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

Ladies and gentlemen, good day, and welcome to BMW Industries Limited Q3 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. Balasubramanian [Indiscernible] from Arihant Capital. Thank you, and over to you, Mr. [Indiscernible].

Thank you, Mr. [Indiscernible]. Good afternoon, everyone, and welcome to the Q3 FY '25 earnings conference call of BMW Industries. Today, from the management side, we have Mr. Harsh Bansal, the Managing Director; Mr. Vikram Kapur, the CFO and Company Secretory; Mr. R.K. Singh, VP Finance and Accounts; and Mr. Sanjeev Sancheti, Investor Relations, Uirtus Advisors. Without further ado, I will hand over the call to Mr. Sanjeev. Thank you, and over to you, sir.

Thank you, Bala. Good afternoon to all the participants. 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 just want each one of you to kindly go through the presentation either now or before the Q&A starts so that you are well aware of the same. Over to you, Mr. Bansal.

Thank you, sir. Good afternoon and a very warm welcome to the company's quarter 3 FY '25 earnings call. Today, I will walk you through the key business, operational and financial performances for the last quarter. For those who are new to our company, a brief overview of our operations. The focuses on adding value to semi-finished steel products, which enables us to maintain stable margins by shielding our businesses from the inherent volatility of steel cycles. Through this, 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 customers. Furthermore, our dedicated long-haul fleet enhances our ability to deliver seamless end-to-end solutions, giving us a significant competitive edge. As we move on to discussing the detailed financials, I would like to reflect on the past quarter. We are pleased to announce that our Tubes manufacturing contract has been extended until the first half of 2027 with an expected revenue of INR 365 crores over the contract period. The renewal aligns with our strategic growth plans. As has been highlighted in our previous discussions, the company remains steadfast in executing its growth initiatives. In the Pipes and Tube segment, we have successfully installed and commissioned additional capacity, bringing our total capacity to 534 metric tonnes as of quarter 2 FY '25. Looking ahead, we plan to further expand this capacity to 700,000 metric tonnes with a planned investment of about INR 25 crores, which will be entirely funded through internal accruals. It is important to note that this is an update from our previous plan of 1 million metric tonnes. We have made a deliberate decision to stagger the capacity addition given the longer-than-expected ramp-up time. This approach allows us to allocate your capital more judiciously. Additionally, the agreement for the conversion of GP/GC sheets through the CRM complex has been extended until February 2025. Negotiations for a long-term contract are in the final stages, and we are confident of finalizing the agreement. The company plans to establish new facilities focusing on 3 sectors: infrastructure, solar and defense. These facilities will be designed to operate with a very efficient capital expenditure while enabling high volume and value-added production. More of this in subsequent calls. 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 earned an operating revenue of INR 147 crores, reflecting a modest 2.5% increase. For the 9 months FY '25, operating income stood at INR 471 crores, a similar 2.3% rise over the same period last year. Operating EBITDA stood at INR 36 crores with an operating margin of 24.5%. On a 9-month basis, operating EBITDA was INR 114 crores with a margin of 24.1%. We reported a quarterly profit after tax of INR 17 crores. The quarterly PAT margin stood at 11.6%, while the 9-month PAT stood at INR 57 crores and PAT margin stood at 12%. ROE and ROCE for the December '24 period stood at 11.1% and 13.4% respectively, as compared to 10.1% and 12.5% in March '24. Net debt stood at INR 151 crores in December '24 as compared to INR 99 crores in March '24. This was largely due to the CapEx incurred for our ongoing expansion. Additionally, our cash conversion cycle stood at 68 days in December '24 as against 96 days in March 2024. With that, I will open the floor for Q&A and hand over the call to Mr. Bala. Thank you.

[Operator Instructions] The first question comes from the line of Bhavesh, an Individual Investor.

Good results from your side. My first question is with respect to your interim dividend. There is no declaration of interim dividend this quarter or the previous quarter. Is there any reason for not declaration?

