Keep an Eye on This Stock: New Solar JV Set to Disrupt the Market!

New Joint Venture Marks a Bold Step in Solar Module Manufacturing and Market Expansion

Pennar Industries Limited (PIL) has entered into a Joint Venture (JV) agreement with Zetwerk Manufacturing Businesses Private Limited and others on December 31, 2024. The joint venture aims to establish a company focused on manufacturing and selling solar modules, with a facility for production and development. This JV will serve both domestic and international markets, reflecting PIL's strategic expansion into the renewable energy sector.

JV Shareholding and Capital Details

The joint venture will see the following shareholding structure: Zetwerk Manufacturing Businesses Private Limited will hold 50.1  per cent, Pennar Industries will hold 45  per cent, and other parties will have 4.9  per cent. PIL’s investment in the joint venture amounts to Rs 18.75 crores, contributing to a total paid-up capital of Rs 41.67 crores for the new company. The JV aims to cater to the growing demand for solar modules, supported by strong market potential.

Terms and Governance of the JV

The joint venture agreement includes customary provisions, such as contributions to business planning and marketing strategies from all shareholders. The board of the joint venture will have four directors, with two from Pennar Industries and two from Zetwerk. Any future share issuance will follow the proportionate shareholding ratio. The JV is not considered a related party transaction, and the promoters of Pennar Industries have no interest beyond their shareholding.

Q2 FY25 Performance Overview

For Q2 FY25, Pennar Industries reported a total income of Rs 753.53 crores, a decline of 8  per cent year-on-year. Despite this, the company achieved a 20  per cent growth in Profit Before Tax (PBT), which stood at Rs 36 crores. Cash Profit After Tax (PAT) was Rs 44.31 crores. The dip in revenue was due to temporary delays, such as the commissioning of the Raebareli plant and external factors affecting the US order book linked to the US elections.

Operational Insights and Profitability

PIL reported high capacity utilization in Pre-Engineered Buildings (PEB) India during October, supported by strong order backlogs across various segments. The process equipment backlog also reached record highs, indicating robust demand. Profitability metrics showed an increase in EBITDA margin to 10  per cent and a gross margin improvement of 357 basis points, reflecting efficient cost management and favorable market conditions.

Strategic Focus and Financial Management

PIL is strategically exiting low-margin businesses such as water treatment, chemicals, and solar EPC, aiming to focus on high-growth areas. This is expected to reduce revenue but improve profitability. The company is also working on managing its working capital, with plans to reduce current working capital days from 77 to 72 by the end of FY25. The total borrowing has increased to Rs 1,190 crores, but interest costs are being managed effectively, with a target rate of 3.75 per cent.

Raebareli Plant Update and Future Outlook

The Raebareli plant, now operational, is expected to increase production capacity by 25 per cent-30 per cent, positively impacting margins due to operating leverage. The company is optimistic about achieving double-digit growth, with a revenue target of Rs 5,000 crores in the coming years, driven by market share expansion and enhanced capacity utilization.

Expansion Plans and Strategic Initiatives

PIL plans to expand its capacity in both India and the US, focusing on Pre-Engineered Buildings (PEB) and structural solutions. Additionally, the company is exploring opportunities to monetize its land bank to fund these growth initiatives. With strong order books and a focus on high-margin revenue streams, Pennar Industries is well-positioned for sustained growth in the future.

Stock Performance Update

As of 12 PM on Wednesday, Pennar Industries' stock is trading at Rs 198.81, reflecting a 2.75 per cent increase. Over the last year, the stock has delivered an impressive return of 56.46 per cent. However, in the last month, it has experienced a slight dip, with a return of -4.93 per cent.

Disclaimer: The article is for informational purposes only and not investment advice.