Pennar Industries Limited (513228) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Pennar Industries Q4 and FY '20 Earnings Conference Call hosted by PhillipCapital (India) Private Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] I now hand the conference over to Mr. Vikram Suryavanshi from PhillipCapital. Thank you, and over to you, sir.

Thank you, Inba. Good morning, and very warm welcome to everyone. Thank you for being on the call of Pennar Industries. We're happy to have with us management of Pennar Industries here today for question-and-answer session with the investment community. The management is represented by Mr. Aditya Rao, Vice Chairman and Managing Director; Mr. P.V. Rao, Joint MD; Mr. Shrikant Bhakkad, VP Finance; Mr. J. Krishna Prasad, CFO; Mr. Manoj; and Mr. K.M. Sunil. Before we start with question-and-answer session, we'll have some opening remarks from the management. Over to you, sir.

Thank you. A warm welcome to all of our stakeholders at Pennar for the fourth quarter and the financial year conference call on our results. So in the fourth quarter, we have achieved gross sales of about INR 524 crores, EBITDA of about INR 31 crores and a net profit of around INR 90 lakhs. We came in heavily under budget from a PAT point of view due to revenue in March being substantially lower than what our expectations were. And for the financial year in question, we had gross sales of INR 2,446 crores, EBITDA of INR 189.4 crores, a net profit of INR 53.3 crores. While Q1 to Q3, we saw substantial growth in revenue and profitability of around 20%, 24%, for the financial year, we're down by 20% on PAT due to a very suboptimal fourth quarter profit. As we all know, we are going through a COVID pandemic and the associated lockdown, and the brunt of the impact of this pandemic and the lockdown has been faced by us in the first quarter of this financial year. The adverse impacts included shutdown of all of our manufacturing plants in April, a slow restart to our operations in May, a slow supply chain restart in May and June and persistent lockdowns, openings, volatility in some of our plants, specifically in Chennai and Hyderabad. Furthermore, we were unable to cut our fixed costs to the extent necessary to generate -- to address the harm that is being done because of this issue. So we do expect to be loss making in the first quarter of the financial year, and we will talk more about this. And -- however, we believe that a lot of the damage that has been done has been addressed, and we believe the second quarter would be a lot better. And we expect the third quarter for us to -- we expect to even reach profitability. For the financial year '21, we obviously will have to revise our strategy and our budget plans and all of our projections that we have made. We will come back to you at a time once the situation stabilizes on what we expect for the financial year in question. But as of right now, we are focused for the last 3 months since the start of lockdown on three aspects: the first being ensuring that our employees are safe and their health is taken care of. So we've put in place distancing norms to the government's recommendations. We also have strong sanitization and infection control and contact tracing capabilities, and we are enforcing work from home for a lot of our staff. In spite of our best efforts, however, we have had 7 employees at Pennar who test positive for COVID, 4 of them have recovered and are back at work and other 3 are stable. We expect the next 60 months to be very challenging -- sorry, 60 days to be very challenging from a point of view of dealing with this pandemic. So we intend to strengthen our existing distancing norms and employee safety measures for July and August. And after that, we believe that the situation should gradually improve. So in conclusion, our priorities for the last 3 months have been addressing the problems of liquidity, profitability and growth, with the background being employee safety. And we are very, very confident of being liquid. We will absolutely be able to meet our cash outflow obligations. So that issue has been solved. Our goal now is to reach profitability as soon as possible, which we expect to get to in the next couple of months, definitely. And post that, our challenge would be to grow our profitability back to what it was prepandemic and prelockdown. And I look forward to speaking with all of you in more detail as we implement this plan. And with that, I would like to hand this over to our Joint Managing Director, Mr. P.V. Rao, for his comments.

