Agarwal Industrial Corporation Limited (AGARIND.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q4 and FY '24 Earnings Conference Call of Agarwal Industrial Corporation. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Astha Jain from Hem Securities. Thank you, and over to you, ma'am.

Thank you, Sagar. A very good evening, ladies and gentlemen. Thank you for joining Agarwal Industrial Corporation Limited Q4 and FY '24 Earnings Conference Call. Joining us on the call today from the management team is Mr. Vipin Agarwal, Chief Financial Officer. We will commence the call with the opening thoughts from the management, post which we will open the forum for Q&A session, where the management will be glad to respond to any queries that you may have. Before we go on to the main call, I would like to read the standard disclaimer. There may be forward-looking statements about the company and the subsidiaries, which are based on the belief, opinion and expectation of the company's management as of the date of this call. The company do not assume any obligation to update their forward-looking statements if those beliefs, opinion, expectations or other circumstances should change. These statements are not guarantee of future performance and involve risks and uncertainties that are difficult to predict. Consequently, listeners should not place any undue reliance on such forward-looking statements. With this, I will hand over the call to Mr. Vipin Agarwal, Chief Financial Officer, to take it forward. Over to you, Vipin, sir.

Good afternoon to all, and a very warm welcome to everyone who has joined us today. It is my pleasure to welcome you all to the Q4 and annual FY '24 Earnings Conference Call of Agarwal Industrial Corporation Limited. Let me start by giving you a brief overview of the company's business. Agarwal Industrial Corporation functions as an infra ancillary for the transport and logistics segment, leveraging its powerful logistical assets and infrastructure. It continues to be the largest bitumen player in the private sector in India. We are thrilled to report that AICL has delivered a robust set of numbers in FY '24 compared to FY '23. For the current fiscal year, we have achieved our highest ever revenue volume, EBITDA and PAT margin, showcasing our continuous growth and stock market position. In terms of volume, we have reported 15.80% year-on-year revenue increase in bitumen to 4.91 lakh metric tons, nearly meeting our expectations. Our compound annual growth rate for volume has been more than 15% since FY '21. We are confident that this momentum will continue with projected growth of 15% to 20% in the coming years. Our volume target for FY '25 is set at 6 lakh metric tons, aiming for a 20% year-on-year increase. With capacity constraints in India for bitumen and AICL being the only integrated player in the private sector for bitumen, we have been able to increase our market share. India saw a 6% increase in bitumen consumption to nearly 9 million metric tons vis-a-vis we grew by 15% in current year FY '24. Currently, EBITDA per metric ton is around INR 3,625 which we expect to increase to INR 3,800 to INR 3,900 per metric ton, reflecting our ongoing efforts to enhance profitability. If you see, we have grown the same from INR 2,278 in FY '21 to INR 2,844 in FY '22 and INR 3,409 in FY '23 and now to INR 3,625 per metric ton in FY '24. The rapid pace of infrastructure development is generating a significant demand for road construction materials, creating a robust market for our production services. We are delighted to announce that we have continued to achieve strong blended EBITDA margins of 8.3% and a PAT margin of 5.13%. These results are a testament to our relentless focus on strengthening operations and maintaining control over critical aspects of our business, particularly through ownership of our petroleum vessels, ensuring timely supply of demand generated back home. I'm happy to share with 10 large logistics vessels, bitumen and a total capacity of around 1,02,000 metric tons, we continue to be largest private sector player in the country. Total bitumen transported through our own vessels is approximately 2.93 lakh metric tons, which has grown at a CAGR of around 27% since 2021. We are highly focused on efficient utilization of capital and strategic CapEx. Over the last 5 years, we have maintained an ROCE of 20% to 25% and an ROE of above 20%. We have strengthened our balance sheet, increasing our net worth from INR 19,610 lakh to INR 51,102 lakh and expect outperformance in the long run. Although our debt-to-equity ratio has increased this year, CapEx of fleet ownership and securing tenders is expected to gradually decline as we achieve higher ROCE over the period. Bitumen consumption in India is one of the lowest among the 10 top countries by road network, creating significant future growth opportunities. India has the largest road network in the world at approximately 64 lakh kilometers, providing extensive maintenance opportunities year-on-year. The Indian government's ambitious infrastructure projects, including the Bharat Mara project are set to enhance road connectivity and drive demand for bitumen. The Road Ministry received a 36% increase in budget allocation amounting to INR 2.7 lakh crores for '23-'24. This boost is aimed at helping the ministry meet the 25,000 kilometer road development target. This accelerated pace of development is generating substantial demand for road materials, thereby increasing our responsibility in supplying bitumen. For the full year FY '24, we achieved revenue from operations of INR 2,130.43 crores with an EBITDA of INR 1,77.94 crores and a PAT of INR 1,09.22 crores. This represents increase of 5.25%, 23.07% and 18.38%, respectively, compared to FY '23. We are pleased to announce that the company has consistently paying dividend as recommended, a dividend of INR 3 per equity share for FY '24. In Q4 FY '24, our consolidated revenue from operations was INR 7,78.20 crores with an EBITDA of INR 61.90 crores and a PAT of INR 38.01 crores. These figures represent significant increases of 17.88%, 43.31% and 34.1%, respectively, compared to Q4 FY '23, where we recorded revenue from operations of INR 6,60.18 crores and EBITDA of INR 43.20 crores and a PAT of INR 28.30 crores. Our economies of scale achieved through our own fleet of bitumen, logistics vessels and road transport vehicles enable us to outbid competitors, secure tenders and ensure high standards of supply and service to our customers with expectations of strong growth infrastructure activity and based on our current market trends, the order in pipeline, the company has a strong outlook for sustainable long-term growth. With this, I -- we invite participants to ask any questions they may have. Thank you.

