Interarch Building Products
Deep Dive into the Business of Interarch Building Products
1. Introduction to Interarch Building Products Limited
Interarch Building Products Limited (Interarch) stands as a prominent turnkey provider of pre-engineered steel construction solutions within India. The company's operational model is comprehensive, encompassing integrated facilities for design, engineering, manufacturing, supply, and the crucial on-site project management required for the installation and erection of pre-engineered steel buildings (PEBs). Interarch's PEB offerings are meticulously customized to meet specific client requirements, finding diverse applications across industrial, infrastructure, and general building sectors.
Tracing its origins, Interarch was initially incorporated on November 30, 1983, as "Luxalon Building Products Private Limited." The company subsequently underwent a name change to "Interarch Building Products Private Limited" in 1985, eventually converting to a public limited company in December 2023. This long operational history has allowed Interarch to carve out a significant market position. In Fiscal Year 2023, the company was recognized as the third-largest player in terms of operating revenue within India's integrated PEB business. Furthermore, Interarch commanded the second-largest aggregate installed capacity, reaching 141,000 MTPA as of March 31, 2023, and held a market share of 6.1% in terms of operating income among integrated PEB players in India.
The Indian PEB industry, while still in its nascent stages, is on a trajectory of robust expansion, projected to grow at a Compound Annual Growth Rate (CAGR) of 10.5-11.5% between Fiscal Year 2023 and Fiscal Year 2028. Interarch's long-standing presence since 1983 and its current leadership position within this relatively young, high-potential sector underscore a significant advantage. This established market presence and recognized brand equity provide a solid foundation for sustained growth, potentially enabling the company to maintain a competitive edge that newer entrants may find challenging to replicate. This positioning is a critical factor supporting the potential for substantial earnings growth.
2. Decoding the Business: Verticals, Operations, and Market Footprint
Interarch's business model is built on providing end-to-end solutions, covering the entire spectrum from initial design and engineering through manufacturing and supply, culminating in on-site project management for PEB installation and erection. This integrated approach is designed to ensure design compatibility, which is paramount for enhancing the overall structural integrity and stability of the PEBs delivered.
The company's offerings are bifurcated into distinct product lines:
PEB Contracts: This segment represents Interarch's turnkey solutions, encompassing the complete process from estimation, detailed designing, and engineering to the manufacturing and supply of PEBs in a completely knock-down condition. These components are then assembled, installed, and erected on-site under Interarch's supervision.
PEB Sales (Building Materials): This category includes specialized building products:
Metal Ceilings and Corrugated Roofing: Marketed under established brands such as "TRAC®" for metal suspended ceiling systems, and "TRACDEK®" and "TRACDEK® Bold-Rib" for metal roofing, cladding systems, and permanent/metal decking (lost shuttering) over steel framing.
PEB Steel Structures: This involves the supply of primary and secondary framing systems. It also extends to complete non-industrial PEB buildings, suitable for applications like farmhouses and residential structures, marketed under the "Interarch Life" brand. These structures are designed for erection and installation by third-party builders/erectors.
Light Gauge Framing Systems (LGFS): These are composite PEB structures specifically engineered for lightweight non-industrial buildings, emphasizing quick and efficient assembly, earthquake resistance, and termite-proof qualities.
Interarch's revenue streams predominantly flow from its Pre-engineered Building Contracts, which consistently constitute the largest proportion of its revenue from operations: 74.48% in FY2021, 86.39% in FY2022, 87.74% in FY2023, and 80.07% for the six months ended September 30, 2023. The remainder of the revenue is derived from the Sale of Products (Building Materials), contributing 23.07% in FY2021, 11.23% in FY2022, 10.72% in FY2023, and 18.54% in H1 FY2024.
Additionally, Other Operating Revenue, including scrap sales and design/engineering services, also contributes to the top-line. The overwhelming proportion of revenue from PEB Contracts, consistently above 74% and peaking at 87.74% in FY2023, indicates that Interarch operates primarily as a comprehensive solution provider rather than merely a component supplier. This business model typically implies higher value addition, stronger customer relationships, and potentially better margins compared to pure product sales. However, it also means that revenue recognition is closely tied to project completion milestones, which can introduce variability if projects encounter delays. The slight decrease in the contribution from PEB Contracts to 80.07% in H1 FY2024, accompanied by a corresponding increase in PEB Sales, suggests a potential strategic adjustment or a temporary phasing of projects. This shift warrants monitoring for its implications on overall revenue stability and the company's margin profile.
Interarch's geographical footprint is substantial within India, with a clear strategy for future expansion. The company operates four manufacturing facilities: two located in Sriperumbudur, Tamil Nadu (Tamil Nadu Manufacturing Facility I & II), one in Pantnagar, Uttarakhand, and another in Kichha, Uttarakhand. This strategic placement provides a manufacturing presence across both Northern and Southern India. Supporting these manufacturing hubs are three dedicated design and engineering centers situated in Noida, Uttar Pradesh; Chennai, Tamil Nadu; and Hyderabad, Telangana.
