Pennar Industries Limited (NSE: PENIND) Q2 2025 Earnings Call dated Nov. 13, 2024
Corporate Participants:
Aditya Rao — Vice Chairman and Managing Director
Shrikant Bhakkad — Chief Financial Officer
Analysts:
Vikram Suryavanshi — Analyst
Harsh Bhutra — Analyst
Darshil Jhaveri — Analyst
Vivek Kumar — Analyst
Gunit Singh — Analyst
Mohit Arora — Analyst
Varun — Analyst
Aashish Soni — Analyst
Dilip Sahoo — Analyst
P. Jha — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the Pennar Industries Q2 FY25 Earnings Conference Call hosted by PhillipCapital India Private Limited. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on-date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Vikram Suryavanshi from PhillipCapital India Private Limited. Thank you. And over to you, sir.
Vikram Suryavanshi — Analyst
Thank you, Seema. Good morning and very warm welcome to everyone. Thank you for being on the call of Pennar Industries Limited. We are happy to have with us management of Pennar Industries for question-and-answer session with the investment community. Management is represented by Mr. Aditya Rao, Vice-Chairman and Managing Director; Mr. Shrikant Bhakkad, Chief Financial Officer; Mr. Manoj, Vice-President, Corporate Planning; and Mr. K.M. Sunil, Vice-President, Investor and Media Relations. Before we start with the question-and-answer session, we’ll have opening comments from the management.
Now I hand over call to Mr. Aditya for opening comments. Over to you, sir.
Aditya Rao — Vice Chairman and Managing Director
Thank you. On behalf of Pennar Industries, I would like to extend our heartfelt appreciation to all of our stakeholders for joining today’s investor conference call for the second quarter financial year 2025. Your involvement means a great deal to us and we are genuinely grateful for your ongoing interest and support.
Agenda today will cover — we’ll start with an overview of our quarterly performance. As usual, we will highlight key metrics such as revenue, profit before tax, working capital management and our strategic growth initiatives. Following this, our Chief Financial Officer, Mr. Shrikant Bhakkad, will provide an in-depth presentation on our financial results. After his presentation, we will open the session for questions from all participants.
So let me start with the executive summary. For quarter two fiscal 2025, PIL reported a total income of INR753.53 crores and a PBT of INR36 crores. The decline in revenue of around 8% partly expected and our PBT, however, grew by 20%. We recorded a cash PAT of INR44.31 crores. Now while we were expecting a flat quarter due to replacement of older revenue with new high margin revenue which has been a trend for the past few quarters, the decline was because of delays in commissioning of our Raebareli plant and also in converting our US order book to revenue due to the US election. Both of these are temporary concerns and we already achieved a high capacity utilization in PEB in October and have seen a dramatic ramp-up in our US revenue in the current quarter.
Our order backlogs across the board look very strong. Our process equipment order backlog also has increased to a record high. So we are confident and are projecting a very strong Q3 and Q4, allowing us to record our highest ever sales and the highest-ever profitability and cash generation in this financial year. Our growth drivers continue to be PEB India, Ascent, which is our US PEB business, process equipment, engineering services, tubes and hydraulics.
Let me move to profitability. Our PBT of INR36 crores was achieved at a percentage of 4.82%. As we have guided, we expect margin expansion to continue as higher margin BU revenue continues to scale. Our current working capital days as of September 30th have seen an increase by three days to 77. This is primarily because of increased inventory holding in anticipation of higher Q3 sales. There is a lot of order booking that came in late September and in order to cater to that, we had to increase our working capital. We expect to get back to 74 days very soon within the next two months and have a goal of 72 days by March 31st.
That concludes my overview of our financial performance. I would like to hand it over to Shrikant for a more detailed financial analysis. Thank you so much.
Shrikant Bhakkad — Chief Financial Officer
Thanks, Aditya. Welcome to the shareholders and investors on the second quarter FY25 earnings call. Key matrices include total income of INR753.53 crores from INR820.04 crores. On the gross margin, there is an improvement by 357 basis points from 38.27% to 41.84%. EBITDA has reached about 10% and it is 16% up from 9.35% on quarter two. PBT is now INR36.05 crores up by 21.26% at 4.82% and PAT at INR26.87 crores, 3.6% and up by 20.17%.
In terms of revenue, as you are aware that we are exiting the low margin businesses with our continued focus to improve on the margins and cut down on the sales with lower margin businesses, you see the increase in the profitability of the businesses. Revenue has scaled up in terms of metrices perspective, but revenue has relatively not grown in terms of the lower raw material prices in subsidiaries due to reduced offtake due to the US elections. We expect now that the elections are over, the revenue will start increasing.
Standalone revenue will also see degrowth in the coming quarters. The diversified engineering revenue for Q2 FY25 is at INR416.36 crores compared to INR433.56 crores and the custom design building solutions came — is at INR353 crores compared to INR406.88 crores. Though the revenue has been decreasing, good thing is the order book in the PEB India has increased to INR800 crores and PEB US to 54 million and we are confident that the revenue will go up in the next quarter.
