BMW Industries Ltd. (542669) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the BMW Industries Q2 FY '25 Earnings Conference Call hosted by Arihant Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Miraj Shah from Arihant Capital. Thank you, and over to you, sir.

Thank you, Sagar. Good afternoon, everyone, and welcome to the Q2 FY '25 Earnings Conference Call of BMW Industries. Today from the management, we have Mr. Harsh Bansal, the Managing Director; Mr. Vikram Kapur, the CFO and Company Secretary; and Mr. Sanjeev Sancheti, Investor Relations, Uirtus Advisors. Without further ado, I'll hand over the call to Mr. Sanjeev Sancheti. Thank you, and over to you, sir.

Thank you, Miraj. Good afternoon to all the participants. It is my pleasure to introduce to all of you, the senior management team of BMW Industries today. With me are Mr. Harsh Bansal, Managing Director; and Mr. Vikram Kapur, Chief Financial Officer and Company Secretary of the company. Before I hand over the call to Mr. Harsh Bansal for the opening remarks, I would like to draw your attention to the safe harbor statement in the earnings presentation. I request all of you to go through the safe harbor statement line by line as this is very important. Over to you, Mr. Bansal.

Thank you, sir. Good afternoon, and a very warm welcome to the company's quarter 2 FY '25 earnings call. Today, I will walk you through the key businesses, operational and financial performances of the past quarter. For those who are new to our company, a brief overview of our operations. The company focuses on adding value to semi-finished steel products. This focused strategy enables us to maintain stable margins while shielding our business from the inherent volatility of the steel cycle. By prioritizing value addition, we ensure consistent margins, reliable cash flows and greater resilience to fluctuations in market demand, pricing and other external risks. We take pride in our strong track record, reflected in customer relationships that span over 30 years. Our unique value proposition lies in offering a comprehensive suite of services that cover the entire value chain, supported by our strategic geographic proximity to the customers. Furthermore, our dedicated fleet enhances our ability to deliver seamless end-to-end solutions, giving us a significant competitive edge. Before we move forward, I want to take a moment to sincerely thank our retiring directors for their exceptional contributions and unwavering commitment to the company. As we transition to discussing the detailed financials, I would like to reflect on the past quarter. While it came with its share of challenges, it also reinforced our commitment to building a strong foundation for the long term sustainable growth. Despite the short-term impact, we remain focused on optimizing capacity utilizations and advancing our expansion initiative. These efforts are key to positioning us for robust revenue growth and stable sustainable margins in the quarters ahead. As discussed in our previous calls, the company remains focused on executing its growth initiatives. In the Pipes and Tubes segment, we have successfully installed and commissioned additional capacity, bringing our total capacity to 534,000 metric tons per annum as of quarter 2 FY '25. In addition, the company has started work on further rooftop solar projects at our Jamshedpur units. The expansion project involves a total outlay of INR 170 crores divided into 2 phases. Phase 1 has been completed, while Phase 2 with an outlay of INR 100 crores funded equally through debt and internal accruals is planned for the immediate future. Additionally, the agreement for the conversion of GPGC sheets through the CRM complex has been extended until November 2024. Negotiations for further long-term contracts are in the final stages, and we are confident about finalizing a favorable agreement to support sustained operations. It is important to note, we have mutually short closed the contract for a long product rolling mill, which is now in the process of decommissioning. The company plans to establish new facilities focusing on infrastructure, solar and defense. These facilities will be designed to operate with very efficient capital expenditure, CapEx while enabling high volume and value-added production. In addition to the above, we seek to strengthen our Conversion business by utilizing our current facilities and if needed, developing new plants. By proactively identifying growth opportunities, we aim to establish a unique market presence. This strategy positions us to seize opportunities in the B2B2C segment and reinforce our status as a leading provider of comprehensive solutions in the Indian market. Before we begin the Q&A session, let me share a concise summary of our financial performance for the quarter. During this quarter, our company stood at an operating revenue of INR 150.24 crores as compared to INR 159.42 crores in quarter 1. This decline was primarily due to lower order volumes as our customer undertook capital maintenance, which also prompted us to conduct our own maintenance activities during the quarter. Our gross profit for the quarter was INR 95.72 crores, reflecting a margin of 63.7%. Operating EBITDA stood at INR 35 crores with an operating EBITDA margin of 23.4%. We reported a quarterly profit after tax of INR 17.86 crores, registering a year-on-year growth of 1.1%, while the half yearly year-on-year growth stood at 21%, the quarter PAT margin stood at 11.7% compared to 11% in the previous year, while the half year PAT margin stood at 12.2%. ROE and ROCE for the September '24 quarter stood at 11.8% and 14.2%, respectively, as compared to 10.7% and 13% in March '23. Net debt stood at INR 15,412 lakhs in September '24 compared to INR 11,761 lakhs in June '24. This was largely due to CapEx incurred for our ongoing expansions. Additionally, our cash conversion cycle stood at 64 days in September '24. With that, I will open the floor for Q&A and hand over the call to Mr. Miraj Shah. Thank you.

