Bansal Wire Industries Limited (BANSALWIRE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 and FY '27 Conference Call of Bansal Wire Industries Limited. From the management, we have Mr. Pranav Bansal, MD and CEO; and Mr. Ghanshyam Gujrati, Chief Financial Officer. To take the discussion forward, we also have an Investor Relations team from Adfactors. [Operator Instructions] Before we begin, I would like to mention that the sum of the statement made in today's discussion may be forward-looking in nature and may involve risks and uncertainties. Please note that the disclaimer mentioning these risks and uncertainties are on the disclaimer slide of the Investor Relations presentation that has been shared earlier. I now hand the conference over to Mr. Pranav Bansal for opening remarks. Thank you, and over to you, sir.

Yes. Thank you. Good morning, everyone, and welcome to Bansal Wire Industries Limited Q1 earnings call. Joining me today is Mr. Ghanshyam Gujrati, our CFO. And I trust you had a chance to go through the results, press release and investor presentation, all of which are available on the stock exchanges and on our website. Now, before I delve into specifics of the quarter, let me spend a moment to touch upon the operating environment during this quarter. This year we entered the quarter with an added layer of complexity as the ongoing geopolitical tension in West Asia created near-term volatility across global supply chain, leading to a temporary disruption in the availability of natural gas. Consequently, profitability during the first half of the quarter was impacted by half -- by higher input cost and operational disruptions. However, business environment improved and the conditions improved meaningfully in the later half of the quarter, enabling us to a gradual recovery in operations. I would like to emphasize, however, that we responded to this situation with agility through a mix of operational recalibration and increased reliance on alternative energy sources, we were able to progressively restore production levels. For the quarter, our sales volume stood at 1,12,000 roughly. More importantly, our operating capacity as of today stands at around 6,80,000 tonnes. And we are pleased to say that we are back to the normal level of operations with steady and comfortable margins. On the strategic front, the quarter has actually been quite eventful with several of our key growth initiatives crossed meaningful milestones during the period. In our steel cord business, we received our first trial order from one of India's leading tire manufacturers during the last quarter. Given that domestic demand in this segment is largely met through imports, this milestone validates the capabilities we have built and marks an encouraging step in our journey. While the qualification progress is rigorous and it takes time, but we are pleased with the progress that we've made so far. Our IHT wire business continues to make good progress and has been ahead of our initial expectations. Customer approvals are progressing well, and we are seeing encouraging traction as the business gradually scales up. We also expect our OHT wire business product to commission shortly. Therefore -- together, these products strengthen our specialty product portfolio and position us well to address larger opportunities in higher value-added segments. On the B2C front, also, we made meaningful progress during the quarter with the introduction of our new range of steel wire products for the farming, sensing and poultry segment. The customer response has been encouraging with these products contributing approximately 10% of our sales already during the last quarter. This marks a promising new growth avenue for the company and reflects our broader strategic focus on diversifying our product portfolio while strengthening the Bansal brand beyond its traditional industrial cans. I'm also pleased to share that we generated a free cash flow from operating activities to the tune of about INR 120 crores during the quarter, which reflects the continued discipline we are bringing to the working capital management and overall capital efficiency, even in a seasonally soft quarter impacted by these operational challenges. Now, coming to the outlook, while the quarter did business subdued demand and some destocking at the customer end, our assessment of the underlying business is that our fundamental challenges are almost demand indicators are gradually improving. Industrial gas availability is easing, and our strategic initiatives are all progressing them. So looking ahead, we are still working towards achieving the growth of 20% for the rest of the year. This confidence is anchored in a few things. First, our business continues to gain market share. Our core business especially continues to gain market share across all end markets, driven by stronger customer relationships and a widening product mix. Second, our specialty portfolio is beginning to contribute more meaningfully as approvals advance and volume scale up. And finally, our capacity, both installed and being added give us the runway to support this growth without disruption. Continuing to gain market share remains at the core of our growth philosophy. It is what has driven our journey so far, and it remains our sharpest focus area even going forward. We are increasingly seeing the tangible outcomes of the investment and strategic initiatives undertaken over the past few years, and we remain confident of creating sustainable long-term value for all our steakholders. With that, I will now hand over the call to our CFO, Mr. Ghanshyam Gujrati, who will take you through the financial highlights of the quarter. Thank you.