For sales and marketing, Interarch maintains eight offices across various Indian states, including Gujarat, Karnataka, Madhya Pradesh, Maharashtra, Rajasthan, Uttar Pradesh, and West Bengal, complemented by stationed sales and marketing employees in Chandigarh, Lucknow, Coimbatore, Bhubaneshwar, and Raipur. Looking ahead, Interarch has outlined plans for new manufacturing facilities in Andhra Pradesh (Planned Andhra Pradesh Manufacturing Facility) and Kheda, Gujarat (Planned Gujarat Manufacturing Facility). The company is also exploring international expansion, evaluating the feasibility of extending its sales and marketing network to Central and West Asia, South East Asia, and Africa. While the current manufacturing base shows some geographic concentration in Tamil Nadu and Uttarakhand, the planned expansion into Andhra Pradesh and Gujarat represents a crucial strategic move. This diversification aims to mitigate the risks associated with concentrated operations and positions Interarch to effectively serve demand in emerging industrial corridors across India. The evaluation of international market expansion further highlights a long-term vision to reduce sole reliance on the Indian market and tap into broader global growth opportunities, which could significantly contribute to long-term earnings growth.
In terms of current operational scale, Interarch's four manufacturing facilities collectively boasted an aggregate installed capacity of 141,000 MTPA as of both March 31, 2023, and September 30, 2023. The company's order book has demonstrated significant expansion, growing from ₹3,949.34 million as of March 31, 2021, to a robust ₹10,362.72 million by September 30, 2023. This substantial and expanding order book provides strong visibility for near-term revenue generation. Coupled with a proven track record of project execution, having completed 623 PEB Contracts between FY2015 and September 30, 2023, the company appears to have a solid pipeline of work capable of supporting continued revenue growth. Notable ongoing projects include a large fulfillment center for InstaKart Services in Manesar, Haryana; an automotive component manufacturing unit for Timken India; an air conditioning manufacturing unit for Blue Star Climatech in Sri City, Andhra Pradesh; and various PEB projects for Grasim Industries (Birla Paints Division). As of September 30, 2023, Interarch's workforce comprised 2,000 permanent employees, supplemented by 336 contract laborers. The substantial and growing order book, increasing from approximately ₹3.9 billion to ₹10.3 billion over a two-and-a-half-year period, offers clear visibility for the company's near-term revenue. A large order book, combined with a demonstrated ability to execute projects effectively, suggests that Interarch has a consistent flow of work that can underpin sustained revenue expansion. However, it is important to note that the conversion of this order book into actual revenue and profit remains subject to inherent execution risks, including potential delays and cost overruns, which require careful consideration by investors.
3. Growth Trajectory and Strategic Outlook: A Comprehensive SWOT Analysis
Strengths
Market Leadership & Established Brand Presence: Interarch holds a significant position in the Indian PEB market, ranked third in operating revenue and second in installed capacity (141,000 MTPA) in FY2023, with a 6.1% market share among integrated PEB players. The company's brands, "TRAC®" and "TRACDEK®," have been established for over 30 years. In a fragmented industry, these established brand names and substantial market share serve as significant competitive advantages. This strong brand equity can reduce customer acquisition costs and potentially provide pricing power, particularly when compared to smaller, unorganized competitors. The scale of its operations, evidenced by its 141,000 MTPA capacity, further allows for economies of scale, contributing to enhanced cost efficiency, which is vital for expanding profit margins and ultimately, driving earnings growth.
Significantly Integrated Manufacturing Operations: Interarch's operations are vertically integrated, spanning from initial design to on-site project management. The company operates four ISO 9001:2015 certified manufacturing facilities. It also maintains in-house design and engineering centers, staffed by 111 qualified structural design engineers who utilize advanced software such as Staad Pro, MBS, and Tekla. Vertical integration is a core operational strength, enabling Interarch to control the entire production process from design through erection. This comprehensive control allows the company to ensure higher quality standards, optimize cost management, and achieve faster project turnaround times. By minimizing reliance on external parties for critical stages of production, Interarch mitigates various third-party performance risks, directly supporting its ability to deliver on contracts efficiently and profitably. This operational efficiency is a direct contributor to margin expansion and overall earnings growth.
Demonstrated Track Record of Execution: The company has successfully completed 623 PEB Contracts since FY2015. This is supported by an in-house project supervision and on-site project management team, comprising 58 project managers and a network of 50 empanelled builders/erectors. In the construction industry, which is often characterized by delays and cost overruns, Interarch's proven track record and robust on-site project management capabilities provide a distinct competitive advantage. This expertise in execution fosters trust with customers, which in turn leads to repeat orders and a more consistent project pipeline, both of which are essential for achieving steady revenue and earnings growth.
