DEE Development Engineers Limited (DEEDEV) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to DEE Development Engineers Limited 2Q FY '26 Earnings Conference Call hosted by Equirus Securities Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vaibhav Shah. Thank you, and over to you, sir.

Good afternoon, everyone. Thank you very much for joining into the Second Quarter FY '26 Earnings Call of DEE Development Engineers Limited. From the management side, we have with us Mr. Krishan Lalit Bansal, Chairman and Managing Director; Mr. Sameer Agarwal, Chief Financial Officer; Mr. Pankaj Agarwal, Chief Operating Officer; and Mr. Sanjeev Sancheti, Uirtus Advisors, IR to the company. Without taking much time, I will now hand over the call to Mr. Sanjeev Sancheti and thereafter to Krishan sir for his opening remarks. Thank you, and over to you, sir.

Thank you, Vaibhav, and good afternoon to everyone. A very warm welcome to DEE Development Engineering Limited Q2 and H1 '26 Earnings Call. Before we begin, I would like to draw your attention to the safe harbor statement contained in our earnings update presentation available on the website of both BSE and NSE as well as on the company's website. With this, I now invite the Chairman and Managing Director, Mr. Krishan Lalit Bansal, to share his opening remarks. Over to you, Mr. Bansal.

Thank you so much, Sancheti ji, and good afternoon, everyone. A very warm welcome to all the participants joining us on the Q2 and H1 FY '26 earnings call of DEE Development Engineers Limited. We truly appreciate your continued engagement and support. I'm pleased to share that the company delivered robust performance during Q2 and H1 FY '26, marked by strong revenue growth, improved operational execution and strategic capacity expansion. Revenue from operations for Q2 FY '26 stood at INR 2,700 million, representing a 39.2% year-on-year growth while operating EBITDA grew 47.9% year-on-year to INR 441 million, with margins expanding to 16.3%. On the order front, the company continues to maintain a healthy order book of INR 1,308 crores as of September 30, 2025, supported by robust traction across power, oil and gas and process industries. During the quarter, we also secured INR 170 crores of new order from leading thermal power player, reaffirming our leadership in this sector. The company successfully commissioned the balance 15,000 metric tonnes of process piping solutions capacity at our Anjar facility in September 2025. This brings the total installed capacity at Anjar to 30,000 metric tonnes per annum, effectively doubling our production capabilities in a short period. This expansion has enhanced our ability to cater to both domestic and international clients with greater efficiency. Additionally, our 7,000 metric tonne seamless pipe plant is progressing as planned and is expected to commence commercial production by January 2026. This will strengthen our backward integration, enhance cost efficiency and expand our product mix. With world-class infrastructure, a diversified sectoral presence and a healthy order book -- healthy order pipeline, DEE remains firmly positioned to drive sustainable growth and profitability. With this, I would now like to request our CFO, Mr. Sameer Agarwal, to take you through the detailed financial performance and balance sheet highlights. Over to you, Sameer.

Thank you, Bansal sir, and good afternoon, everyone. I will now take you through the financial analysis and key operating metrics for the quarter and half year ended September 30, 2025. During Q2 FY '26, revenue from operations stood at INR 2,700 million, growing by 39.2% year-on-year. Operating EBITDA increases by 47.9% year-on-year to INR 441 million with a margin of 16.3%, expanding 96 basis points over Q2 FY '25, underscoring efficiency gains and better fixed cost absorption following the ramp-up at Anjar. Q2 FY '26 PAT stood at INR 179 million with a margin of 6.5%. The year-on-year fall in PAT was primarily attributable to an exceptionally higher income of INR 160 million in Q2 FY '25 arising from nonrecurring items. Adjusting for this, the normalized operating profit before tax for Q2 FY '25 would have been INR 102 million as against INR 172 million in Q2 FY '26, reflecting a growth of 69% in underlying operational profitability. For H1 '26, revenue from operations rose 30.3% year-on-year to INR 4,938 million, and operating EBITDA increased by 46.4% to INR 799 million, with margins improving by 179 basis points to 16.2%. In spite of the increased finance costs resulting from commissioning of enhanced capacity, PAT grew at a healthy 22.1% year-on-year to INR 311 million. Moving to the balance sheet and key ratios. The company's return ratio continued to strengthen, reflecting improved profitability and asset utilization. Return on net worth stood at 7.7% and return on capital employed improved to 9.4% as of September 2024. On the working capital front, the cash conversion cycle stood at 243 days compared to 247 days in the previous quarter, driven by receivable days of 104 and inventory days of 223. As previously communicated during investor interactions, the relatively high conversion cycle is inherent to the nature of our business. As you are aware, we had passed an enabling resolution in September 2025 for a potential equity fund raise aimed at meeting working capital requirements arising from earlier-than-anticipated orders in the thermal power sector. These orders are now progressing largely in line with our original expectations with only minor delays. Our cash inflows have strengthened and with new sanctioned credit limits from our banking partners, we do not anticipate any challenges in meeting our working capital needs in the short to medium term. Accordingly, we have decided to suspend the proposed equity fund raise for the time being. Should the need arise in future to raise funds for growth, we will seek specific approval from the Board of Directors. Meanwhile, we continue to witness strong momentum in the oil and gas sector as well as in thermal power projects for export market, keeping us well on track to deliver against our overall guidance, although the revised tariff for biomass power plants have had some impact on our revenue and profitability margins, we remain confident of achieving revenue growth of 40% to 45% over the fiscal '25 base with an operating EBITDA margin in the range of 16% to 18%. With the Anjar facility now fully operational and the seamless price plan near completion, the company expects stronger internal approvals, gradual deleveraging and improved cash generation in the periods ahead, supported by enhanced capacity, greater cost efficiency and a robust order book. The company remains well positioned to deliver sustained growth and long-term value for all the stakeholders. With that, I conclude my remarks. Now I open the floor for the questions.

