Ladies and gentlemen, good day and welcome to Pitti Engineering's conference call to discuss the acquisition of Dakshin Foundry Pvt. Ltd. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions at the end of today's presentation. Please note that this conference is being recorded. Before we begin, I would like to mention that some of the statements made in today's call may be forward-looking in nature and may involve risks and uncertainties. For a list of such considerations, please refer to the earnings presentation. I would now like to hand the conference over to Mr. Akshay S. Pitti. Thank you, and over to yourself. Thank you, and welcome to everyone for the conference call to discuss the acquisition of Dakshin Foundry Pvt. Ltd. Pitti Engineering Ltd. has acquired 100% share capital of Dakshin Foundry Pvt. Ltd. at an equity valuation of INR 153.12 crores. The cost of acquisition comprises the business value and working capital of Dakshin Foundry, as on June 30, 2024. Dakshin Foundry is a debt-free company and has a positive cash and bank balance of INR 42.71 crores as on 30 June 2024. We funded this transaction by utilizing part of the general corporate interest portion of the QIP fund amounting to INR 26.63 crores, and the remaining INR 76.49 crores being funded from our existing cash and bank balances. Dakshin Foundry is a major manufacturer of high-quality grey iron and ductile iron castings, value-added services like machining and pattern making. Dakshin Foundry's manufacturing facilities are located in Hoskote, Bangalore. Dakshin Foundry has an installed capacity of 4,200 tons per annum. It is a renowned and award-winning foundry known in the market for the development of casting with critical geometry, exacting surface finish requirements, and stringent quality requirements. The main end use of the project is in railway, metro, and power generation sectors. Its customers include the likes of Medha, Voith, Siemens Mobility, SKF, Goldigier, Alstom among others. It has the distinction of being one of the few foundries who have Type 1 Approval. In FY2024, sales volume in the company was 2,939 tons, with a blended revenue of 251,000 per ton. It reported revenue from operations of INR 70.89 crores. The company also put in EBITDA of INR 18.63 crores, which is 63,300 per ton. Other income for this period, most comprising of interest on loans and deposits, was INR 4 crores. EBITDA was INR 21.20 crores, and payout was INR 16 crores. The transaction is EPS accretive. The acquisition will enhance the technical capabilities and bring economies of scale in our supply chain. It will also add to the portfolio of the machined components business. I would now like to open the floor for the Q&A session. Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask questions may press star and one on the touchscreen phone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. You may please press star and one to ask questions. The first question is from the line of Prateek from Arc Ventures. Please go ahead. Yeah, hi. Thanks for the opportunity. Just wanted to understand as to what is the realized EBITDA per ton for the? EBITDA per ton is INR 63,000 per ton. INR 63,000 per ton. Yes. Okay. The capacity is 4,200 tons. Yes. What is the utilization level, capacity utilization level? Currently, we are about 75% capacity utilization. Optimum utilization is 80%. 75% is the current, and optimum is 80%. You mentioned some of the clients for which Dakshin was working. Can you just repeat the same? So majority of the sales are to Medha Servo, which is the company manufacturing the 2018 multi-ballard trains. Apart from that, they are exposed to Siemens Mobility in Germany and Spain. They also supply to Voith for their locomotive division, SKF, Alstom, and Bombardier. Bombardier. Yes. 80%-90% of the sales will be from the railway segment, energy segment. 10% is to other segments such as compressors, off-highway vehicles, among others. All right. All right. Yeah, that's great. Thanks, sir. Thanks. Thank you. The next question is from the line of Sunny Bhadra from Axis Securities. Please go ahead. Thank you, and congratulations, sir. Share in that position. Another step forward. I just wanted to understand what are the expectations beginning year to start consolidating from this quarter itself, start of this quarter, and what is the expected revenue for the year? Yes. So for this transaction, we will start consolidation from this quarter onward. Quarter one, we will not be consolidating, obviously, since the transaction is post-year. The expectations from this company going forward will be flattish. We expect to identify outflows of offline products and similar EBITDA as last year. Okay. Thank you. Thank you. Participants, you may press star and one to ask questions. The next question is from the line