Goodluck India Limited (530655) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q2 and H1 FY '22 Conference Call of Goodluck India Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not guarantees of future performance, and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mahesh Garg, Chairperson of Goodluck India Limited. Thank you, and over to you, sir.

Good afternoon, everyone. Welcome to Goodluck India Limited earnings conference call for second quarter and half year ended 30th September '21. I would like to begin by expressing my gratitude to all of you by taking your time to join us. On this call, with me today, are Mr. Ram Aggarwal, CEO; Mr. Sanjay Bansal, CFO; and Bridge IR, our Investor Relations partner. Since this is our maiden earnings call, before we get into the business and financial performance of the half year, I would like to share a brief insight into our company. Company is an established manufacturer of engineered steel products incorporated in year 1986. It is headquartered in Ghaziabad with 326,000 metric tonnes per annum manufacturing capacity. This capacity is spread across 6 facilities, 5 in Uttar Pradesh in NCR and 1 in Kutch, Gujarat , employing over 3,000 employees with over 3 generations of hands-on experience of promoter. Goodluck started as a manufacturer of ERW tubes which was, at that time, a value-added product and very much in demand. But gradually, over a period of time, this has become a commoditized product. Owing to our engineering background, we always wanted to be in the value-added manufacturing, and as a policy of the company, we have always expanded into value-added segments. So we got into the forging activity, manufacturing forged products. We then decided to move forward with our engineering expertise and got into precision tubes manufacturing, which comprise of both ERW and CDW tubes. With a lot of hard work, we were able to begin exporting of precision tubes to highly-rated European auto OEMs, and we had spread to other geographies like U.S. We thereafter added precision engineering fabrication in another segment. Here, we have been catering to telecom towers and bridges. Until recently when we obtained our first LOI for supply and fabrication of bridge for the bullet train track being laid between Mumbai and Ahmedabad, which requires huge engineering capabilities and engineering skills. Solar is another area, where we have huge potential for the supply of [indiscernible] and there, we are in for exports of solar fabricated structure in a big way. Another segment we have been focusing is the defense and aerospace where we had tested [indiscernible] and we have been quite successful in this to cater and capitalize on this potential -- future potential. We are expanding our capacity in forging by putting away 6,000 [indiscernible], which is likely to be commissioned by month of December. Just to sum up the company. We are among the leading manufacturer of wide range of engineering structure, precision and auto tubes, forging for defense, aerospace and engineering, CR products and GI pipe. Company is not only steel product manufacturing but also provider of engineering solutions. We are on course of making Goodluck a world-class manufacturing organization with better focus on value addition. We would like to our -- see ourselves evolving as a partner of choice of high engineering fabricated player in infrastructure as manufacturer of best-in-class precision manufacturer, a formative player in the area of defense and aerospace, which is likely to be with the commissioning of our press, we will be there and which -- we will be really respected supplier of these products. Our goal is to migrate from a merely manufacturing company to a solution provider, and we are very well on the path of it. Having explained the vision of the company, I'd like to hand over the floor to Mr. Ram Aggarwal, who will be targeting our business in detail. Thank you.