Thank you, Aditya. A warm welcome to all of you for this investors' call. I would like to share with you some of the details of the financial highlights and the business highlights. Our Q4 performance, as explained by Aditya, it got impacted due to challenging business environment and due to global pandemic COVID-19. Consequently, on a yearly basis, we reported 1.25% decrease in revenue for the corresponding previous year. Our net revenue is INR 2,106.55 crores compared to a net revenue of INR 2,133.11 crores in financial year '19. Our EBITDA is at INR 189.39 crores compared to previous year's EBITDA of INR 199.91 crores. The PAT after minority interest is at INR 53.05 crores compared to the PAT -- corresponding PAT previous year, INR 66.44 crores. And we got orders during Q4 -- we received orders across business verticals such as building products, tubes, solar, railways, industrial components and preengineering buildings. The current order book position for preengineering buildings segment is about INR 335 crores. The order book position for water treatment and chemical segment is about INR 65 crores. And the order book for railways division stood at INR 303 crores. So as explained by Aditya, we are facing this also -- we are also -- we also got affected due to this pandemic, and we are trying our best to come out -- each segment, how it is going to behave in the time to come, we have to watch and see. And as expected by Aditya, I think we will be, in the coming 2 to 3 months, we will be touching profitability. And then we have to concentrate on how to grow to be able to reach the prepandemic levels. Thank you very much, and I think we can...

We'll give it Shrikant for your...

Yes. Shrikant, for your comments, please?

Yes. Good morning, and warm welcome to everyone. Apart from the revenue, EBITDA and the profit numbers, which has been [indiscernible] I would like to highlight on the other important numbers for you. Those numbers include EBITDA margins -- healthy EBITDA margins of 8.96% vis-à-vis last year of 9.29%. Employee benefits have been better, INR 161 crores versus INR 152 crores. Overall debt position has been improved slightly from the last year by close to INR 15 crores, and we are now at close to around INR 397.94 crores in terms of overall debt. Interest cost has been a little challenging, and we are doing all the things in order to reduce our interest cost. So interest costs overall for the year is INR 83.4 crores, which is 3.96%. If you see for the quarter, we are able to reduce by approximately INR 3.7 crores while compared to the last year same time. Account receivables has been steady state. And overall, if you compare both the amounts put together, we are at close to INR 437 crores, inventory of about INR 439 crores. The important point is the receivables we were able to bring down from 81 to 76 days and -- though the inventory has gone from 120 to 128 days. This is because the production that was done in the March could not be shipped out and the inventory was there at the plant. So the inventory has increased approximately by 6 days. And similarly, in terms of accounts payable, we are a little high in terms of 125 to 139. We have a healthy treasury of close to around INR 165 crores plus that we have. We have been operating cash flow before working capital and after working capital changes, we have been highly positive and including the CapEx amount that we have done. In the current year, we have completed the buyback. Close to around INR 1 crore shares have been purchased back. And we have invested in Oneworks acquisition, which is coming as a special note in the financial statement. And the investment value was close to around INR 3.26 crores, and the outflow of around INR 61 lakhs has been happened [ enough ] and balances linked to certain performances. We also plan to invest around -- close to around $800,000 for which we sought the Board approval in our Pennar Global. So with this -- this is the broad financial numbers. And if you have any further questions, we can answer.

[Operator Instructions] Our first question is from the line of Vikram Suryavanshi from PhillipCapital.

Yes. Sir, if you look at -- we had a challenging time earlier because of BS-VI norms and had a slowdown in economic, and now we have another issue of COVID. So how do you see that impact on -- is the transition to BS-VI norm and all that is over, the impact of slowdown and now related to COVID and economic slowdown? And how do you see the impact on different verticals of COVID, if you can just explain a bit segment-wise impact pre-COVID and post-COVID?