Thank you, Pranav, sir. Good morning, everyone. Let me take you through the financial summary for the quarter of the FY '27. Our revenue for the quarter stood at INR 1,168 crores, reflecting a growth of around 25% on a year-on-year basis. EBITDA for the quarter came in at INR 57 crores and net profit for the quarter stood at INR 20 crores. As Pranav, sir, already mentioned, our sales volume for the quarter included 1,12,000 as compared to 1,04,000 metric tonnes in quarter 1 FY '26. While the quarter 1 is seasonally a softer quarter and the temporary industrial gas sorted in dated production during the part of the quarter. Nonetheless, the demand across our end market remain reasonaly steady. On the cash flow side, we delivered a healthy operating cash flow of INR 121 crores during the quarter, reflecting our continued focus on taken working capital cycle. With that, I will conclude my remarks. Thank you.

[Operator Instructions] Our first question comes from the line of Kunal Sharma with Veritas Advisors.

So, Pranav, just firstly, we would like to hear from you that how will you did this result quarter on. So let's say, if this war remains for another few quarters as the order size is again at the elevated label? And then how does Bansal Wire with respect to the growth in the margin per se? And will this issue again persist on the growth and margin? Or are we ready to move with the strong guidance and the range that we had to developed?

So to answer that question, let me break our Q1 into 2 parts. The first 45 days is when we saw an exponential increase in all our raw material prices -- not raw material, consumable prices, majorly gas and other packaging and other to the tune of about INR 5,000 a tonne on a blended basis. Now, as a company, we took a very conscious decision not to pass this over to our customers on the firm rate of orders that we already have. So the first, and we generally carry about 30 to 40 days of orders with us. So that 30 to 40 days of order as a company, we took a call that we will observe that cost because we have been with these customers and they have supported us such a long time. We want to support them in this time and not renegotiate on the committed orders. So that went with about INR 2 a kg EBITDA margin. We took a hit from INR 7 a kg blended, and we came down to INR 2 a kg, wherein we absorb all that cost. Now, once we had that cost increase, the new orders that we bought were again with the right prices. There, we were getting the INR 7, even, in fact, INR 8 a kg blended margin. So the second half of the quarter went with INR 7 to INR 8 a kg margin. In fact, INR 8 a kg margin, but if you adjust it with a lower base, it came down to INR 7 a kg. So this is how the first quarter was. After the 30, 40 days of order book, we were back to normal. The only disruption for us was that our volume was not growing by 20% because there was a dip in demand. Now, as of today, even with all of this crisis today, we see that the demand is there. We've been able to grab a higher market share, and the B2C segment also helped us in the last quarter to gain market share. So as of now, even with all these cost escalation, this has been passed on and we are back to the INR 7 to INR 8 a kg EBITDA levels. So which gives me confidence that we will be able to achieve our target for the next 3 quarters of the year.

Understood. So just a follow-up on the margin and the pricing which you sold that INR 2 kg that we absorbed instead of passing it to the end consumer. So on a margin, like, although we run a cost-plus model, so is that the reason behind the margin during the quarter has impacted and quite badly to I guess, 4-odd percentage.

