Synergy Green Industries Ltd (NSE: SGIL) Q2 2025 Earnings Call dated Nov. 14, 2024
Corporate Participants:
Rima Patil — Human Resources Officer
Shreya Shirgaokar — Management Executive
V. Srinivasa Reddy — Executive Director
Analysts:
Unidentified Participant
Presentation:
Rima Patil — Human Resources Officer
So this is the disclaimer. You can go through it, yes. This presentation has been prepared by Synergy Green Industries Limited solely for informational purpose. This presentation contains statements that constitute forward-looking statements. Such forward-looking statements are not guarantees of future performance and actual results may differ materially from those projected. By attending or receiving this presentation you agree to be bound by the foregoing limitations.
So today’s meeting agenda is the brief introduction of our organization that would be of five minutes, investor presentation that would be of 10 minutes, and Q&A session that would be of 45 minutes.
Before we start the call, we have to share the guidelines. The guidelines are all the participants are kept on listen-only mode by the host. All the participants are requested not to record the call. Questions from the participants will be addressed in the Q&A session at the end of the investor presentation by the management. During the Q&A session when called out by the moderator, we request you to introduce yourself with your name, organization and the question. Participants having multiple questions can email us on the email ID mentioned in the chat box and management will make the best possible effort to respond within seven days. Thank you for your cooperation.
Dear participants, welcome to the quarter two for year 2025 earnings call and investor presentation of Synergy Green Industries Limited. As you know, Synergy Green Industries Limited is India’s one of the leading state-of-the-art foundries producing SG iron, grey iron, and steel casting for wind turbines, wind gear box and general engineering industries in the weight range of 3 to 30 metric tons. Synergy Green has an installed capacity of 30,000 metric ton per annum and is in the process of upgrading to 45,000 metric ton.
The Company houses best-in-class equipment, IT infrastructure in the process of upgrading — and quality testing facilities and is a top supplier to major wind OEMs as well as leading gear box players in the world. SGIL is a part of the Shirgaokar Group, which has diversified business interests over its 80-plus years history spanning across sugar manufacturing, foundries, hospitality, and market research, among others.
Today, we are having with us Mr. V. Srinivasa Reddy, Executive Director. Mr. Reddy is a B.Tech in Mechanical Engineering, M.Tech in Manufacturing and Executive MBA from IIM Bangalore. He has over 30 years of experience in manufacturing of large castings. Over his career, he has worked for corporates like L&T, ISGEC and Simplex in establishing plants and managing businesses before joining Synergy Green from inception.
Ms. Shreya Shirgaokar, Management Executive. Ms. Shirgaokar has completed her MBA in Finance and has worked with Deloitte as part of their Energy and Industrial Research team for over 3.5 years before joining Synergy in 2023.
And Mr. Nilesh Mankar, the Company Secretary. He has also completed his MBA in Finance from Indira Gandhi National Institute of Open University. He has an overall experience of 10 years before joining here in secretarial matters of our company.
Now, Ms. Shreya will be presenting us the highlights for quarter two earnings and take us through the key areas of development in the investor presentation. Over to Shreya, ma’am. Shreya ma’am, please.
Shreya Shirgaokar — Management Executive
Thank you, Rima, for the introduction. I’ll be going over — so I’ll be going over the key highlights of the Q2 presentation. The first thing I’ll cover is the industry overview. Then we’ll go on to the Company profile in brief. And then finally, we’ll talk about the business performance. So as we know, climate change is not the future, but it’s here with us. And renewables are the way forward for us. And the energy transition to renewables is already underway. And renewables are projected to form a part of about 70% of the overall global electricity generation power source by 2050.
Talking about the India and wind global — and global wind installations. In 2023, India and global wind installations grew by over 50%. In 2024, India has sustained such a growth. And also, there is promising growth at a global level in terms of installations. Just a little snippet that Indian installations between April to September 2024 are about 1.47 gigawatts so far. There are a lot of growth drivers that we’ve highlighted on the slide that are sort of fueling this growth for the Indian as well as global wind installations.
Briefly looking over the kind of castings demand at a global level as well as by industry. So Synergy is in a position to cater to a broader castings market. And if we look at the overall country-wise demand, of course, China is leading with India in the second position. And the total overall castings demand from wind is expected to be 1.5 million metric tons and it’s expected to cross 2.3 million metric tons in the next five years. Similarly, not just looking at the wind part of it, but looking at the large castings market, this is estimated to be over 8 million metric tons. So large castings is where we, as Synergy, are positioned to cater to and that demand is even higher for us.
I’ll briefly go over the company profile. As many of you, I’m sure, have already gone through and know that we have state-of-the-art facilities at Synergy, as well as best IT infrastructure and NABL certified quality testing facilities. Something I’d like to highlight here is that we’ve also recently acquired the TPG certification, which is a very stringent quality certification for transportation and power generation supply chains. Besides this, we’ve also acquired our ISO 27001, which is the information security management system certification, as well as the ISO 50001, which is the energy management system. So this adds to the basket of standards and quality certificates that we strive to keep maintaining.
A glance at our product mix. So 70% of our castings go to wind components, another 15% goes to gear box castings, and the balance goes to non-wind castings, which are spread across mining, plastic injection machines, pumps, as well as other general engineering applications. So this is the overall spread of the products that we are manufacturing.
Now, our customers are definitely our — one of our greatest strengths, and out of the total top 10 global wind OEMs, we have 50% of them in our customer basket. So they’re already our customers. Just to call out a few names would be Vestas, Nordex, Siemens Gamesa, GE, Senvion. Besides this, we also have Flender and ZF, which are the leading gear box manufacturers. And then in the non-wind segment, we have Terex, Ferromatik Milacron, and Mather + Platt, Wilo. These are some of the leaders in their particular segments as well, and they are a part of our customer basket. We’re also in the process of onboarding Envision and Nordex.