[Operator Instructions] First question comes from Ankit Minocha from Adezi Ventures Family Office.

My first question is if you could just add some more color on this capital maintenance. So I believe the revenues have degrown this time because of -- Y-o-Y because of this. Is this something that happens every year? What does -- what prompts this kind of capital maintenance from the customer side and then from your side? And is this capital maintenance now over? And what was the duration of this for the quarter?

Thank you for the question. So typically, the quarter 2 is when all the large steel companies as well as those of us in the downstream undertake capital maintenance because this is typically because of the rains and everything, this is a weaker quarter. I think this year was the same thing. And therefore, the impact was a little more on account of maybe a deeper maintenance on the customer side. Some of the products where we saw a shortfall was because -- I mean, it was kind of exaggerated by this.

And just to carry on to the same question. Is this now completed? And what duration would this be out of the entire quarter?

So these are typically -- these could be anywhere between 2 to 3 weeks when the supplies are constrained. And yes, they are now completed.

Okay. And something like say, last year when you had growth, I mean, the duration of this maintenance depends on year-on-year, is it?

Depending -- yes, the duration of the maintenance depends year-on-year on the principal company because they may take different parts of the capital structure for maintenance.

Understood. And my second question is with regard to your earlier growth guidance. I believe now with H1 being relatively significantly lower than the guided amount for the full year, I believe you'll have to probably grow 30% to 35% year-on-year in H2 to meet the growth guidance of 18%. So are you still holding by it? Or do you believe that, that needs to be revisited now?

No, I think we'll stick to our earlier guidance.

At least for -- we'll see this quarter, how this current quarter goes. We believe that we should be able to make up. But if there is any shortfall at all, we'll come back towards then to...

But as of now, we don't have any reason to believe there'll be a miss on the guidance.

The next question comes from Jatin Damania from Svan Investment.

A couple of questions. Firstly, in your presentation on the rolling mill, you had mentioned about the...

Sorry to interrupt Damania, you're sounding muffled. May we request to use the handset mode, please.

Is it audible now?

This is much better.

Sir, in your presentation, you had mentioned regarding decommissioning of one of our rolling mills. And as a result, our capacity will come down from 3 lakhs to 1,80,000. So can you highlight what is the key reason for the decommissioning or the lower utilization for the same?

So actually, sir, you have answered both the questions because if you look at the utilization of the bar -- the smaller bar mill, the 120,000 tonnes, the utilization was very low because of the raw material supply from the customer. And that is one of the reasons why it was not -- I mean, it was not financially prudent for us to continue to run that at a lower utilization. So along with the customer, we came to a mutually agreed understanding that we'll decommission this. Now if you look at the utilization on the larger tube mill, it's substantially better.

Yes. Sir, how shall one look at the second half and going ahead because the customer -- availability of the raw material has improved in month of October, November? Or will it operate at a lower utilization?

So we will continue to operate the 180,000 tonne bar mill at the consistent tonnage that has been shown. And the smaller one, we have chosen not to operate it because operating at a low utilization actually costs us money.

That means for a full year basis, you should understand that from here onward, it would be 180,000 for a rolling mill...

Correct.

And secondly, in your opening remarks, you alluded about the new facility to operate effectively because of the CapEx and supporting higher volume and value-added products. So can you throw some light on the new facility, when is it coming? What are the value-added products that you will be...

So these, sir, we'll come out with a detailed guidance maybe in between the next -- between now and the next quarter. They will be within the scope of what we do in terms of facilities, pipes and tubes, forming structures, et cetera, galvanizing. Specific products, I am not at liberty to disclose right now nor can I talk about the exact capital structure at the moment. But before the next quarter call, I think we should be releasing adequate notes on that.

And sir, can you throw us a rough idea how much CapEx that you will be spending it and the new facility would also be back-ended by the customers?