So I will speak about -- I think you mentioned BS-VI norms. So I'll speak on the automotive side and railways and the engineering services side. Mr. P.V. Rao will brief us about PV business and their associated verticals. So the environment is challenging. We have been, since the unlocking of -- removal of the lockdown has been initiated, we've been able to scale up revenue. Right now, we see the maximum demand coming from the solar warehousing, ITS and the pharma sectors. They seem to be doing quite well. And I would say all of our solar verticals are over performing. All of our ITS business are over performing. And all of our export verticals are also over performing. Hydraulics also is doing quite well. We expect that railways will come back over the next 2 to 3 months. We are at currently only 30% of our prepandemic revenue there. And I think with the new investments we are making in body in white and others, maybe automotive takes an extended period of time to recover, but we're quite confident that over the next few quarters we should see an improvement in that. The transition to BS-VI is obviously going to help us because it will mean a lot more supplies. It will mean replacement of a lot of stocks. We are working with all of our automotive customers on new product development. So as I said, we're quite optimistic that we're up to the challenge. Liquidity is not a problem for us. So the next thing automatically becomes profitability. So currently, we are at reaching 60%, 65% of our prepandemic revenue capacity utilization-wise. And there's constantly new addressable markets, which are opening up. The U.S. market, for example, we think, is going to be very profitable, and it's going to do well, tubes point of view, also. So I would say that the impact of COVID will probably mean that we will have a depressed Q1, a flat Q2 and probably a Q3 where we are profitable and started growth, again. So hopefully, by the end of Q4, our hope is that we get back to where we were before the pandemic. So it looks like it's a lost year, basically, for us. And after -- but after that is done, with or without a vaccine or whatever happens, we're quite confident that we get back on the growth path -- we're already back on the growth path, but we get back to scalability, our old level of profitability over the next 2, 3 quarters.

Okay. And how is the outlook on PEBS also, sir?

Yes. I will touch base about the other verticals. Regarding PEB, we have an order backlog of around INR 330 crores. We are currently at about 55% to 60% of our revenue currently at that level compared to the prepandemic revenue levels. And yes, this segment has affected, definitely -- the Industrial segment basically got affected, whereas the warehousing is still doing well because of the e-commerce, Amazon and Flipkart and all. So we are still getting orders from warehousing companies. And pharma companies, also, we are still getting orders. So we expect that we would reach prepandemic revenue levels maybe in another 4 to 5 months' time. That's what we are expecting as of now. And solar module mounting structures, we are doing well, and we've got a backlog of around INR 125 crores as well in solar module mounting structures. And that segment is doing well. There is no dip in that. And engineering services, which we are doing for American companies, now that is growing because there is no -- because there is -- in fact, the volumes are increasing. In fact, the reason is because of the pandemic in the U.S., so they are -- the workload -- they are working from home. So the productivity is less for them. So we are concentrating more on that to increase the revenue level as well. And then the solar photovoltaic panels also is doing well. In fact, the orders are coming up well even compared to the prepandemic level, also. So we are bullish on solar as well as engineering services and solar portable type panels. And we have to wait and watch in terms of PEBS, preengineered buildings. And we expect that we'll reach the prepandemic level in another 5 to 6 months' time.

And can you share more about this acquisition, Oneworks, what is it exactly business model and how it will help us as well as the investment in Pennar Global?

Sure. We believe right now that the addressable -- our addressable markets in the U.S. are substantially stronger than they are than the ones in India right now, with some obvious exceptions, of course. But broadly speaking, our U.S. revenues in Hydraulics and Engineering Services and tubes are all scaling up. And in fact, we are -- a lot of them, our revenue streams are doing better than they were prior to the lockdown. So accordingly, we want to -- I mean this is not a short-term venture. This is something that we believe in the long term is going to be -- open up a very large addressable market for us. So accordingly, in the U.S., we are investing into growing our engineering service capabilities, our hydraulics capabilities. And the plan for investment into PG, what that allows us to do, is to start our metal buildings and building component sales in the U.S. as well. We have our team there that is quite mature. That has already -- I mean, I would say, years of experience in these niche fields. So both tubes IOR and metal buildings, we believe, will scale up quite well in the next couple of quarters. So we are accordingly making some investments in them.

So whatever investments we have -- we'll be doing in future and currently, they are basically addressing the new addressable markets. They're aimed at margin expansion and they're aimed at increasing ROE and they are aimed at upgradation of our technology.