Here’s a brief overview of the SWOT analysis that we’ve done. So for example, the strengths for our organization are that we’ve already established products with top global OEMs, like I mentioned. We have the ability to produce large castings up to 30 metric tons now. And we’ve achieved a revenue growth in 11 out of the last 12 years that we’ve been operating.
A couple of weaknesses that we’d like to highlight, and then also what we’re doing to overcome them. So limited capacity as compared to our peers. So right now, we have a 30,000-ton per annual capacity. We are in the process of expanding this to 45,000 tons. Currently, 100% of our machining activities are getting outsourced. However, the additional 10,000 tons that we’re adding is something that we’re planning to take in-house, which will also sort of overcome a part of this.
Opportunities for us is definitely the fact that there is a very, very high entry barrier for the kind of business that we’re in. So while there is a lot of growth in renewables, there’s also high entry barriers. And of course, India is being converted as a manufacturing hub. This offers a lot of growing and sort of stable casting demand.
A threat would be that 80% of the business is coming from the wind industry. Of course, we have also made sure to have a diversified product mix with non-wind as well as gear box customers in our basket, and volatile commodity prices.
So with this brief and quick industry and Company profile, I’ll jump into the business performance and go through the summary of unaudited financial results for the first half of the year. Looking at a quarterly performance basis, this has been one of the good quarters for Synergy in our history, and I’ll call out why. The — in the second quarter, which ended 30th September, we’ve had — if we compare it directly with the corresponding period of the second quarter of FY ’24, we’ve had a 23.5% growth in revenue. Similarly, our PBDIT has also grown by 25% to INR13.21 crores in this quarter. If we take a look at the PBDIT margins, then the margins comparing directly with the corresponding quarter last year has slightly improved or remained stable. If the margins are compared directly with the previous quarter, we’ve again performed better, more than around 1.5% higher in that sense. Coming down to the profit before tax, the PBT, this is also an area which we’d like to call out, which we’ve had a jump of 42.5% over the same quarter last year, and the PBT stands at INR6.23 crores at the end of the second quarter.
Looking at the results for the entire first half of this year versus the first half of the previous year, the total revenue has gone up by 7.5%. Something to call out over here would be that the PBDIT margins have increased in a higher proportion by 16% and we stand at INR23.73 crores. Similarly, our PBDIT margins have expanded by more than 1%. The PBT for the first half of this year has gone up by 28.5% as compared to the corresponding period of the previous year. So these are some of the figures, like quickly, that we’ve just called out from our unaudited financial results. We’ll dive deep into these in the next slide, where we’re looking at an overview of our financials.
On the left-hand side, we’ve put our revenue streams into five different baskets, which is wind domestic, OEM exports, direct exports of castings, gear box, and then non-wind. Just looking at the broader level figures, like I mentioned in the previous slide, we’ve had a 7.5% growth in the first half of this year in terms of revenue over the first half of the previous year.
Now, looking at the different segments over here, in terms of the OEM exports, direct exports, as well as gear box, we’ve done — we’ve performed in line with our expectations and what was called out. So for instance, the OEM exports are stable, whereas the direct exports have more than doubled. Similarly, gear box has also — revenues from gear box have also nearly doubled.
Now, where is this possible sort of moderation coming from? And that is from the wind domestic as well as the non-wind segment. And this is because there has been a moderation in demand from a couple of customers in both of these baskets. So that is the reason why there is a slight lag in performance in these two specific segments. But the other segments, we’ve sort of recovered or done well to cover this up. The revenue growth for the complete year, we’re projecting it at 13%. And the first half, I mentioned already.
Looking at the overall expectation of the executable order book projection for the entire FY ’24-’25, we’re expecting revenue to be at around INR370 crore. And for FY ’25-’26, based on the order book projections, as well as the schedules that are already available with us, we’re expecting around INR450 crores in revenues.
Looking at the PBDIT over the period, there has been a 16% jump in the first half of this year versus the first half of the previous year. And the PBDIT margins as well have expanded. They’ve gone up from 13.05% to 14.13%. For the rest of the year, or for the overall FY ’25, we are expecting around 200 basis points of margin expansion over FY ’24. So FY ’24, the margins were around 12.5%. So we’re expecting around 200 basis points of expansion over this.
Talking about the cost structure and the capex plans. So of the overall capex that we’ve planned in the upcoming year, the foundry, we’ve allocated around INR60 crores. This is mainly for the capacity expansion, like we mentioned, from 30,000 to 45,000 tons. Now, in-house machining is something that we’re establishing. And to establish this, around 10,000 tons per annum is something that we’re targeting as the first phase. So here, we are allocating around INR67 crores.
And then finally, the captive renewable power, where we’re investing in solar project. So in the previous financial year, we’ve already invested for two megawatts. This year, we’ll be adding another eight megawatts. And that will take our total captive solar to 10 megawatts. So here, we’ve allocated around INR30 crores.
Just to go over the quick project progress as well as timelines. The bank sanction was already received in August 2024. Rights issue, something that was expected to close around September ’24. We’ve — the exercise has been completed and — in October 2024. Following the rights issue, we’ve already initiated the captive solar project, which we spoke about. So that is something that has already been initiated.
Brownfield expansion, which was already underway and the rest of the work is already in progress. Similarly, for in-house machining facility, the work on the land is already underway. And ordering for the rest of the machinery is also in progress. So that is something that is currently an activity ongoing.
So we’ve taken certain initiatives for the environment and economics in several areas that will not only help us with our ESG goals, but also sort of help us economically achieve some improvements. So first thing is the carbon footprint, that is renewables, like I spoke about. We are aiming to achieve 50% of our production to be from green resources by 2030. Waste management is something that we’re working on. So thermal reclamation is something that will improve our sand reclamation from 92% to 98%. We’re also establishing various technologically sort of digital initiatives that will help improve productivity, as well as various initiatives that we’re taking for energy optimization. So this is the path ahead.
