Pitti Engineering Ltd Stock Research Report

Focus Shifting to Organic Growth as Synergies Start Building; Maintain BUY

Est. Vs. Actual for Q2FY25: Revenue: BEAT; EBITDA: BEAT; PAT: BEAT

Changes in Estimates Post Q2FY25 Result

FY25E/FY26E: Revenue: -2%/0%; EBITDA –1%/-1%; PAT –1%/-2%

Recommendation Rationale

• Focus on stabilising the operations:

After completing the acquisitions of Bagadia Chaitra (BCIPL) and Dakshin Foundaries, PEL has now received NCLT approval for the merger of Pitti Castings. The company is now expected to focus on stabilizing the expanded operations and drawing maximum synergies from the consolidated entity. With complementary locations, capabilities, and offerings, the combined entity appears well-placed for growth.

• New capacities getting operationalised:

The company is setting up a lamination capacity of 72,000 tonnes/year at Aurangabad, which is expected to be completed by Dec’24. By FY26, the combined entity will have a lamination capacity of 90,000 tonnes/year and a casting capacity of 18,600 tonnes/year. PEL is also increasing its machining capacity from 5.47 Lc to 6.15 Lc tonnes/year. The company also expects a steady improvement in utilization of these capacities.

• Clarity around revenue and margins:

The management mentioned that there is clear visibility of revenue from the client side in the near term and has stated expectations of Rs 1,900-2,000 Cr of revenue with 15.5% EBITDA margins in FY25. The management has also set clear revenue and EBITDA targets for FY27.

Sector Outlook: Positive

Company Outlook & Guidance: The management mentioned that it is confident of further improvement in performance going ahead as the additional capacities get commercialized and the synergies from acquired businesses start building. The company has clear revenue visibility from most of its customers. It expects to achieve Rs 1,900-2,000 Cr of revenue in FY25 with EBITDA margins of around 15.5%. By FY27, the company targets to reach Rs 2,300-2,400 Cr (at constant raw material prices) with margins in the range of 15-16%.

Current Valuation: 28x FY27EPS (Earlier 28x FY26EPS)

Current TP: Rs. 1,580/share(Earlier TP:1,572/share)

Recommendation: We maintain our BUY recommendation on the stock.

Pitti Engineering Ltd Stock Research Report

Financial Performance:

The company reported a strong set of numbers, beating our estimates on all fronts. Pitti Engineering’s Q2FY25 revenue reached Rs 429 Cr, reflecting a 42% YoY and 10% QoQ increase, which surpassed our expectations by 3%. EBITDA exceeded estimates by 8%, totalling Rs 66 Cr, up 48% YoY and 14% QoQ. EBITDA margin stood at 15.4%, surpassing the estimate of 14.7%, with a 57 bps YoY and 66 bps QoQ improvement. The company’s PAT was Rs 38 Cr, up 73% YoY and 96% QoQ, beating the estimate by 39%. The higher PAT number was supported by other income of Rs 26 Cr, which primarily includes subsidies from the Maharashtra government.

Outlook

The company has been significantly increasing volumes in existing operations, and recent acquisitions appear complementary to its current business. It is also focusing on boosting the share of value-added products. We expect the company to sustain its growth momentum, driven by rising international demand and the addition of new businesses. While value-added products and exports generate higher margins, increasing volumes and capacity utilization are likely to enhance operating leverage (with fixed costs remaining broadly unchanged), thereby driving margins higher.

Valuation & Recommendation

We have marginally tweaked our FY25E/FY26E estimates considering the additional visibility provided by the management around volume, revenue, and EBITDA margins. We have also rolled forward our estimates to FY27E.We are rating the stock at 28x its FY26 EPS (earlier 28x FY26E). Our per-share analysis, including EPS calculations, accounts for the additional shares issued postcompletion of the Pitti Castings merger. We maintain our BUY rating on the stock with a revised target price of Rs 1,580/share, implying an upside of 21% from the CMP.

Key Financials (Consolidated)