Okay. And just more clarity on CapEx, sir, what was total capital expenditure in FY '20? And how is the revision looking at the uncertainty going ahead? So how is, basically, we are planning our growth plans in this challenging time?

Shrikant, I request you to answer this one?

Yes. The total overall amount that we've invested in the current year is close to around INR 90 crores on the various PEB segment, photovoltaic, tubes and other things. In terms of next year, we have still not come to a conclusion that we will do on the various segments which we initially thought. But we are confident that we will be doing in terms of U.S., the additional investment, and also in BIW for the expansion of the market and to increase the margins.

Okay. And is there any -- because now a lot of people are talking about work from home, there could be cultural shift between the way we are doing businesses. So anything on, like, digital investment or anything you envisage, like the way we were reacting with the customer or doing businesses, is there any change is going to happen because of this COVID?

I think the big challenge as far as we are concerned is that initial months, it broke alignment with everyone. So we had to reestablish alignments with our customers because we wanted to avoid any order cancellations. We had to reestablish alignment with our vendors because, obviously, everyone is going through this. Nobody is immune to what's happening right now. And we had to also do a lot of realignment within the company as well with our own employees and others. But we don't believe in attrition. Not a single employee has been terminated. We want to retain our core, our strength, and we want to look at getting back to profitability through revenue increase rather than cost cutting or any such measures. So -- and we are more or less succeeded in this task, also. So I think reestablishing alignments with our customers, our vendors, internally with our bankers, all of that is what has been the challenge. But we have passed through it. I think -- I honestly believe that the worst is behind us. I think the number of cases will continue to increase over the next 60 days. If we're careful for the next 60 days, make sure our employees are safe, make sure our vendors and our customers are also stable, then I think it will only get better from there. So that is our current viewpoint. And we're quite optimistic, and we -- that, that would happen. But fundamentally, yes, obviously, there's been a lot of work-from-home changes. Obviously, we've had to adapt our operating procedures to be very compliant with what the government says. But we've had a lot of success. I mean we have close to 3,000 direct and indirect employees. And the fact that we only had 7 cases and all of them, touch wood, we're very confident -- I mean, 4 have already recovered others also we are -- and are back at work, in fact, and the others also will be back. So we are very confident of our ability to manage this pandemic at the local level, at our local level, in terms of the factories and our offices. And for us, our employee health is paramount. Once that's taken care of, only then can we look at scaling up operations, and we have successfully done that. So we are operating in a safe manner. We will go from 60% to 70%, 70% to 75%, 80% of our prepandemic revenue, and that will allow us to get back to wherever we need to be, to our prepandemic level of profitability.

[Operator Instructions] Next question is from the line of Arvind [indiscernible] from [indiscernible] Advisors.

I just wanted to get some more details on the kind of competencies we hope to add to our repertoire by these acquisitions? And how do you see the footprint of our Pennar Global expanding in the next couple of years, say, broadly, long-term basis?

So Pennar Global is, effectively everything that we do in India, we want to do in the U.S. and because of the way we are structured, we have substantial advantages, too, in the U.S. market, specifically in engineering services and also as -- so the combination of the use of India as a low-cost manufacturing base, the U.S. manufacturing as a high-technology base and our engineering talent that we have in-house in a large delivery team in India is going to allow us to scale multiple verticals. So the main focus area for us from a capabilities point of view is to increase our hydraulics capabilities. We are getting into custom telescopic cylinders as well, and that will continue to scale up. Our engineering services in -- we are currently present and offer services in structural engineering services, BIM work, building information modeling, body in white design and other mechanical engineering services. We want to continue to grow these verticals, and we are accordingly building up our delivery team, even in this environment. And in the U.S., once we have some fees on our roles, it will give us the capability to stamp drawings and to make sure that we can interact directly with our customers in the U.S. That is the second part. The third part of it is improving our manufacturing operations. We have a lot of capabilities in metal building, obviously, in India. So by adding the Tennessee plant, what that allows us to do is to provide metal building solutions for the U.S. market, which is much, much larger than the Indian market and more profitable also, double the operating profit of the Indian market. So all of that investment will allow us to expand that. So our addressable market increases in engineering services with these investments. It increases in our hydraulics business, also our tubes business -- tubes CDW, and metal buildings and building components. So the combination of all of 3 will allow us to do a very high revenue level. I mean I -- we fully expect PGI to contribute a very significant proportion of the company's overall revenue over the next few quarters and years.