[Operator Instructions] The first question is from the line of Vaibhav Shah from Equirus.

Sir my question is related to power sector. While you have seen one of the order wins from the power sector side, how are you seeing the upcoming order pipeline from that sector? So...

You are not audible, please.

Am I audible now?

Yes.

So I was mentioning while you have already won one of the orders from the power sector side, how are you seeing the potential pipeline for FY '26 and FY '27 for the power sector?

Pankaj will respond to this question, please.

[indiscernible]

Can you please go close? Sir, you're not audible. Your voice is very low.

Sorry, what I was telling that [indiscernible].

Sir, you are still not audible.

Am I audible now?

Yes, sir, you are loud and clear.

Okay. So what I was telling that we have a good pipeline available with us from power sector. We are under advanced discussion with many customers. And good order book will be there from power sector in FY '26, '27 and same will be continued for years together.

The next question is from the line of Tanay Bheda from Kotak.

Appreciate the monthly updates that we are getting for the revenue numbers. My question is regarding the order inflows within the 2 segments. So for the Power segment, we have seen this INR 200 crore order come in for us. Now for the next half, so the next 6 months, how much should we expect in the Power segment? And also for oil and gas, what are we anticipating in the next 6 months? Because in the first 6 months, we have not seen very large orders from oil and gas. So overall, for the next 6 months, what is your estimate of the order inflows that we are looking at? And what would be the closing order book position at the end of FY '26?

Sir, first of all, I will answer and then figures Pankaj will give you. I just wanted to reaffirm and reconfirm to all of you that as we have been telling time and again that the initial phase of design and ordering of long lead items take sometimes more than the expected time. And our number will come. Our number means the order when the order for critical piping can be decided comes a little later. But now that stage has come wherein people have rigorously started floating the inquiries, getting the -- our offers and even including discussions with many, many prospective customers on face-to-face basis at the top management level. So just -- it was just saying that why there was some delay or something like that in getting the traction out of this particular sector. So now I will request Pankaj to give the figures that what is the expectation in this financial year, what is the expectation in the coming financial years from the power as well as oil and gas business. Pankaj, please?

So on a broader perspective, we are expecting around INR 500 crores from power sector in this coming 5 months' time till March. And then subsequently, we are expecting around INR 650 crores, INR 700 crores order again in FY '26, '27 from power sector. And as far as oil and gas is concerned, we are expecting around INR 100 crores in next 5 months' time. And then next financial year, we are having a very good growth from various sectors -- various oil and gas companies from India and abroad, maybe around -- to the tune of around INR 700 crores.

Okay. So we are -- we would go probably from just INR 100 crores for the next 6 months to INR 700 crores for the next FY. So next 5 months, not very large orders in oil and gas?

No, not very large order from oil and gas. But from power, definitely yes.

Okay. But next year, we are confident of substantially large orders in oil and gas?

Yes, absolutely, absolutely.

The next question is from the line of Anmol Mittal from SMC Private Wealth.

First of all, congratulations, sir, for great set of numbers. Secondly, if you can guide me related to change in power tariff and what will be the future outlook regarding that? What will be the second half EBITDA margin outlook? And if you also guide -- if you can also guide us about the future years EBITDA margin possible?

Sameer, please.

So Anmol ji, as far as our true potential of the business in terms of earning EBITDA margin, that lies somewhere between 18% to 20%. Since there is some downward trend in power tariffs, therefore, there is a slight dip in terms of EBITDA margins. So this year, we shall be keeping a range of 16% to 18% EBITDA margin from the overall revenue of the organization. Supposingly, we get the decent amount of revision in tariff, then probably we shall be lying back to the normal EBITDA margin, which shall be 18% to 20%. So since the matter is subjudice and we do not have any clarity in terms of the exact tariff which we are going to get in future, the accuracy cannot come in terms of the overall margin. But the best I can assure 16% to 18% EBITDA margin will definitely be.

Okay, sir. And on the revenue front, you had guided 15% revenue growth for the full year. And in second quarter, we got around 40% growth, which is slightly 7% less than the order executed guidance, which is shared on month-on-month basis from the last 3 months. So can you guide me about the full year revenue guidance potential?