No specific reason here, I'm sure, depending on what is -- I mean, we had shared the final dividend policy in the past, and we will stick to it. It was 15% to 20% of our net profit. So I think in line with the same.

Maybe it will be just the final dividend.

Correct. Yes.

Okay. Understood. And sir, Tata Steel, that renewal contract, in the last quarter, you had said that it's almost finalized and you're going to final the contract, but it seems like another 1 quarter and it's still not signed. So any major reason for it?

No, other than -- sometimes new question scheme coming up for clarification and all. Other than that, nothing major.

So can we expect this contract to be signed in the final quarter or it will get extended up to first quarter of the next year?

In the interest of complete clarity, I expected it to be signed in the previous quarters. So as far as we are concerned, we are -- as close to completion as we would like, but we really don't control any clarificatory questions that may come from other parties.

Okay. Sir, my next question is with respect to the Tata Steel starting to manufacture hydrogen gaseous pipes. So are you aware about it?

Not. I don't think I am qualified to comment on that yet because it's not a part of my scheme of things.

So you won't be a part of this, right? Like they don't give such contracts to you.

I have absolutely -- just to be fair, I don't know the subject enough to comment on it.

Okay. Fair enough. Sir, my last question is with respect to the capacity expansion. So when do you think the full capacity expansion would kick in and we can see a major growth in the revenue?

So based on our business model, we made the capacities available to the customer on their indications of demand, et cetera. Now after that we constantly keep working to make sure that all the [Indiscernible] from our side are complete to expedite the ramp-up. I think there are various market conditions that play right now, which are slowing down the ramp-up from what we would have earlier anticipated. And so I'm actually -- I'm not sure what more I can say in terms of timing, but reflect what exactly where we are.

Do you continue to earn the same margins going forward or it will go on a higher side since you are manufacturing more of pipes and tubes right now, and you are going into higher margin products.

So I think the margins and cash flows will remain on the indicated guidance that we've given in the past, we don't expect to vary from that greatly.

Yes. So we have indicated some expansion in the EBITDA margin going forward a little bit, probably as per the guidance. So we will be able to stick to the guidance as far as margins are concerned.

[Operator Instructions] Next question comes from the line of [Rohan Baranwal] with Singhania Parivar Limited.

So given the fluctuations in steel prices, how is BMW Industries managing raw material costs and pricing strategy to maintain margins?

I'm sorry, you were not very clear. Can you repeat the question, please?

Okay. Sir, my question was given the fluctuation in steel prices, how is your company managing raw material costs and pricing strategy to maintain margin.

Great question. But our business model doesn't envisage the purchasing of such raw materials. And therefore, we are not really -- we are isolated from the cyclicity and the fluctuations of the raw material. The industry we are in, the raw material is supplied as a free cost supply from our customers, which we do value addition to and supply back to them. So this is more a look out from my customer than from me.

The next question comes from the line of Vignesh Iyer with Sequent Investments.

I wanted to understand on the guidance part of it, from what I remember from the last call, we were still confident of achieving the 18% growth, 15% or 18% growth for the full year. But the numbers now in this quarter has been a bit lower than what it was expected. So are we still sticking to the guidance of achieving that 15% to 18% growth.

No, I don't think we'll be meeting that and updated guidance will be shared in the March quarter call. But as things stand now, I do not think that we will be meeting the 18% top line growth target.

Okay. And my second question is, any reason for -- I mean, lower utilization on the CRM complex side in this quarter?

No, I think it's just a market-related issue. There is no specific reason.

[Operator Instructions] Our next question comes from the line of Madhur Rathi with Counter Cyclical Investments.

As we are the converter...

Little louder, we are not able to hear you sir.

Is my audio better right now?

No, not really.

So I wanted to understand, as we process the semi-furnished steel or we are a converter of the steel, what kind of cost reduction in this processing can we expect over the next 2 years because our ROC and ROE, can it move from this 13%, 14% rate to 15%, 16% rate over the next 2 to 3 years?