And largely, the investment would be in physical infrastructure in the U.S. now? Or it will be also into some softer investments, like acquisitions and all that, on technology front?

Both. We will -- we are looking to, and we've already completed acquisitions of engineering services companies. We have just completed the acquisition of Oneworks Limited, which specializes in building information modeling, and we want to scale up their revenue quite markedly. They're up by almost 40%, 50% based on prior to acquisition, what the revenue was. So we consider that to be a successful acquisition. But as you said, we will also invest in hard, physical, brick-and-mortar infrastructure as well. And it is all in products that we understand very, very well that we have a lot of experience manufacturing, designing, and so it will be a combination of manufacturing and design, yes.

Okay. And one more thing I wanted to just understand, we developed certain good competencies in manufacturing on some complicated products, do you feel with this migration of manufacturing shifting from China, could we emerge as a partner for some of these either non-Chinese companies or even Chinese companies wanting to get out of the Chinese footprint and have alternative manufacturing organizations elsewhere? Do you feel we stand a chance in that? And also since you seem so optimistic about Pennar Global's growth prospect, say, in the next 3, 4 years, would it be half of our Pennar business by any chance?

Yes. So the first question, are we seeing demand transference from China? We absolutely are. I can give multiple examples where for our hydraulics business, for our tubes business and our industrial components business, we have seen our customers...

Is this panic buying or is it strategic new engagements?

Could you say that again, sir?

Is it panic buying by some customers who are not getting stuff from China because of the lockdown in February and all that? Or is it some strategic new initiatives that are being worked out as an alternate?

No. I think it's reasonably medium term. I can't comment to whether it's long term, but in the medium term, especially -- I mean, some of the examples I'll give you, Bailey Hydraulics, for example, has zeroed out their China and given us that volume. Now we've obviously asked them that we are building up these capabilities, but once they get less angry at China, are they going to transfer that back. So they were very candid for us, and we agree with the assessment also that once this product development cycle and manufacturing both ships, it's actually very difficult to relocate it. So the transition from China to India itself is very, very difficult. For them to transition that again in the medium term would be very, very difficult. So I believe, at least for the medium term, by which I would define as the next -- in the next 5 years, I think they -- whatever comes out of China will not be going back in. So I think it's a reasonably good medium-term transition that is happening. Same question with the PSA, who we are working with. So they have -- they're one of the largest manufacturers of body in white in the world. And they are -- their entire new product development, their entire new electric vehicle designs they are giving out to Indian companies. And not just us to others as well. It's not just us that are the beneficiaries. So we literally have the option right now going ahead, picking up lots of large orders, close to INR 100 crores plus in terms of orders, in these verticals. And the way it is once designed, product development and manufacturing moves, it becomes very, very difficult to do it again. It is not impossible, but this is not something that can be reversed easily. So I feel that a fair amount of whatever animosity or because Chinese costs are higher, but yes, definitely, it's a very clear trend. And I don't think it is temporary.

Okay. And do you see us transitioning from component suppliers to maybe supplying some subassemblies and all that since we're dealing with bigger, stronger customers now, eventually, say, in a couple of years, we would end up giving -- supplying subassemblies for whichever application your customers demand for the rise in value chain?

Yes. Absolutely. I think the more we integrate the better operating profits get and the better our addressable market also gets. So it's good in multiple ways, but that is absolutely our goal to ensure that we keep going from components to systems, absolutely, that for each one of our business verticals is targeting that.

Fine. And my last question on the possibility of Pennar Global becoming -- the export business becoming almost half of your total turnover in the next 3, 4 years, probably?