So that is -- sir, I can't throw light on the exact CapEx numbers, but I can tell you it's not back-ended by a similar conversion arrangement.

Okay. And sir, last question, now since the majority of the current order book is back ended by the customers. Now with the decommissioning of 120,000 tonnes of the rolling mill, are we sticking to our 18% Y-o-Y growth in the revenue because that numbers will come down, right? Because one of the facilities is not available at this point of time?

I think the gentleman before you asked the same question, and we have no reason at this point to believe that we will not meet our guidance numbers. However, if that was to change, we will issue that amendment in the coming quarter.

The next question comes from Bhavesh Bhatia from -- individual investor.

Congratulations on a good set of numbers. Your con calls, presentations, everything has helped understand the company better. So I would like to thank the management to come forward and take these con calls and investor presentations. So great on the management part. Sir, I want to -- my first question is with respect to the former CFO, Mr. Akash Agarwal. So why did he resign? Because I didn't find the resignation letter attached to the announcement.

So this was a personal matter because of which he had to resign. More than that, I can't comment on this here.

Yes, due to the special circumstances as mentioned, so we'll not be able to reveal beyond this. And hence, you did not find the resignation letter.

Because there was no reason written in that because you have to mention in your annexure with your letter, we need to highlight why the person the CMD has resigned. So there was no reason in the letter mentioned. So just wanted to ask.

Thank you for highlighting that, sir. I'll have it checked up and updated as soon as possible.

Sure, sir. And secondly, sir, now this contract, which has been renewed till November, that also wasn't available on the BSE website, right...

That is because we still don't have the official documentation for that. We'll update it as soon as the documentation is completed.

The next question comes from Shivam Agarwal, individual investor.

Am I audible?

Yes, Shivam. Thank you.

So my call is regarding -- my question is regarding the cash flow statement that has been presented. In the consolidated cash flow statement, I have observed a few divergence as regards to the consolidated statement of assets and liabilities. When compared to March '24 financials, there is an increase of almost INR 3,400 crores in the trade receivables, whereas the cash flow statement states a significantly lower number. So can you please explain this reason for divergence between -- in the change of trade receivables?

Yes. So this is -- we had a request from the customer to extend the payment terms of 1 quarter end.

No, he is saying March number, what we have shown now is a divergence. No. Shouldn't be, let us check the...

There is a divergence in the change number. So as per the March '24 financial, if I see there is an increase of INR 3,400 crores in the trade receivable.

INR 34 crores, sir, not INR 34,00 crores...

INR 3,400 crores, right? And if I look at the consolidated cash flow statement, in the consolidated cash flow statement, the number that is stated for change in trade receivables is INR 1,917 crores. That is almost a INR 1,500 crore gap.

Sorry to interrupt, sir. The line for the management has dropped. Please stay connected while we reconnect the management back. Ladies and gentlemen, the line for the management has been reconnected. Yes, sir, please go ahead.

Shivam, so I think your question was that why is there an increase in receivables, right?

My question is not that. My question is the increase in receivables that is shown as per the statement of assets and liability is not matching up with what is shown in the cash flow statement at consolidated level, both the statements I'm looking at consolidated statements. So there is a gap, I mean, increase of INR 3,400 lakhs as per the balance sheet, whereas as per the cash flow statement, the increase is shown at INR 1,900 lakhs. So there's almost a...

There's a INR 15 crores or INR 16 crore gap is what you're saying.

Right.

So let me -- I think I'll have to just have a look at this and get back.

Thanks for pointing out. We'll just have a look at it and maybe get back to you on this.

And there's a similar divergence again on the other side on the trade payables as well. There's a, I mean, slight increase in trade payables of about INR 200 lakhs. But on the cash flow statement, it has been significantly -- I mean, shown as a very significant number, this change in trade payables.

So maybe there may have been a grouping something we'll have to check and get back. Thanks for pointing this out. We'll just check and get back on this.

[Operator Instructions] The next question comes from Siddharth from Earth Capital.

Yes. So as per the cash flow, there was one more divergence, which I have seen. In the cash flow, it has shown that there has been a repayment of long-term borrowings from the banks of INR 11 crores.

Okay.

But it has shown as a positive figure, which is very surprising. If we have made a payment -- repayment of the long-term borrowings, that cannot be a positive figure.

No, repayment will be a positive figure only. sorry. Yes, you're right.

So how is that possible?

That's just a typo because last time it was repayment, I think the format. So this time, because of the transition of the CFO, probably these small things have happened, we will ensure that next time this will not...