Right, yes. So this is Sanjeev here. So let me say that we have already guided earlier that definitely, as our volume increases, as our top line increases, our margins will expand and so will the return ratios improve. We are working on the guidance and either along with the March '25 results or earlier, we will come out with the specific guidance, which this time, we will move to '27, and we are working on that. But definitely, with the current expansion, ongoing expansion, the return ratios are going to improve from where they are today.

Okay. So what I understood was we created a capacity for maybe Tata Steel and we give it to them and they expect us to either utilize it fully or they can expect us to use only [15%, 20%], but we'll get the certain amount.

[15%, 20%. Never 15%, 30%].

Just an example. So in a situation where they are not utilizing whatever we created for them, do we earn lesser margins than what we would have earned in a scenario where they are increasing -- they're utilizing the whole capacity or it's like a take-or-pay kind of contract that we have?

No. I'll just clarify this that we do not have a take-or-pay arrangement in these contracts. And naturally because of that high utilizations lead to higher margins and better cash flows. But as with any manufacturing facility, I would assume that there is a lag between setting up a facility and fully ramping up production and sales because there are a bunch of things that need to come together. What we're experiencing right now is just a slower-than-expected ramp-up of capacity utilization. There are no structural issues per se, more on the market side.

Okay. Got it. Sir, just a final few questions on these Tube investments we have highlighted that the new capacity will cater to infra, solar and defense segments, and we are quite a lot increasing the capacity to 700,000 tonnes. So will this come at incrementally better margins than what we are doing currently?

So there are actually 2 separate parts of question. One is the increased capacity of tubes. The other is the new businesses with respect to solar, infra and defense. I think you have assumed that, that is for pipes and tubes. They are not essentially for the conversion or that similar kind of business. But needless to say that business is expected to have better margins than the existing business.

Okay. And sir, on the Pipe segment, so this capacity -- so I'm not -- trying to understand we are having 700,000 tonnes capacity, and we are guiding a production of 300,000 tonnes, 400,000 tonnes. What is this incremental 400,000 tonnes that is not being utilized. Is this capacity being further used for some additional value addition or something else?

No, I didn't understand your question. Please, can you just repeat that, please?

Yes, sir. So this capacity that you have increased to 534,000 metric tonnes and a production of 174,000 metric tonnes. There is a quite a few -- there's a quite a lot delta between the capacity as well as the actual production. So is this delta being used for further value addition to some different products? Or why is this low? Or if not, then why is this low?

So number one, if it was -- I just want to clarify that this is the total production. Even if this was being used for other value addition, it would have been reflected over here or in one of their metrics of the production. Secondly is if you look at the same chart which you are referring to, over FY '23, '24 and '25, we've consistently increased from 73,000 to 115,000 to 175,000. The increase was expected to be a little sharper in '25. And as I mentioned, this has been slower. Because of that, we have tempered our guidance or rather we have -- our expectation, even for FY '26, which was -- if you look at the earlier presentation, it was much higher. We have tempered it down to 300,000, keeping in mind the slower pace of ramp-up. The expansion also, like I mentioned earlier, was earlier supposed to be about 1 million tonnes by FY '26, which we have scaled back to 700,000 tonnes keeping in mind the slower-than-expected sales ramp-up. So this helps us to conserve a little bit of your capital beyond what was earlier estimated and use it a little more judiciously. But I think coming back to your question, once again, this is the production. There is no further value addition in the capacity, which is not being utilized elsewhere. We are working with the customer to escalate this capacity utilization to a more sustainable level.

Okay. Got it. So the final question. Sir, considering our whole capacity, sir, what would be the optimum revenue potential at maximum utilization.

So I think we'll be coming out with the guidance closer to the March quarter call. But in terms of capacity utilization, I think 60% to 70% is a fair sustainable capacity utilization number.

[Operator Instructions] Next question comes from the line of [Indiscernible] with Arihant Capital Markets Limited.

There are a few questions from my side. First, could you provide an update on company sustainability initiative, particularly with respect to reducing carbon emissions or improving energy efficiency in our production facilities.