of Ramchandra Nayak, an individual investor. Please go ahead. Thank you very much. Yeah. Actually, hi. I hope you are able to hear my voice. I think. Sorry to interrupt, sir. We can hear you, but there is a background noise at your end. Are you able to hear me better now? Sir, please go ahead. Thank you so much. Yeah, sir, congratulations on your acquisition. I think it's a really gutsy and a bold move. I have a few questions, and I hope you can bear with me on some of the questions. The first question is, you said this is in the castings business. You already have an existing castings business that you are planning to merge into Pitti Engineering. How similar is this to your existing business? So this is very similar to Pitti Castings, except for the size of the castings that we manufacture. In Pitti Castings, we can manufacture castings up to 4 tons, but the optimum utilization of the equipment that we have is from 200 kg to 1.5 tons. In this foundry, the optimum range of product is from 40 kg to 300 kg. So this will fit very well into the product profile of the consolidated enterprise. Okay. That's great to know. So if one were to consolidate all your businesses now together and for financial year 2025, what would you expect your overall revenue to be? See, let's break this up into individual segments. At the Bagadia Chaitra level, we are expecting revenues of about INR 280 crores for the current year based on the current market. In Dakshin Foundry, in new acquisition, for the future year, we should be looking at about INR 75 crores, like I mentioned before. What benefit that consolidated will be based on the accounting standard. We have to consolidate the financials on a full-year basis on the ownership percentage that we have to know the ownership. Pitti Castings should add about INR 130 crores to the top line post-merger, and standalone, we should be in the vicinity of about INR 1,700 crores. Can I assume that you would be costing about INR 2,000 crore for financial year 2025? Based on the current outlook, yes, I think that that would be safe to assume. Fantastic. Just one more question, Akshay. Thank you so much for being patient with me. Overall, when you're looking at all of this, you said this is margin aggressive. So where do you expect the margin to be by, again, around financial year 2025? See, with Dakshin Foundry, if you see their client profile and kind of complicated processes they do, we should be looking at them continuing to clock about INR 60,000-INR 65,000 a week per ton. What is exciting about this acquisition is, like I mentioned, they have better technical capabilities than us in their development process. And if they are able to leverage those capabilities in the Pitti Castings business, it should be, I mean, very, very margin aggressive for us going forward. Okay. Last question. Your current acquisition, the one that you've the Dakshin one that you've just acquired, what is the potential for you to expand this existing capacity? Because I heard you say you already have 75% of the utilization. You could go up to 80%, which basically tells me that you are really close to blocked in terms of your work. Ideally, with the growing economy, what kind of expansion can you really get, let's say, within the next one or two years from your current acquisition? So see, in the facilities that Dakshin has given them, any expansion would be very difficult. They are kind of saturated. You can probably look at the peak utilization of about 20% in the first year from that facility. What is interesting for us is that Pitti Castings is currently at about 55% capacity utilization, and we do have spare capacity there to grow into. So what we will be looking at going forward, starting maybe 6-8 months from now, is relocating products into the right location based on the geometry and criticality, and accordingly, realigning the sales from the individual locations. Excellent. Thank you so much, Akshay, and many congratulations and wishing you many more success. Thank you. The next question is from the line of Dharmil Shah from Dalmus Capital Management. Please go ahead. Hi. Hi. Thank you for taking my question. My first question would be, I mean, how different this business is than our existing Pitti Castings? Because if I compare their operating margins, those are, I mean, quite different. If I just look at Pitti Castings, those would be somewhere around higher single digit. With Dakshin Foundry, it's in the range of around 20%. So just wanted to understand what is the difference between, is it the product mix or is it something else? Yeah, multiple factors to this. In terms of the process, it's the same process. It's a pass-through model. What differentiates Dakshin and Pitti Castings is that in Pitti Castings, we don't do the machining. The machining is done in Pitti Engineering, and therefore, the margin on machining is recorded in Pitti Engineering books, while Dakshin does machining in their own facility as well. Secondly, if you see the product profile, they are predominantly into, like I said, railway and energy. 