[Operator Instructions] Our first question is from the line of Tejas Khandelwal from Prudent Equity.

Am I audible?

Yes.

So sir, first of all, congratulations for the good set of numbers. So my first question is, is the third vessel still in dry dock?

No. All the vessels are in operations in the current quarter.

Okay. So how many rotations can it make in a year, 10th vessel?

Sorry?

How many rotations can it make in a year?

One vessel can make around 12 to 15 turnarounds in a year, depending upon which location it is allocated to. If it goes towards the east side, it may do only 8 to 9. The transit for the Eastern region is double in the Western side and approximately between 12 to 15 turnarounds in a year.

Okay. Okay. And what contribution can we expect from our own vessel next year?

I am not considering the monsoon period in that.

So my question was what contribution can we expect from our own vessels next year? So out of total volume, what can we expect...

As mentioned, this year, we have done close to 60% through our own dedicated vessels. I think coming in the next year, we may try to outreach this number and try to reach it up to 65% to 70%, because the turnaround of the vessel and the requirement of the product is in line. One vessel will come after only 10 to 15 or 20 days. After in between, you always have to take vessels from a third party to keep your sales on.

Okay. And sir, regarding this EBITDA per tonne of INR 3,800 to INR 3,900 you mentioned. So is that expected over next year?

Yes, yes, it is for the next year.

Okay. Okay. Fine. And sir, I have a last question. So since the contribution of chartering business in Q2 is comparatively higher, and we have almost doubled our own vessel capacity. So what revenue growth do you expect in second quarter compared to last year's INR 232 crores?

See, all the vessels are in place now, all the vessels are operating. So we expect some increase of around 15% to 20% in terms of revenue.

How much, sir?

15% to 20%.

Okay. Okay. And sir, last -- one more last question. So what was the realization of bitumen in last quarter?

It is around, as I mentioned, INR 3,625.

INR 625. And where do you expect this going forward in...

INR 3,625.

Okay. And where do you expect this going forward in next -- in FY '25 and '26?

Around INR 3,800 to INR 3,900.

Our next question is from the line of Tanvi, who is an individual investor.

Congratulations for good set of numbers. I just had 2 or 3 questions. The first one is, sir, how is the problem we're seeing in the Red Sea? Because earlier in quarter 3, you said that the volumes were high, but realization was low. We're not getting the prices and raw material prices also inflated. That's why the revenue was down. So is the Red Sea problem now resolved?

So there are 2 different set of questions that you ask. Red Sea is not a problem for us because we are not going towards that side. We are coming from the Gulf countries to India where we do not fall in between of Red Sea. That will be answering your first question. And in terms of realization, yes, the total realization for the entire year has been comparatively low. Since it is a commodity product, realization is lower than the last year. Last year, the total realization was around INR 42,000 crores, which this year, it is around INR 36,800 crores. We have lost nearly about INR 300 crores to INR 400 crores of turnover due to the price fluctuations. And we have still maintained our top line compared to last year.

Okay. And sir, any guidance in terms of the commodity prices that we see for this year?

It should be more than the current realization that we have on average this year.