Diverse Customer Base and Long-Standing Relationships: Interarch serves a broad spectrum of sectors, including industrial/manufacturing, infrastructure, and general building. A substantial portion of its revenue is derived from repeat orders, accounting for 88.60% in H1 FY2024. Furthermore, three of its top five customer groups have maintained relationships with the company for over five years. A high percentage of repeat orders signifies strong customer satisfaction and a loyal customer base. This reduces the need for extensive sales and marketing efforts for existing clients and provides a more predictable revenue stream, which is crucial for accurate financial forecasting and achieving consistent earnings growth. This also suggests a strong competitive advantage in customer retention within a fragmented market.
Demonstrated Financial Performance: Interarch has exhibited strong financial growth, with its revenue from operations growing at a Compound Annual Growth Rate (CAGR) of 39.68% between FY2021 and FY2023. The company also maintains a robust order book, valued at ₹10,362.72 million as of September 30, 2023. This strong revenue growth, coupled with a healthy order book, positive operating cash flows, and low debt levels, provides the financial flexibility necessary to fund future expansion initiatives without excessive reliance on external debt.
Experienced and Qualified Promoters and Management Team: The company is led by an experienced management team and Board of Directors, including its promoters: Arvind Nanda (Managing Director), Gautam Suri (Whole-time Director), Viraj Nanda, and Ishaan Suri (Non-Executive Directors). Experienced leadership is particularly vital in a project-based industry.
Weaknesses
High Dependence on Raw Material Prices & Supply: Steel constitutes the primary raw material, accounting for a significant portion of total expenses (ranging from 61.69% in FY2021 to 71.56% in H1 FY2024). Steel prices are inherently volatile, and a majority of Interarch's customer orders are based on fixed or pre-determined prices, which makes it challenging to fully pass on cost increases. The company also relies on third-party suppliers without long-term agreements. The substantial proportion of raw material costs, combined with the prevalence of fixed-price contracts, creates a direct and significant vulnerability to profit margins. If steel prices experience sharp increases, Interarch's profitability could be immediately squeezed, potentially hindering the achievement of earnings growth targets despite revenue expansion. While the company's stated intention to shift towards variable price contracts is a positive sign, the extent of this transition and its effectiveness in mitigating risk remain critical factors to monitor.
Reliance on Third-Party Contractors: Interarch depends on third-party providers for critical services such as logistics, security, and a portion of its manufacturing (job work). The company lacks direct control over these third parties and typically does not have indemnification clauses for quality failures. Outsourcing vital functions introduces operational risks that are beyond Interarch's direct control. Delays or quality issues originating from these third-party contractors can adversely impact project timelines and product quality, potentially leading to customer dissatisfaction, contractual penalties (such as liquidated damages), and reputational damage. All these factors can erode profitability and impede growth.
Non-Long-Term Customer Contracts: The company primarily relies on individual purchase orders rather than long-term or continuing agreements with customers. These purchase orders often include clauses that permit unilateral termination by the customer. Furthermore, many contracts are fixed-rate, limiting Interarch's ability to adjust prices in response to unanticipated fluctuations in currency exchange rates or raw material costs. The absence of long-term contracts introduces a degree of unpredictability into revenue streams, making them more susceptible to customer-initiated cancellations or modifications. This also constrains Interarch's pricing power, particularly in an environment of volatile input costs, making it challenging to protect margins and ensure stable earnings.
Operational Risks (Manufacturing, Labor, Geographic Concentration): Interarch's manufacturing facilities are exposed to various operational risks, including equipment breakdowns, industrial accidents, natural disasters (such as floods in Uttarakhand which impacted operations in FY2022), and labor unrests (including instances of "go slow production" and strikes). All four manufacturing facilities are concentrated in Tamil Nadu and Uttarakhand. The geographic concentration of manufacturing facilities amplifies the potential impact of regional disruptions, whether from natural disasters or civil disturbances. Past labor unrests indicate a recurring potential for operational slowdowns or shutdowns, directly affecting production capacity, delivery timelines, and overall profitability. While planned expansions aim to address this, the current concentration remains a notable weakness.
Working Capital Intensity: The nature of Interarch's business demands substantial working capital to finance raw material purchases, maintain inventory, and provide bank guarantees. Delays in billing or the collection of receivables can strain the company's cash flow. Rapid growth in a working capital-intensive business can paradoxically lead to cash flow strain. As the order book expands, more capital becomes tied up in inventory and receivables. If collections slow down or bank guarantee requirements increase, Interarch could face liquidity challenges despite strong revenue, potentially limiting its ability to undertake new projects or fund ongoing operations. This is a common challenge for fast-growing manufacturing companies and requires meticulous management to sustain growth.
