30-Oct-2026 18:51:54
SHREE REFRIGERATIONS Q2 CONCALL: REITERATES 40% REVENUE CAGR & 22% EBITDA MARGIN GUIDANCE; ₹198.6 CR ORDER BOOK, TARGETS 200 RECEIVABLE DAYS, EXPECTS POSITIVE CASH FLOW BY FY27-END & SEES ₹4,000–5,000 CR MARINE HVAC MARKET OPPORTUNITY
• Revenue Growth Guidance: Management reiterated its target of approximately 40% annual revenue growth, supported by naval shipbuilding, retrofit projects, equipment supplies, spares and services. • FY27 EBITDA Margin Guidance: Management maintained its target of approximately 22% EBITDA margin for FY27, despite margin pressure during H1. • Long-Term Margin Outlook: Management expects EBITDA margins to remain around 22% over the longer term, supported by indigenization, operating leverage and manufacturing efficiencies. • H2 FY27 Margin Outlook: Management expects significantly higher margins during H2, supported by increased deliveries, improved fixed-cost absorption and a favorable product mix. • H2 Revenue Outlook: Management expects a stronger second half as major naval shipbuilding projects have equipment delivery schedules concentrated toward the latter part of the financial year. • Revenue Seasonality: Management expects the H1–H2 revenue and margin imbalance to gradually reduce as orders across new shipbuilding, retrofit, spares and services become more diversified. • FY27 Order Book Outlook: Management expects new order wins during H2 to maintain a healthy year-end order book sufficient to support its 40% growth guidance. • Current Order Book: Outstanding order book stood at approximately ₹198.6 Cr as of September 2026, compared with approximately ₹270 Cr at the beginning of FY27. • Order Pipeline: Management identified approximately eight new order opportunities under active consideration, although their aggregate potential value was not disclosed. • Order Execution Timeline: Existing projects have execution timelines ranging from a few months to approximately 18 months. • Naval HVAC Market Opportunity: Management estimates an addressable market of approximately ₹4,000–5,000 Cr over the next two years across defense and non-defense shipbuilding, including new construction and retrofit opportunities. • Defense Shipbuilding Opportunity: Management highlighted upcoming naval shipbuilding programmes and estimated approximately ₹2,750 Cr of relevant equipment opportunities from a broader defense project pipeline. • Commercial Shipbuilding Opportunity: Management estimates approximately ₹2,500 Cr of potential equipment demand from non-defense shipbuilding activities. • Next-Generation Corvette Opportunity: Management expects to participate in the upcoming Next Generation Corvette programme, with potential orders beginning during FY27 and extending into FY28, subject to shipyard procurement schedules. • Project 75(I) Submarine Opportunity: Company is working with Mazagon Dock Shipbuilders on potential refrigeration and air-conditioning solutions, while the programme awaits the required government sanction. • Naval Project Execution: Management indicated that shipyards increasingly place equipment orders earlier in the construction cycle to accelerate vessel completion. • Naval Equipment Installation: AC and HVAC systems are generally installed relatively early during ship construction, helping support subsequent onboard operations and equipment installation. • Fleet Support Ship Project: Company is executing a turnkey project involving HVAC systems, air-conditioning plants and refrigeration plants for the Indian Navy. • Major Refrigeration Project: Management highlighted its participation in supplying what it described as the Indian Navy's largest refrigeration plant. • Ongoing Projects: Company is executing approximately 10 active projects across naval platforms. • Naval Product Qualification: Five of the six standardized air-conditioning plant capacities have already completed type testing, reducing qualification requirements for repeat orders. • HVAC Product Qualification: Approximately 75% of HVAC components have already completed type testing, supporting faster execution of future projects. • Manufacturing Capacity: Company has approximately 70,000 sq. ft. of manufacturing infrastructure, comprising a new 50,000 sq. ft. facility and an existing 20,000 sq. ft. unit. • Future Manufacturing Expansion: Management has additional prepared land capable of accommodating another approximately 50,000 sq. ft. manufacturing facility when required. • Capacity Adequacy: Management indicated that existing capacity is sufficient to achieve its current 40% growth target without requiring immediate major expansion capex. • Future Funding Requirements: Management does not expect fresh equity funding for its existing growth guidance but may evaluate additional capital if significant new opportunities require capacity expansion. • Manufacturing Integration: Company operates an integrated facility with sheet-metal processing, laser cutting, bending, robotic welding, painting, equipment assembly and testing. • Manufacturing Strategy: Management highlighted its ability to produce HVAC systems, refrigeration plants and electrical control panels internally, enabling greater control over the product value chain. • Import Substitution: Management indicated that imported content in certain naval AC plant products has declined from more than 30% historically to single-digit levels. • Defense Manufacturing Recognition: Company received an SIDM award in the SME import-substitution category for indigenization of submarine air-conditioning systems. • Data Center Business Outlook: Management continues to pursue opportunities in data center cooling but confirmed that no firm data center order has been secured so