Okay. Okay. Got it. Sir, one more question. So this quarter, you've done phenomenal in terms of volume and revenue. But you've also said that there was one order from IOCL for 1,92,000 metric tons, which was expected to start in quarter 4 and to be completed in this particular quarter. So is this volume hike?

It was from HPCL, BPCL together, which we already supplied. And we have we have already supplied close to 60,000 tonnes to all the 3 PSUs.

So is the 60,000 tonnes a part of that 1,92,000 order that was secured?

Not entire. 25,000 tonnes is not part of this because this order we received in the current quarter.

Okay. And by what time can we expect this order to get completed?

It's on a continuous basis as in when the -- it's on a regular basis, the supplies are happening. So this entire volume is till FY '25.

Okay. So in this year only we will complete this entire order?

We are ready to complete. The PSU should up that much of product as per the order given by them.

The next question is from the line of Bhaumik Shah, who is an individual investor.

So any plans for CapEx for this year? That's my first question.

Yes. As we have always said in all the con calls, it all depends upon the opportunities that the company gets. And if there's a good opportunity wherein the CapEx is at a reasonable price when we are able to maintain our return capital employed, then the company will definitely go for it. It all depends on the opportunities that the company is having.

Okay. So we are -- we may look out for the opportunity for the CapEx as well, right? So that is...

We always looking for a good opportunity. And if you see last 3, 4 years, we have always been adding -- doing a CapEx of around INR 100 crores, INR 150 crores in a year. Going forward, I think in that context, we may continue the CapEx in the same line.

Okay. And going forward in the next down the line 2 to 3 years, do we see a possibility that we may touch this 1 million metric ton above this bitumen supply. Do we see -- we can cater that much of demand?

We can easily cater that much of demand, but provided we have that much of logistics available at our end to bring the product to supply that much of volume. The volume is definitely achievable and can be easily done. It all depends upon logistics that you have with you. That is the reason the company is focusing on having the vessels to transport this much of quantity into India for the sales that we can cater to the market.

But I think we have significantly increased our capacity, right? Because earlier up till last to last quarter, we had 47,000 metric ton capacity. Now it is over 1 lakh metric tons. So I think we have increased significantly our capacity.

Yes, significantly. But the vessel turnaround is, as I mentioned, around 15 to 20 days in the West and around more than a month for the East. If you have 1 vessel which is already delivered, it will come back after 15, 20 days. And in the meantime, if you are increasing your throughput and sales, you will definitely require 2, 3 vessels in that period. So ultimately, our dependency on third party will stay till the time we have in-house capacity of around or more than 2 lakh tons.

The next question is from the line of Raj, who is an individual investor.

Congratulations on the good set of numbers. What is the revenue growth projection for the current year, FY '25?

Yes. We are always targeting around 15% to 20% in terms of volume. We expect within the line, if we are increasing to 600,000 tons, so it should be around 15% to 20% on the turnover side, provided the rates are stable. If the commodity prices goes down, then maybe the effect will be in between the current financial year to the next financial year.

Okay. For the last 5-odd years, we have been growing at a much faster pace. So are there any plans of increasing the lines of business or any other expansion plans, which -- where we can expect much higher growth rates?

See, there's a very good potential still left in this current market that we are. We can easily do more volumes, as I mentioned earlier also. There is no constraint in doing your sales. We are focusing on our infrastructure and logistics where we can bring in more products for the disposal to sell in the market. I hope I have addressed.

Yes. Yes. But we have largely been like -- for the last couple of years, we have been incrementally growing at about like 5% for the current year, it was in terms of volumes -- sorry, in terms of sales growth. So I was just wondering, do we have any...

More than 15%, 15.80%. So this is -- volume-wise, we have always maintained more than 15% in the last 5 years now.

[Operator Instructions] Our next question is from the line of Yash Kukreja from Equitree Capital.

Sir, congratulations on good set of numbers. Sir my first question is, sir, is this the peak debt, as you said -- rightly said that we are going to expand more, like we are going to buy vessels if the opportunity arises. So is this the peak debt? Or are we going to do some expansion with debt also from here onwards?

See, we have always been doing expansion mix of equity from the company and debt. It ahs to be a mix of debt and equity both. So that the current cash flows do not get impacted with the growing business.

Okay. Got it. And sir, my second question is, sir, considering the political scenario that is as of now, sir, do we see any impact like if there is a slowdown in construction of roads and anything like that, do we see any -- how do we cover ourselves for that?