10% of their business does come from segments like off-highway. Pitti Castings is actually quite diversified. Apart from railway, we have major contribution to off-highway vehicles, pumps, and ETS. The other segments are slightly less in terms of margin. Railway, obviously, contributes to a better margin profile. And thirdly, they do smaller castings, which are even more critical than what we currently do. Understood. Lastly, they are at about 75% Capacity Utilization. The overhead absorption is much better at their end. We are currently in Pitti Castings about 55% Capacity Utilization. As the overhead absorption in Pitti Castings would improve, this would lower the margin profile. Got it. Got it. Are there any plans to relocate this facility near to somewhere around Bagadia Chaitra's plant, or it will be operating from the same plant where it is now? We have no plans to relocate this asset now to any other location. This foundry is a very challenging industry in terms of environmental clearances. Since the facility already has all those approvals in place, it would be currently not wise to disturb any of those approvals. Got it. If we combine Pitti Castings specifically and Tucson Foundry, that would be somewhere around 26,000. Is this guess right, or? Yeah, yeah. That should be right. About 20,000 would be at Dakshin Foundry on a quarter between Pitti Castings and Dakshin Foundry. And if you see pro forma, we did about 8,000 tons last year in Pitti Castings. Dakshin Foundry did about 3,000 tons. Got it. How much does this, I mean, cater to our casting demand for our muffler business? So see, they already supply directly to the end consumer. Luckily, most of the customers are common, like Alstom, Bombardier, Medha. So it will help us further cement our relationship in the machining and lamination side of our business with this acquisition. Got it. Got it. Yeah, that should come with it. Thank you. Thank you. We'll take the next question from the line of Chintan Modi from Haitong Securities. Please go ahead. Yeah. Hi, Akshay. Congratulations, and thank you for the opportunity. I just wanted to understand, if you look at FY24 margins, for Dakshin Foundry, they've been very high compared to FY23. What has changed in that one year, if you could help understand? In terms of EBITDA, I don't think they are very dissimilar on a per-ton basis. If you just go back, what is different is definitely the other income. They have significant bank and cash deposits. So those have kind of increased their PAT margins. But on EBITDA, I think they are pretty much similar to FY23. EBITDA per ton is similar, is what you are saying? Yes. Okay. Okay. Can you share how old this facility would be? So this company was established in 2004, I think, if my memory is completely right. They went into operation in 2019. So it would be a 19-year-old facility. Okay. And do you expect any additional cost to be incurred to upgrade the facility? No, none at all. As of now, there's no further CapEx plan in Dakshin Foundry location in the operational capacity that we could realize. We are already doing on an ongoing basis. It's a very, very well-maintained foundry, and its equipment is absolutely cutting edge. We have consistently reinvested and upgraded their equipment and processes throughout the tenure of the factory. Okay. Okay. Got it. That's it from my end. Thank you. Thank you. Also, as a reminder, star one to ask questions. The next question is from the line of Madhav Agarwal from SG Investments. Please go ahead. Hi. Thank you for the opportunity. Just wanted to confirm when you were giving the revenue guidance for all the entities. Bavaria was INR 280, Tucson was INR 75, Castings was INR 130. Can you confirm Pitti Engineering? I think I need to make a correction here. Castings would be INR 60 crores in addition to the top line. What I was trying to say, I think I said, is 150 or the 180 crores of the revenue is to Pitti Engineering. When we consolidate, only INR 50 crores will get added to the top line. So if I can go back to it, Bavaria would be INR 280 crore net addition, Tucson would be INR 75 crore net addition, Castings would be INR 50 crores net addition, and Pitti Engineering, based on current outlook, is about 1,700. 