DEE Development Engineers Limited (DEEDEV) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to DEE Development Engineering Limited Q1 FY '25 Results Update Conference Call hosted by Equirus Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. [Deval Shah] from Equirus Securities. Thank you, and over to you, Mr. Shah.

Good afternoon, everyone. On behalf of Equirus Securities, I would like to welcome you all to the 1Q FY [indiscernible]. From the management we have Mr. Krishan Bansal, Chairman and Managing Director; Mr. Sameer Agarwal, Chief Financial Officer; and Mr. [indiscernible], Head Investor Relations. Without taking much time, I now hand over the call to Mr. [indiscernible], to introduce the management. Thank you. Over to you, Mr. Sandeep.

Thank you team thanks a lot for arranging this first earnings call post the listing of development. Good afternoon to all the participants. Before I hand over the call to Mr. Krishan Bansal for the opening remarks, I would like to draw your attention to the safe harbor statement in the earnings update presentation, which was uploaded on the BSE and NSE website. Please go through this very thoroughly. Over to you, Mr. Bansal.

Thank you, [indiscernible]. Good afternoon, everyone, and a warm welcome to all of you to this first investor call of Development Engineers Limited after our recent listing in June. Before we dive into the financial results and operational highlights for Q1 FY '25, I want to take a moment to express our deepest gratitude to the entire investment community for the overwhelming response to our IPO. Words cannot fully convey how much we appreciate the trust and confidence you have placed in us. Your support not only empowers us, but also drives us to hold ourselves to an even higher standard. We are fully aware of the responsibilities that come with this, and we will continuously strive to achieve the best outcomes. Since this is our first earnings call following our listing, I would like to take a moment to provide a brief overview of our company. I shall cover our core business operations, key value propositions and growth drivers. After this introduction, our CFO, Mr. Sameer Agarwal, will delve into the financial metrics and provide detailed insights into our performance. DEE is India's largest provider of process piping solutions with advanced manufacturing facilities strategically located across the country. We specialize in engineering, procurement and manufacturing services for industries like oil and gas, power, chemicals and pharmaceuticals. Our product range includes high-pressure piping systems, pipe fittings, industrial pipe stacks and [indiscernible] pipes. We also excel in handling complex metals like carbon steel, stainless steel and specialized alloys such as ink alloys and [indiscernible]. We are extremely excited to announce that we have just last week secured a significant order valued at USD 40.71 million from Dow Chemicals Canada ULC for fabrication. I just want to highlight that this is just the job work value. It's just the conversion value. It doesn't include the material value in this. This order is slated for execution between September '24 and December '26. The company's PAT was INR 32 million in Q1 FY '25 with a PAT margin of 1.7%, expanding 456 basis points over the Q1 of FY '24, the company remains committed to automation and capacity expansions. We are establishing the new Anjar facility, which will boost our capacity from 6,000 metric tons to 50,000 metric tons, bringing the total capacity from 1,200 metric tons to 1,500 metric tons. This facility will focus on oil and gas sector, while our [Anjar] facility will cater to the growing power sector needs. Its proximity to [Kundapur] will reduce logistics overheads. Our strategy is to capitalize on the rising capital expenditure in the power and oil and gas sectors by proactively enhancing our capacities as well as our operational capabilities. As part of our growth strategy, the company has recently entered into a new business vertical focused on design engineering fabrication and manufacturing of pilot plants. These pilot plants serve as a pre-commercial production system, enabling to assess the feasibility of the processes before scaling up to full scale production. As highlighted in our earnings presentation, we always proactively prepare for the upcoming CapEx cycles of our target sectors, anticipating the segment and ensuring growth in the power sector. We have strategically invested in capital expenditure ahead of time, positioning ourselves to fully capitalize on the opportunities presented by this cycle. Thank you all. Now I would hand over the call to our CFO, Mr. Sameer Agarwal, to talk about the financial matters. Thank you so much.

Thank you, Bansal ji. Good afternoon all, and thank you for joining our Q1 financial year '25 earnings call. Before we open the floor for question-and-answer session, I would like to provide a brief overview of our financial performance for the quarter. I trust everyone has had the chance to review our earnings presentation and press release. While Bansal Ji has already covered the business outlook, I will now focus on the financial performance of the past quarter and later today. The primary objective of our IPO funds were to fund our working capital requirements and prepay our outstanding borrowings. We are pleased to report significant progress on these fronts of the total IPO proceeds of INR 3,250 million, we have already utilized INR 9.32 million so far towards INR 179.8 million towards working capital needs and INR 75.50 million towards repayment of debt. Our revenue from operations grew by 17.6% year-on-year, reaching INR 1,850 million in Q1 FY '25 compared to INR 1,473 million in Q1 FY '24. Revenue from Piping division saw a 13.2% year-over-year growth, contributing 81.3% to our revenue, whereas Heavy Fabrication division saw a year-on-year growth of 295.2% with sales contribution of 7% operating EBITDA in Q1 FY '25 saw a robust year-on-year increase of 7.1%, reaching INR 248 million with an operating EBITDA margin expansion of 45 basis points to 13.4%. Profit after tax, that is PAT for the quarter stood at INR 332 million against a loss of INR 46 million in Q1 FY '24 with a PAT margin expanding by 456 basis points year-on-year to 1.7%. As of 30th June, our order book stood at INR 8,032 million up from INR 8,001 million as of 31st March 2024, while the recent order of USD 40.71 million from Dow Chemical has further strengthened our order book. We expect a few more large orders in the coming future. With a strong order book outlook, coupled with our strategy to capitalize on the increasing CapEx by our customer segments, we expect strong top line as well as bottom line growth in near, medium term. Since we will come out with more specific medium-term guidance after the next quarter results as we draw our revised medium- to long-term business plan. We deeply value your ongoing support and engagement as we advance our strategic initiatives. We are committed to achieving our goals and delivering strong returns, and we look forward to sharing our progress as we work towards creating long-term value for all our stakeholders. Thank you all. And now I open the floor for question-answer session.