And I think I’ll just wrap up the presentation with this slide. We are opening up for Q&A. We received a few questions in advance. So I think what we’ll do is, first, we’ll address those questions and then we’ll open the floor for Q&A from some of you who’ve raised your hands.
Questions and Answers:
Shreya Shirgaokar
So I’ll just outline some of the questions that we received in advance. So what was the primary rationale behind changing the FY ’25 growth rate from 20% to 13%?
Now, I think I briefly highlighted this in the presentation, but while the OEM export, direct export and gear box growth, those revenues are in line with our projection. There’s definitely been some moderation in terms of the demand from our domestic wind and non-wind sectors. And this has been slightly higher than our estimates. So during Q1, there were early signs of slowdowns. But typically, what happens is Indian companies, the figures in the first quarter do tend to be a little bit muted. So we were expecting them to sort of catch up in the second quarter. And since it hasn’t recovered during the second quarter, we’ve accordingly sort of updated our guidance for that period.
The second question is what incremental revenue or margins are anticipated from the new capex at 100% utilization?
So with the entire new round of capex in place and at peak utilization levels, we’re projecting around INR550 crores to INR600 crores in revenues and EBITDA margins around 18% should be held in [Indecipherable].
What is the capacity utilization for all the plants and what is the future target?
So capacity utilization in the first half of FY ’24, which is the previous year, was somewhere around 78%. In the current year, it is running at around 86%. So with the favorable schedules, as well as market conditions, we are expecting like we can — it can go up to more than 90% plus sort of utilization levels, especially considering that we’re already running at 86% right now.
What is the cost of debt?
So the cost of debt should be around 9.5%.
Will the bottom line be affected due to depreciation after the commissioning of the capex?
So the top line is expected to grow along with the increase in depreciation. So the depreciation to revenue percentage is likely to remain at the present levels. There should not be much of an impact on the bottom line because it will be supported by the revenue growth as well.
What is the revenue, EBITDA and PAT guidance for FY ’26 and FY ’27? So revenue guidance, I think we’ve highlighted for FY ’26 in the presentation. So we’re projecting around 20% revenue growth for the next two years. The present year EBITDA margins are projected at 14.5%, like we mentioned, which is a 200% basis point increase over the previous year. So with complete deployment of our capex, these margins, we’re projecting them to expand by another 250 to 350 basis points over the next two years. This is once the capex commissioning takes place and we realize those benefits.
So these are some of the questions that we’re addressing. Now, I think we’ll go to the chat box. We have a few raised hands, so — okay, sure. So I’ll also hand it over to Mr. Reddy to address any more questions. I think we’ll have to start unmuting some of the participants.
V. Srinivasa Reddy
May I request Mr. Mohit to go ahead with your question? Please unmute yourself and go ahead with your question. Mr. Mohit Jain.
Unidentified Participant
Hi, sir. Thank you. Hi, Shreya. Thanks for the presentation. So my question is, with regards to Donald Trump’s pledge to halt [Speech Overlap]
V. Srinivasa Reddy
Yeah, Mr. Mohit. Please go ahead.
Unidentified Participant
Can you hear me, sir?
V. Srinivasa Reddy
You’re unmuted now.
Unidentified Participant
Hello? Can you hear me?
V. Srinivasa Reddy
Yeah, yeah, please go ahead. Sorry. [Speech Overlap]
Unidentified Participant
Yeah, hi, sir. Hi, Shreya. Thanks for the presentation. My question is in regards to Donald Trump’s pledge to halt renewable energy projects around the globe. And we have seen stock prices decline, investors [Indecipherable] shares. So do you see any negative signs from the commentary from these big players? And do you see this causing any harm to our revenue projection going forward? Thanks.
V. Srinivasa Reddy
Historically, if you look at, yes, Donald Trump did not favor this renewable industry, particularly offshore. I have also read an article yesterday and the day before yesterday, mainly because today offshore projects are not economically viable. There’s a lot of money is being spent, but still a lot of money is being pumped into the offshore just because that is the only sector which is going to become baseload and replace the thermal capacity actually. That was the idea which industry was doing. Of course, Mr. Donald Trump has got his own way of making the thing. But today, Synergy is not into the offshore. That is one.
The second thing is our business demand is too minuscule to the global demand. Like it’s a very insensitive for the drop in demand in either U.S. and all those things, because our capacities are too small compared to the total global demand. So considering this, I don’t see any much impact because of the something policies are getting changed in the U.S. market, actually.
Unidentified Participant
Okay, that’s all from me. Thank you.
V. Srinivasa Reddy
You’re welcome. I request Mr. Niteen Dharmawat [Phonetic] to go ahead with your question, please.
Unidentified Participant
Yeah, can you hear me?
V. Srinivasa Reddy
Yes, please. Please go ahead, sir.
Unidentified Participant
Yeah, yeah. Thank you for the opportunity. So when this new capacity will get stabilized and what is the capacity utilization that we’ll be targeting once this gets stabilized?
V. Srinivasa Reddy
See, if you look at how capacity addition happens is, one is the procurement of equipments and installing it. This is the first part of it. The second part is mobilizing my team and organizing to take out the production out of it. Third thing is getting the demand from the customer. These are the three things, actually. First part is, as far as the business is concerned, we are continuously with all new OEMs like Nordex, Envision, and we are trying to align the capacities for the new expansion, actually. That’s one thing.
To answer your question directly to the timeline, we were expecting to complete by March, but the rights issue got delayed by maybe another three, four weeks may get delayed, but we should be able to complete within time. That’s the first part, actually. As far as the stabilization of the production is concerned, since it’s a brownfield project, should not take very significant time more than a quarter or so. So that’s the second part. And as far as business is concerned, we are trying to take some additional business in the next financial year, most probably third or fourth quarter, actually. We are expecting additional business from the new capacity as well.