Absolutely not. The current political side also focuses on infrastructure. And see, the infrastructure growth or the projection is not over a year. It is always a future growth wherein they are -- whatever tenders or contracts have been awarded, it is kept in the focus of next 3 to 5 years. So whatever tenders have already been allotted or in the pipeline, it will be for next 3 to 5 years. So absolutely no problem in terms of volume growth or even infrastructure side, even if there is some other government.

The next question is from the line of Pritesh from Lucky Investment.

My question is on your slide, there is the slide where you have mentioned the volume handled by your own ships and the ship tonnage. So currently, are you using those ships completely for tonnage or these ships take you to a higher tonnage number? And what will be that tonnage number? Because your ships will come the year, right, throughout the year.

Yes, yes. The quantity mentioned in the slide -- 9 vessels, which we have we had till January. And the 10th vessel, still we have to add its volume in the slide. So going in the next year, maybe we will be able to do about 3.5 lakh to 4 lakh tonnes through our own 10 vessels.

Okay. So the 2.9 lakh tonnes that we see today in the presentation...

Around 33% -- 30% to 33% increase should be in the coming year. Between 25% to 33% or 35% in terms of volume through our own vessels.

Own vessels. So to that extent, it's to do with the time of the year when these ships came, right?

I think there's some crack in your voice. Can you repeat the question, please, sir?

I said it's to do with the time when the fleet was added, right? It's to do with that. You would have got the fleet partially available for the year. It's to do with that?

Only 1.5 months in the current financial year.

How much of your capacity was available for only 1.5 months?

This year, the large vessel capacity has not been utilized at all because it was just purchased and there was some work going on.

And what is the size of that capacity?

It's around -- loadable around 42,000, 44,000 tonnes.

Okay. So out of 1 million tonnes, right?

No, no. The vessel capacity, I'm saying is around -- loadable around 42,000 to 44,000 tonnes.

So on the same slide, there is a vessel capacity number, which is the total tonnage you can handle. Is that the number about 1 million or something?

No, no, it's around 1,02,000 metric tons.

Out of that 1,02,040, which is the last vessel was available for 1.5 months.

Yes.

Okay. Okay. I understood that. Then from your presentation, there was one slide on import into the country and total consumption, right? Is there -- though the market share reduction is very small between the last 2, 3 years, but there is some market share reduction in the import. So your volume as a percentage of the import, right?

Yes.

Okay. Why is it so? And then you are saying that I will be 20%, 30% of the imported volumes eventually of the country. How will you achieve that trajectory?

There has not been a decline in the imports. Even in my slide, it has increased from 2.8 million to 3.5 million. So there has not been a decrease in the volume of imports.

No, no. I know it's just your market share, little bit has changed in the last 2, 3 years.

Yes. See, we have been focusing on more volumes, and we have actually gathered some of the market share of maybe some other players in the market. We have gathered, we have tried to take away some other player in the market whose share of the other player. And going forward, see, as you can see it, the volume from approximately 2.9 million to 3.5 million, it has gone. So it is about 600,000 metric tons increase from '23 to '24. We will consider the additional volume, and we have been a major player who has contributed in the additional volume.

Okay. Okay. And I have one last question. You added ship and your balance sheet as a certain debt on your balance sheet now. How should we look this debt number? How should we look at ship addition number over the next couple of years?

You mean to say return on capital?

No. How should your debt look like over the next 2 years? And what is your incremental ship addition program for the next 2 years?

Okay. So see, the debt has gone up. And as I mentioned, this is added only in the month of Jan, Feb. So the total -- if you consider on a year-on-year basis, the debt equity ratio would be maintained compared to last year because this CapEx was around 16 million to 17 million. So it is a very high CapEx that we have done this year. And in the whole year, if you consider this, it would be a return of around 20% -- between 20% to 25%, which we have always been maintaining in the last few years. Going forward, as I mentioned earlier also, if there is a good opportunity where we feel that the ROCE and ROE of the company is maintained at the current level, in fact, on the blended level, if it gives us higher returns, then only the company will decide to go for it or not to go for it. As our return on capital employed and on equity is going to be very good in the last 4, 5 years. So going forward, if there is a good opportunity where the company feels that both these ratios would, in fact, give us higher returns or at least maintain this percentage, then definitely, the company will decide accordingly.

So what is the ship addition program for the next 2 years? Will you add more ships?

As per the requirement of the product, we feel, yes, there are chances of a few more vessels that the company can easily add to cater to the local demand in India.

