segment production increased from 3-4 to 20-25 missiles per month; Akash missile remains a mainstay with expected growth.
→New segment in life jackets and bulletproof jackets to start revenue generation from FY2020 with expected domestic market focus before exports.
→Industrial gearboxes and centrifugal machines targeting good growth in domestic and export markets.
→Instrumentation unit growing steadily at 10-14% annually.
→Expect more defense orders in H2 FY2019.
→Capacity utilization at approx. 60-65%, room to increase output without much investment.
→EBITDA margin projected between 20-25% for core manufacturing business.

Category 3

→Company has shifted focus from EPC to high-margin core manufacturing (defense, aerospace, nuclear, industrial products), improving profitability.
→Operating EBITDA margin targeted between 20%-25% for core manufacturing over the next 2-3 years; current first half FY2019 EBITDA is ~22%-23%.
→Revenue growth expected from increased orders in H2, especially defense-related, and expansions into new segments like life jackets.
→Other income gains (e.g., forex gains) are non-recurring; core operating profits are emphasized for sustainability.
→Debt reduction efforts through retention money realization, asset sales, and refinancing expected to improve finance costs and profit sustainability by FY2020.
→Entry into bulletproof jackets and life jackets segment with technology tie-ups planned for FY2020, indicating new revenue streams.
→No formal forward-looking quantitative outlook provided; management aims to maintain positive operating trends consistently.

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→Walchandnagar Industries Limited has not made any announcement on immediate fundraising through equity.
→The company has only taken enabling resolutions from the board to explore potential future fundraising opportunities if they arise.
→There is no current plan to raise equity funds; the resolution is precautionary to allow flexibility.
→Regarding debt, the company has significant debt with KKR, with structured repayments and a two-year moratorium on principal payments, with repayments starting September 2019.
→The company aims to reduce debt through retention money collections, sale of noncore assets (such as the Mahim property), and internal cash accruals over the next 12-18 months.
→They are also negotiating for lower interest rates with banks due to their improved credit rating (BBB-).
→No new concrete debt or equity fundraising plans have been disclosed as of the November 16, 2018 discussion.

→As of November 1, 2018, Walchandnagar Industries Limited had an order book of approximately Rs. 781 Crores.
→Around 55% of this order book is from the core manufacturing business.
→Within this, defense, nuclear, aerospace, and missile (DNA) segment constitutes about 40% (~Rs. 300 Crores) of the total order book.
→The defense-related orders, especially missile manufacturing (e.g., Akash missile program), have a delivery lead-time of 12 to 20 months.
→The company expects more orders in the second half (H2) of the financial year.
→For industrial license products like life jackets and bulletproof jackets, the company plans to enter the segment with revenues expected to start in FY2020.
→Execution timelines for defense orders (Rs. 300 Crores+) would span multiple years given complex manufacturing cycles.

→Walchandnagar Industries has obtained an industrial license for manufacturing life jackets and better bulletproof jackets.
→Currently in discussions with a foreign party to acquire better technology for these products.
→Plans to enter this segment likely in the next financial year (FY2020).
→A detailed project report for the bulletproof jacket business is being prepared and expected next financial year.
→Initial focus will be on the domestic market, followed by exports.
→No finalized technology tie-up yet for the new protective gear segment.
→The company is adding additional facilities to support growth in the aerospace segment, linked to ISRO's expansion.
→Continuous investments in expanding footprints in defense, nuclear, aerospace, and missile segments.
→No immediate detailed capex figures disclosed, but strategic investments are aligned with core manufacturing expansion and new product segments.

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