1,700. All right. Thank you. The second question I wanted to ask, will Dakshin also enjoy the pass-through model of raw material prices? Oh, yes. Of course. That's an industry standard in our customers. All the customers have that as a standard. Got it. And for the 80-90% sales, you said are coming from the railway and one other segment you mentioned. Energy segment. They make certain castings for gas turbine and steam turbine gearboxes and their housings and some on the turbocharger parts. Okay. Got it. Thank you. That's all from my side, sir. Thank you. The next question is from the line of Abhijit Mitra from ICICI Securities. Please go ahead. Yeah. Thanks for taking my question. So to sort of understand the margin profile a bit more, I mean, you've connected to the revenues. Can you sort of take us through the expected margins of these individual businesses in the medium term and in the long term? So on Bagadia Chaitra, I think I'm more comfortable giving you an exact guidance to quarter four as these energy benefits start accruing. By quarter four, we should be at about 18,000 EBITDA per ton in that entity. In terms of Dakshin Foundry, like I said, we expect the same EBITDA to continue per ton basis. Operating leverage would be similar, 3,000-3,300 tons. In Pitti Castings, once you consolidate it, it should add about INR 20-25 crores to our EBITDA in Pitti Engineering. Got it. Got it. And what would be the consolidated net debt after the market? So consolidated net debt would not change much. Even today, if you see Dakshin Foundry and Bagadia Chaitra already WOS, we're already consolidating that. Pitti Castings would add about INR 15 crore for the net debt at the most. Sorry. So Dakshin's acquisition will take away either cash or add debt to the consolidated number, right? So the net debt would increase. So you're asking what is going to be the net debt, post the transaction or on a consolidated basis? Consolidated-wise, Dakshin will already be consolidating post the transaction. Yes. Yes. Okay. Just give me one second. So I think pre-transaction, our net debt is about INR 250 crores. Pre-transaction, we would have taken it to INR 200 crores, and then you have about INR 50 crores cash on their books. So you'll have to minus that. So about INR 360 crores should be the net debt. Okay. Okay. Got it. Got it. But your balance sheet net debt FY 2024 end was a bit higher, right? Your balance sheet reported on FY 2024 end was INR 227 crore, if I can sort of see. So, see, post that, we have an event where we bought Bagadia Chaitra. Then we have the fundraise. Then we have working capital changes, and then we have the acquisition of Dakshin, and then the cash on Dakshin's book. Got it. So 427 has eventually or will eventually become 350, I say? It should be around that as of date. Got it. Understood. Thanks. That's all. Thank you. We'll take the next question from the line of Ms. Jain from Kotak Securities. Please go ahead. Hi, actually. Congrats on the successful execution. Sir, I'm sorry to interrupt. Your audio is not clear. Kindly use your handset. Ms. Jain? Hi. Is it better? Yes, so much better. Congrats, sir, for the successful acquisition. My question is on the synergies which we will have from this acquisition. Can you throw some light on whether this will open up a new different segment for us or this will help in terms of the backward integration? One, you talked about the major client, which we also currently take care of. But will it open new categories of products for us as well as the backward integration? For the synergy benefits, we may show some of a couple of points. One, in terms of product range, although we can manufacture castings as low as 20 kg, it's not efficient to manufacture in our facility. With this acquisition, the product range from 40 kg to 250-300 kg becomes very efficient to manufacture, given that they are specializing in smaller castings and the equipment is tailored to make such castings. Second, it will help us further consolidate with the vendors. They do on the metro rail and passenger rail side. We are dominant on the freight rail side, while the customer does both. So, for example, Alstom, they have a metro division and a freight rail division and a passenger rail division. So it will help us consolidate our business with our customer and make us more critical to their supply chain. Thirdly, I have no hesitation in admitting I believe they have better technical capabilities than us to make smaller and more critical castings. If we are able to utilize those development skills for our products, we'll get more efficient and increase our margins in our casting business. And lastly, it will help us in our machining. If you see their product for the sales breakup, they have about 20% machined and 70% raw. And whatever is a raw casting is up to machining. So it will feed our machining business. Sure. Is it fair to assume that this will help us fast-track our growth journey in the Pitti Engineering standalone business? Definitely. Sure. And lastly, on the order book that you talked about, your revenue growth guidance for FY25, can you share numbers in terms of the volume order book? In terms of forecast and order book, all combined, we are seeing the sales for the current year at about INR 58,000 in Pitti Engineering and INR 18,000 in Bagadia Chaitra. 