Lease Dependencies: Interarch's Registered Office, Corporate Office, sales offices, and the land on which most of its manufacturing facilities are located are leased properties. A failure to renew these leases on favorable terms or to comply with their conditions could necessitate relocation of operations. Additionally, the company has pending consents from Industrial Development Corporations (IDCs) like SIPCOT, APIIC, and NOIDA regarding changes in shareholding and its conversion to a public limited company. Not owning these critical operational properties introduces a dependency risk. Failure to secure lease renewals or obtain necessary consents from IDCs could lead to significant operational disruptions, unexpected costs associated with relocation, and potential loss of production, all of which would directly impact profitability and growth.
Opportunities
Booming Indian PEB Market: The global PEB market is projected to grow at an 11-12% CAGR until 2027, with the Indian PEB industry specifically expected to achieve a 10.5-11.5% CAGR between FY2023 and FY2028, reaching an estimated ₹295-310 billion. This growth is fueled by increasing awareness of modern off-site construction techniques and a rising demand for green buildings. The robust growth projections for the Indian PEB market provide a significant demand-side tailwind. This broad market expansion, driven by fundamental shifts towards modern construction and sustainability, creates a fertile environment for Interarch to expand its revenue base.
Increased Infrastructure Spending: The Indian government's substantial focus on infrastructure development, including roads, railways, and urban infrastructure, is a major catalyst for the construction sector. Total infrastructure investments are projected to reach approximately ₹48.3 trillion between FY2024 and FY2028. Massive government investments in infrastructure directly translate into demand for PEBs across various applications such as warehouses, cold storage facilities, and data centers. This provides a stable and extensive pipeline of potential projects, reducing sole reliance on the private sector and offering a strong avenue for growth.
Growth in Industrial/Manufacturing Sector: The industrial sector is anticipated to remain the largest segment within the PEB market, propelled by increased penetration in the automobile, cement, and oil and gas industries, alongside government initiatives like the Production Linked Incentive (PLI) scheme. The continued strength and projected growth of the industrial/manufacturing sector, bolstered by government incentives, ensure a steady demand for Interarch's core offerings, such as manufacturing plants and factories. This sector's expansion directly correlates with Interarch's business growth.
Rising Demand for Warehousing and Cold Storage: These sectors are significant contributors to PEB demand, driven by the expansion of e-commerce and the adoption of hub-and-spoke logistics models post-GST implementation. Investments in these areas are projected to reach ₹400-420 billion between FY2024 and FY2028. The structural shifts in retail and logistics, particularly the growth of e-commerce and the impact of GST, are driving specialized PEB demand for large-scale, rapidly deployable warehousing and cold storage facilities. This niche but fast-growing segment presents a high-growth opportunity for Interarch's tailored solutions.
Increasing Popularity of Green and Sustainable Buildings: The growing trend towards green and sustainable construction favors PEBs due to their minimized material waste and the recyclability of steel components. The global shift towards sustainable construction positions PEBs advantageously due to their environmental benefits. By aligning with this trend, Interarch can attract environmentally conscious clients and potentially command a premium, contributing to both revenue and margin growth.
Low PEB Penetration in Building Sector: Despite its advantages, PEB penetration in the conventional building sector (residential, commercial, non-commercial) is currently low, estimated at 0-1% in FY2023. This represents a vast, untapped market. As awareness and acceptance of PEB benefits grow, Interarch has a significant opportunity to expand its product offerings and market share beyond its traditional industrial and infrastructure focus.
Government Initiatives: Various government policies, including 'AatmaNirbhar Bharat,' Bharatmala Pariyojana, Sagarmala, and Pradhan Mantri Awas Yojana, are expected to stimulate growth in the PEB industry. These initiatives create a favorable regulatory and demand environment, both directly and indirectly supporting the PEB sector and Interarch's growth trajectory.
Strategic Capacity Expansion: Interarch has planned new manufacturing units in Andhra Pradesh and Gujarat, along with upgrades to its existing facilities. The planned capital expenditure for new facilities and upgrades is a proactive measure to meet anticipated demand. This ensures that Interarch possesses the necessary production capacity to capitalize on market opportunities, preventing potential revenue loss due to capacity constraints and directly enabling the achievement of high growth rates.
Technological Advancements: The company is committed to continuous investment in IT infrastructure, including advanced ERP systems and design software. Investing in cutting-edge IT and design software enhances operational efficiency, design capabilities, and customization options. This technological edge can lead to faster project execution, reduced costs, and the ability to offer more complex or innovative solutions, thereby improving competitiveness and supporting margin expansion.
Threats
Intense Competition (Fragmented Market): The PEB industry does not necessitate significant upfront capital investment, leading to a fragmented market with numerous manufacturers, suppliers, and contractors. Unorganized players may compromise on quality to achieve price competitiveness. A fragmented market with relatively low entry barriers results in intense competition, particularly from unorganized players who may cut corners on quality to offer lower prices. This can exert downward pressure on Interarch's margins, potentially forcing the company to compromise profitability for market share.