Thank you, everybody. And I welcome all of you for this call. After the opening remarks by Mr. Garg, where he shared as to how does the management wants Goodluck look to be viewed in the near future and its focus on value addition and providing engineering solutions. I would like to take you through a company in a bit more detail. The company through diverse product trends with high level of customization, products are divided into 4 major divisions. Engineering Structures & Precision Fabrication. The other 1 is Forging, Precision Pipes, Auto Tubes, and CR Coils, Pipes & Hollow Sections. The company strategically has been focusing more on high-margin value-added product and high-growth sectors like auto tubes, solar structures, railways and defense. This is most likely to start reflecting from our current fiscal in terms of EBITDA per tonne as is evident from the current half yearly in this discussion. I would like to dwell on each of the segment now. We are starting with the Engineering Structures & Precision Fabrication. It's 1 of the key segments, not only in terms of our engineering expertise and passion but also in terms of growth opportunities. In this, we are evolving to provide both fabrication and services for infrastructure solutions, be it road bridge, be it railway bridge, smart city structure or the latest 1 is super critical bridges for high speed railway corridor, which has been made in India first time. Primary and secondary structures for boilers and turbines generators. Launching girders for steel and concrete girders building structure and technological structures. Company has a total manufacturing capacity of 60,000 MT per annum. Recently, as Mr. Garg had told you that the company was awarded a prestigious LOI of INR 198 crores by L&T for the bullet train under High-speed Railway corridor for supply and fabrication of bridge on Mumbai-Ahmedabad corridor. It is the first in India. The second 1 is coming from Delhi to Varanasi. Under this, Goodluck will work alongside the Japanese engineers for first of its kind bridge to be constructed in India. We will be only supplying the fabricated bridges in the guidance of the Japanese partners. There is a huge scope of growth and expansion in this segment, and we envision an order book of almost INR 1,000 crores in the next 2 to 3 years. Another area of focus is the solar power field. We provide MMS structures for solar panels. We have developed structures which require engineering expertise and high demand across the board. We already have a lot of inquiries, and we have started exporting. Here again we can foresee a huge opportunity. The next segment is Forging. We specialize in tailer steel, duplex, carbon, allow steel forgings and flanges which is supplied in more than 100 grade products. Company caters to various and wide industries, machinery and equipment, valves, fittings, petrochemical applications, off highway and railroad equipment, general industrial equipment, marine, aerospace and to a little bit defense. Forging for these critical area has successfully made mark at all the industry. Now your company is in the process of adding new machineries, which will increase capacity of volumes single piece to 14 tonnes from 7 tonnes at present, and total capacity per annum to 30,000 MT. It will be enabling manufacturing of high value-added products. It will be using less material in turn adding to our bottom line. With this, we will be in position to manufacture and supply high-value-added products, which will result in greater profitability. As defense and aerospace, everybody knows is a strategic area of focus, I would like to talk something about it separately. What we are doing right now, we are getting enlisted with some of the biggest names across Indian aerospace and defense, DRDO, L&T Defense, Godrej Aerospace, events, BrahMos Missiles, and of now, defense contributes insignificantly. Currently, it is contributing 1% to 2% of the revenue. But this is only the beginning. As negotiations and ramp-up of order books within these heavy big [indiscernible], we are also in discussion with some various organizations for increasing our association with several other projects. We are pretty sure that we are at the -- we have to usher in this area. Our third segment is Precision Pipes & Auto Tubes. Here we Offer products that require higher engineering expertise. We are among the very few players to manufacture high-quality CDW tubes. Our products are 1 of the leading products in terms of quality and consistently resulting in high customer satisfaction and repetition of orders. This segment is a substantial contributor of export revenue to your company. We are supplier to some of the most respected brands across the world in both on road and off road auto segment. The other 1 is -- the other sector, which is adding volume to our bucket, that is the CR Coils, Pipes & Tubes, the older segment of Goodluck. Our coils are demanded all over the country, mainly in automobile components, consumer durable items and many other items. CRW pipes and tubes, fine application in precision tubes, support structures. These are being used mainly by vehicle chassis, health monitoring equipment, roofing sheets, construction of railway coaches, drums and barrels, material handling equipment, vehicles equipment and many others. Apart from these products, our excellent range of products and services have enabled us to lead geographical boundaries and register our strong presence in more than 100 countries across the globe with a base of over 600 customers. We have extended our reach to the customers worldwide with a well-knit network. That's all from my side. I should now like to hand over this call to Mr. Sanjay Bansal, our CFO, who will talk about the financial details. Thanks.

Thank you, sir, and welcome all of you to this call. Now coming to financial performance. Financial highlights for second quarter ending 30th September 2021. Revenue from operations stood at INR 636 crores in Q2 of current financial year as against INR 420 crores in Q2 of previous year. EBITDA for the quarter was INR 44 crores as against INR 34 crores in Q2 of FY '21. Q2 profit stood at INR 17 crores as against profit of INR 10 crores in Q2 during previous year. Financial highlights for half year ending 30th September 2021. Revenue from operations stood at INR 1,207 crores in H1 of current financial year as against INR 671 crores in previous year during the same period. EBITDA for the first half was at INR 85 crores as against INR 57 crores in first half of previous year. H1 PAT stood at INR 31 crores as against INR 11 crores in previous year -- first half of previous year. The company has also paid interim dividend at the rate of 75% that is INR 1.5 per share. That's all from my side. We can now open for floor questions. Thank you.

[Operator Instructions] The first question is from the line of Nitin Agarwal, Individual Investor. Please go ahead.

