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

Ladies and gentlemen, good day, and welcome to BMW Industries Limited Q1 FY '27 Earnings Conference Call hosted by Arihant Capital Markets Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Juhi Manwani from Arihant Capital Markets Limited. Thank you, and over to you.

Hello, and good afternoon to everyone. On behalf of Arihant Capital Markets, I thank you all for joining into the Q1 FY '27 Earnings Conference Call of BMW Industries. Today from the management, we have Mr. Harsh Bansal, Managing Director; Mr. Vikram Kapur, Chief Financial Officer; Mr. Sanjiv Sancheti, Investor Relations at Uirtus Advisors. So without any further delay, I will hand over the call to Mr. Harsh for his opening remarks. Over to you, sir.

Good afternoon to all the participants. This is Sanjiv Sancheti. Before I hand over the call to Mr. Harsh Bansal for his opening remarks, I would like to draw your attention to the safe harbor statement included in the earnings presentation. I request all the participants to kindly review the same and have a good look at it prior to commencement of the session. Thank you, and over to you, Mr. Bansal.

Thank you, sir. Good afternoon, everyone, and thank you for joining us for the BMW Industries Limited earnings call for the first quarter of FY '27. We are pleased to report a strong start to FY '27, underpinned by healthy profit growth, improving utilizations across our downstream business and continued progress on our strategic expansion. Operating income for the quarter stood at INR 166.0 crores, representing a year-on-year growth of 11.6%. Gross profit was INR 112.7 crores with a gross profit margin expanding by 536 basis points year-on-year to 67.9%. Operating EBITDA increased by 7.1% year-on-year to INR 33.7 crores, translating into a margin of 20.3% compared with 21.2% in Q1 FY '26. While gross profit margins improved meaningfully, the operating EBITDA margin contracted due to a sharp increase in fuel prices arising from the conflict in the Middle East. Fuel prices have since moderated considerably. Given the volatility witnessed during the quarter, we have also initiated discussions with our customers to incorporate gas prices into our price variation mechanisms. This is aimed at mitigating the future impact of fluctuations, if any, in fuel costs and providing greater stability to our margins. Profit after tax grew 25.8% year-on-year to INR 19.1 crores with the PAT margin improving 92 basis points to 10.8%. This performance ramp-up across our downstream capacities. The rolling mill business achieved an annualized capacity utilization of approximately 83.5%, reflecting healthy demand and stronger volume absorption. While the pipes and tubes business operated at approximately 40.1%, with production increasing sequentially. With strong visibility across both businesses, we expect utilization and throughput to improve further, supporting operating leverage and sustained profitability growth. On the balance sheet, we remain focused on funding our growth ambitions while maintaining disciplined leverage and working capital management. ROCE as of 30th June 2026 stood at 9.5% and ROE at 9.4%, both on an annualized basis. These should be read in the context of the greenfield project. The capital drawdown for Bokaro is already reflected in our capital employed, while the plant is yet to be commissioned and has therefore not begun contributing to returns. This is a reflection of the transitory capital deployment phase we are currently in. As commissioning commences from Q2 FY '27 and the facility ramps up, we expect ROCE to progressively improve. Net debt stood at INR 468.9 crores at a net debt-to-equity ratio of 0.57x, of which INR 222.4 crores represents long-term borrowings drawn for the Bokaro project. Importantly, healthy and consistent operating cash flows enabled us to deploy INR 139.2 crores of internal accruals towards the expansion, taking total capital deployed to INR 341.6 crores. Looking ahead, our next phase of growth will be driven by the optimal utilization of our existing capacity across the conversion business alongside the new downstream capacities being established at Bokaro. As communicated earlier, the company will operate a balanced business model, integrating our traditional conversion business with a proprietary supply model, wherein we will source input materials directly and supply finished products, capturing greater value across the chain by diversifying our customer base. We reiterate our earlier guidance of approximately 70% to 75% consolidated revenue CAGR over FY '25 to FY '28, supported by the phased commissioning and ramp-up of Bokaro, alongside continued strategic organic growth across our existing verticals. Over the same period, we expect operating EBITDA and PAT to grow at a CAGR of approximately 40% to 45% and 35% to 40%, respectively, with EBITDA and PAT margins gradually stabilizing at approximately 12% to 13% and 5% to 6% by FY '28 as the benefits of scale, integration and operating leverage materialize. As we move forward, we remain focused on the disciplined execution of our expansion initiatives, improving operational efficiencies and deepening our value-added product portfolio, with a clear focus on sustainable growth, prudent capital deployment and balance sheet discipline. We remain committed to creating enduring long-term value for all our stakeholders. With that, I will now open the floor for questions. Thank you.