Unidentified Participant
Got it. My next question is, see, we were doing machining work outsource 100% earlier, and now we are doing some expansion over there of 10,000 TPA in-house. So from current 100% outsource, so how much saving will it lead to by this in-house work and machining? And what kind of other benefits are there for this so that we have gone back from 100% outsource to some part getting in-house?
V. Srinivasa Reddy
Okay, I’ll answer you this in a slightly broader way. Today, we are doing around 80%, 85% of the components in the machine condition and 15%, like gear box, what it goes, we are not doing machining. That’s the first part of it. The second thing is, our spend on the machining in our balance sheet at a wind level, if I look at, it is somewhere around 15% of our this thing. But if you do in-house machining, there is going to be a cost, roughly we are expecting 20% of the cost, means 3% has to go for the optional of the machine. And after taking into account of machining operation generates some scrap, that is another 3%. So the 3%, 3%, 6% is expected to the optional cost of the machine shop, means 12% of the machining capacity should be a savings for our this thing, bottom line, actually, or towards the investment, I can say, actually.
Now, coming back, since we are adding 10,000 tons of capacity, in fact, we are trying to maximize, can we push it to 15,000 tons, it all — we are negotiating with the machinist, how best configuration that we can get. So at least that should add us 2% to 3% kind of the margin expansion on the present level of the investments, what we are doing, actually. And there is a serious thought to increase this capacity from 10, 15, whatever adding, that incremental capacity doesn’t require a same amount of capital, because the basic building and this thing, the land and everything is already pre-invested, actually. So that incremental capacity addition cost may be significantly lower than what we are doing in initial investment. So the overall, the present investment what we are doing should add at least 2%, 3% kind of the margin addition to the EBITDA.
Unidentified Participant
So this will be ready by September 2025, right?
V. Srinivasa Reddy
Yes, we are negotiating with the machinist. We are trying to pick up some ready machines available. Some of my colleagues are already in China now, that should come maybe in May, June, we are targeting two machines. But another two machines may spill over September, October, because depending on the controller, the chip shortage the thing which we’ll see. But overall, on an average, I think by September, we should be in an operational condition.
Unidentified Participant
Got it. Next question is, do you see any impact of slowdown in the overseas market? You briefly talked about it in the domestic one. So do you see any impact of slowdown in overseas market?
V. Srinivasa Reddy
As of now, I have not got, because, see, our customers, the first priority is used to Indian market, actually, when it comes to export, particularly, like I think I spoke earlier also, there is a 25% tariff in U.S. market for the exports from China. Now, Trump is talking about increasing that 25% to 60%, means the delta affinity towards procurement of Indian casting may go up, actually. So I see this as a favorable for our industry. But he’s also talking of imposing another 10% in India. But still, a delta basis, India may become more favorable going forward. Again, these are all the things needs to come as a policy, actually, that is one.
As far as regarding the slowdown and all, as I mentioned in the beginning, we don’t have much impact on our demand, because we are very minuscule in the global demand, whatever it is. So the — any change in the marginal demand in the global thing, it’s not going to significantly hurt us, actually. The second thing is, we are adding a lot of new customers. Means the capacity what we are building, even though it is about INR550 crores, INR600 crores, but the business what we are building is almost — if really they take what they are projecting, it is a INR700 crores, INR800 crores kind of customer base we are trying to build, actually.
Unidentified Participant
So you don’t see any margin pressures currently in this space?
V. Srinivasa Reddy
Yes, there are, actually. Particularly, China, because of this new policies coming — new government coming in U.S. and all, they are reducing their prices. We are expecting some, the pricing pressure. But the good part in this current expansion, what we are doing is, really, if there is no margin pressure, then margins would have been shoot up over 20%, 22% plus. So this we have already factored in day one while doing the expansion. These kind of pressures are going to come in. So 3%, 4% kind of, we have kept it with us for the pass on to the market. Still, we make it. The second good thing is, we are going to do brownfield expansion. We are going to get 1% or 2% on the economic scales contribution, actually. All this factored in, we are targeting at around 18% kind of the EBITDA on the matured level, actually.
Unidentified Participant
Got it. And one more question is about the debt for the capex. So how much debt we are raising and what is the peak debt likely to be?
V. Srinivasa Reddy
Last year, our peak debt is around INR80 crores, including working capital of INR35 crores and INR45 crores of the long-term loans, actually. That also includes my preference share of around INR10 crores plus. So the actual absolute bank debt is only INR25 crores, INR26 crores in this organization as on date. But now we are going for a fresh debt for the capex, which is about INR95 crores, which we already sanctioned. But I don’t see requirement of utilization of complete INR95 crores because my balance sheet is not factored in.
My current balance sheet profitability is also good. I may have a cash profit of INR30 crores plus in the current balance sheet as well. That money is something I will be using for the current capex. And this expansion is spilling over to next to second half of the next year itself or the first half of the — up to September. So I will have a further cash accrual during this next two, four quarters actually. So overall considering peak debt, the next year should not exceed INR150 crores and thereafter it should taper down back to the previous levels of INR80 crores what we are estimating.
Unidentified Participant
Wonderful. My final question is, what are the two risks that you see with respect to the revenue and operating margin guidance that you have provided for next two years?
V. Srinivasa Reddy
See, we are a very diverse company operating into multiple segments, actually. That is in the wind domestic export and direct exports and gear box and the non-wind actually. The number one risk what I see is what extent China can put pressure means that is the unknown thing actually. Tomorrow if 60% tariff puts on to the Chinese market, how China is going to react, how our market is going to, it is a very difficult thing to predict actually. That’s one.
But I am also continuously interacting with various agencies across the thing including from my customers and all those things. What I heard is there are also challenges in China, their labor costs going up and also they are at the bottommost level in the pricing. This is what I came across actually. But we need to see whether that kind of thing anything come. But still, we have enough headroom to play this game. I don’t see immediately, maybe 18%, maybe 1% here and there. But that kind of risk, I don’t see any significant coming in something and falling. That is one.