Macroeconomic Volatility: The Indian economy and securities markets are influenced by global developments, such as the Russia-Ukraine war and Israel-Palestine hostilities, which can impact oil prices and contribute to high and volatile inflation rates. Global geopolitical events and high domestic/global inflation can lead to increased operational costs (raw materials, fuel, wages) that may not be fully transferable to customers, thereby compressing margins. Economic slowdowns resulting from such volatility can also dampen demand for new construction projects, impacting Interarch's order book and overall revenue growth.
Regulatory Changes: Interarch is subject to stringent labor legislation, including new labor codes (Code on Wages, Occupational Safety, and Industrial Relations Code), and evolving judicial interpretations. New or more stringent labor laws can increase compliance costs, reduce workforce flexibility, and complicate employee management. This could lead to higher employee benefits expenses or operational inefficiencies, negatively impacting profitability.
Key Personnel Attrition: The company's operations heavily rely on its Promoters, Directors, Key Managerial Personnel (KMP), and Senior Management. Attrition rates for KMP and Senior Management were 19.35% in FY2023, with an overall attrition rate of 43.89% in FY2023. High attrition rates, particularly among key managerial personnel and the broader employee base, pose a significant threat.
Litigation & Compliance Risks: Interarch faces risks from untraceable historical records, past statutory non-compliances (such as inadequate stamp duty payments and delayed filings), and ongoing litigation, including criminal, tax, regulatory, and civil cases. Untraceable historical records and past non-compliances point to potential governance weaknesses that could lead to future legal or regulatory penalties. The substantial contingent liabilities, including ₹153.87 million in sales tax demands, ₹13.15 million in income tax demands, and ₹736.50 million in outstanding bank guarantees, represent a considerable financial overhang. If these liabilities materialize, they could severely impact the company's financial health, diverting resources from growth initiatives and potentially damaging its reputation, thereby impeding earnings growth.
4. Management's Vision and Future Growth Guidance
Interarch Building Products Limited's future growth strategy is anchored by a clear vision for expanding and upgrading its manufacturing capabilities, strategically diversifying its geographical presence, and continuously investing in its technological infrastructure. The management aims to leverage the burgeoning pre-engineered steel building (PEB) industry in India, which is poised for significant expansion in the coming years.
Strategic Initiatives
The company plans to strategically deploy the net proceeds from its offer to fund several key initiatives designed to bolster its manufacturing capacity and overall capabilities:
New PEB Manufacturing Unit (Project - Phase 2): A substantial allocation of ₹585.26 million from the net proceeds is earmarked for establishing a new PEB manufacturing unit at the Planned Andhra Pradesh Manufacturing Facility. This project is designated as Phase 2 of the company's capacity development plan and is projected to add 40,000 MTPA to Interarch's installed capacity. The initiative involves the construction of essential building areas, including fabrication, preparatory, shot blasting, and office spaces, along with the procurement of necessary plant and machinery. The target for completion and operationalization of this phase is March 2026. This significant investment in a new facility in Andhra Pradesh underscores the management's aggressive approach to capturing market share within a growing industry.
Upgradation of Existing Manufacturing Facilities: An aggregate amount of ₹192.46 million is allocated for upgrading the Kichha Manufacturing Facility, Tamil Nadu Manufacturing Facility I, Tamil Nadu Manufacturing Facility II, and Pantnagar Manufacturing Facility. These upgrades are aimed at enhancing operational efficiency and strengthening existing capabilities. Investing in the modernization of existing facilities is a prudent strategy to improve efficiency and reduce costs, even as new capacity is being added. This dual focus on both expansion and operational excellence is expected to lead to margin expansion, which is crucial for translating revenue growth into even higher earnings growth.
Investment in Information Technology Assets: Interarch plans to invest ₹109.71 million in upgrading its existing IT infrastructure. This includes the purchase and implementation of an SAP S/4 HANA Private Cloud Solutions platform. This investment is anticipated to improve overall efficiency and enable the company to better meet evolving customer requirements. Implementing a robust ERP system like SAP S/4 HANA represents a strategic move towards digital transformation. This will enhance data integration, streamline core business processes (such as procurement, sales, and finance), and improve decision-making capabilities, all of which are critical for managing a growing and geographically expanding business.