far. • Data Center Revenue Guidance: Management has excluded potential data center revenue from its FY27 and FY28 financial projections, treating future orders as incremental opportunities. • Data Center Order Conversion: Management estimates that meaningful commercial traction may require another 6–12 months as customers evaluate the benefits of oil-free cooling technology. • Data Center Technology Partnership: Company plans initially to source oil-free magnetic-bearing chiller technology from its Australian partner rather than establish domestic manufacturing immediately. • Data Center Manufacturing Strategy: Management may consider local manufacturing once order volumes reach a commercially viable scale. • Data Center Customer Engagement: Company is actively engaging with data center operators and promoting the long-term energy efficiency and maintenance benefits of magnetic-bearing cooling systems. • Data Center Adoption Challenges: Management indicated that higher upfront capital expenditure remains a barrier, despite potential operating cost savings over the equipment life cycle. • Danfoss Service Partnership: Company has become an authorized service and repair partner for Danfoss Turbocor compressors in India. • Danfoss Service Opportunity: Management expects the partnership to strengthen its servicing capabilities for naval, industrial cooling and future data center applications. • Danfoss Revenue Outlook: Management does not expect a material near-term revenue contribution from the service partnership, considering it primarily a strategic capability-building initiative. • Installed Compressor Base: Management highlighted more than 100 chillers and 200 compressors using the relevant technology across Indian Navy applications. • Lifecycle Services Strategy: Company continues to expand installation, commissioning, maintenance, repair and lifecycle support capabilities across major naval locations. • Industrial Cooling Diversification: Company has established a new subsidiary, Aquilon, to enter the industrial sub-zero temperature chiller market. • Aquilon Commercial Operations: Management expects commercial operations to commence during FY28, with a small manufacturing facility under development. • Aquilon Target Industries: The subsidiary will focus on sub-zero cooling applications in chemicals, food processing and pharmaceuticals. • Aquilon Market Opportunity: Management estimates an addressable market exceeding several thousand crores, although no specific revenue or margin guidance was provided. • Industrial Cooling Capex: Management indicated that limited additional capex may be required for the new Aquilon business. • Working Capital Outlook: Management expects the elevated working capital cycle to improve during H2 as strategically accumulated inventory is utilized for upcoming deliveries. • Working Capital Cycle: Management indicated that working capital days had increased to approximately 400 from around 370 because of higher inventory purchases to protect against commodity inflation. • Working Capital Target: Management expects working capital days to decline toward 350 or slightly below as inventory levels normalize. • Receivables Reduction Target: Management aims to reduce receivable days to approximately 200 from the current level of around 250. • Receivables Performance: Receivable days declined from approximately 350 in FY25 to around 250 by March 2026 and remained broadly stable during H1 FY27. • Trade Receivables: Receivables increased to approximately ₹128 Cr in H1, mainly reflecting higher business activity and the long payment cycle associated with defense contracts. • Inventory Position: Inventory increased from approximately ₹54 Cr to ₹80 Cr, reflecting strategic raw material procurement to protect margins and ensure timely project deliveries. • Commodity Cost Strategy: Management is increasing advance purchases of critical inputs, particularly copper and other metals, to mitigate price inflation under fixed-price contracts. • Operating Cash Flow: H1 FY27 operating cash flow was approximately negative ₹42 Cr, affected by higher inventories and receivables. • Cash Flow Guidance: Management expects operating cash flow to turn positive by FY27-end as collections improve and working capital normalizes. • Future Working Capital Funding: Management expects most incremental working capital requirements to be funded through internal accruals, with limited additional bank borrowing. • ROCE & ROE Outlook: Management expects return ratios to improve as revenue grows against a relatively stable equity capital base, but did not provide numerical ROCE or ROE targets. • Government Subsidy Opportunity: Management indicated that the new Maharashtra manufacturing facility may qualify for state government subsidies, which have not been incorporated into existing projections. • Depreciation Policy: Company changed its depreciation method to the straight-line method, which management said better reflects asset utilization following recent capex. • H1 Revenue Performance: Revenue reached approximately ₹100 Cr, representing around 84–85% YoY growth. • H1 EBITDA Margin: EBITDA margin improved to approximately 13.5%, compared with around 11% in the corresponding period last year. • H1 Profitability: Management reported improvement in EBITDA, net profit and earnings per share, although the transcript does not provide exact comparative figures. • Key Challenges: High working capital requirements, extended defense receivable cycles, commodity inflation under fixed-price contracts, H2-dependent margin recovery, naval project execution schedules and slower data center order conversion remain important factors.
SHREE REFRIGERATIONS LIMITED