I want to have a question to the Chairman of the company. How much has been the export from this turnover of INR 1,200 crores in H1? And how the freight rates have impacted the profitability of the company? And how the company wishes to overcome this extra cost of freight in the quarters to come?

Exports in the first half of this year are roughly INR 550 crores as against INR 200 crores last year. Regarding the free cost. And what was the query again, further query, I don't get you rightly. Can you repeat your question, please?

Nitin Agarwal. Please repeat your question.

How the increased cost -- increased freight cost in the last year -- last half year impacted the profitability of the company?

It impacted greatly. We have been negotiated -- We have been negotiating with our customers to pass on the freight. But we are an exporter for last 20 years. So we have to honor our commitment. And some of the customers have obliged us. Of course, if we in a subsequent time, the freight they will have to pay. But for some time, we have taken a hit on the freight also

Mr. Nitin Agarwal, does that answer your question?

Thank you.

The next question is from the line of Kalpesh Gothi from Valentis Advisors.

Can you please share the revenue split between the product portfolio and which are going to contribute?

Your Voice is not clear.

I am audile now?

Now, it is audible.

Yes. So what's the revenue split in terms of product portfolio?

Okay. In terms of the H1 volume, we are having 5 verticals that we have already told you. The -- If you take into the structure is 10% almost, and our CDW tube is almost 14%. And the Forging is almost 12%. Precision Tube again is 15%, and our regular product is 30% to 35%. This Is the revenue distribution of [indiscernible] quantity.

So what is the total in terms of volume in Q2 and H1?

Volume in H1 is almost 125,000 tonnes. And in Q2, it is 63,000 tonnes almost.

Can you also share the realization for the respective segment?

The realization wise, we can talk of the EBITDA basically is

EBITDA per tonne.

Yes. Structure is almost 10% EBITDA. And our CDW tube, it is 14%. Forging again, 14% to 15%. And the Precision Tube section, it takes 9% to 10% and our regular volume in this product, it gives almost 2% to 3%.

Can you share EBITDA per tonne if possible?

EBITDA, basically, our product bucket is very diverse. But however, if you stay with the mathematical calculation, it will come almost INR 6,800, overall product ratio.

And what will be the EBITDA per tonne for value-added product?

So actually, it is for different products, it can be told. But like if you talk about the structure, it will be almost INR 7,000 even the top of the...

Average value added.

Average value added should be almost INR 10,000.

So what's the total contribution of value-added products in your revenue?

It is almost 65%.

65%. So it is going to be go up further?

Yes. We intend to be 75%, but it will take time.

And can you share the -- as you said in initial remark also, so you are the L1 in the INR 198 crore order from the L&T you got. So any such kind of order we are looking -- or you already bidded for the same?

Basically, that order in India, high-speed train is coming first time. So now government is planning for the other areas in like Delhi - Varanasi, and many other Delhi - Ahmedabad, many other trains government is trying to make, but this is the first in kind. So once it starts getting executed, the other lines will come, and we will be there to participate in this.

So this L&T order is going to confirm by what time?

Pardon?

L&T order we got, yes, we are in LOI, right?

Yes, yes.

So is it confirmed order?

Yes, it is a confirmed order, but as per L&T procedure, it takes almost 1.5 months to issue the proper PO. But the work has already started. L&T, along with the Japanese, they have visited the plant. And now we are going out with a civil foundations and the other works, machinery orders and what is going on.

So do we got any advance for the same?

Once the PO is issued, then only we will be able to take advance.

Do we, sir required need to do a CapEx for this project?

Yes. It is almost INR 10 crores to INR 12 crores CapEx is to be done, which we are doing from our internal accruals at our Kutch plant.

And sir, what is the time line of the execution?

Execution, it is a tricky question. Why? Because L&T is doing first time, Japanese are being in India first time, but it is slated to start from January, and it will be in this almost 2 years.

So majority of your revenue will be coming of in next year?

Yes, revenue will come on -- start from FY '22.

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

Congratulations on a good quarter. I just had some questions. In terms of our value-added products versus the volume-driven segment, what kind of products would you categorize since we've talked about it in the presentation also, which products are value added? And what was the contribution in revenue during this last quarter or half year, please?

Basically, it is of Auto tubes, our Engineering Structure Division and Forgings, these we classify into value-added products and our other CR coils and pipes with the volume to our system that we say normal less value-added product, but it gives the volume. And as I have already told you, it is almost 65% to 35%. value added versus the non-value added.