Yes. So we operate at a cost plus model, wherein any increase or decrease that will take in our raw material or over consumable is passed on to the customer. But now in steel, we carry about 30 to 40 days of stock, now to create a natural hedge in the system, what we do is that 40 days of inventory is also covered with 30 to 40 days of fixed rate orders so that we do not get into a cycle of commodity pricing. But in this case, because in -- this case, that strategy affected us badly because we already have 30 to 40 days of order book and the cost escalated drastically immediately. It was not that it will escalate from the next orders. We -- it escalated immediately. Now, in this case, also, we could have passed this on, but due to the relationship that we've had with all our customers, we try to support them and not renegotiate in the already committed orders. But the day we got an increase from the very same day any new orders that we booked were with an escalated price. So any new orders that I booked from 1st of April also, I was maintaining my margin. Therefore, we took a temporary hit of 30 to 40 days of order book. That is all that was. Other than that, the whole quarter, we have operated on regular margins.

Got it. So from next quarter onwards, we'll be back to 7.5% to 8% in margin?

From almost May 15, we are already back to INR 7 to INR 8 a kg margin. That is why you see a blended INR 4.5 or INR 4 a kg. Otherwise, the first 45 days, the operated at INR 2 a kg EBITDA.

Got you. Okay. So -- and my second question on the steel so we secured the first trial order from the leading Indian by manufacturer. So I just wanted to understand a basic understanding that first, win off paid from the pilot project to the trial order books the last -- in a couple of quarters we alluded and which makes the customer has been approved the scale for supplier like approved us as a scale for supplier, and we start getting an order book from the respective to time benefit selling from you. So is that my understanding correct?

Yes. So in this process, there are -- in that rural process, there are 2 phases. One is the sample approval, and then, it goes to field trial or bulk trial. So we have passed the sample approval stage with most of our customers. We are on to the second stage. In fact, there were some customers that were very pleased with the results that they got in the sample approval. Therefore, they skipped the second stage of a field trial and moved directly to bulk trial orders. So this is 1 of those customers who has skipped the field trial process, and they have shifted to directly product. So we have received the first trial. There are stages of 4 trials to be held in this particular case. So with a couple of months for each trial, I think we should be there.

Okay. And if you can share the quantum of the order book from the manufacturing company? And if I'm not -- is that MRF that can share.

I can't comment on the name, but what I can tell you is it's the trial orders. So there is no order book orders there. So once we pass on these stages, then we will get a confirmed order book. And so right now, this is a trial.

Okay. And when are we expecting to get the final order book from these kind of customers?

This we will keep you updated. It is still to be seen how long they take to try a own, then we have to give them a second trial, how all of that works. So the results of all of those will define the time line. Generally, from our experience till now, we see that it will take about 2 to 3 months for each stage of trial. So if we take, let's say, 4 trials or 3 trials, it can take up to, what, 6 to 8 months. but we'll keep you updated. And this is not the only customer, so we are expecting more trial orders within this quarter also.

Okay. My another question on the CFO that we have, I guess, during the quarter that we raised to almost INR 800 crores combined for FY '27, FY '28. So what has led us to accelerate the guidance for CFO as earlier I guess we were supposed to be at the INR 600-odd crores, if you can just show some light on it?

Sure. So the INR 600-odd crores was our guidance for last year and this year combined. Last year, our target was INR 250 crores against which we did almost INR 330 crores. This year, our target was INR 350 crores, against which even in the last quarter after these challenges, and even though our -- we did not get a good EBITDA or a good PAT, we still were able to manage INR 115 crores of cash flow. So yes, I think we are -- yes, I think our initiatives have paid off and we are on that journey. So we are quite confident given the last 5 quarters that we've been able to maintain our cash flows to reach this. And honestly, if you don't target, you'll not be able to achieve. So it's important for us to target this kind of a number to achieve it.

And are we now back to the 75% plus utilization since the production has been started.

So -- right now, the demand is back. So we are operating at a good level.

Our next question comes from the line of Aditya Bhartia from Investec Capital Services.

Pranav, you mentioned that we should be back to 20% kind of a growth for the remainder of the year. I guess, you were speaking about volume growth. And if we consider INR 7 to INR 8 of EBITDA per kg, last year, we were having closer to INR 6.5 to INR 7, does that mean that even on a profitability on a per tonne on a per kg basis, there can be a 10% increase? And therefore, at the EBITDA level, we are looking at 20% volume plus 10% EBITDA entries, which makes a 30% kind of a total EBITDA increase. Is that how you're kind of thinking about it?