[Operator instructions] The first question comes from the line of Mahesh [indiscernible].

Sir, we raised around INR 297 crores through IPO. And within that INR 175 crores was for the repayment of debt. So we have -- I think as per the presentation, we have paid only INR 76 crores. So I mean, why that amount is not utilized so far?

Thanks, Mahesh. So just wanted to clarify you that we had already made a payment of INR 175 crores towards repayment of working capital. However, the amount of working capital demand loan, which were actually paid out post 30 June. That is why this amount is shown as INR 75.5 crores. So I just wanted to ensure you that we have already paid INR 175 crores before 10th of July 2024.

Sure. Sir, we have received order of $40 million from Dow. So any -- I mean is this a first order or similar order we can expect in the future?

This is the first order from Chemicals. This is definitely is going to be a game changer as far as our business is concerned because it's -- first of all, it's a very, very large order, plus we are getting it from biochemicals. So that's further adding further to our cap. So this particular shows the faith our customers have in us to execute such large orders, particularly in the North American continent.

So going forward, is it fair to assume similar orders in over the next 9 to 12 months? Or is it...

Yes, many more orders are in the queue. Of course, they may not be as large as this particular order. But there are many, many large orders in the queue as yet, and we should be announcing [indiscernible] you that many orders are in the advanced stage of negotiations. And every month, we are expecting a very good inflow.

Sure. And sir, last question from my end, Anraj facility. I think how much is -- I mean, what is the progress on that particular facility in terms of capacity ramp-up?

So Mahesh, as we have already started our commercial production with production of 3,000 metric tons of capacity at Non facility. And with effect from 1st October, we shall be rolling another 9,000 metric tonnes of capacity and post that also we will keep our CapEx to complete that facility by expanding the total capacity of 50,000 metric tons from that facility.

[Operator Instructions] The next question comes from the line of [indiscernible].

My first question is regarding the fact [indiscernible] so what would be your guidance for the [indiscernible].

As far as the margin expansion is concerned, since we are going to cater our oil and gas sector needs from this facility. So this facility will bring in 3 to 4 types of savings in terms of -- or increasing in terms of margin, number one, since it is in proximity of the port. So it will bring down our logistics cost. Number two, when we have a new facility, all the machinery or plant and machinery a new setup with a lot of amount of automation, the operational efficiency will be much better than what we have at [indiscernible] facility. Third, since we are standing our [indiscernible]. Therefore, the allocation of fixed cost shall get reduced. So these all 3 things will add to our margin profile and it will be properly seen once we come down to third and fourth quarter.

If you could just highlight about the full year guidance of the revenue margin and order inflow.

We, actually, we -- as you know, we haven't reached to roll out our 9,000 metric tons of capacity as of now. It will be operating with effect from 1st October. So we are in the middle of all these things. And in the meantime, we are also gathering the approvals from various of our customers of the facility. So it will take a little bit time. So, in a month's time we will make sure to give you a good guidance in this respect.

Understood, sir. Sir, my second question is regarding, so there are situations arising from the global geopolitical tension and the transit, so the freight cost. So nearly 40% to 45% of business comes from the export. So is there any impact in terms of the freight cost or let's say on the working capital side...

As far as orders are concerned, our orders are FOB basis, so the intact of the cost increase in terms of freight cost does not come to us. But as far as our import is concerned, there may be some enhancement in terms of import logistics cost, and that will not be substantial.

Understood. Sir, my last question is regarding our addressable market. So what would be our share or the scope of pricing of total CapEx happening across the oil and gas sector and the power sector? Also, if you could highlight the order pipeline for the sectors and on the [indiscernible] related to our heavy fabrication business.

So as far as our share in the market is concerned, we are not very much bothered historically in terms of how much shares we are handling so as far as our capacities are there, we have never ever faced any dearth of orders except the period for the COVID. So whatever we had the capacities, we always had a substantial amount of work orders to utilize our capacities. So this is your -- the answer to your first question. And the second question, as you know, there is a lot of expansion in power sector, especially when the government has already announced 80 gigawatt of thermal energy. So we are expecting good amount of orders from that domain of work. So -- and the orders, which we were expecting will flow somewhere in the middle of fiscal '26.