The second thing is, of course, the Trump is coming as a positive. Always we used to concern about the commodity actually. If anything significantly happens, that is one. But last six quarters, I see a very stable commodity environment actually. These are the two things which I can see.
Unidentified Participant
Perfect. Thank you so much. Thanks.
V. Srinivasa Reddy
It will be for a quarter actually. One quarter here and there and go up. But I don’t see any long-term thing because we have so many businesses to tap in. So if something like today, even though there is a significant drop in some of the domestic customers and all, still our revenues are on the growth trajectory actually and we are projecting the growth. So I don’t see any that kind of risk.
Unidentified Participant
Perfect. Thank you so much, and wishing you best.
V. Srinivasa Reddy
Thanks a lot, sir. Thank you. May I ask Mr. Praneeth Bommisetti [Phonetic] to go ahead with your question, please?
Unidentified Participant
Yeah. Hello. Thank you for the opportunity. So one thing I was curious — can you hear me?
V. Srinivasa Reddy
Yes, yes. Please go ahead. Go ahead.
Unidentified Participant
So basically, I was curious because we’ve never been demand constrained. As a company, we’ve always had customers. We’ve always been supply constrained. That’s what I’ve at least recognized with the pattern. So let’s expecting 15% growth rate going forward and like average revenue per ton at like INR1.2 lakhs. So that margin is reducing because of that from INR1.3 lakhs to INR1.2 lakhs, let’s say it reduces. We will be out of our capacity by 2026, end of 2026. We’ll use 36,000 tons. So how are we planning on keeping up with existing like further capacity? We need to do further capex cycle before we even complete this. So how are we viewing this? Or is this a safe assumption to make?
V. Srinivasa Reddy
See, first thing what we’re focusing is to take our revenues by 60%, 70%, like as Shreya has put it, the INR550 crores to INR600 crores of revenues that almost business is lined up, everything is in place. The only thing — task in our hand is execute the project and enhance, expand our margin from where we are around 13%, 14% level to take it up to 18%. That’s first part. Which we should be able to finish this task by fairly by end of the next year. Everything should settle down actually. If the market demand is in place, everything, all fundamentals remain same. We have a serious plan to go ahead with one greenfield project actually. So that should take us to 100,000 tons kind of capacity.
Now you may question, how are you going to fund and all? See, we fairly believe if I do around INR550 crores, INR600 crores kind of top line with 18% kind of margin, I will be somewhere around INR100 crores [Indecipherable] of EBITDA. As Mr. [Indecipherable], my peak debt is not going to be INR150 crores. Thereafter, significant debt is going to taper down because if I don’t do further capex, I’m going to reduce my debt very significantly actually.
So my balance sheet permits to pull out INR100 crores in the next two, three years. This is I’m very confident of. Balance will see the funding partially from the debt. If necessary, we can go to the market and we can do this expansion. So I don’t see any big threat in establishing capacity and doing it. But first of all, step by step, we have to finish the current expansion and take up the market, we will watch within the next two, four quarters, how the market is unfolding, and accordingly, we’ll take the side upon.
Unidentified Participant
So I was more curious about what — because we — about the INR60 crore plan we have, it’s only till 45,000 metric tons, right? So for the 100,000 metric tons, when are we planning on starting with it? Because I’m more curious, I’m not about — curious about how you’ll fund it. I’m more curious when you’ll start executing it. Because with existing demand, we might reach our capacity utilization of 80%, which we are likely going to do by ’26 itself. So we are going to start that 100,000 when, that’s what I’m curious about.
V. Srinivasa Reddy
See, now today we are in ’24-’25, ’25-’26, for sure, I’m not going to do anything. So if everything goes fine, ’26-’27, we are planning to initiate with a greenfield project. This is our thought process.
Unidentified Participant
Understood. Got it. And one more thing, with the increase in — substantial increase in margins, and we’ll be generating a lot of cash flow. So what are we planning on doing with the excess cash flow? Either we — are we going to repay debt or it’s going to go further into capex, later capex?
V. Srinivasa Reddy
No, that’s what, definitely my idea is to bring down the debt. Like if — historically, if you look at, we always — now the last year, our debt equities was somewhere around 1.7. In spite of doing such a peak capex, the current year debt to equity further goes down to 1.54 and all those things. Once my capex cycle is completed, I will be comfortable to below 1 is to 1 debt equity, maybe 0.5 to 1 kind of the close of the numbers actually. Again, when I go for a new greenfield capex level, the debt may shoot back to 1.5. So it’s always a push and pull cycle between the debt and capacity and all those things. This will continuously keep on balancing one after the other actually.
Unidentified Participant
Got it. And one thing is that in the previous commentary, you indicated the increase in direct exports part of our business to around 25% from around 11%. And we already export about 25% from OEM exports. So are we expect this direct exports to cut into our OEM exports or is it going to be complementary to the existing 25%?
V. Srinivasa Reddy
No, this is existing. See, we have given considering the already — generally we get the schedules almost 18 months in advance actually, based on that, that we have given a guidance actually. So we are going to get that — the export to the forecast what we have given on both on the OEM export as well as the direct export.
Unidentified Participant
So wait, the 25% is supposed to be a combination of both OEM plus direct?
V. Srinivasa Reddy
No, no. The direct export itself is 20% growth.
Unidentified Participant
So we are expecting most of the revenues to be driven by exports and not domestically to be mediocre, right?
V. Srinivasa Reddy
See, I’m not saying 25% of my revenue. We are saying 25% growth over the previous year actually. Okay? So when you look at my last year revenue, it was I think INR11.5 crores, INR12 crores, which may — somewhere around INR28 crores, INR30 crores, so which may go to INR80 crores plus kind of thing. So that is what we are given a growth of the absolute value growth. But if you want to look at absolute numbers, export revenues may be somewhere around 18% kind of the numbers, 18%, 20%, something like that. And OEM export will be on the similar lane. So around 35%, 40% business is coming from the global market actually.