Market Expansion
Interarch's market expansion strategy is multi-pronged, focusing on both domestic and international diversification:
Geographical Diversification: The company intends to enhance its manufacturing presence in South Eastern India through the Planned Andhra Pradesh Manufacturing Facility and in Western India with the Planned Gujarat Manufacturing Facility. While the majority of sales have historically been within India, Interarch is actively evaluating the expansion of its sales and marketing network into Central and West Asia, South East Asia, and Africa. This domestic expansion is supported by existing sales and marketing offices across various Indian states and plans to hire additional personnel. International expansion represents a long-term growth driver that aims to reduce dependence on the domestic market and tap into new revenue pools. While international ventures inherently carry risks related to unfamiliar local conditions and established competition, this signals management's ambition to become a more global player, potentially unlocking significant earnings growth avenues beyond the inherent limitations of the Indian market.
New Customer Acquisition Strategies: Interarch plans to generate repeat orders from its existing customer base by consistently emphasizing quality, cost efficiency, and timely project execution. To broaden its reach, a dedicated business development team has been established to identify new industries, avenues, or channels for increasing PEB sales. The company intends to specifically target emerging industries such as electric vehicle (EV) manufacturing, renewable power generation, and data centers, sectors that are experiencing rapid growth driven by recent regulatory initiatives. Furthermore, there is an intention to venture into new PEB categories for conventional construction, including multi-storey commercial and residential buildings. Targeting these emerging high-growth sectors is a forward-looking strategy. These industries are characterized by substantial capital expenditure and rapid expansion, offering new, high-value opportunities for Interarch's PEB solutions. This diversification of target industries reduces reliance on traditional sectors and aligns with future economic trends, thereby supporting sustained earnings growth.
5. Financial Performance: A Deep Dive into Growth Drivers and Margins
Interarch Building Products Limited has demonstrated a compelling financial performance over the recent fiscal periods, marked by significant revenue and profit growth.
Revenue and Profitability Analysis
Revenue from operations exhibited robust growth, increasing from ₹5,760.64 million in FY2021 to ₹11,239.26 million in FY2023, representing a Compound Annual Growth Rate (CAGR) of 39.68%. For the six months ended September 30, 2023 (H1 FY2024), revenue from operations stood at ₹5,915.28 million. This strong top-line expansion signals healthy demand for Interarch's offerings.
Restated Profit for the Period/Year showed an even more dramatic increase, surging from ₹64.37 million in FY2021 to ₹814.63 million in FY2023. For H1 FY2024, the restated profit was ₹345.74 million. The revenue CAGR of approximately 40% is robust, but the increase in profit from ₹64.37 million to ₹814.63 million represents an extraordinary growth of over 1100% within two fiscal years. This indicates substantial operating leverage and/or highly effective cost management strategies. While the absolute profit level in H1 FY2024 remains strong, it is important to note that the rate of profit growth observed between FY2021 and FY2023 may not be sustained at the same explosive pace. Nevertheless, the continued high level of profitability is a strong indicator for achieving the targeted earnings growth.
Key Financial Metrics
The company's financial efficiency and health are further underscored by improvements across key performance indicators:
Basic and Diluted EPS: Basic EPS mirrored the profit growth, rising from ₹4.29 in FY2021 to ₹54.31 in FY2023, and standing at ₹23.07 for H1 FY2024. Diluted EPS was consistent with Basic EPS.
Net Worth and Net Asset Value: Net Worth increased from ₹2,398.55 million in FY2021 to ₹3,437.99 million in FY2023, and was ₹3,347.89 million in H1 FY2024. Net Asset Value per Equity Share similarly grew from ₹159.90 to ₹229.19 and ₹232.24 over the same periods.
EBITDA and Margins: EBITDA surged from ₹110.44 million in FY2021 to ₹1,063.80 million in FY2023, reaching ₹441.10 million in H1 FY2024. Correspondingly, the EBITDA margin significantly improved from 1.92% to 9.47% and 7.46%. Profit Margin also expanded from 1.12% to 7.25% and 5.84%.
Return on Capital Employed (ROCE) and Return on Equity (ROE): ROCE jumped from 3.21% in FY2021 to 26.75% in FY2023, and was 11.76% (not annualized) in H1 FY2024. ROE also saw substantial improvement, from 2.15% to 20.40% and 8.84% (not annualized) over the same periods. The sharp increase in EBITDA margin, profit margin, ROCE, and ROE from FY2021 to FY2023 indicates that Interarch has not only achieved strong top-line growth but has also significantly enhanced its operational efficiency and asset utilization. This has directly led to improved profitability.
Cash Flow and Debt Profile: Net Cash Generated from Operating Activities was ₹388.32 million in FY2021, ₹261.80 million in FY2022, ₹312.86 million in FY2023, and a strong ₹560.21 million in H1 FY2024. Notably, Net Debt has been negative (indicating a net cash position) since FY2022, reaching (₹333.34) million in H1 FY2024. The Net Debt to EBITDA and Net Debt to Equity ratios have also been negative, reflecting a healthy financial position. The negative net debt position indicates a net cash surplus, which is a robust indicator of financial health and provides the company with considerable flexibility for funding future growth initiatives.