I think half may be difficult to say, but at least 20% to 30%, I think, is extremely likely because it will have a very, very high-growth rate. So even if it reaches something like $100 million...

And more profitable than the domestic business, probably?

Every one of our verticals in the U.S. is more profitable than the business -- than domestic ones.

[Operator Instructions] Our next question is from the line of Venkat S. from Organic Capital.

Aditya, we spoke as late as some mid-November, at which point in time we had no clue of how bad the last quarter was going to be, what exactly went wrong? Because last 20 days was a washout and March being dependent in the last 2 weeks is well-known for a company like ours. But the level of drop in revenue and profitability is rather stark, so would you like to throw some light on that?

It's a good question. I think I wouldn't say we were surprised. We were expecting it when we knew that lockdown was coming. But I think what the financials for the fourth quarter that -- have taken a lot of the impact of COVID also into account. So I guess what I'm trying to say is, yes, we only had about 20 days approximately of revenue. In some verticals, it was only 15 days. So how can we go from what we were expecting, which was a very substantial profit to something which is barely profitable. The idea there is that a lot of our very profitable businesses just froze. We could not ship material out at all and that had a much more stronger impact on our operating profit than we thought. So our fixed cost stayed the same because we want to support -- wanted to ensure that we support our people. It was a shock for multiple people, so we didn't want to immediately start looking at salary cuts or anything. So our fixed costs, our interest costs, all of that stayed the same. And our revenue for the month of March was at a far smaller level. The other thing which is a little bit of a nuance in our industry is most shipments happened in the second half of the month. For us, the first half comprised of planning, getting raw material and producing it, getting clearances. And the second half is when we see a vast majority of the revenue happening. So though while it was -- it looks like March only 20 days, in effect, it was basically the entirety of the month of March. So effectively, we lost 33% of our revenue. And since our operating profits are roughly around 15%, 16%, the net impact on our margin after variable prior to fixed cost was quite heavy. It also includes, as I said, several one-time significant items. We believe that the pandemic -- the brunt of the impact was taken in Q1, but we had to take some amount of provisioning, everything was also taken in Q4. So that is another reason. But the majority reason is that the most of our revenue happens in second half, and we were just unable to have that revenue come out.

In the normal course, what didn't get billed in the last quarter, some of it will actually flow through in the first quarter. But from your commentary, we are probably seeing a very, very soft first quarter as well. So that overflow from the last quarter is not coming through? Have people seriously canceled a lot of orders? And are we carrying inventory that's not good. So what are the issues in the first quarter there?

So let me answer it this way. So the first quarter being, as you said, soft, will directly be -- because of -- we were just not operating for close to 6 weeks. So that is difficult. And once we started, it was a slow start. We had to get our manufacturing plants up. We had to make sure that we were operating in a safe manner. That thousands of workers going in and out every day can do it without risk of infection. We also had to ensure that our suppliers themselves got into I think -- and one of our suppliers, I won't name them, had a very, very serious COVID issue where significant parts of their workforce -- transporters were an issue as well. So getting our supply chain, logistics back into, I think, was a big challenge, which is why Q1 was -- so revenue was very, very bad in Q1, which is why Q1 is soft. But what we -- our goal wasn't to have a strong Q1. Our goal was to make sure that we understood the way the pandemic was going to impact our addressable markets and make a plan to ensure we address that and come out of it as quickly as possible. So we broke that, as I'd said, into 3 parts: liquidity, profitability and growth. All three, we have -- first we made a plan. I can confidently tell you, we have -- I mean, we have a low debt equity, so it's easier for us to say, but we don't have -- we don't perceive any -- we don't foresee any complications or concerns as far as our ability to meet our cash flow obligations are concerned. Then the subject automatically moved to profit. We've been working on profit for the last 2 months. And we have substantially scaled it up, and we are quite profitable, quite confident of getting back to the -- getting back to profit in this quarter itself. So Q1, we will not be profitable. Q2, we expect to be. Q3, we expect to get back to growth. And Q4, hopefully, by the end of Q4, we're back to where we were before any of this started, if not better. That's what we are -- and that's assuming that the macroeconomic headwinds persist. That the current issues in India, which is not just pandemic related, it is credit related, there's a fair amount of banking contagion, we expect some of our vendors, some of our customers, to face significant amount of trouble. In spite of all of those, the combination of our addressable market is recovering and the investments we are continuing to make we're quite confident will get us back to growth by the end of this year. So once you're -- once you have figured out or fixed all 3, then it's just a question of when you get back to your prepandemic levels. So that's what -- every business for us has a plan to get back to prepandemic and grow beyond it. And over the next few months, each of our verticals, one by one, some are already profitable, and all of them will get back to profitability. That's our projection right now. And we're quite confident that it will happen.