Unidentified Participant
Got it. So I’m curious about the margin profile with the gear and non — like non-wind and wind segment. So which is more profitable for the Company?
V. Srinivasa Reddy
So naturally, see, my strength is in the wind because this infrastructure is very big. Gear box, we’re doing because we want to be in that industry. At some point of time, we see to create one more vertical on the gear box, wherein we can build another INR400 crores, INR500 crores of revenue. So that’s another reason why we are keeping it muted. It’s a 10%, 15%. So that it gives me industry exposure. I’m one of the player, so it gives opportunity to overnight to add capacities actually when I have surplus cash flow in my hand.
Unidentified Participant
Understood. And one last question related to that [Speech Overlap]
V. Srinivasa Reddy
[Speech Overlap] because I would like to give others opportunity because people told do restrict to two or three questions, which are most important. Otherwise, there are a lot of other people who have raised hands, so I request you to. You can send the question to our email or this thing, chat box, I will definitely come back to you on this. Okay? Thank you. May I ask Mr. Vishal to go ahead with your question, please?
Unidentified Participant
Am I audible?
V. Srinivasa Reddy
Yes, please. Go ahead.
Unidentified Participant
Sir, hi sir. Good evening. It’s just a general question. We just want to understand what’s the outlook for the windmill turbines [Indecipherable] in India and globally. That’s one thing. And the focus of the Company to penetrate more into Indian economy with the products.
V. Srinivasa Reddy
I think it’s a very generic [Phonetic]. I will put it this way actually. Casting is such an industry. It’s one of the three out of the basic manufacturing process actually, casting, forging and fabrication. These are the only three mechanical industries existence for any manufacturing actually. So wind contributes only 1.5% of the global demand. Since we are significantly present in wind, we are doing it. But we are also trying — simultaneously trying to enter into other segments.
Like as I mentioned in the earlier participant asked the question about how we are going to look at and all. We are present significantly into the non-wind segment as well like from — apart from gear box, I’m talking about even mining, plastic injection. Those businesses are also highly scalable. Now, if I try to handle all the business together, it will be difficult to handle. We will not have resources. Today, we need to reach certain decent levels in the wind industry then go on to the other sectors. There is a good opportunity to — even I see something like green hydrogen or even a lot of other segments in oil and gas. So there is enough business in this. Casting is such a huge ocean actually.
Unidentified Participant
Okay. And what about the Company’s focus for the India as compared to the global markets?
V. Srinivasa Reddy
As far as the global casting demand is about 110 million. Out of which India is doing about 11, 12 million. That’s about 10%, 11% of the global demand is what India is producing. Again, the total 110 million is not an addressable market for me. Out of which only 7%, 8% is relevant because there are a lot of products which are with non-ferrous and other things which we are not present. The second, there are certain components sizes also we are not present. So if you purely look at our synergies presence into this global thing, maybe 7%, 8% of 110 million, maybe 8 to 10 million kind of the market is addressable market for Synergy.
Unidentified Participant
Okay, thank you.
V. Srinivasa Reddy
Okay, thank you. Can I ask Mr. Faisal to unmute and go ahead with your question, please?
Unidentified Participant
Hi, Mr. Reddy.
V. Srinivasa Reddy
Yes.
Unidentified Participant
I mean, due to this various tariffs being put on China from almost all quarters, we could actually face some kind of a glut in the machining and CNC markets. Are we planning to do some something other than wind also that could result in some kind of diversification for us or some place where at least we would have a shelter to run to? That’s one.
And I have always seen that wherever there is a large kind of an opportunity like we have in wind, it always leads to a lot of players coming into the ecosystem. And once you are like two, three years, four years into the cycle, it kind of then develops into a big, very big oversupply situation also. So have you given any thought to that and do we have some kind of a counter strategy to that?
V. Srinivasa Reddy
Okay. To answer your first question about the diversification, it is always we need to strike a balance between diversification versus focus actually, because focus brings efficiency, diversification distracts the efficiency actually, but it brings the stability. Now, we feel we try to balance it in simultaneously both. That’s the reason why even though wind segment business is contributing 70%, we are also keeping our hand on the diversified products like the gear box or even mining plastic injection and pumps actually.
If I go end up in doing too much of diversification with one plant, I’ll have a lot of challenge in competing. My efficiency goes down actually. That’s the reason why we are not taking up. But at the same time, we are keeping our eyes open onto these segments. Once our capacities go up and if you ideally ask me next 10 years down, how we would like to look at this plant, maybe one plant may be running for the — completely for the non-wind, one for the completely gear box, maybe two, three plants running for the wind. This is the kind of the vision what we have actually.
But today, we are watching this. As long as we can manage this, I don’t see any problem as of today, the managing with the right kind of diversity. In fact, if you compare with my competitors, one who’s in India, there are only two players. They are 100% wind folks. Many times we ask ourselves, are we too much diversified actually? But of course, whatever the way we choose, because if you look at next five, seven years down, probably we may be well balanced in the diversification point of view. Also focus point of view means we are focused as well and equally diversified as well.
Then the second part of your question about the ecosystem, the too many players coming into the game and becoming a competitive space and all. One of the biggest strengths of this business for Synergy is the high entry barrier. It’s not that the other players are not entered. Say I’m in this industry for more than 30 years. Way back in 2000, at least 15 to 20 foundries in India tried to enter into the business. All of them burned their fingers and got out of this business actually. Even the other players, one who’s operating also, unless you don’t have a very good expertise, it’s always challenging to survive in this business. So the competition point of view, it’s not an easy job to someone to enter overnight and go ahead and compete with us actually.