Drivers of Revenue and Margin Expansion
Interarch's financial trajectory is influenced by a multi-faceted set of drivers:
Demand for PEBs: The company is effectively capitalizing on the significant growth in the Indian PEB industry, driven by substantial investments in industrial and infrastructure sectors.
Customer Relationships and Repeat Orders: Long-standing customer relationships and a high rate of repeat orders, reaching 88.60% in H1 FY2024, contribute to stable and predictable revenue streams.
Order Book Expansion and Effective Execution: The expanding order book provides clear revenue visibility, and the company's ability to execute these projects efficiently is crucial for revenue realization.
Sales Initiatives and Pan-India Presence: A widespread sales network and dedicated marketing efforts are instrumental in expanding the customer base and driving sales.
Government Initiatives: Favorable government policies, such as the National Steel Policy and the Production Linked Incentive (PLI) Scheme, are expected to boost steel consumption and support the PEB industry, directly benefiting Interarch.
Operational Efficiency and Economies of Scale: Streamlined operational activities and integrated facilities for design, engineering, manufacturing, and on-site project management contribute to cost and time efficiency.
Strategic Sourcing and Price Escalation Clauses: Interarch's ability to pass on price escalations of specified input materials to customers helps mitigate the impact of raw material price fluctuations on margins.
Technology Infrastructure Investment: Continuous investment in technology, including CAD and ERP systems, enhances design capabilities and improves operational efficiencies, leading to cost-efficient manufacturing and better margins.
Cost Management: Effective management of various expenses is crucial for maintaining and improving profit margins.
Shift to Variable Price Contracts: The strategic move from fixed-price contracts to variable-price contracts is a critical adaptation to mitigate steel price fluctuation risk, thereby protecting profitability. The comprehensive nature of these drivers, encompassing market demand, operational excellence, customer retention, and strategic adaptations like the shift to variable price contracts, points to a well-conceived strategy for sustaining financial performance. This holistic approach to growth and margin management suggests a robust framework for future financial success.
6. Q4 FY25 Result + Concall Summary
The management reported that Interarch has delivered its highest ever quarterly and annual performance.
Q4 FY25:
Revenue stood at INR 464 crores, representing a growth of 20% on a year-on-year basis.
EBITDA was INR 49 crores, a growth of 29% year-on-year.
EBITDA margins improved to 10.5%.
Profit after tax (PAT) came in at INR 39 crores, a growth of 30% year-on-year.
FY25 (Full Year):
Revenue stood at INR 1,454 crores, showing a growth of 12% year-on-year.
EBITDA for the year was INR 136 crores, a growth of 21% year-on-year.
EBITDA margins for the full year were 9.4%.
PAT for the year FY25 was INR 108 crores, growing by 25% year-on-year.
Dividend: The company declared its first maiden dividend as a listed company of INR 12.5 per share, which is 125% of the face value.
Business Performance and State of the Business
Market Position: The company is currently ranked second overall in India in terms of installed capacity and revenue.
Order Book: As of 1st May 2025, the total order book stands at INR 1,645 crores. As on 30th April 2025, it was INR 1,646 crores. This reflects a strong pipeline and sustained demand. The average order size has increased from INR 3.5-4 crores three years ago to INR 10-11 crores now. About 50% of their orders are above INR 20 crores. The execution timeline for the largest orders is typically about a year, with most orders completed within 9 months.
Manufacturing Capacity: The company operates 5 manufacturing plants, with 4 fully integrated PEB facilities located in Tamil Nadu, Uttarakhand (Pantnagar and Kichha), and Andhra Pradesh. Current installed capacity is 161,000 metric tons, translating to an effective utilizable capacity of 135,000 tons per annum (assuming 80-85% utilization).
Management Commentary Regarding Growth
The management expressed confidence in achieving significant growth in the coming years.
Growth Targets: The company is targeting a turnover of INR 2,300 crores to INR 2,400 crores by FY'27-'28. They are aiming for a growth of about 17.5% in the coming year (FY26) and potentially 20% in the following year.
Management Commentary Regarding Challenges
The transcript indicates that the management views the order situation as not a problem. The primary focus seems to be on scaling their internal capabilities to meet the available demand.
Scaling Capabilities: A key challenge is how fast they can develop their "4 legs" (sales, engineering, production, and project management) to deliver to the customer as per requirements. This suggests that while demand is strong, the constraint is internal capacity and execution capability.
Steel Price Volatility: The management acknowledges steel price volatility but states they have learned to manage it. They build in a margin for potential price increases, maintain stocks and orders with suppliers for 4-5 months' visibility, and noted that steel prices went down during the year. In exceptional situations like the post-COVID/Ukraine war price surge, they were able to negotiate with customers. They mentioned that steel price fluctuations do not significantly affect their profitability because they manage it.
