Pennar angles for railway orders

Firm is working on a strategy to become a diversified steel products company

HYDERABAD: Pennar Industries, the flagship company of the Hyderabad-based Pennar group, is now eyeing orders from Indian Railways to strengthen cash flow pipeline and consolidate its revenue sources.

Pennar has been working on a strategy to become a diversified steel products company from being a producer of cold-roll steel.

The company is keenly watching Indian Railways’ plan to modernise its fleet of rail-cars with high strength steel profiles and use rail coaches made of stainless steel.

Nrupender Rao, chairman, Pennar group, said the company has already secured a trial order from the Railways for supply of six coaches made of stainless steel. “Once the trial order is delivered we hope to secure a long-term order,” he added.

Apart from Pennar, three other companies are also eyeing the Indian Railways order for supply of coaches. These are Chennai-based TI, Mysore-based Indira and Pune-based DTLA.

Pennar will execute the work for the Railways at its Chennai facility, which is currently being used for making profiles and auto components. Apart from the Chennai plant, the company has units at Patancheru and Isnapur in Andhra Pradesh, Tarapur
(Maharashtra) and Hosur (Tamil Nadu).

The firm is already supplying stainless-steel profiles to the Railways and is doing steel-flooring works for the coaches of the largest mass transportation entity in the country.
Rao said, “Even in the coaches supply contract, we’ll do everything except the chassis- and wheel-related works. Once the stainless steel box is ready, it will be sent to the coach factory in Perambur.”

According to him, the value addition to the steel for conversion into a coach will be 30%. The company is planning to invest another Rs 15 crore in the Chennai facility to upgrade it to handle the Railways order.

This year, Pennar is expecting revenues of Rs 140 crore from the Railways. Its turnover for the year will be about Rs 800 crore.

However, for 2009-10, the firm expects the Railways to contribute Rs 250 crore to its expected revenues of Rs 1,000 crore.

Currently, auto components segment, which contributes about 33% to the topline, remains the highest revenue earner for the company. Rao said, “There is a definite slowdown in the auto sector and the Railways work is compensating for the losses from this sector.”

Pennar manufactures metal bumpers for a leading truck manufacture at its Tarapur facility. “The offtake of trucks has dropped and we know it since every truck of the company has to go with our bumper,” he said.

For the second quarter, Pennar recorded net sales of Rs 171.5 crore against Rs 127.8 crore in the same quarter last year and a profit after tax of Rs 10 crore against Rs 5.7 crore. With steel prices trending downwards, the company expects its order flow to improve. Rao said, “Drop in steel prices will not make a difference to us since we have to anyway pass on the benefit to the customer. With this, our topline may look like it’s shrinking, but the margins are likely to remain intact.”

k_ramana@dnaindia.net