So as far as our pending order book is concerned, that is enough amount of orders we are having in hand, and we are absolutely on track in terms of guidance given in past to fall in place. But due to some reduction in power tariffs, there may be some reduction in terms of overall top line and bottom line. And that we have already guided in our Q1 earnings call as well.

Sir, one more thing I will just like to point out that historically, our Q1 is leanest, then Q2, then Q3, then Q4. So we are practically following the same trajectory. And moreover, since we are in project business, somewhere some stop definitely occurs. And the numbers can exactly not go as per the given plan, but we are again assuring that by the end of the year, we are definitely bound to achieve the guidance, which has been provided.

The next question is from the line of Prince from Lotus Wealth.

So my question is regarding our business with Engineers India and the direct, indirect procurement and the market share there. Can you just provide some color here?

Can you repeat your question, sir? Sorry, I couldn't get your first line.

My question is regarding our business with Engineers India and the direct and...

So sir, first of all, let me clarify that Engineers India Limited is the PMC in most of the contracts. They do not award the jobs directly under EIL's name. So whatever inquiries we are submitting, like last time we got a very big order from GAIL and it was -- in that PMC was Engineers India Limited. But now we are having a lot of discussions with many other power -- oil and gas companies where EIL is the consultant. And even today morning also, we had a meeting in Bombay and just returning from that meeting only. And we see huge potential in those. So again, as Pankaj told, in coming -- after 6 months' time in, let us say, Q1 and Q2 of next financial year, we are expecting huge traction from domestic sector as far as the oil and gas sector is concerned.

Okay, sir. And the direct and indirect procurement and market share there?

I still again couldn't get what is the meaning of indirect and direct market share.

The procurement.

Sameer, can you answer because I'm not able to understand.

So are you asking in terms of raw material?

Yes, yes.

So as we all know, there are certain geopolitical situations, which had arisen and there is some difficulty in procuring the material from outside India, particularly China. But as far as the future is concerned, we are totally, totally hopeful and confident that whatever material which is not available in India, we would be allowed to get it imported from outside India. So the government is very, very clear, and they are not going to stop us in terms of overall production and overall infrastructure development of the country.

Okay, sir. And can you just give me a color around the market share?

So I would request Bansal sir to kindly answer.

Our market share remains as it is. There is no change in that, but it's very difficult for me to right now say how much percentage is with us and how much percentage is with the other people. But our position remains steady. We -- I mean, there's no downgrade or I will say that there's no upgrade also right now. So status quo is there. And whatever we can do with our existing capacities, we are fully booked, and we shall continue to remain fully booked, at least we have the clear visibility for next 3 years. So there shouldn't be any issue in that.

The next question is from the line of Kashish Anjani, an individual investor.

So my question is how the demand or inquiry pipeline is there for our heavy fabrication business. I understand that mainly get us to wind sector demand for tower fabrication. But I just wanted to know what kind of business we can expect over the next 2, 3 years or maybe can become sizable?

Sir, as we just mentioned in our earlier question -- answer to our earlier questions, so the pipeline is extremely strong and heavy as a matter of fact. And we are expecting that in this next 6 months or 4 months or 5 months of this financial year. We shall be able to book around INR 500 crores of -- INR 600 crores of power sector business. And in the next financial year also, almost of the same amount. But in this remaining financial year for oil and gas, we may be booking just around INR 100 crores. But next year, in the first half, we shall be booking more than around INR 600 crores worth of business. And the same is expected to continue for the second half also because by that time, there will be more maturity from the power sector jobs also, more inquiries will come. I would just like to give you the numbers, which are, I will say, mind-boggling. BHEL has around 53 units of almost 800 of 660 megawatts. And L&T has an order of almost 23 units of these bigger units. So none of these people have that much capacity. We are preparing a paper, and we may circulate it shortly on the opportunities available on this particular sector in detail so that you can be rest assured that whatever we are talking makes sense.

Got it, sir. Also, sir, on the margin side, while we have posted very high margin for the Heavy Fabrication segment for the current quarter. So what's the reason behind the quarterly volatility? And what kind of would be the sustainable margins?

Sir actually in that heavy fabrication unit, sometimes we have -- I will say that the product mix is getting some shift in that. Earlier, most of the times, we were using doing purely fabrication job. Now we are doing fabrication with some supplies involved into that, which is giving us some reasonably good numbers. And in the coming quarters also, there may be still more shift that we may be asked to supply raw material also. So it may add to the top line as well as a little bit on the bottom line also. So there is a lot of shift going on as far as the methodology of the order execution is concerned, particularly in that heavy fabrication unit. So that is why you are seeing a little bit bumps in that particular segment.

Okay. And sir, just last question, if may I ask. Was there any change in product mix in terms of metallurgy or was there any imports of raw material? Because if I see the gross margins has declined substantially. Can you please give a color on that?