48,000 in Pitti and 18,000 in Bavaria Chetra? Yeah. About 64% on a consolidated basis. Sure. In terms of the casting? Casting side, we should be doing about 9,000 in Pitti Engineering and about 3,300 around that in Dakshin, based on the current outlook, about 12,500 on a consolidated basis. Sure. Sure. Okay. Thank you. Thank you. The next question is from the line of Sanjeev Zarbade from DreamLadder Capital. Please go ahead. Yes, sir. I hope I'm audible. Hello? Yes. So please proceed. Yes. So my first question is regarding what are the new segments you will be serving from the Dakshin facility? Per se, there would be no new segment. For example, PTM, railway and metro rail. So they are specializing in metro rail. They are specializing in passenger and freight. So in terms of segment, it's still the same. But in the subsegment-wise, we would be getting a higher exposure to the metro rail and passenger rail business. What we'll be adding, I think, it would be on the steam turbine and gas turbine parts and the GE focus. Those are things we currently don't do in Pitti Castings. Okay. And sir, what would be the capacity expanded from the current level of 4,200 metric tons? So that facility is saturated in terms of land limiting and the pollution permits that they have. Our idea is to make that specializing in smaller and more critical castings, which is what we think there is actually geared up to do, and all the medium and large-sized castings that are less critical in nature, move them to Pitti Castings facility eventually, that we have surplus capacity here. Okay. Okay. Thank you so much. I can do this. Thank you. We'll take the next question from the line of Ramchandra Nayak, an individual investor. Please go ahead. Thank you again. I hope you're able to hear me. My question again is about the recent budget. There was this the finance minister announcement for MSMEs and employers when you hire, thinking there's going to be some benefit. I'm sorry. I can't actually understand anything you're saying. It's very, very muffled, your voice. Are you able to hear me clearly now? Yeah. Okay. My question to you was, in the recent budget. There is a background noise from your end. Can you move to a quieter place and just ask your question because we are not able to hear you clearly? I'm going to try that. Okay. Please. Are you able to hear me better now? Yes. So please continue. Okay. My question was, in the recent budget, the honorable finance minister had announced about some benefits that employers would get when you hire new people. Would Pitti be making any use of this benefit or the whatever was announced by the finance minister? As of now, we've not evaluated this. We will evaluate and take the benefit if possible towards a sustainable manner. Sure. Thanks so much. Thank you. The next question is from the line of Deven Choksey from Deven Choksey FinServ. Please go ahead. Yeah. Shreyaji, congratulations for a fantastic acquisition and best wishes for the integration and the journey ahead. It just demonstrates the skills you have and the vision you see or vision you have to see Pitti Engineering transform into a more critical engineering company. Keep up the good work. Thank you. Yeah. Actually, so basically, this question was mainly related to their logistics around the IDA clients which you have acquired, considering the fact that your main plants are based in Hyderabad and Aurangabad, and this plant is based in Bangalore. And the fact that now you are saying that because of the capacity you have in Pitti Castings, where you can do more medium and large-scale casting, how easy would it be to drive up the capacity utilization there? And how much time would it take for you to move the business out of Dakshin for the medium and large-scale castings, Pitti Castings? That was the first question. And how will this lead to better product development? As I understand, this acquisition actually gives you the flip to develop more niche and core technical products because of the technical abilities that Dakshin possesses. So how well will you be able to manage the product development cycle and delivery cycle as far as the medium and large-sized castings are concerned? Yeah. So see, like I said, the facilities that Pitti Engineering traditionally owns are in Aurangabad and Hyderabad. But you see, both the acquisitions they are considered and sent towards Bangalore. We are very cognizant of the fact that we don't want to spread ourselves too thin in terms of management bandwidth. The good thing is that in Chaitra, Bagadia Chaitra, Chaitra Jagadeesh has joined us as a full-time CEO. So handling