[Operator Instructions] Our next question is from the line of Vikram Suryavanshi from PhillipCapital.

Sir, we can understand that situation from private companies and all that, but to what extent we can get support from government orders, like particularly railways you highlighted, but sectors like defense and others, too. So are we seeing some opportunity from government side, the expenditure and order?

Defense, I can't comment, and I would request Mr. P.V. Rao to brief about some government orders we are looking at. But from a railways point of view, we -- ICS, MCF, BML, GE, they are our customers. So they are not back up yet, but we expect to get them back up in the next 2, 3 months. So right now, if you were to rank our verticals in terms of prepandemic revenue percentage, railways is actually at the -- below the average for this. But we expect that to get -- it's only at about 30%, 40%, but we expect it to come back in the next 2 months. In fact, I'm almost certain that within a month, 1.5 months, the utilization go up. They've also expressed -- ICF has expressed that they want to scale up further, that they want to get back to 100 coaches a month. So those are all good numbers, I think, in this environment. So we're hopeful that they come back. But right now, the verticals which are doing very well are solar, our export business verticals, our -- the pharma sector, supplying products. Our chemicals business also is doing quite well because it supplies some hospital chemicals, we supply hand sanitizer chemicals. So that is all doing quite well. The ones that are facing some challenges are obviously automotive and -- which may take longer to recover, but railways, which will recover much quicker. I will also request Mr. P.V. Rao to discuss on the government orders.

In the defense space, we are not having any indications of any potential from defense sector as of now. But other government departments, we are very careful in dealing with other government departments, except railways and, of course, they have been paying us very well. So though there are some opportunities for some isolation centers and all these things from government departments where they have indicated -- asked us to [ park all the ] prices and all, but we are skeptical about the payments issue because most of the state governments and the central government, we don't have any clear picture about how they would be paying us in future if we do execute some jobs. So we are very careful in choosing any government orders actually and taking government orders, except railways, which we have been doing very well, and payments are coming up very well.

Okay. And any change in outlook on this wagon side? Because we are seeing that DFCC is close to completion and even railways is talking about -- a lot of people are trying about expanding their railway network. So anything happening on wagon-side orders?

Our order books are actually quite strong in Railways. So it's both wagons and coaches. The problem isn't orders, but the problem is for the plants to start operating, again. So the challenge really, I guess, Vikram, is that we will need to have these plants -- our customers start operations in full swing again. And that will only happen once there's a solution to this or I don't know, I mean, we are -- obviously, we are not experts in epidemic control, but the advice we are getting is that over the next 2 months, if we are careful, then more or less, either everyone gets over this and all of our customers start opening up their factories or at least it'll reach a new normal of everyone being at 50%, 60%, 70%. Even if they reach that, it's enough, we can ramp up revenues quickly. But right now, our problem isn't orders, the problem is our customers operating in Railways. So -- but we're quite confident over the next 2 months the problem solves itself.

Our next question is from the line of [ Tejas Mehta ] from [indiscernible] Capital.

Sorry, I joined a bit late, but can you just give me answers to a couple of questions? One is, you have inventory of about INR 440 crores in your balance sheet, how much of this would be finished goods and how much would this be raw material? As in [ finished ] goods basically stuck at your end, but you are not able to deliver either because of logistics issues or the client has asked to defer the delivery.