Happy to inform to the largest stakeholders our Raebareli plant is up and running and it is functional and it will start contributing to our revenue from the present quarter Q3 FY25. In terms of other income, it includes deposit income, income from mutual fund, incentives, exchange fluctuation and collection of old receivables. Extending the explanation on profit and loss further employee benefit expenses, Q2 FY25 it was INR81.02 crores when compared INR77.67 crores. The increase is INR4 crores and it is on account of the increment in the higher headcount on account of manpower that we have recruited for our Raebareli and other growth initiatives.
In terms of finance cost, the consolidated Q2 FY25 is at INR27.69 crores and compared to INR29.87 crores. This is due to the lower sales and capitalization of term loan interest for the first quarter. The total borrowing of the company is now at INR1,190 crores when compared to INR1,092 crores in the last period. There is an increase in case of our term loan as well as the working capital. The total term loan is now INR208 crores.
The working capital borrowing has increased because we have deployed the money for the inventory and we expect this to rationalize in the coming next two quarters. Overall, in terms of interest on exchange percentage where we guide to, it is now at 3.7% when compared to 3.67%. There is an increase of 3 basis points. This is predominantly on the higher working capital increase that has seen. We expect this to lower and our target is to come down to 3.75% once we start capitalizing the interest on the term loans.
Depreciation has increased from INR16.6 crore to INR17.4 crore predominantly on account of the capitalization that we had in subsidiaries and standalone entities. PAT has increased from 24.79% to 25.31% predominantly changing our sales at our US subsidiary asset. Federal take — we guide you to take federal tax at 21% and state tax at 5.5%, the average close to around 25.6%. We expect the consolidated rate to be 25.5%.
Overall analysis in terms of revenue, revenue has gone down predominantly in PEB business in India and US. An increase in profitability is due to better margins in our boiler and tubes services and the overall other entities. And our profitability will further go up due to the margin expansion that we are planning for ourselves.
In terms of the balance sheet numbers, the change in assets is on account of two things, on account of non-current assets by INR73 crores and current assets by INR85 crores. Non-current assets are predominantly increased in the property plant and equipment by INR134.66 crores. This on account capitalization of our corporate office and Raebareli building and some part is Ascent due to the road [Indecipherable] that we have purchased.
Inventory standalone has increased by INR73.39 crores with an anticipation of the next quarter we have got the inventory. The growth had decreased overall in standalone by INR12.4 crores and subsidiary INR18.2 crores. So overall, there is a good collection that we have seen and that is the reason you also see the increase in the investments and the cash and cash equivalents. The cash and cash equivalents have grown by INR20 crores and investment in standalone, a temporary parking of free money into mutual funds by INR10 crores.
Other current assets in standalone increased by INR13.32 crores which is on account of the capex advances that we have given to our vendors. In India, it’s INR11 crores, then subsidiary is INR2 crores. Overall, there has been increase in the fixed assets by INR135 crores and current assets by INR64 crores, which has been explained in the various form above.
Coming to liabilities, liabilities include non-current, current and equity. The non-current increased to INR18 crores, current liabilities by INR87 crores and equity by INR55 crores. Change in liabilities on account of higher borrowings and other current liabilities by INR30.97 crores. Long-term liabilities, as I have explained, it is on account of the increase in the borrowing of our Raebareli plant as we got this office. The decrease in the trade payable is on account of more credit that we have got from the vendors which increased our trade payables by INR12 crores. Change in liabilities is on account of amortization of lease liabilities and advances from the customers that we have issued. It is predominantly on account of the profit that we have for the quarter. That concludes the balance sheet analysis.
In terms of cash flow analysis, the operating cash flow before the working capital changes at consolidated level is INR157.98 crore when compared to INR139.59 crore. This is attributable predominantly on account of operating activities, which is positive INR102 crores, investing activities, INR90 crores we had invested, and financial activities INR9 crores. Overall, there is an increase in cash and cash equivalents by INR20 crores.
That concludes my analysis on profit and loss account, balance sheet and the cash flows. The last thing that I would like to inform our order book of PEB has increased. Now, it is at INR810 crores and Ascent it has increased to 54 million. This concludes my analysis on the profitable account. I would be happy to answer the questions.
Questions and Answers:
Operator
Thank you very much. We will now begin with the question-and-answer session. [Operator Instructions] We have the first question from the line of Harsh Bhutra from AART Ventures. Please go-ahead.
Harsh Bhutra
Am I audible?
Operator
Yes, sir. Please go ahead with the question.
Harsh Bhutra
Thanks for the opportunity. My first question is in line with our earlier concall guidance PBT about 7%. What is the expected timeline which we see and what are some levers if you can explain?
Aditya Rao
So, the 7% PBT would be achieved as our higher margin revenue scales up. These tend to be our margins, our business in the US Ascent industrial components and hydraulics here, and also engineering services and metal buildings here. So, as you have seen, there has been 200 basis point expansion over the last two years, so something similar over the next two years. So, over a two-three year timeframe, I think internally we have a more aggressive target, I think getting to 7% PBT is what our plan calls for.