[Operator Instructions] The first question is from the line of Bhavesh, an individual investor.

Regarding our growth trajectory, we posted a stable top line of around INR 166 crores in this quarter. So a high growth of CAGR target of around 75% is highlighted by the management. So based on this Q1 baseline, what kind of quarterly run rate or volume ramp-up are we factoring for the second half of the year to approach aggressive annual targets? So correct me if I'm wrong, are you going to do roughly upwards of like INR 1,400 crores, INR 1,500 crores of revenue this year to achieve the figure?

Hi Bhaveshji, welcome back. So good to have you again. I cannot -- I mean, we have not commented individually on the FY '27 numbers, and so I would refrain from doing that. The guidance remains on track for FY '28. Like I mentioned in my opening statement, we will be commissioning the color-coated segment of our product offering this quarter, and this will continue to ramp up, let's say, over the next 6 quarters, which is FY '28. Over the next -- over the subsequent quarters, we'll be also commissioning the cold rolling and the Galvalume line. And so the FY '28 numbers will come to reflect the consolidated of everything rank up. But I will refrain from giving a specific guidance for FY '27.

Okay, sir. Sir, coming on the trade receivables. So in the previous quarter, management noted that customer payment was delayed and it would be realized by Q1 FY '27. So have we successfully realized the full pending receivables from that specific client this quarter?

Yes, yes. I mean that is a standard model, as I mentioned, that we typically tend to get it in the first week, 10 days, 2 weeks of the quarter starting. And the same cycle repeats even at the end of June. So -- and again, the beginning of this quarter, we received everything.

Good to hear that, sir. Sir, on the greenfield downstream plant at Bokaro, so how is the company's Q2 looking? So since we are halfway through August, so how is the demand for our products in the country and any exports already planned?

No exports planned for now Bhaveshji, but again, I will refrain from commenting on Q2. Let's focus this call on Q1. Thank you.

[Operator Instructions] The next question is from the line of Uttam Reddy, an individual investor.

Congratulations on getting the Bokaro plant up and running. Can you maybe tell us in how many quarters down the line that we'll start seeing like a INR 500 crore top line?

Uttamji, again, I don't want to give a specific guidance on numbers in the short term. This is 150,000 tonnes line. And I would guess it will take us at least 3 to 4 quarters to ramp it up all the way.

[Operator Instructions] The next question is from the line of Bhavesh, an individual investor.

So given the increased input and freight costs stemming from the Iran war, does the company have a competitive advantage to pass on these higher cost and new contracts, which could potentially improve margin performance in FY '27 and beyond?

So 2 parts of your question, Bhaveshji, the increased cost of fuel and power, yes, that has affected us. But I guess that's also affected everybody else in the industry. So it's fairly level the playing field. In terms of passing it on to the customer, like I mentioned in the opening remarks, we are in talks with our customer to create a fair mechanism to avoid this extreme volatility in the future. And I don't think it will create any competitive advantage per se because in my view, it's going to be a level playing field when the prices increase for oil or gas increase for everyone. So I'm not sure if I've answered the question, but...

Understood Sir, next is on the ZAM products. So given that the coated products like ZAM require specialized bath chemistry, precise thermal control and high technical entry barriers compared to the standard galvanized sheets, what constitutes our sustainable competitive moat here? So is it protected by proprietary process parameters, long-term technical arrangement or sticky customer integration in high-margin sectors like solar and automotive?