But when we hold the -- if there are such inconsistencies, then the cash numbers which we are seeing at or any other numbers which we are seeing at would show a false presentation of the numbers. So...

We need to revise that, yes.

So if there is a significant difference of P&L and all, everything is fine. But I think in the cash flow, there has been some challenge because cash flow sometimes is made at the last moment and it's a tricky thing. Thanks for pointing out. We will look at it and if it's required to resubmit, we'll resubmit.

[Operator Instructions] The next follow-up question comes from Ankit Minocha from Adezi Ventures Family Office.

On this decommissioning that the previous participant was talking about, so could you talk about why this decommissioning had taken place? And secondly, what kind of impact does it have on our capacity and moving forward?

So thank you. So it was decommissioned because the customer is actually not adequately able to utilize that facility and decommissioning it is actually a positive effect on my bottom line. I do agree that my utilization -- my overall capacity will go down, and it may have a little bit of effect on the top line because anyway, the utilization numbers are very low. But on the bottom line, it will have a substantial impact because I'm able to reduce cost by more than what was planned on a per tonne basis. In terms of capacity, this is in this presentation, we've broken it up into 2, 1,80,000 and 1,20,000. So the 1,20,000 gets decommissioned, and we are able to better utilize the 1,80,000.

Okay. And secondly, I mean, if I look at the November contract extension that we're talking about, I mean, we are already on the 18th of November, and we're saying that we haven't received the document. So I mean, how do these extensions work for you? I mean, official communication, et cetera, in the middle of the month of when we are saying the contract has been extended till November...

Okay. We still have about 2 weeks left. So that's not a big deal because once the negotiations are completed and we've come to an agreement, it's only a matter of papers getting signed. So before the end of the month, we hope to get this done.

And then would this period again be a short-term period? Or would this be done for a longer-term time?

It will be a 5-year period.

Okay. So we anticipate by the end of November, then we should resign for a 5-year period?

Correct. Yes.

I mean it's just that, that the formality is left. Otherwise, it's all done.

[Operator Instructions] The next question comes from Anirudh from Veer Capital. Anirudh, your line is unmuted. Please proceed with your question. Sir, you audio is not coming through clearly.

Sorry, sir, I joined a bit late on the call. Sir, just wanted to understand, so in the PPT, we have mentioned that in the notes that we have exited the contract for one small rolling mill, and it is under decommissioning. So if you could explain which mill is it and why are we decommissioning it?

Sir, in fact, this was just answered to the gentleman before you. So if you see there are 2 mills over there that we have broken up our total capacity into 1,80,000 tonnes and 1,20,000 tonnes. The 1,20,000-tonne mill is with a hashtag where we have said that this is being decommissioned. The primary reason is that the utilization was extremely low and the customer was unable to load it. So it was mutually decided to exit this contract and short close it. This will allow us to focus on facilities that are better utilizing. And this will actually have a positive impact on my bottom line.

Okay, sir. Sir, so in this quarter, we have seen that the HRC prices have fallen from INR 53 per kg to INR 46 per kg, and we have seen that a lot of players have reported weak set of numbers in this quarter. So sir, just wanted to understand, so when we do the job work for Tata Steel, so does Tata Steel provide us with the HRC and do we work on it? Or do we produce HRC by ourselves and we send it to Tata Steel?

So they provide us the HRC.

Okay. They provide us the HRC. So this will not -- so the volatility in HRC prices will not affect us and it will directly affect Tata Steel, right?

Correct.

Okay, sir. And sir, how long does it take for products like MS pipes, GPGC coils for us to produce them?

We don't produce HR coil, sir. We only -- this is -- it's an ongoing process, which from start to finish could be anywhere depending on the specifications, our order loads and other things. But it's a continuous process.

Okay. Okay, sir. Understood. Sir, so what is the status of our negotiations with Tata Steel? So we were supposed to reach some deal by September end, if I'm not mistaken.

The negotiations have been concluded. We are just waiting on the paper work.

Sorry?

The negotiations have been concluded. The documentation is awaited.

Okay, sir. Okay. Understood. And sir, on the CRM production, so is there any reason that our CRM production and dispatch volumes are reducing sequentially?

No, this is -- it's a back-to-back customer thing. And typically, if you see the second quarter is always weaker. But on a half-to-half basis, we are -- our numbers are not that diverged and typically make up most of it is quarter 3, quarter 4.