the logistics and business of that entity in Bangalore will not be very difficult for us. As far as the integration of Dakshin Foundry is concerned, we will eventually and slowly move the products which are large and not so critical from Dakshin Foundry to Pitti Castings facility and open up capacity in Dakshin Foundry to cater to even more critical castings and therefore drive up the margins. There's no conscious plan to today shift anything. As and when we have developing those products and ramping up, we will do those leaps. So just to add on this question, what is the general product development cycle for an ITFC, particularly for a new acquisition which you do? What is the learning time and the conversion of that learning into an application for a particular buffer, for a particular casting product? Because as I understand, this factory which you have in Dakshin has a real smart capability of doing niche metro projects and new-ish train manufacturing components. So the fact that you are moving some of these medium and large-sized castings to Pitti will actually give you a lot of flip to do these kind of very niche and technical products for new-ish trains and new-ish railway services. Absolutely. So, see, from the time that we start developing a product through the time that the product is developed is about 9-10 months. And then the customer has its own cycle time to approve. You start at their end, meaning putting it into the locomotive or the electric train and approving it. As far as the developed part is concerned, moving it would not take more than six odd months because when the process is established, it just needs to be reestablished at a new location. Okay. So basically, six months, which is what will you take to sample production and integrate a particular new product from Dakshin to your Pitti Castings? As and when we start the process, each product will take about 6 months. Maybe we can concurrently move 3 or 4 to 6 months, more than that. Okay. Okay. Great. Thank you, Akshay. Happy to be a great investor and happy to continue as an investor in this company. All the very best. Thank you. Thank you. The next question is from the line of Dharmil Shah from Dalmus Capital Management. Please go ahead. Hi. Hi, Akshay sir. Just wanted to confirm one thing. You mentioned out of the total output, 30% is machined and 70% is raw. This is understanding that or? Yeah. That's correct. Okay. And 70% of sales are raw castings and 30% are machined components. Got it. And any plans for increasing this in the next few years because the output you mentioned, the factories are already running at optimal capacity, so? Yeah. So obviously, on the raw casting, our thought would be, and the easiest thing to start would be machining these castings and supplying to customer because they are getting it machined at completely different levels. Any rough sense, what would the mix would be for the next FY25 or FY26? See, it's too early in the day for me to make a firm comment on that. If I was to guess, it would be that, say, in a year or year and a half's time, we should get a rate of 50% machined and 50% raw. Okay. And at this? And then we should take it from there because if you have to, again, increase the machining, you'd also have to add capacity in Pitti Engineering. They are also kind of running neck to neck on our machining capacity. Right. And at 50/50 mix for machining and raw business, what would be the EBITDA per turn in the Dakshin Foundry business? See, EBITDA per turn, again, it's too early for me to make a statement on that. I need to understand that more deeply. What I can tell you is that if you take the machining and raw casting, raw casting is typically sold at about INR 200 a PT average sale realization. And machining is typically sold at around INR 330-INR 340 a PT. Okay. Okay. So from there, we can kind of work out the kind of value add that will happen to the machine. Understood. Lastly, is the senior management in Dakshin going to remain same or will I mean, how are you going to? So we have a position empty, Mr. Vishwajeet Banerjee. His current employment agreement is till 31st March. We're typically at an appropriate time looking to renew that. Other than that, he has a second-level team of the senior professionals. As of now, all of them are going to continue with us in the consolidated enterprise. Okay. Thank you. Thank you very much. Thank you. A reminder to all the participants that Dean Andres Taran want to ask questions. As there are no further questions, ladies and gentlemen, we have reached the end of the question-and-answer session. On behalf of Pitti Engineering, that concludes this conference. Thank you for joining the call. For further queries or visiting the plant, please be in touch with Mr. Rama Naidu from Intellect PR on 9920209623. I repeat.