Harsh Bhutra
Thank you. And my second question is in line with as we have earlier guided to exit our low margin business, first of all, first explain me what are those low margin business and same like what is the expected timeline to exit them?
Aditya Rao
So, we decided to focus most of our capital and man hours on effectively five businesses, so that includes us reducing our revenue and maybe in some business units. These business units are typically our water treatment and environment business, our chemicals business unit, our aerospace business unit is another vertical which has seen a reduction and also across steel and across railways and our solar EPC, solar MMS, our module business. So, there is almost, I would say, seven, eight revenue streams which have been removed.
So, the impact of that is a reduction in an overall revenue of the company, whether or not growth in other verticals by close to about INR1,000 crores. However, because the other verticals are also growing, the ones we want to scale are scaling up, it is a plus and a minus and overall, this year we will have a plus as we did last year as well and we are looking for that. So, over the next year, we will be able to fully vacate these revenue streams.
Harsh Bhutra
That’s it from my side. Thank you and all the best.
Aditya Rao
Thanks.
Operator
Thank you, sir. The next question is from the line of Darshil Jhaveri from Crown Capital. Please go-ahead.
Darshil Jhaveri
Hello. Good afternoon, sir. Thank you so much for taking my question. So sir, just wanted to understand now the Raebareli plant will be operational from this quarter. So would it impact our margins or how like the extra cost will be factored in for it? Like have we already hired employees just like a what — could you give us some color on how the economics of the plant will work like utilization levels that we can expect currently, what kind of revenue contribution can be?
Aditya Rao
So the commissioning of the Raebareli plant effectively increases the production capacity by about 25% to 30%. Due to a combination of factors, our actual revenue growth in PEB for this quarter is projected to be higher than that. So effectively that the impact on margins is a fair amount of operating leverage that comes in. So we do expect to see margin expansion. We expect to see profit expansion as well. The fixed-cost that is added on has already been added on and we don’t anticipate any other massive increase in fixed costs.
Darshil Jhaveri
Okay. Fair enough, sir. And sir, with regards to our interest cost, like so I think we are — just to be — just to confirm, you’re saying around 3.75% of the revenue roughly like we’ll be in this range only right now. Correct, sir?
Shrikant Bhakkad
Yeah. 3.75% is the next year is what we would like to guide you to.
Darshil Jhaveri
Okay, fair. And sir, any kind of revenue guidance that we could have for FY26 and the margin guidance for the same?
Aditya Rao
Could you say it again? Sorry.
Darshil Jhaveri
So any kind of revenue guidance for H2 and FY26, revenue and margin guidance.
Aditya Rao
I think you will see revenue growth and profit growth and margin growth over the next — as you’ve seen over the past three, four years, that trend will continue because we’re really just continuing along that path. So we will not be able to give you an exact number or a percentage. But as I’d guided to a previous question, I think at least a 200 basis points, 300 basis point improvement over the next few years is definitely what we are targeting.
Darshil Jhaveri
Okay. Fair enough, sir. Yeah, that’s it from my side. Thank you.
Operator
Thank you. We take the next question from the line of Vivek Kumar from [Indecipherable] Research and Advisory. Please go-ahead.
Vivek Kumar
Sir, am I audible, sir?
Operator
Yes, sir.
Aditya Rao
Yes, please.
Vivek Kumar
Can you throw light on this Pennar’s outlook on US because now that Trump has won and things are more clearer and also PEB business here because competitors are reporting really good numbers. So if you can throw outlook — one, two-year outlook on these two, Pennar PEB US and India.
Aditya Rao
Let me start with PEB India. PEB India is, as Shrikant mentioned in his presentation, our order books at a record high. We are scaling that up further with increased capacity expansion that has already come in October with our Raebareli plant. We have seen a revenue increase in that. So we are quite confident this year will be obviously our highest-ever in sales in pre-engineered buildings. But for the medium-term, I think growth is factored in now with this — with our current positioning.
PEB US, yes, Trump has won, but we don’t make our strategy plans on short-term political developments. The longer-term picture is that we have a strong — we have our highest-ever order book in the US as well. That too is projected to grow. We are undertaking capacity expansion. I believe this quarter is quite good. We did have a muted Q3, but that’s just because of temporary, as you said, because of elections and other issues, that tends to offtake was a little lower. But I take comfort in our order book growing strongly and our market-share being small means that we will be able to scale that business quite well. So we are very bullish on PEB US, what we call Ascent. We are very bullish on India. Both the order books are very strong, growing stronger and capacity coming online and has come online in both, giving us high confidence in revenue and profit growth in both verticals.
Vivek Kumar
Okay. So over the next two, three years, you feel most of our revenue line should be firing, right, vis-a-vis last — what happened in the last four, five years in a sustainable manner? First-off, I’m not saying every line of revenue?
Aditya Rao
I’m sorry, you said over the next two, three years…
Vivek Kumar
See, if you compare with last two, three, four years, can we assume — I agree that things can — nothing is in our hands, but over next two, three years, most sustainable growth in terms of more revenue streams firing up should happen, right? At least it looks like that as of now. Can I assume that or its too optimistic?