So yes, we are looking at a 20% volume growth. Our EBITDA guidance would also still remain 20% although I agree that we started this quarter with a higher EBITDA base. But I mean, we have 3 quarters to go. So you never know, [Foreign Language] in our business. So we would like to be a little comfortable here. And we are gaining, let's say, 20% volume, then our EBITDA would also at least grow by 20%, if not more. But anything at part of this is still to be seen. A lot of uncertainties still reminding us.

Understood. Understood. Also, if you could speak about IHT, OHD wires, what proportion of revenues and volumes would be coming from IHT today? And how large can OHT become? How exactly are the profitability metrics for these kind of wires?

So IHT and OHT combined. Right now, we have 9,000 tonnes of capacity, which will reach to 15,000 tonnes with OHT commissioning. So as the product combined, I think we have gotten good response from the customers even. In IHT, just to give you an example, next month, we are targeting 50% capacity utilization. And within this year, we see that we will reach to an optimum utilization level already in IHT because our approvals are on a very advanced stages. Most -- 80% of the customers have already given us approval, only 20% remain, which are also in very advanced stages. So I think this product has done well. On the EBITDA side also, although we do not see meaningful EBITDA today because we are operating still at, let's say, 35%, 40%. But once we reach an optimum capacity utilization, I would say that we can expect similar EBITDA like we are thinking of steel cord or something like that in percentage. So the specialty wire portfolio, we look at a higher EBITDA than our regular business, which is what we will get in IHT as well.

Sure. And on a per tonne basis, how much does that work out to be?

In IHT, I would say, about INR 10 to INR 20 per kg, in that range.

Understood. Understood. Lastly, on the B2C business, of course, this business has scaled up quite sharply in a fairly short time. What is the ambition that we are having? What are the targets that you set for yourself in the B2C business? And how exactly does the profitability differ from our conventional B2B business?

Sure. So the B2C segment that we have tapped into, this is in the low carbon side of business, which contributes to about 50%, 55% of my total volume. Now is that low carbon, our ambition is to reach 50% or more through B2C. So 50% of my business in low cabon should come from the B2C segment. On a blended basis, that would mean 25% of my total sales should come from B2C. That is the ambition. And from 5% to 10% is what we have gained in the last 1 year. So we have doubled our market share in B2C or our sales in B2C, sorry, last year. So this is the kind of growth that we have already seen, although we were operating at a lower base. But yes, I think we still see a lot of growth potential here. A lot of our initiatives have paid off well. Yes, so that -- this is a good segment. And on the margin front, also, this is better than our B2B side margin. So I would say about 20%, 30% extra EBITDA per tonne is what we are able to get from the B2C segment as compared to B2B in the low carbon front.

[Operator Instructions] Our next question comes from the line of Diya Jain with Sapphire Capital.

Can you provide the EBITDA per tonne for the OHT wires?

So as I said, IHT and OHT combined, we are looking at INR 10 to INR 20 per kg EBITDA. It is a little early to say right now, but this is the kind of range that we are targeting. But we will reach there once we reach an optimum level of utilization, which will be within this year.

And that would be like a 70% to 80% utilization?

Yes. Once we reach 60% plus is when we will start to break even. And I think 70%, 80% is when we should see decent margins here.

And what sort of...

Sorry, can you repeat this?

What CapEx are we targeting?

So as a company now from the last 1 year, we've been working a little differently from what we have been doing in the past. So now our thought process is to than about INR 200 crores, INR 250 crores every year to keep growing at 20%, 25% kind of volume. So yes, so we will keep -- we will cap our CapEx at about INR 200 crores, INR 50 crores every year. to give us a runway for even for each year. So this year also to be INR 200 crores, INR 250 crores in total.