Second thing, if you look at the customer perspective, for them, it’s only 3.5% of the spend for the turbine, but the risk level is 100%. That’s another reason customers just for 1%, 2% here in pricing reasons, they don’t jump onto the different suppliers overnight actually. It’s a long journey. Even someone like global leader like Vestas to take Synergy on board, he took three and a half, four years instead of having such a big experience. In fact, I have expertise in producing almost more than 90% of the turbines, Vestas turbines running in India. I’ve only done it actually, but still they took, because they say Synergy is a new company. So we are going to evaluate. So this is how the kind of entry barrier exists in this industry actually. So I don’t see that kind of a challenge as far as this competition is concerned.
The bigger thing is from the China actually, because China is a too big a capacity. But again, there is a lot of affinity from the other OEMs to buy from non-China. Particularly if you look at the Vestas OEMs, definitely they give a priority. Even if I’m in a marginal striking distance between the Chinese [Indecipherable]. Even I have met across the Indian buyers, they are pro-India, this thing. They favor the buying through local channels [Phonetic]. It’s not that they’re trying to favor us because there are a lot of advantages comes with the local supply chain actually. The first thing is they’re insulated from the currency fluctuation for the Indian OEMs to buy casting from India. That’s one.
The second thing, they’re also insulated from any government coming for tariffs or anything. And at the end of the day, when the volumes of India goes up similar to — if not to equal to China, somewhere closer to that, the economic scales, we — our cost itself will go down. At the end of the day, simple principle of manufacturing is the economy of scale. That is where the cost is going to. Why China is competitive? Apart from commodity, electricity, incentives and all, another big, big factor is the volume economy. So that is where we are also getting aligned actually. Yeah?
Unidentified Participant
Sir, what is the participation that our board of directors are having, particularly with regard to the personnel that you appoint at various positions in your organization? And also, as to how you are allocating capital, particularly the capital which is going towards the future growth? So is the board raising relevant questions to you? And I would like to really be a fly on the wall and try to understand what goes on in your board meetings.
V. Srinivasa Reddy
Yeah. This [Speech Overlap]
Unidentified Participant
Even though it’s a small company, but [Speech Overlap]
V. Srinivasa Reddy
I know [Speech Overlap]
Unidentified Participant
Which is a discipline actually.
V. Srinivasa Reddy
Yeah, I understand. This is not a one-man show organization. It’s a very professional organization with the board of directors, very experienced independent directors from outside, one who was the ex-chairman of a big bank. So we have a very strong board actually. Simply whatever I tell, nobody is going to listen actually, unless I give the justification and all those things. That’s one.
And at the end of the day, see, we are having 70% stake in this organization. One wrong mistake can take the organization anywhere. So it undergoes through a rigorous process any proposal we do. Even when we — I took an initiative for the raising the funds to rights issue, it went through a rigorous discussion for six months. The first thing is, why should we have to dilute? [Speech Overlap]
Unidentified Participant
I very well — no, no, I very well understand that everything was a rigorous discussion, but I would like to know what at least three or four questions that were raised and what was the specific to and fro debates that went on. I’m not questioning the rigorousness of the board.
V. Srinivasa Reddy
See, like the way you are asking, they ask the similar questions actually. If I invest, what are the risks from China? If this customer buying, what is going to happen? These kinds of questions they ask or if you don’t achieve what is the projected, the margin expansion level, how you are going to do or if global marketing something happens. So these are the risk factor questions related to, they will definitely — they keep asking me actually.
Unidentified Participant
And about personnel, are there questions as to whom you’re appointing, why you’re appointing and [Speech Overlap]
V. Srinivasa Reddy
Appointing means, you’re talking about the organizational appointment?
Unidentified Participant
Organizational appointments. Yes.
V. Srinivasa Reddy
[Indecipherable] actually, myself and our MD, Sachin Shirgaokar, sir, we both of us have the freedom on the Company actually. So they don’t get involved into the – the board doesn’t get involved into the operational point of view. So we together collectively discuss and make the decision in the best interest of the organization.
Unidentified Participant
Yeah, I appreciate you answering my questions so well, sir. Thank you.
V. Srinivasa Reddy
Thank you. Yeah. Anyone else? Or the previous participant, he was willing — wanted to ask some more questions. You can go ahead with this because now we have another nine minutes time with us. Can you raise your hands please? Yeah. Yeah, Mr. Praneeth.
Unidentified Participant
So yeah, thanks for the opportunity again. So basically, I was curious about the overall pricing mechanism. I understand it’s based on market forces, but the thing is like overall, what happened is most of the international OEMs got into lower priced contracts per megawatt during 2020-’21 phase. Now slowly they’re increasing the average cost from — average pricing per megawatt. So despite the policy changes and all of that, for them the profitability metrics are increasing. So is that profitability metric incremental profit they’re generating can also translate to us? Because you told it’s only 2% to 3%. So can we also increase our pricing a little bit because they can afford to pay us more? So how is it going to be?
V. Srinivasa Reddy
See, we are not banking upon increasing the customer price and increase our business actually because that is not a sustainable model. Not only for the wind industry, any of the manifestation, this kind of model doesn’t work actually because you need to look at the total global forces. Where do you stand? And where is the — your competition level? Particularly when I speak, I speak with respect to China. If you corner someone, customer ask for a price, you may get it, but that will not be long-term sustainable business model. At the end of the day, everyone should be a winner in this game. Like what we’re doing now, we’re doing a capex. My margins were around 12%. Now I’m trying to push to 18%, 20% kind of thing and I’m also able to pass on something to the customer. So what else do you want? Means this is a kind of the win-win situation.
If I go to — see, unreasonably margins up to 30%, 25% kind of thing, those businesses are not going to sustain. Then you are giving entry to the new entrant to easy entry. Someone wants to do a business with a big capital at a 12%, 15% capital, still it is a good for the manufacturing industry. Then once you allow someone else to enter, you are out of the game. So you should always play a game so that it becomes very difficult for the entry barrier and also you have a very decent margins. I believe 18% to 20% kind of EBITDA margins in a manufacturing industry is reasonably decent. If you take the — one of best of the — even in Indian companies, engineering companies, it’s one of the benchmark number actually.