Aditya Rao
There’s a little bit distortion, but I think let me repeat the question and understand that as a question. Over the next two to three years, we will have sustainable revenue growth and profit growth. Was that the question?
Vivek Kumar
Yeah, but with more revenue, more product lines firing up, not just from one, so vis-a-vis what happened in the last three, four, we had to restructure a lot of revenue lines. So will it [Speech Overlap].
Aditya Rao
Effectively a growth drivers, more product lines just for what is existing. They’re not going to be doing anything new. Our existing revenue streams of pre-engineered buildings, hydraulics, process equipment, engineering services, tubes, all of those have large order books and lot of potential. I mean, the market leaders in all of those are 2, 3 times our size. So our ability to grow market-share is as is. And I’m very, very confident about that. So all of those are firing up and scaling, right?
It’s not just — which will be PEB India which will have our highest-ever sales. We will also have highest-ever sales in our boiler business, our process equipment business, we’ll have highest-ever sales in our engineering business. So we are projecting good things across the board. It’s not just in one. It wouldn’t just be in one revenue stream. But PEB is a big revenue stream, I believe. That’s definitely it is.
Vivek Kumar
So any comments on working capital, your target working capital in terms of number of days cash conversion.
Aditya Rao
They are at 77 right now, but that’s a temporary aberration. If you look at the last few quarters, we’ve had these quarter spikes usually when we are gearing up a higher revenue, which is what Q3 and Q4 look like. So you will see a little bit of spike, but by end-of-the year, we want to get back to 72 days. Already is — probably already down to — it’s not at 77, it will be down. It’s just a function of what our revenue is.
Vivek Kumar
Got it. Thank you. Thank you very much, Aditya.
Aditya Rao
Thank you.
Operator
Thank you, sir. The next question is from the line of Gunit Singh from Counter Cyclical Investments. Please go-ahead, sir.
Gunit Singh
Hi, sir. Thank you for the opportunity. So I would like to first understand what is the capacity utilization currently across the plants? And with the new plant coming in, I mean, what is the additional revenue potential from the new plant?
Aditya Rao
So at peak capacity utilization, it’s about 2,000 tons, so that’s about INR300 crores that can be added. We are also, however, expanding capacity at our current plant. So the overall revenue growth potential for PEB would be higher than that number, whilst capacity utilization increases. And peak is around 100%, we typically look at 70%, 75% OEE availability of operating efficiency. So on that metric, I think what’s on the table is a revenue growth of over INR300 crores. And that’s for PEB. Sorry, you wanted a larger capacity utilization picture, correct, sir?
Gunit Singh
Yeah. I mean, I want to understand with our existing capacity, what is the revenue potential, maximum revenue potential?
Aditya Rao
Sir, maximum revenue potential in the 5 — no, so let me try to answer as best as I can. As I mentioned with the revenue verticals we are actively getting out of, right? So in that paradigm, the ones which we are continuing to grow or trying to grow right now, that revenue potential would be at our current capacity which we have available would be about INR5,000 crores from a revenue side, but we could — we will obviously be expanding that with additional capacity expansions.
Gunit Singh
So sir, what kind of additional capacity are we coming up with apart from the INR300 crores that you mentioned and what are the timelines?
Aditya Rao
In pre-engineered buildings?
Gunit Singh
Yes.
Aditya Rao
Okay. In pre-engineered buildings in India and the US, we are adding green land capacity. We will be looking at another plant in the west of India, both catering to both the PEB and structural and high-rise structurals and high-value structurals. In the US also, we are looking at expanding to a new plant, which will also give us metal buildings and high-rise structurals. So the combination of all of these plants coming online, the timeline is about a year.
Gunit Singh
All right. And sir, what is the capex and — I mean, maximum revenue potential from these two?
Aditya Rao
Typically, the industry works at an asset flip of about 6 or 7. In order to realize our growth potential, it’s necessary for us to make these investments. So overall capex for all, everything that I mentioned will need to be finalized. But as of right now, I don’t have a number for you on exactly what it is. We have to finalize that. But it won’t substantially change the debt-equity picture. It’s something that we’ve always done. Just as we’ve always expanded capacity, we’ll continue to do it. Exact number for you on all of those projects I don’t have right now.
Gunit Singh
All right. So historically, we have been at about 8% to 9% EBITDA margins. So I mean, what kind of margins are we targeting — EBITDA margin are we targeting? And I mean, what gives us the confidence to, I mean, improve upon these margins because these are the numbers that we have historically been at? And what would be the main drivers of expansion in our margins?
Aditya Rao
So we are already above 10% EBITDA to — not 8%, 9%, we are above 10% and that’s sustainably been the case for the last two, three quarters. I don’t believe we are going to get back down. I don’t see that on the horizon right now. From a future margin expansion, what gives us confidence is simply that the revenue that’s being added was growing is at an operating margin that is well far higher than our current EBITDA margin. And the absolute peak of your EBITDA can obviously only be your operating margin.
