Goodluck India Limited (530655) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 and 9 months FY '22 Earnings 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 the 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 Chandra Garg, Chairman of the Goodluck India Limited. Thank you, and over to you, sir.

This is MC Garg. Good morning, everyone. Welcome to Goodluck India Limited Earnings Conference Call for third quarter and the 9 months, ending 31st December. I would like to begin by expressing my gratitude to you all for taking the time to join us on this call with me today. Our Mr. Ram Aggarwal, Chief Executive Officer; and Mr. Sanjay Bansal, CFO; and Bridge IR, our Investor Relations partners. The company is an established manufacturer of engineering precision products incorporated in the year 1986. It is headquartered in Ghaziabad with 3,26,000 metric ton per annum capacity. This capacity is spread across 6 facilities, 5 near Delhi in Uttar Pradesh and one in Kutch, Gujarat, enjoying -- employing almost 3,000 workers -- persons with over 3 generations of hands-on experience of pro motors. Goodluck started as a manufacturer of ERW tubes. Owing to our engineering background, we always wanted to be in the value-added segments. So over a period of time, we got to forging activity after we decided to add another vertical precision tube manufacturing, which comprised of both ERW and CDW technologies. We, therefore, added the precision engineering fabrication as another segment. Solar is another area where we see huge potential for supply of value-added fabrication and services. Another segment that we have been focusing is on defense and aerospace. We have crossed a few major milestones for a valued supplier to many of the prestigious defense projects. Our CEO, Mr. Ram Aggarwal will talk about the segment in detail. Last 4 to 5 years have been continually significant for the company. We have undertaken important CapEx, penetrated strategic market, expanded product portfolio and never revised our value-add offerings. We have set a few goals for ourselves that include increasing the share of value-added products, target an EBITDA per ton of roughly 8,000 per ton rejection -- reduction of debt, expand our geographical reach. The global markets offer a great deal of opportunity for us in the various segments. We have been evolving strategy to take care of such opportunities. And for the solar segment, U.S. is a big market now with us, its focus on renewal energy, with our presence there, we are confident of penetrating in the U.S. market. We are seeing similar demands echoing from other geographies of the world. The high speed railway corridor project of Government of India require the new fabrication after huge opportunities -- of our huge opportunities with our expertise. We are sure of grabbing a significant market share here. We are on course of making the Goodluck a world-class manufacturing organization with greater focus on value addition. We would like to see ourselves evolving as a partner of choice for high-end engineering and fabrication player in the infrastructure and manufacturer on the best class precision tube, a formidable player in the area of Defense & Aerospace. We are on course of our goal towards evolving into a solution provider from just being a manufacturing company. I would now like to hand over the floor to Mr. Ram Aggarwal, who will be talking about the business in detail. Thank you.