Competition: Competition exists, but the management emphasizes that orders are not purely price-driven. Their reputation, trust, history, and ability to provide value and quality allow them to win orders even without being the cheapest.
7. Concluding Remarks and 20% Growth Potential Assessment
Interarch Building Products Limited operates within a dynamic and high-growth Indian pre-engineered building (PEB) market, propelled by significant infrastructure and industrial expansion. The company possesses compelling strengths, including an established market leadership, vertically integrated operations that ensure quality and efficiency, a strong track record of project execution, and a loyal, diverse customer base. Its financial performance has been robust, marked by healthy profitability and a net cash position. The management's strategic vision, which includes aggressive capacity expansion, technological upgrades, and market diversification, appears well-aligned with the industry's growth trajectory.
However, Interarch also contends with notable weaknesses and threats. These include a high dependence on volatile raw material prices, particularly steel, and the prevalence of fixed-price contracts that limit the ability to pass on cost increases. The business is inherently working capital intensive, and its reliance on third-party contractors introduces operational risks.
Assessment of Earnings Growth Potential
Based on the comprehensive analysis, Interarch Building Products Limited demonstrates a strong potential to achieve 20% or more earnings growth over the next few years. This assessment is supported by several key indicators:
Historical Performance: The company's historical revenue Compound Annual Growth Rate (CAGR) of approximately 40% between FY2021 and FY2023, coupled with an explosive profit growth exceeding 1100% in the same period, clearly illustrates its capacity for significant earnings expansion.
Order Book Visibility: A robust order book exceeding ₹10 billion provides strong revenue visibility for the near to medium term, indicating a consistent pipeline of work.
Capacity Expansion: The planned addition of a new 40,000 MTPA manufacturing unit in Andhra Pradesh, alongside upgrades to existing facilities, will significantly enhance production capacity, enabling the company to capitalize on growing market demand and drive continued revenue growth.
Strategic Market Focus: Interarch's strategic pivot towards high-growth sectors such as EV manufacturing, renewable energy, and data centers, combined with its plans for international expansion, opens up new avenues for substantial growth.
Operational Efficiency: The notable improvement in profitability ratios, including an EBITDA margin increase from 1.92% to 9.47%, suggests that the company has enhanced its operational efficiency, allowing revenue growth to translate effectively into higher earnings.
Financial Flexibility: A net cash position and low debt levels provide Interarch with the financial flexibility to fund its ambitious growth initiatives without excessive reliance on external borrowing.
Despite these strong positives, this growth trajectory is not without significant risks:
Raw Material Price Volatility: This remains the most substantial threat. If steel prices surge and the company cannot fully pass on these increased costs due to existing fixed-price contracts, profit margins will inevitably compress, directly impacting earnings growth. The ongoing shift to variable contracts is a crucial mitigation strategy, but its full impact on profitability is yet to be observed.
Execution Risk of Expansion: Large-scale projects like setting up new manufacturing facilities are susceptible to delays and cost overruns. Such issues could defer or reduce the expected earnings contribution from the new capacity, impacting the projected growth rate.
Working Capital Management: Rapid growth will continue to place significant demands on working capital. Inefficient management of receivables or inventory could lead to cash flow strain, potentially limiting the pace of expansion or necessitating further equity dilution or debt.
Competitive Intensity: The fragmented nature of the PEB market could intensify price competition, making it challenging for Interarch to maintain or expand its margins, even with strong revenue growth.
Contingent Liabilities: The materialization of a significant portion of the substantial contingent liabilities could lead to unexpected financial outflows, directly impacting profitability and retained earnings.
Key Risks to Monitor
For any individual investor considering Interarch, close monitoring of the following factors is advisable:
Steel Price Trends: Track global and domestic steel price movements and assess the company's effectiveness in implementing and benefiting from variable pricing clauses in its contracts.
Project Execution: Follow the progress and adherence to budget and timelines for the Andhra Pradesh facility and other planned expansion projects.
Working Capital Cycle: Pay close attention to key metrics such as Days Sales Outstanding (DSO) and inventory turnover, as well as the overall cash conversion cycle, to gauge the efficiency of working capital management.
Contingent Liability Resolution: Monitor the outcomes of major tax and legal disputes, as their resolution could have a material impact on the company's financials.
Attrition Rates: Keep an eye on the attrition rates of Key Managerial Personnel and the overall employee base, as high turnover could affect operational stability and strategic execution.
Final Thoughts
Interarch Building Products presents a compelling growth narrative within a promising sector. The company's strong fundamentals, impressive historical growth, and clearly articulated expansion strategy align well with the objective of identifying businesses capable of achieving 20% or more earnings growth.
However, the inherent risks, particularly concerning raw material price volatility and the potential materialization of contingent liabilities, demand careful consideration. Investors should be prepared for potential short-term volatility stemming from these factors and be committed to active oversight.