There’s tremendous operating leverage, we are now going to be duplicating so much of our cost as we expand these business units, includes PEB, includes PEB US, includes our engineering services business as well. So with a lot of high margin businesses growing and that revenue coming in, the impact on whatever additional operating margin we bring in falls directly down to PEB DT. So that is our confidence that our EBITDA will go up and EBITDA margins will go up.
Gunit Singh
All right, sir. My last question would be regarding the growth. So what kind of CAGR are we looking at for the next two to three years? And in FY24, we did about INR3,100 crore, while you mentioned that the maximum revenue potential is INR5,000 crore. So I mean, by when do you envisage us reaching INR5,000 crore in your opinion as per the current market demand?
Aditya Rao
We’re hard at work mapping out our revenue. I think the orders are there for the taking. We are not constrained by the market. Our market-share is so low that we could literally expand our order books substantially. Our job will be very simple, increase our order backlogs and as scheduled customers, increase our asset base, thereby increasing our revenue and because the revenue is coming in from high margin, that takes up the overall margins. So that’s effectively the point.
You will continue to — you will definitely see high growth. Our plan has obviously sustained double digit growth. The only reason this year you would have seen a little less muted growth is because of the exit of the old revenue stream. So that is a longtail and it goes away. And as we grow, it becomes a lesser and lesser proportion of our overall sales. So we’re not concerned here.
Put another way, I think if our Raebareli plant had come online at least a quarter earlier, which is what we had initially anticipated, we would not have any revenue fall at all, quite frankly. So that gets reversed. Q3 onwards here, we have strong revenue growth. So Q4 also, we will project that and next year also we will continue to be on this path. So the combination of large addressable markets, us increasing our capacity utilization and our market share will result in revenue growth and sustainable higher revenue growth. So that’s our base case business model. It’s been working out for the last three, four years. I see no reason why it won’t work for the next three, four years.
Gunit Singh
All right. So is it realistic to assume about 20%, 25% growth or when you said double digit, we’re talking about something in mid-teens or, I mean in that range?
Aditya Rao
We will achieve the highest growth percentage if we can. But I can — I think at this point, I can commit to double digit growth.
Gunit Singh
All right, sir. Thank you very much. Wish you all the best.
Aditya Rao
Next question.
Operator
Thank you. We take the next question from the line of Mohit Arora from SOIC. Please go ahead.
Mohit Arora
Hi, sir. I just had one question, sir. When it comes to the second half of the financial year, now that our plant is kicking in, do you think that we’ll start seeing some bit of operating leverage come into play in the H2 of this year?
Aditya Rao
Could you say it again? Once the plant has been commissioned, H2, what…
Mohit Arora
Basically do you think that we’ll see some bit of operating leverage start playing out in the H2 of this financial year when it comes to looking at the operating margins of the company?
Aditya Rao
Absolutely. I think in several businesses, as our new capacity comes on and as I mentioned, it’s not just our Raebareli plant, it’s other plants as well, other capacity as well. We do expect that operating leverage comes in. As I mentioned, all the revenue, you add that at a high enough operating margin, all of that falls down, right, to your EBITDA to your PBDT, quite frankly.
So, yes, whatever has been happening for the last 20s or so quarters will continue to happen, which is that revenue increases because it’s increasing at a higher operating margin, that drops down. Our fixed costs don’t rise anywhere near that quickly. Our fixed costs typically tend to increase at a single digit percentage per year. So the overall effect on our margins is expansion of our contribution, EBITDA and PBDT.
Mohit Arora
Right. And sir, second question is that currently on the balance sheet, I see there is another CWIP of INR128 crores, capital works in-progress. Is this related to the hydraulics capex that we are doing?
Aditya Rao
Oh yeah. So we had some capex and other some revenue streams, our body invite business revenue streams and others. All of that should get — it will get capitalized in the next two quarters.
Mohit Arora
Okay. Okay. Thank you, sir. Wish you all the best.
Aditya Rao
Thanks.
Operator
Thank you. We take the next question from the line of Varun from Equitree Capital. Please go ahead, sir.
Varun
Hi, sir. My first question is relating to the some of the small businesses which you have exited in [Indecipherable] and solar module businesses. So where has that cash flow been used, utilized?
Aditya Rao
Typically, the exit would mean not that we have sold those businesses, but that working capital has reduced. Since our working capital days has reduced, effectively flown back into our — and gotten into our other revenue streams, which we are trying to grow.
Varun
Okay. And if you could guide on the overall debt trajectory, so it’s been increasing. We — even on the cost of debt. So moving forward, where can we see that? Can we see that declining or…
Aditya Rao
The interest cost that Shrikant has guided, what we use as a metric is that there should be a certain percentage. That’s how we price our orders, that’s how we take it. And most of our working capital is non-cash debt. It is not cash debt. It is something that’s — it’s backed by our accounts receivables and our inventory. So that is a part of the business and that will continue to go up. As the revenue goes up, the non-cash debt will go up and the majority of our debt is that LCs and EGs and others. So that will continue. As far as the interest cost is concerned, I think while we’ve had a reduction from the previous quarter to this quarter, overall, it will also — as revenue grows 3.75% is what we intend to pin it at.
