ISGEC Heavy Engineering Ltd Q1 FY27 Earnings Call Summary

Event Participants

Executives 2

Aditya Puri (Managing Director), Kishor Chetnani (Joint Managing Director and CFO)

Analysts 6

Devam Modi (ARDEKO Asset Management), Manish Goyal (Thinkwise Wealth Managers), Mahesh Patil (ICICI Securities), Rehan Laljee (Coheron Wealth), Sandeep Baig (Individual Investor), Shubham Borade (ICICI Securities)

Financials & KPIs

Geographic & Segment Commentary

• Manufacturing Segment: Revenue contributed substantially during the quarter, supported by dispatch of a ~₹130 crores US order that had been on hold (customer had prepaid 95%). Operating at ~12% EBIT margin. Capacity expansion across multiple facilities (Bhartoli presses, Dahej skids/modules, both casting factories, Ratangarh tubing/piping, Bhabha press factory) running on schedule, with progressive completion through FY27 and full benefit expected in FY28-29.
• Industrial Projects Segment: Revenue improved on better order execution; EBIT margin at 5.25%, better than recent years. Management has shifted focus toward shorter-duration projects (max 2.5-3 years vs 4+ years earlier), technology-intensive orders (boilers, sugar machinery) where the company can command premium, and reduced civil/erection-heavy work. Export orders from Africa, Latin America, and Southeast Asia strong, with >₹750 crores booked in Q1. A new Global Industrial Services and Solutions Division has been created for O&M, retrofit, spares, and digitization to double the existing base in 2 years.
• ISGEC Hitachi Zosen (Subsidiary): Doing well with higher revenues; order book of ₹889 crores. FY27 revenue expected ~10% higher at ~₹740 crores, with profit also ~10% higher, maintaining strong margins.
• Saraswati Sugar Mills (Subsidiary): Lower cane availability last season resulted in reduced production; revenue expected to decline. Management working on improving cane availability for the next season ending November 2026. Sugar prices have increased, providing some inventory-related profit support.
• Philippines Ethanol Plant: Commercial production began Dec 17, 2025 on sugarcane; crushing ended April 20, 2026. Now running on molasses at ~65-70% capacity, producing ~10.5 million liters ethanol and selling 8+ million. FY27 depreciation expected to reduce to ~₹95 crores on a written-down value basis. Losses expected to substantially reduce in Q2 and reach 90% capacity utilization by December 2026.

Company-Specific & Strategic Commentary

• Capacity Expansion Program: Board approved ₹502 crores in manufacturing capacity investments. First phase of Bhartoli machine building (₹73 crores) to complete by early September, with annual revenue potential of ₹225 crores (benefit visible Q1 FY28 due to ~9-10 month cycle). Phase 2 (₹218 crores) completing by end of calendar 2027/early 2028; Dahej skid/module facility by May 31, 2027. Combined full-completion potential: ~₹1,200 crores annual additional revenue, largely benefiting FY28-29.
• Export Growth Strategy: Export revenue at 25% of total, up from 15% last year. Weaker rupee (~₹95/USD) improving competitiveness on future orders. Export inquiries healthy across industries. Logistics challenges (fewer ships, higher container rates, lengthened transit) creating near-term friction; management building contingencies into order pricing.
• IT/Contract Manufacturing: Working across defense, nuclear, hydro, and steel sectors. Business described as "promising" and provides a hedge to the press business (~70% dependent on auto sector).
• Balance Sheet Strength: Net borrowings reduced ₹140 crores in standalone and ₹170 crores consolidated during the quarter despite ₹47 crores CapEx from internal accruals. Only remaining borrowings largely represent amounts on-lent to Philippines operations.

Guidance & Outlook

Risks & Constraints

Q&A Highlights

Conservative Guidance vs. Strong Q1 Execution

• Question: Why such conservative 10-12% growth guidance when Q1 delivered 51% standalone revenue growth and new orders carry higher realizations? What about the quarterly run-rate? (Rehan Laljee, Coheron Wealth)
• Answer: Good part of the order book execution carries forward to next financial year. Q2 will see projects at ₹1,000 crores and manufacturing at ~₹750 crores, similar to Q1. Manufacturing was helped by one large dispatch (₹130 crores US order; customer had prepaid 95% 2-3 quarters ago). ISGEC Hitachi Zosen will do ~10% better at ~₹740 crores. Saraswati Sugar will be down due to cane shortage. No material inventory gains since business is engineered-made-to-order, except sugar. (CFO)
• Question: If Q1 alone delivered 570 crores incremental revenue, isn't the entire year's growth target done? Why be so conservative? (Manish Goyal, Thinkwise)
• Answer: Management prefers to give a conservative, achievable number rather than aggressive guidance. We can hope for better, but 10-12% is what we commit to. (CFO, MD)