The next question is from the line of Nikunj Mehta from Wealth Guardian.

My question is a little broad in nature. Firstly, I want to understand what's your near-term vision for the company? Where do you want to take the business? And what are the key challenges to achieve that vision?

Thank you so much. The broader vision that the company is having is the company wants to be the highest bitumen player in the industry in terms of manufacturing, import, logistics, all the factors together because we are a support system wherein we are supplying product to the infrastructure development of the country. We are one of the key infra ancillary player wherein we supply bitumen for the development of the road. So in the coming few years, we have a vision of doubling the volume that we are doing in the next maybe 2, 3 years from now.

Okay. And what are the key challenges that you think you will face, which you need to take care of?

Challenges, we don't see a great challenge because the company is well positioned in terms of locations and the logistics advantage that we have. I don't think any other player in the entire Indian space is having the setup that we have already built in the last few years. We just have to turn around the throughput from the storage tanks or the storage manufacturing capacities that the company is having. So we don't see a very good or much challenge from the market.

Okay. Okay. Sir, second question is, are we looking at any other areas or opportunities apart from bitumen or we stick to this core and then we try and expand into adjacencies? What would you...

Yes. We have always been focusing on forward and backward integration in the same field that we are. The logistics side, if you say land and sea, the logistic advantage in terms of manufacturing plant and import location and procuring product from the -- right from the source origin. So we have always been following a forward and backward integration in the same line that we are in. So company will focus on the key areas in the same segment or a forward or backward integration. Maybe a company can produce bitumen on its own in the coming future.

[indiscernible].

Sorry?

Can you hear me now?

Yes.

I missed the last line, sir. Did you say?

We have always been focusing on forward and backward integration. So coming future, maybe the company may produce bitumen on its own as well.

Understood. Okay. And sir, last question is, if you were to have an opportunity to add larger sized fleet or other opportunities, conceptually, are you okay to have a little higher debt? Or would you be comfortable diluting and raising equity? What's your thought process? What kind of leverage are you comfortable? And what kind of CapEx could you do in a year? Do you have any kind of philosophy or thumb rules?

If you have to -- on a company level, I don't think so. equity is -- debt is always cheaper than equity. If there is any plan for the company to add more vessels in terms of CapEx, the company will not dilute. As on date, I feel this is a personal opinion, debt would be a cheaper option than parting with the equity.

Our next follow-up question is from the line of Tanvi, who is an individual investor.

Sir, just one question. Sir, if we assume that we don't lend our vessels, all the vessels for any chartering to third parties, then what is the maximum volume that we can do from our own vessels. Our total fleet is now more than 1 lakh.

Yes. See, we have to understand that in the monsoon period that 4 months that we have, we have to take that into consideration on the entire yearly basis as well. So 4 months, there is hardly any demand in India. So during that time, you have to lend your vessel to third parties for your revenues during that time. So on a year-on-year basis, these 4 months of monsoons, you have to lend your vessels to third parties.

Right. So I'm just asking on a broader level, what is the maximum capacity that we can cater to. Even if we -- at times you say that when we get a better rate from a third party, we would take some -- we would hire a third party for our logistics, and we would give our vessels to somebody else. So I'm just asking on a...

That, we've already been doing on a continuous basis as and when the challenges or the requirement is there.

My question is what is the maximum capacity that we can do from our own vessels, considering the monsoon and considering all the challenges on a normal scenario in a year, what is the maximum...

I believe we can easily go up to 65% to 70% in the coming year with the volume that we have in mind.

Okay. Okay. And sir, any guidance for the upcoming quarter because we expect generally second quarter, we don't see on a Q-o-Q basis. So any expectation for the first quarter? Any order that you would be completing in this quarter 1?

You mean to say CapEx?

No sir, not CapEx, in terms of volume or revenue for the next half year because this includes the monsoon period as well?

No, no. This first quarter will not be including monsoon. It is only hardly 10 days maybe of June. So we expect to be in line with the last few years that we have been. We would be doing higher volumes than the last few years in the first quarter.

Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to Ms. Astha Jain for closing comments.

Thank you, Sagar. On behalf of Hem Securities Limited, I thank Agarwal Industrial Corporation Limited team for giving the time we spend on this call and responding all the queries in the detailed way. I would also like to thank all the participants for joining this call. Now I would like to hand over the call to moderator for closing remarks.

Thank you. On behalf of Agarwal Industrial Corporation, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.