Varun
Okay. Thank you.
Operator
Thank you, sir. The next question is from the line of Aashish Soni from Family Office. Please go ahead.
Aashish Soni
Sir, in this quarter, how much percentage was your low-margin business?
Aditya Rao
So our overall low-margin business is now at — it’s still at about 30%. I don’t have an exact number, but I’ll endeavor get that to you, but that’s a ballpark number and allow me to do our math and we’ll get back to you with that.
Aashish Soni
And what about growth in your strategic areas like how much percentage growth in different areas if you can give a ballpark on that as well.
Aditya Rao
All of our — all of the BUs revenue streams we have chosen for scaling are scaling well. I mean, the picture you see there would not be a quarter-on-quarter picture, but what’s happening on because of the cyclicality of these business as well is on a year-on-year basis. None of these businesses are de-growing, all of them are growing and all of them are growing at double-digit rates.
Aashish Soni
And what — in terms of PEB, there is lot of competition in India as well as US. So are we seeing some market share challenges at least in this two markets or in terms of scaling up because I know the order book increasing, but is it the same pace as your competitors are doing?
Aditya Rao
You are correct that it is a competitive space, but I think the several advantages we have that offered as a higher market-share. I think we are either number two or number three behind Kirby and [Indecipherable] right now in the market-share point-of-view. But our growth rate seems to be higher and yes, sure, it’s higher. So our goal is to be — we’re not targeting to be number one in market share. It’s not the way we see things. We want to be number one in ROCE and even that is not the case right now that we are number one, but I’m quite confident that we have no impediments to growth.
I mean the broadness of the sector, even though that it is competitive, yes, but the broadness of it of custom design building system is so vast, whether it’s factories, warehouses, commercial centers, even residential building, even high-rise buildings that it’s a bellwether for the construction industry. So as long as there’s that sector, the broad Indian economy is open and doing well, the addressable market here will go up and that’s what tended to happen. And we have good references, good capabilities, well over 50% of our order book is repeat customers where people have given us orders and are giving us orders again. So I don’t — I’m not concerned.
In the US, it tends to be — it’s a little different. It’s a lot more relationship based. So we have — well, we have our sales team in the US is quite strong. So our DMs, our district managers or people who have, in some cases decades of experience in this industry, not concerned of our ability to build-up our order book and that’s been demonstrated by our order book going up as well. In fact, we are choosers of orders right now. We’re not — we pick and choose which orders to take. So the market is not going to prevent us from growing either in India or the US. I don’t believe that would be the case.
Aashish Soni
The last question, I think you spoke about $1 billion revenue aspiration. Where do we see it getting materialized in your plans?
Aditya Rao
We have our internal plans. I would not be able to guide you to when we will reach $1 billion, but I can tell you that our goal internally is to scale and scale powerfully over the next few years. We are very confident our best days are in the quarters and years ahead of us. So you will see us achieve that goal. And we have a plan. We’ve done many exercises internally and we are geared up to increase our revenue or profitability and quite confident that we’ll be able to achieve those numbers.
Aashish Soni
One last question, I think if I recollect the low margin business was almost 45% in one or two quarters back. Now you said 30%. So what is this 15%? Have you completed some of this — exited some of these businesses completely? If you can elaborate on that, that will also help.
Aditya Rao
So in some businesses, our order book is done, revenue is done and it has gone to zero, for example, our environment business is down to zero, chemicals is almost down to zero, our retail is down to zero, solar EPC is down to zero. So there’s several cases where it has gone to zero, but there are some other businesses which are longer-term contracts and it will take us some amount of time.
But as you can see, it used to be — I mean, for comparison purposes, this used to be — these businesses that we have exited used to be the majority of the business three years ago. So over-time, we bought it down from well over 50% to 45% to 30% I’ll confirm, sir, but it’s in that ballpark. It’s not very, very different from that. So I think over the next year, you will see it becoming smaller and smaller. But we want to be a little methodical in this. We don’t want value destruction also to take place. So some of these, we will also have strategic growth options, nothing that we can comment on or describe to you right now. But what I can commit to is, it will be a smaller and smaller portion of our consolidated sales and what we are growing is well-placed to grow quickly and strongly.
Aashish Soni
And just last question on this land-bank you have, I think, so any plans on that is the discussion at Board level diverse that?
Aditya Rao
So could you say it again? The land bank [Foreign Speech]. As of right now, nothing to comment, sir, on that.
Aashish Soni
So do you have any aspiration in the next one or two years to? Because I think you’re planning for expansion, right? So instead of taking debt, can — is Board thinking in that direction to divest and use that instead of taking debt?
Aditya Rao
We are considering all of those options, sir. You’re right under the land bank and there’s no point us sitting on a land bank that we are not a real estate company. So we will explore all options. But as of right now, nothing to. By nature, these tend to be and in the medium-term to longer-term, but we’re not constrained in the sense that we are not able to implement our projects. But you are right in that it is absolutely a resource we can tap in order to fund our growth and that is the — when we have something on that, we’ll get back to you.