Capacity Expansion Details

• Question: What is the quantum of investment completing when, and revenue potential? (Devam Modi, ARDEKO)
• Answer: Bhartoli machine building phase 1 - ₹73 crores investment completing first week of September, with annual revenue potential of ₹225 crores. But due to 8-10 month cycle time, billing benefit visible in Q1 FY28, not FY27 (work-in-progress will build). Phase 2 - ₹218 crores completing around end of calendar 2027/early 2028. Dahej modules facility completes ~May 31, 2027. Total approved investment for manufacturing capacity is ₹502 crores. Full potential: ~₹1,200 crores annually, largely benefiting from FY28-29 onwards. (CFO, MD)

Philippines Ethanol - Losses and Path Forward

• Question: Q1 loss was ₹83 crores with ₹37.5 crores depreciation. At 65% utilization you're making EBITDA loss; at 90% will you even break even? Shouldn't you shut or sell the business? What's depreciation for the year? (Sandeep Baig, Individual Investor)
• Answer: Depreciation follows written-down value method per Philippines standards - FY27 total expected ~₹95 crores (front-loaded, declining). Interest of ₹19-20 crores per quarter is intercompany (no external loans at CVPI). All options are under management consideration, but "nobody buys a shut asset." We are hopeful the plant will start covering interest and costs as operations stabilize. Q2 loss will be substantially lower. 90% capacity expected by December. (CFO)
• Question: What happened operationally? Last call you expected near break-even this quarter. (Manish Goyal)
• Answer: Plant crushed 84,000 tons of cane, used 20,000 tons of molasses, produced 10.5 million liters ethanol, sold 8+ million. We encountered operational issues with both cane and molasses feedstock separately - bottlenecks being addressed. The plant should run substantially better this quarter. (MD, CFO)

Project Mix and Margin Strategy

• Question: How is the shift toward shorter-duration, technology-intensive, and export projects playing out for EBIT margins? (Devam Modi)
• Answer: Maximum project duration now 2.5-3 years (vs 4+ years earlier which stretched to 6). Focus on projects where technology is valued (boilers - 10-11 technologies, sugar machinery - best in world). Avoiding civil/erection-heavy execution work. This is improving margins, reducing working capital, lowering borrowings. Net borrowings down ₹140 crores standalone despite ₹47 crores capex from internal accruals. (CFO)

Order Book Execution Timeline & Outlook

• Question: What's the execution timeline for the current order book? And order inflow outlook for international orders? (Shubham Borade, ICICI Securities)
• Answer: Manufactured items: 4-5 months to 10-12 months. Projects: 14 months to ~2.5 years. IHZ: 15-18 months. Eagle Press: 6-9 months. July-August YTD orders already booked ~₹1,200 crores standalone - order book should continue to add. Export inquiry pipeline is healthy across industries. (CFO, MD)

New Services Division & Contract Manufacturing

• Question: What's the revenue base and margin profile of the new Global Industrial Services and Solutions Division? And how is defense/nuclear contract manufacturing progressing? (Manish Goyal)
• Answer: The division combines existing O&M, retrofit, spares, and digitization into a separate unit so attention isn't diluted by larger orders. Smaller order values but slightly higher margins. Goal: double existing O&M base in 2 years (absolute figures not disclosed). Contract manufacturing is growing across defense, nuclear, hydro, steel - also serves as a hedge to the press business (~70% dependent on autos). (MD)

Key Takeaway

ISGEC Heavy Engineering delivered strong Q1 FY27 standalone performance with total income up 51% YoY to ₹1,585 crores, driven by improved project execution and a large US manufacturing dispatch, though PBT growth was held to 10% (₹123 crores) by elevated forex-related other income in the prior-year base. Consolidated revenue grew 45% to ₹1,993 crores, but consolidated PBT was constrained to ₹53 crores by ₹83 crores losses at the Philippines ethanol plant, which is stabilizing with 65-70% utilization and expected to reach 90% by December. Management maintained a deliberately conservative FY27 standalone revenue guidance of 10-12% with manufacturing EBIT margins at 12-13% and projects margins at 5-6%, despite strong order booking (₹2,323 crores in Q1; exports >₹750 crores). The ₹502 crores capacity expansion across five facilities (Bhartoli, Dahej, Ratangarh, Bhabha, casting works) is progressing on schedule, with full completion through calendar 2027-28 expected to add ~₹1,200 crores in annual revenue capability. Net borrowings declined sharply to ₹240 crores standalone, with only ₹30.4 crores consolidated, reflecting improving working capital discipline from shorter-duration, technology-focused project selection. Strategy centers on export growth (25% of revenue, up from 15%), contract manufacturing diversification (defense, nuclear, hydro, steel), a new services division targeting doubling O&M revenue, and conservative financial management in a geopolitically uncertain environment.

Transcript incomplete - Q&A section continued beyond the provided excerpt; full analyst questions and management responses for later portion of call not available for summary.