And sir, in terms of our exports, which -- would you see any particular countries or geographies as the key drivers of export revenue like where demand is more?

The demand is there for our forgings and Auto Tubes, mainly Europe and U.S.

Europe and U.S. So would the revenue split between export and domestic revenues remain similar at current levels? Or would it change in the next coming quarters?

No, this has already -- we were doing export last year only 25%. This year, it has grown almost 38%. And we expect this to remain around this level. total sales percentage will around the same level.

And we get higher operating margins from the export revenue?

Yes.

And sir, already, it's been, I mean, asked, but in terms of CapEx for precision tubes, how much your capacity was added and around -- I mean approximately by when is commercial production expected to start for that?

Auto tube expansion was taken with internal accruals with a very literal investment and our capacity has been enhanced by 20% for CDW tubes.

And sir, for aerospace and defense category of our end application, currently, I guess, it is around 2-odd percent of revenue coming in from there. And we've mentioned that we plan to increase it up to 8% or so. So any sort of any timeline or any plan as to how we'll be able to increase that share from that segment?

Look, our -- as we explained earlier, our press is under commissioning. When the the press comes into operation by end of December, there are a big lineup of the order. We already have approval from miscellaneous agencies, those who approved for aerospace and defense. Where our products have been tested on a central basis for defense for missile system, and we expect to go big once our price is commissioned.

And sir, this already has been talked about raw material. I mean, we all know that it's been a little bit of a pain point for all companies in this sector. So any timeline as to when you expect that the effect of this increase in metal prices would sort of wane off and come down to normal levels?

I think the -- it was very jokingly telling you, I think we have to learn to make -- think of it as a normal. It's a new normal in the prices. We have to learn belief with the pricing.

True, sir. So I guess that then we'll only gradually pass it on to the customer like increase the price of our products, right?

Absolutely. It is to be passed on. It is being passed on, and it will be passed on.

Just 1 last question I had. Now that effects of the pandemic and lockdown and everything are going back, I mean, it's reducing almost industries are going to normal. Do you think that the current growth, right now, it is relatively higher because the last year was totally hit by COVID? But once the entire effects have gone by, would growth be at par with pre-COVID levels? Or would it continue to be at a higher level as it is right now?

It will be definitely -- it will achieve the pre-COVID levels. Whole economy has to achieve the pre-COVID levels. Thereafter growth has to come with government without push, which government has done with so many restructuring of the financial system government has done, it will have an overall impact on the economy emphasis on infrastructure in which we are there in a big way. It is going to definitely very positive for our industry. And we look forward for a growth in exports. With China problems today, we are looking at export and a very growth engine for the company. With China problem, the world over, most of the geographies are very averse to deal with China. So we stand a good chance everywhere.

The next question is from the line of Sivakumar, individual investor.

I have 2 questions. One is that what's the current capacity that has been assumed.

Sorry to interrupt Mr. Kumar. I request you to please use the handset mode. The audio is not clear from your line.

Am I audible now?

Yes, sir.

Am I audible now?

Yes, sir, please go ahead.

Sir, a couple of questions. One is that what is the current capacity that we have achieved? And what is the expected capacity that we think we're going to go ahead and achieve in the next few quarters? And is there a need for CapEx which is substantial for any growth from now onwards? That's the first question. The second is that given the, I think this question was asked earlier also, is that what is the new normal in terms of the EBITDA percentage given the higher cost of the raw material that we expect? And is there a possibility that all the cost of increase of raw materials can be passed on to the consumer? Is that possible to spin there? Or is there something which is going to go out and spare with the company, which will have an impact on the EBITDA because 35% of our volume of 1 of our volume business is already 2% and the margin of it is pretty low. I follow just on that concept. So these are the 3 questions.

Sir, let me answer your question one by one. Our capacity utilization today is around 76%. And without any CapEx, we are aiming to achieve around 85% to 87% with more availability of raw materials. If we were able to get full quantity of raw material, we would have achieved that, number one. Number two, your question of the increased costs are being passed on what definitely happens with the timeline. And once the rates stabilized, the cost will be definitely passed on to the buyer. There is no doubt about it.

Just an add-on question. So if the current EBITDA level is at around 8.5% overall. Could we see somewhere around 10%, I think as over the next 3, 4 quarters, gradually? Is that expectation right?