Our next question comes from the line of Rahul Girishaw with Bluestar LLP.

Yes. Other expense this quarter has increased by INR 26 crores. Can you roughly break that into how much was due to extra fuel cost? And how much was due to additional cost due to the new specialty plan whose commercial production has not started, rough figures, maybe 50-50 or 25, 75 something like that?

So I would not be actually able to give you some specific numbers here. What I can say is on the gas front, our cost has almost tripled in some plants. And in some plants, it has increased by almost 100%. So blended, I think our cash cost has increased by about, let's say, 1.5x on an average. That is definitely there.

Okay. And the new specialty plant, the new steel code and the B2C segment, will we be able to book any meaningful revenue in FY '27?

Yes. So already in the first quarter, 10% of my revenue has come from B2C, which is only growing every month although for B2C second and third quarter are seasonally soft quarters, first and fourth quarters are better. But still, we should see meaningful growth from the B2C segment. And in the speciality front also, IHT, OHT, as I said, this month, we are targeting the sorry, we are targeting about 50% capacity utilization. Within this year, we are looking at an optimum utilization. So about 60% to 80% kind of a capacity utilization by the end of this year, we are looking at in IHT and OHT, in IHT, especially, OHT will also commission by the end of this year. So next year, we should see more numbers coming from OHT. Steel cord also, we have been -- we've made meaningful progress by getting our first trial order. But yes, there is still a long process to go here.

Our next question comes from the line of Jigar Jani with Nuvama PCG Research.

Sir, my question is basically on the volume guidance. So given 20% growth, and if I do the numbers, it basically lies almost 1,45,000 kind of volume every quarter if I just divide it by 3. So what is giving you the conviction of having such high volume growth? Is it new customizations or new products? What is giving you that confidence to do that 20% volume?

So overall, in the last 20 years, also, if you see, we've grown at about 20% every year. So we have a track record of growing by 25%. This year should also not be very different. In general, just to give you some basic understanding of how we've done that. So if you divide the 20% growth, you can divide it into 3 equal parts. 1/3 of the growth comes from our regular customers by increasing market share or just by growing with the customers. 1/3 comes from existing customers and 1/3 comes from new products that we get into. So every month, almost our R&D team develops 20 to 25 new SKUs. Every year, we have a target of developing 250 new products. So this product mix also gives us this kind of an increase. So all these 3 combined, we have generally been able to maintain the 20% growth overall. Some year, it could be a little less, some year it could be little more. But 20% average is what we have grown so far also.

Sir, why I'm asking this question is if I look at the numbers, then it basically implies over the next 3 quarters, almost 1,45,000 kind of volumes, which is almost 85% capacity utilization. So is that a fair assumption on the numbers?

So historically also, we have maintained 85% to even 90% capacity utilization. In fact, this is the sweet spot for us. This is where we get the best capital efficiency. And with that being said, we started this year with already 6.8 lakh tonnes of capacity in hand and 60,000 tonnes of capacity that we can commission whenever required. Other than that, we -- as a company, we have made a strategy of always starting the year with 25% excess capacity available so that we can grow at 20%, 25% throughout the year. So on the capacity front, I think we are covered. We faced some hiccups in the Dadri facility. When we started it, it was a green facility. It was a greenfield project. But now even though CCOPs are clear, and we are seeing a good ramp-up happening there. So yes, as of today, we see a good demand. And as of today, we don't see why we will not be able to meet that demand because we have the capacity or either in hand or at our disposal whenever we require.

Sure. Understood. Sir, great to hear. Just last final question is on margin. So we operate on a costless basis, I suppose once this issue of geopolitics and more, et cetera, get resolved, will we also have to kind of take any kind of inventory hit? How does it -- how will it function when the prices moved in an opposite direction? We will have to and pass it on to our customers. But the inventory that we will be holding is about 30, 40 days again, that will also be to be taken by us?