Okay. Okay, sir. Understood. Sir, just one last question on the pipes and tubes. So sir, we have an annual capacity of about 534,000 tonnes. And if we look at the production volume in this quarter, if we annualize it, it comes to about 35% to 37% utilization. So sir, just wanted to understand what would be our strategic utilization? And by when can we achieve it?

So we will look at achieving optimum utilization, which is maybe in the 60% range in '25, '26. We are in the ramp-up stage right now. And tubes and pipes generally takes a little bit of time because of the number of SKUs and all the different prices and everything. So optimum utilization will be reached between '25 and '26.

Okay. And optimal utilization we can reach is 60%?

60% to 70%, yes.

The next question comes from Miraj Shah from Arihant Capital.

Just a couple of questions, sir. Firstly, congratulations. You mentioned that we are going to announce the contract part soon or just waiting for the paper documentation. Sir, I wanted to understand how are we placed on our -- some distribution policies like dividend distribution policies? What plans do we have on that for a formal policy over there?

Sir, I think we had declared that we will continue to maintain a 15% to 20% dividend on the PAT basis and we maintain -- we are sticking to that.

Understood. And secondly, sir, any expansion plans that we take, such as we've taken in Pipes and Tubes or any other segment that we take would be in the existing 2 regions only, right? We won't be asked to move to another region beyond Bengal or Jharkhand? So [indiscernible] other regions?

So I would open that up a little bit and say beyond Eastern region for now.

Not beyond Eastern region for now?

We are not actively looking at growing in conversion beyond the Eastern region.

Understood. Okay. And sir, lastly, on the -- I think one particular thing that was very interesting to me is the Bansal TMT that we had. Sir, any updates on that, how things are progressing over there? What are we doing?

We are on track with respect to that product, the Bansal Super TMT. We will continue to maintain -- it's a very slow, steady organic growth, which we will continue to do, sir.

The next question comes from Ankit Minocha from Adezi Ventures Family Office.

I also wanted to check this contract extension with Tata Steel, are the commercials similar or the same as what we had before? Or are these more or less favorable to us than earlier?

Sir, I think they are positive. They are stable, and there are no negative surprises.

Okay. And in terms of EBITDA margin, I think we've spoken in our earlier call, we've already spoken on the top line guidance, but EBITDA margin, we've spoken 27% to 28% by FY '27. So I mean, what does H2 look like in terms of EBITDA margin guidance now?

Sir, generally, like I mentioned earlier also, the H2 is better than H1. And so our EBITDA numbers will reflect that.

[Operator Instructions] The next question comes from Vivek Chaturvedi , individual investor.

I just wanted to check one thing. The management of Tata Steel in one of the conference calls has stated that steel companies will find it difficult to support significant expansion in the coming quarters if the price of steel does not recover. At current steel prices, margins don't justify investments. So I mean, if the steel prices don't recover, so does that impact our expansion and our guidance?

No, sir. I mean the short answer is no, sir, because we are not on the steel side. And one of the reasons why we are in the sector that we are in is because this is -- we are agnostic to steel prices.

But would it -- I mean, low steel prices deter Tata Steel itself from expanding its production and sales and basically us getting the contract work from them?

No. I mean even if they don't expand, sir, they need to add value to the production they already do.

Okay. So what our view is that even if steel prices do not recover the existing work itself that Tata Steel is doing and which will come to us should take care of the expanded capacity and give us more sales in future?

Yes, sir, there's enough headroom available for that.

[Operator Instructions] As there are no further questions, I would now like to hand the conference over to Mr. Miraj Shah for closing comments.

Yes. Thank you, everyone, and the management for being a part of the call and sparing time and sharing the insights on the performance. And sir, I'll just like to hand it over back to Harsh, sir, for closing remarks on your part.

Thank you, Miraj. It's always a pleasure to do these calls and for all the participants who logged in, especially for pointing out some of our errors. We'll be sure to come back to the team at Arihant with the amended numbers. They'll also be uploaded in due course. And I'll be grateful to Miraj, sir, if you can circulate it to those who had joined the call just to make sure that the loop is closed. Thank you once again for joining in -- joining the call. Much appreciated. Thank you.

Thanks a lot, Sanjeev here. Thanks, everybody, for joining the call in the middle of the market hour. Really appreciate that. Thanks a lot. Bye.

Thank you, sir.

Thank you. On behalf of BMW Industries, that concludes this conference. Thank you for joining us. You may now disconnect your lines.