I did not get your question rightly Can you repeat?

Yes. I'm saying that current EBITDA, overall EBITDA is about 8.5%, am I right?

No, It is around 7%.

7%. So gradually, once the raw material issue settles down, are we expecting to go ahead and improve it to, let's say, 8.5%? That's what I'm looking at, next 2 quarters?

Number one, I should clarify. The EBITDA percentage has gone down to cost push. When the cost push goes away, then EBITDA will improve definitely. It Is bound to grow. How much it will improve will depend on how the business shapes out. But EBITDA is bound to improve. Our EBITDA has gone down, but there were a lot of cost push. All input costs have gone up, freight costs have gone up which have drained the EBITDA percentage downward. But things have to normalize one day sooner than later. It cannot go on increasing every day. We are well within control and things are bound to improve.

One final question, if I may. Sir, our inventory currently is at reasonable levels? Or has that still -- is an issue that we need to address?

I don't think there's any issue. We are at the normal level.

The next question is from the line of Aniket Darekar, individual investor.

Congrats at a good set of numbers. Hello? Yes, sir. Sir, I have a couple of questions. My first question is, can you guide us with where do we see our revenue by the end of this year and for the coming next 3 years?

Sir, for this year, I'm expecting revenue to be around in the range of INR 2,400 crores. Again, last year revenue of INR 1,572 crores. And the year ahead, I'm expecting 10% growth year-on-year.

Sir, what is the export contribution in the first half of the year? And which are the key countries contributing to most of this revenue?

It is almost INR 550 crores, as I told, against INR 1,200 crores, so a percentage you can take on [indiscernible] almost [ 40% ].

[ 48% ].

[ 48% ].

So see, as we can see, the different segments are the order book driven. So what is the current order book? And how is resulting in the revenue visibility?

Basically, we are -- as I have already told, we are having a basket of products. So some products really where we can talk of the order book as the engineering structures, we have, Right now, we have an order book of INR 400 crores and the coming 2, 3 years, as per the Indian system, we can hope of INR 1,000 crores in the next 2, 3 years. But in the other segments, it is the visibility of orders. Once we supply the older quantity, then the new quantities come in. We have a vision of almost 6 months to 1 year, like in our Auto division, like in our Forging division, we have a certain forecast available with us on which we plan. But it is not like that that all the orders have come a year back, and now we are executing in the coming 1 year. It is only possible in the infra budget because we are the long time taking projects.

Sir, what are your top 2, 3 competitors in the industry? And who are the top contributing clients, domestic and globally?

Sir, to talk our competitors with us, to name them is totally not desirable at this moment. We can talk of ourselves.

So sir, which are the top contributing clients right now we have domestic and as well as global?

We -- I can tell you 1 thing. It will be difficult to name my top customers as on this in the conference call. But we have a dedicated customer with us who are spending for a long time. About 80% of our customers are having long association with us in business, whether it is auto tubes, whether it be forging, whether it is structure.

Do we have any plans to raise further funds again?

Right now, we don't have any plan to raise further funds.

The next question is from the line of Kalpesh Gothi from Valentis Advisors.

0 So you talked about defense, What kind of revenue visibility do you have for this year and next year?

As we have already told this sector is very critical. And it has a very long period. And you know what India is talking about last 10 years that we will make this, we will make this. But every program, if you talk of any missile, any planes, it takes 10 years, it takes decades. So we have started enlisting with all the customers, but it will again take 2 to 3 years to get the work from them, and then we can talk of what we have planned to get more turnover in this sector, it will come in 2 to 3 years. Fresh installation is the starting of the cycle.

[Operator Instructions] As there are no further questions, I would now like to hand the conference over to Mr. Mahesh Garg for closing comments. Thanks, and over to you, sir.

So I would like to take this opportunity to thank each member of Goodluck family. I would like to thank all of our clients, creditors, banks, financial institutions and other stakeholders and everyone who has participated in this conference. For any further query or information, please get in touch with our Investor Relation team, and we will be happy to answer that. Thank you very much.

I just want to clarify 1 thing as best of looking at us in terms of EBITDA per tonne and not in terms of EBITDA percentage. We are putting in all efforts to take these per tonne metrics higher in the coming quarters. Thank you.

Thank you. Ladies and gentlemen, on behalf of Goodluck India Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.