Unidentified Participant
Yeah, yeah. I have no doubt that’s one of the best we can do because in manufacturing, getting about 12% is a feat onto itself, usually, in especially castings. So raising it above is a great feat. I understand. I was just curious about the pricing because if they’re increasing the price so much, how does it affect us? I understand the overall part of it. So in terms of capital [Speech Overlap]
V. Srinivasa Reddy
Just I would like to interrupt Mr. Praneeth. I think — see, they are increasing the prices is not to increase their profit. If you really look at the global OEMs, barring few, if you understand how the profitability works, profitability doesn’t come only from the price actually. The volume is the bigger player. Even if I get a much better price, if my volumes are lower, I end up in losing the game actually. So it’s a combination of volume, price, and your input prices. These are the three things.
Now coming back to as far as the increasing turbine prices are concerned, the global OEMs have increased because earlier this kind of commodity volatility was non-existent. Even I have seen last 25, 30 years, the commodities goes by 15%, 20% and it retest us [Phonetic] by 10%. But this time around due to COVID then followed by Russia, Ukraine war and all, unidirectionally for six, eight quarters, it is almost doubled. Now these OEMs are sitting with huge order backlog. They did not have any clue what to do with those orders actually. That is where they stopped executing, slowed down the execution. They went back to the market. They’re trying to correct the prices to compensate on the commodity prices.
Now if somebody wants to unidirectionally increase the price by any OEM, there are a lot of competition sitting over there. You lose the market share actually. It’s a trade-off between your price versus your market share actually. Given the choice, it’s always good to have a better market share and a good strike of the price balance actually. This is how the industry. This same thing is applicable for our casting industry as well.
Unidentified Participant
Understood. Thank you for your detailed explanation. I have one last question regarding the capex. So from 45,000 to 100,000, what could be the incremental capex we might need to put?
V. Srinivasa Reddy
See, the foundry can be maybe around INR250 crores, INR300 crores kind of thing. And the machining will be maybe another INR150 crores kind of thing. Means INR400 crores, INR500 crores is what roughly we’re estimating. Again, we need to see because in that 30%, 40% of the imported component how the currency is going to play out in ’26, what we’re talking about the dollar or anything. So this is the rough indicative number just to spell out actually.
Unidentified Participant
So — got it. And in terms of margins also, we are already on the track to go to 18% very easily without much different changes, without basic plans. Can we push it beyond that also? Like how is it going to go?
V. Srinivasa Reddy
Actually, this is a low-risk activity as far as margin expansion is concerned because I need not go to the customer to ask for a price to increase my margins. I’m only trying to reorganize myself whatever I am spending on the machining and the energy through this renewable solar. We’re trying to tap into our bottom line. Like as I mentioned, there is a [Indecipherable], okay, elaborate this question. It doesn’t give me comfort if someone is more competitive than me. This is a simple answer. I will tell you.
Today, China is 25% cheaper than me. Okay? But when those castings comes to India, 12% goes in the logistic cost. Another 8% to the basic customer. Still, there is a 4%, 5% gap between me and China. So that I want to knock out. I don’t want to buy someone because of this some favoritism and all because that demand will not be much. If you want to have a good sustainable demand, you should be competitive. So I believe 18%, 20% margin and still I will be very competitive. This is how we are targeting to position ourselves.
And second thing is, when I get into the shop floor now, I see so many opportunities still we have not tapped. Something like digitization [Phonetic], automation, process improvement. Getting 1% from the shop floor is quite cheap rather than going and pushing the customer about that another 1% actually. So I am always up a man from the shop floor, means I go to the shop and get something from there actually. There are so many improvement opportunities down the line actually.
Unidentified Participant
Yeah, I understood about the pricing with the customer. That’s why I was curious because you always — in most of the forums, you also spoke about coming to the shop floor and increasing it by 1% which is very easy. In most of your previous forums also you mentioned that. So in terms of that narrative only I was asking like, you told 18% is now very easily possible. So can that be stretched to 22% with internal itself? So that was my basic question [Phonetic].
V. Srinivasa Reddy
No, to answer your question, I have already mentioned in other question, previous participants’ question as well. Actually, if I don’t pass on anything to the customer, I stay as it is. It go to 22%, 24%. But I doubt that will stay there. The reason is I need to pass on to them. I am already having a pressure from the market and I need to pass on because if I have to increase my capacity utilization from today and I have to add more capacity and all, I need to be more competitive. So I am telling you the number after factoring in all the market forces, this is what is the sustainable thing what I am trying to indicate you.
Unidentified Participant
Got it. So if you’re already passing on the productivities, so we always had this 3% to 4% gap rate. Is that reducing? That means from China, we always had like a 3% to 5% gap between. So if you’re passing on productivity, that means it’s reducing further. So how much has that reduced overall?
V. Srinivasa Reddy
Actually, as far as this price is concerned — to answer my question, if you compare me estate [Phonetic] prices, I’ll be at par with China after doing this task. This is the first thing. But I can’t underestimate the other side person actually. I don’t know whether his price is bottom. Means what he’s going to do, I don’t know, right? So we are only trying to strike a balance. Our interest would be to safeguard our projected margin, which will be happy. The second is to maintain a growth and utilize our capacity. This is how I look at rather than looking at how can I push for another 1% or 2% margin or how can I get this. So I look at it from my business point of view rather than looking at what is going to happen than the other side actually.
Unidentified Participant
Got it. Thank you so much for your time for explaining, it’s so detailed.
V. Srinivasa Reddy
Anyone else? I think 4:58. So yeah, I can take last one or two questions. If you don’t have any questions, then I’ll go ahead with the conclusion. No more questions? Okay. Thanks a lot. I’ll hand over back to Rima.
Rima Patil
Thank you, Reddy, sir, and Shreya, ma’am, for answering the questions. On behalf of entire Synergy Green management team, I would like to thank all the investors and analyst community for joining us today. Happy investing. Thank you once again.