So you rightly said that it does require very close control of operating parameters. I think we've been doing that fairly well with galvanizing for a longer period of time for almost about 14 years now. So there is a certain amount of confidence that we'll be able to do it. That is one. The second part of your question with respect to competitive advantage or moat, as you called it, we don't have the customers in that segment right now. So stickiness will get built over a period of time. I think our confidence arises from the fact that we will be offering a full basket or bouquet of products and not just ZAM. So when you talk about coated products, there are essentially 3 kind of coated products in the Indian market. You've got Galvalume, Galvanized and ZAM. And we will be in a position to offer all 3 products in the top range or whatever is available in the country. So I do feel that this will create a fair bit of stickiness for our products.

That was helpful, sir. So my next question is on the quality certifications. So to target high-end institutional automotive, which require IATF 16949 certification and global supply chains from the new Bokaro unit, what is the status of our quality accreditations such as ISO 9001, 14001, 45001 and 17025. Have we applied for any of these certifications? Or what is the expected...

So it's too early because we are still in the project stage. It's very early to apply for any certifications. These will only be done once the plant is commissioned and up and running and stabilized.

[Operator Instructions] The next question is from the line of Ashwin Jalan from NB Alpha.

Sir, I wanted to understand mostly from a demand-supply landscape in our upcoming Bokaro project with respect to the color coating and Galvalume products. Since the context behind the question is that we can see there are a few more capacities announced by various other industry players, and specifically within the Eastern region as well. What I wanted to understand is what is the demand supply situation currently that we are seeing? And this surge in capacity coming in, in the next 1 to 3 years in specifically Eastern region, if I have to say, how do you see the demand supply balance? And a follow-up on that would be in terms of the end user industry. I believe roofing and cladding would be one application. But beyond that, how do you see that, if you could quantify and add some color on this?

Thank you for that question, Ashwinji. So I -- for the first time in a very long time, we are seeing a higher than GDP increase in steel consumption. So if we look at our GDP growth at about 7%, 7.2%, you add about 3% to 4% of inflation, you're looking at about a 10-odd percent, 11-odd percent real growth. But out of that, today, we are actually seeing a 10% plus growth in steel consumption. So that is -- that's one side of it. And this is largely driven by, I would like to say, very, very strong government infrastructure spends, but I don't want to take the credit away from the private sector investments, which are also happening at a fairly large -- fairly quick pace. If you look at the demand and supply position going forward over the next couple of years, 3 years, 4 years, 5 years, I think this momentum will sustain comfortably. Specifically for the East, I would like to believe that from a growth in the economy point of view, we've got a lot of catching up to do. And so a lot of the demand will -- at least I hope it will get generated from East, whether it's rural housing, warehousing, industrial buildings, so on and so forth. So that's pretty much for the color-coated roofing cladding sector that you spoke about. This, combined with the government's antidumping and QCO orders has created a serious opportunity for domestic players. You add to that the PLI, you add to that import substitution. So there is a case to be made for higher consumption of color-coated products. I think if you look at the rest of the coating -- sorry, the coated universe, whether it's Galvalume, Galvanized or ZAM, there was an order passed by the [ MMR ], I think, a couple of months back, which for the first time has encouraged the use of ZAM for rooftop solar. [Foreign Language] that you were using galvanized products, but you were asking for a very, very high galvanizing content to last long. The only way to get kind of rationalize the cost on that front is to use ZAM products. And I'm happy to note that the government is coming around to encouraging the use of that. You look at pre-galvanized pipes, I mean, structural tubes, pipes as a sector. You look at PEBs, which are more and more using pre-galvanized preform Purlins and sections. I mean, there is a substantial growth in that downstream sector. India, I think we're producing close to about 165 million, 170-odd million tonnes of steel. The plans that we've all been reading from the big 4 or the big 5 show a very encouraging trend of moving towards 150-odd million tonnes over the next half a decade. Now all of that steel is going to be value-added in one form or the other. whether it's Hot-Rolled Coils or billets and blooms, they're not used as is. They're all value added. They're all value-added in one form or the other and therein kind of lies the opportunity for downstream players like us. What we are setting up in Bokaro to begin with is, in some ways, the lowest hanging fruit because we clearly see a gap in what the market wants or will be wanting over the next 2 or 3 years and what the industry has to offer today. So I think going forward, this can only improve.

That up in terms of the low-hanging fruit...

Sorry to interrupt you, sir. Your voice is breaking.