Aashish Soni
Thank you and all the best, sir.
Aditya Rao
Thank you.
Operator
Thank you, sir. The next question is from the line of Dilip Sahoo, an Individual Investor. Please go ahead.
Dilip Sahoo
Yeah. Hi, thanks. Adi, this question is regarding our balance sheet. There are multiple moving parts in our business. Currently, we are trying to dial down almost one-third of our business around INR1,000 crores to zero and that has its — how do you take care of the receivables and capex. The second one is our quality of our new business is improving profitability, cash conversion cycles, etc. And we are investing quite substantially in capex in our PEB business in India and US. So how does all this impact our balance sheet in next two odd years? Are we going to look at — I’m primarily looking at the gross debt, which hasn’t moved much in the last two years. Can you give some idea about how our balance sheet is going to look like in next two years?
Aditya Rao
Thank you, sir. So the — you’re right, we have growth aspiration and that’s going to take capital and it is going to take our profit is under increasing profit is one such source. The other source is debt or the other source is debt effectively. We are primarily working capital heavy and working capital non-cash heavy. So the debt we need to grow from a capital point of view or a capex point of view isn’t very, very-high. So even if we wanted to invest, let’s say, INR1,000 crores over the next three, four years, that’s something that will be more than adequately covered by our profit where it is right now and our growth as well. It will be covered.
Our long term debt, so to speak is only a small fraction of our thing and it isn’t projected to increase by that much either. So we’re not too concerned about that. There’s also significant resources within the company where if we see the debt equity inch up beyond that and we’ve done this in the past as well and we sold about one of our land parcels for a fair amount of capital inflow into the company. So there’s substantial land assets in excess of about close to 400 acres within the company. Much of — some of that is prime land. These are resources we can tap.
So I’m not concerned about a debt equity increasing beyond control. But to give you a metric, I think we are right now at 0.7 debt equity — 0.76. So we don’t anticipate it ever-growing above 0.8, for example. So there are levers we are using. And from an interest cost point-of-view, what we’ve guided to 3.75% is what we will want to use as the method. That is what we want to be at. Our current growth plans do not call for a dramatic expansion of our debt or our leverage. And I do not believe you will see us have a debt equity substantially different from what it’s at right now.
And do bear in mind, sir, as this debt equity includes mostly, vast majority is working capital debt over 80% and the majority of that is non-cash debt. So we are backed very well by current assets. Our quick assets are quite positive. We are also — I mean our credit rating is another aspect that plays into it. We want to target an expansion of credit rating. We are a day right now we want to get to the A+ and I think it’s important for us to monitor our debt carefully and we are going to continue to do that.
Dilip Sahoo
Where I was coming from is a very healthy balance sheet and cash in the books gives you strategic opportunities like the way you have bought back at INR30 and INR40 two, three years back, those kind of opportunities when they come as and when they come, that opportunity can be utilized if you have a healthy balance sheet. That’s where I was coming from, whether it is buyback or acquisitions because we are in a cyclical business and there are business cycles that we will go through now may be positive and sometimes later maybe negative, then cash in the books will give us leverage to seize those opportunities. But I understand where you’re coming from. And I think we — what you’re saying that we are not going to mutilate the balance sheet and will be careful about our — the health of our balance sheet. That’s good.
The second question is this boiler business what quality of customers do we have in this business? It looks a lot like the SME sector to me. So what is the receivable health in this business?
Aditya Rao
Our receivables is extremely healthy. I think our working — in fact, it’s probably best-in-class from a working capital point-of-view as well. Our inventories are a little on the higher side maybe, but not — but receivables to my knowledge, not absolutely an issue. In fact, we have the number of days for [Speech Overlap].
Shrikant Bhakkad
Boiler business in terms of receivables hardly two to three days. We get almost every money in advance and then it’s only LC and discounting by the time the bank takes and credit the money back into the business. So in terms of boiler business, the receivables quality is absolutely clear and there have been no bad debts at least as far as the boiler business unit is concerned.
In terms of inventory, yes, they stack the inventory because it’s a — it takes time for those boilers to build it over a period of time. So we generally have one month of inventory, which is 45 days usual in this business.
Aditya Rao
And from a customer profile point-of-view, of course, frankly, all of our customers are the same thing. They are the same customers we sell to unit buildings to, for example, the process industries, power plants, cement plants, sugar plants, those tend to be our customers for process equipment for boilers as well. So there’s a high overlap and all of these tend to be the larger companies as well. Right now our product range is — we’re broadening it a little bit. We’re not where the max is right now but I think with the new management team that’s also come in recently, I think our aspirations for this business are quite high. And order books are strong and it’s not unstructured, it’s not SME, it’s a — the account receivable is quite healthy. The working capital is very healthy in our assessment.
Dilip Sahoo
Okay. Great. Great to hear that. My last question is regarding US business. We are kind of going through an operating deleverage or our setup has grown-up quite substantially in terms of expenses, but our revenue seems to be coming down for last four, five quarters and we have given you reasons. So as we go-forward, our order book has gone from $30 million to some $54 million now. So as we go-forward, how do you see the profitability of US business? And can you give some ballpark on how next year is going to look like for US business? Because it has been quite topsy-turvy for last two years. That’s why I’m asking about next year’s view.