Our -- the rooftop solar for the Calcutta unit is already up and running. That's commissioned. I think this was updated in the last call as well. The project for Jamshedpur one is underway, and we will be updating on that incrementally as we go forward. In terms of [energy efficiency] and all, that's an ongoing project as we increase production, as we go with newer technologies, what's available in the market, that's something we continue to do here. And that gets reflected in our various reports that we will be releasing along with our -- the balance sheet and the annual report in -- after March '25.

Yes. So the focus remains on energy conservation and that's...

Okay, sir, got it. The next question is, are there any new technology upgrades or innovation being implemented at our manufacturing facilities that could enact product quality or improve production efficiency?

Not anything beyond the ordinary and not something worth talking over here. And these are -- some of these are continuous processes that keep happening because it's -- some of the technologies are actually hardware that needs to be installed, but a lot of them is also to do with continuous manpower training and debottlenecking of the systems. So that's something which is ongoing.

Okay, sir. Next question is the expansion in pipe and tube and agreement for [Indiscernible] TMT rebar indicates strong revenue visibility. Are there any new business line or acquisition under consideration to accelerate growth?

We'll need to come back on that because as has been indicated about the solar, defense and infra business, more details on that will follow in the subsequent calls as and when we are ready to talk about it.

Next question comes from the line of [Rohan Baranwal] from Singhania Parivar Limited.

Sir, can you share your revenue breakdown in margin from your products?

So the revenue breakdown has been shared in the presentation in Slide #9. And the margin breakup, we don't share as a policy here because of some sensitivity.

And sir, if I have missed it out, can you share some information regarding the contract extension for H1 '27, which was expected to generate like the revenue -- and can you share more details on the margin profile of that context?

You want the margin profile of that contract?

Yes. Like what kind of margin you would be generate...

We don't -- as I just mentioned here, sectorally, we don't share margin guideline because this is sensitive information here.

[Operator Instructions] Next question comes from the line of Madhur Rathi with Counter Cyclical Investments.

I wanted to understand what would be the cost savings from the Jamshedpur solar projects coming online?

So again, the cost saving is not material. It's more from a green -- but as you know, as we proceed any thermal and fossil fuel, we'll continue to increase in pricing. And as you go along, the solar and renewable sources will continue to get cheaper. So it's less of a short-term benefit, more of a long-term benefit. It's more of a carbon neutralization at green play, but not material cost savings that one can talk about. In terms of cost saving, it's not an immediate thing, but over a period of time, of course, the savings accrue.

Got it. And sir, generally, also, whatever internal efficiency or internal cost savings that we do, sir, generally, how much do we need to pass on to our end customers or we can keep entire cost savings to ourselves?

No, I mean, why would we pass it on to the customer. The customer relationship is based on the contract, and any further efficiencies and ongoing improvements that we do, they are a part of my -- the company's savings.

Next question comes from the line of [Dev Mehta], an Individual Investor.

So if you can just throw some light with respect to our D2C brand, Bansal Super TMT, where are we on that project right now?

So this is -- this was a part of the strategic initiative to actually build a market-facing scenario. As we've been mentioning, this is not somewhere where we are putting a lot of focus in terms of a cash burn, but we slowly and steadily continued to create a dealer, distributor, sales-based network which will also come in handy for us in case we decide to venture into some of these other businesses in the future. But from a point of view of current status, it remains the same as earlier. We continue to sell material, devise new methodologies on the sales side, create new dealers, distributors and supply chain and keep testing that. However, all this is done with a very, very careful focus on positive cash flow. So it's more to do with learning and slow and steady growth as opposed to something of a big bang cash burn initiative.

So this Bansal Super TMT product, the major penetration is in the Eastern states only, right, as of now?

Yes, yes, primarily in Bengal.

[Operator Instructions] We have no questions at this point of time. Mr. Subramanian? We have no questions at this point of time.

Thank you, sir. Thank you, everyone, and the management for [Indiscernible] sharing the insight on the performance. And I will just like to hand it over back to Harsh Bansal sir for final closing remarks.

Thank you, Bala. As always, a pleasure to be hosted by you and talk about the results. Thank you once again.

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