Aditya Rao
Sir, you’re absolutely right. So the order book is very-high. The last quarter, the revenue hasn’t been where it is. We are very confident that revenue grows. Even this quarter sales are quite strong. October was very strong in the US. I do want to give you some — a little bit more clarity on this also, sir. This year, for example, we actually moved more tonnage than we did last year in the US.
What did happen was raw-material prices in the US actually fell by a lot more than it did in India. And because of that, you’re seeing some declines in that. Be that as it mean, our operating margins are quite strong. We get upwards of 28%, close to 32% on our US order books in metal buildings. What is there right now is quite strong. And while we are insured from any raw material price movement to impact the margin, I think output point-of-view, it’s been a little as you said, the last two quarters haven’t done what we expected it to do.
But that’s in the rearview mirror, I’m quite confident that this year and we use the calendar year as a year for the US, you should absolutely expect growth next year because of the new capacity has come online, our production capacity has gone up and I’m not going to say that Trump is the reason, but whatever the reason, I think we see very healthy offtakes now. And I have no doubt that this year will be good and next year will be great for — this quarter will be good and next year will be good for our US business.
Dilip Sahoo
Thank you. All the best and have a — hope for a better half compared to the earlier H1. Thank you.
Aditya Rao
Thanks a lot.
Operator
Thank you, sir. The next question is from the line of P. Jha, an Individual Investor. Please go ahead.
P. Jha
Yeah. Hi, Aditya. I have two very simple questions. The businesses which we are closing, have we made any serious attempt to sell them? Because they seem to be still the order of the day, be it the railway wagon, be it the EPC, solar and the panels that you are making. So that’s one part of question. And also whatever it releases other than the strain on your working capital, the resettlement of labor to plant and machinery and the land there on. Does it generate some revenue? The best scenario when you are able to sell them, the last scenario, when you are able to sell the — break them down and kind of still raise some revenue? That’s one question.
The second question is, my friend always mentions about your company that you also have a software part of your business for the engineers. So what are the steps that you take to scale it up, which has the potential to surprise us all? Thank you.
Aditya Rao
Thank you, sir. So as you said, several business units have closed. We have undrawn the order books and revenue streams for those businesses. And we are looking at strategic options. The Board is looking at them. Once we have something to share, we will be able to share any information we have on that. But you are right that there’s a lot of value in those revenue streams. We may have decided to discontinue them, not because they were not profitable, but because we had to choose. We don’t have infinite capital. So we have to focus on few businesses, all of them correlated to each other and growing.
So those other businesses, there are options available to us. We are discussing them and we’ll come back to you on that. I mean, necessarily, we could only do that once we had moved our majority of our revenue to another — to other revenue stream, which are growth business, which is what has happened this year. So we will definitely give you a — as — and as these options develop, we’ll give you clarity on that. But it is — you are right that is the approach we should take. We should not look at value destruction, for example. So that is on the BUs that are closed.
You — the second question, I want to make sure understood, are you talking about our engineering services revenue, sir?
P. Jha
No, the engineers that you employ. I may be — I may not be very — may not have the clarity, but the engineers that you deploy for the structural design and other stuff. That was also a significant part, which perhaps has only fantastic margin, perhaps the best margin, possibly the best margin businesses if I heard you right in the past.
Aditya Rao
You’re correct, sir. So those businesses currently comprise of structural engineering of our body in white and building information modeling and other revenue verticals that we have. There are about four revenue streams in that. Currently, that’s at about INR60 crores, INR70 crores. We expect that to grow quite well. It is one of the verticals we intend to grow quite quickly.
And as you yourself said, the profit margins in that are quite high and we are — it is structured regular growth that’s coming in for those businesses because it’s effectively addition of people, customers and care and design care and detailing know-how and engineering know-how. So that’s a gradual process. We are comfortable with the path it wasn’t it gradually grows, but it will grow and it is going to continue to be high-margin sustainably. So we are happy with what our management team has accomplished in that business over the last two years. I’m sure it will continue to grow in scale and it will continue to add powerfully to our bottom line.
P. Jha
Thanks. And I must compliment you that whatever you make promises in all your conferences you keep them. That’s a great credibility that you have.
Aditya Rao
Thank you, sir. That’s all management we do. We do appreciate that. Thank you very much.
Operator
Thank you. As there are no further questions, I would now like to hand the conference over to Mr. Vikram Suryavanshi for closing comments.
Vikram Suryavanshi
We thank the management of Pennar Industries for giving us an opportunity to host the call and taking time out for interaction with the investors. Any closing comments, sir?
Aditya Rao
No, thank you for the opportunity. I’m glad to have the opportunity to present our quarter and our future outlook to our stakeholders. Thank you so much for all of your support. We will work hard to implement our plans and grow Pennar. Thank you.
Vikram Suryavanshi
Thank you. And thank you all for being on the call.
Operator
[Operator Closing Remarks]