And welcome all of you on this call. After the opening remarks, and Mr. Garg, I would like to take you through a company in a bit more detail. Company, as you know, company caters to diverse product range with a high level of customization. The products are divided into 4 major categories: engineering structures and precision fabrication. The other is forgings, precision pipes and auto tubes and the 4 divisions, CR coil, pipe and Hollow Section. Company strategically has been focusing more on high-margin value-added products and high-growth sectors like auto, solar, railways and defense. This is most likely to start reflecting from current fiscal in terms of margins. I would like to dwell on each of the segments in detail. Starting with engineering structures and precision fabrication. This is one of the key segments, not only in terms of our engineering expertise and passion, but also in terms of growth opportunity. In this, we are evolving to provide both fabrication and services by infra solutions to make roads, bridges, for Smart City structure or super critical bridges or high-speed railway corridors. Primary and secondary structure for boilers, turbine generators, launching guarders or senior concrete guarders, building structures and technology structures. Company has a total installed capacity of 60,000 metric ton per annum for this segment. Recently, as you know, the company was awarded prestigious LOI of INR 198 crores by L&T for the bullet train corridor under high speed railway corridor for supply and fabrication of bridges on Mumbai-Ahmedabad bullet train route. Under this Goodluck will work alongside Japanese engineers for first-of-its-kind bridges to be constructed in India. There is a huge scope of growth and expansion in this segment, and we envision an order book of over INR 1,000 crores in the next 2 to 3 years. Another area of our focus is solar power. We provide structures for the solar panels. We have developed structures, which is quite engineering expertise and have high demand across the world. We already have a lot of inquiries. We are soon going to start exporting. The government's initiative of 100 gigawatt solar energy is likely to boost company's solar support structure capacity. Here again, we can foresee a huge opportunity, as Reliance has just given a statement in Gujarat, that they would like to put 100 gigawatt solar energy parks. Now we come to the next segment, which is the forging. We specialize in stainless steel, duplex, carbon, alloy steel forgings and flanges, which is applied in more than 100 grade products. Company caters to various in wide industries like automotive and truck SCV, agriculture machinery, equipment, vaults, fittings, petrochemical applications, hardware, off-way railroad equipment, general industrial equipment, aerospace and defense, forges for defense and aerospace has successfully made marks across the industry. The process of adding new machinery to increase capacity of forging single piece to 14,000 kg from 7,000 kg and total capacity per annum 30,000 metric tons, enabling manufacturing of highly value-added products is almost complete. The production would commence in February. With this, we will be in a position to manufacture and supply high value-added products, which would result in rate of profitability. We are suppliers to some of the biggest name across Indian aerospace and defense, DRDO, L&T defense, Godrej Aerospace, BrahMos Missile, [indiscernible]. As of now, defense contributes approximately 2% of the forging revenue. But this is only the begin. As negotiations and ramp-up of order book within these times have a long gestation period. We are also in discussion with various organizations for increasing our association with several other projects. We are pretty sure that we are at the inflection point. The third segment is precision pipes and auto tubes. We offer products that require high engineering expertise. We are among the very few players to manufacture high-quality CDW tubes, cold drawn welded tubes. Our products are one of the leading products in terms of quality and consistency, resulting in high customer satisfaction and repeat orders. This segment is a substantial contributor of export volume to the company. We are a supplier to some of the most respected brands across the world both on road and off-road auto segment. The other sectors is CR coils pipes and tubes. This is the oldest segment of Goodluck. Our coils and pipes are demanded all over the country, chiefly in automobile components, consumer durable items, ERW pipes and tubes, find application and precision tubes, support structures. These are using changes or vehicles, earth-moving equipments, sheets, construction of railway purchase, drums and barrels, material ending equipment in plate, as equipment and many other items. Apart from these products, our excellent range of products and services have enabled us to lead geographical bounds and registered strong presence in 100 countries across the globe, with a base of over 600 customers. We have extended our reach to the customers worldwide with a well-linked network 57 and 43 the split of our products between domestic and global markets as of 9 months of FY '22. That's all from my side. I shall hand over this call to Mr. Sanjay Bansal who will talk about the financials in details. Thank you.

Thank you, Mr. Aggarwal. I Sanjay Bansal, welcome you all to this call. Now coming to our consolidated financial performance. Financial highlights for third quarter ending 31st December 2021. The volume stood at 72,273 tons as against 61,827 tons in Q3 of financial year '21. The growth was 16.90% being our highest ever quarterly volume so far. Revenue from operations stood at INR 1105.80 crores in Q3 of current fiscal as against INR 420.17 crores in Q3 of previous year. Growth was 67.98%, mainly on account of higher exports. Export sales for Q3 of current fiscal stood at 32.42% of total revenue. EBITDA for the quarter was at INR 47.39 crores as against INR 32.47 crores in Q3 of previous year. increase was 45.95%. EBITDA per ton for the quarter stood at INR 6,557 as against INR 5,251 in Q3 of financial '21. Q3 of current financial year stood at -- sorry, profit during current Q3 stood at INR 20.16 crores as against profit of INR 11.06 crores in Q3 of previous year. Increase was 82.29%. Financial highlights for 9 months ending 31st December 2021. The volume stood at 92,752 tons as against 155,760 tons in 9 months of previous year. Growth was 16.28%. Revenue from operations stood at INR 1912.42 crores in 9 months of current financial year as against INR 1091.29 crores in 9 months of previous year. Growth was 72.24%, mainly on account of higher exports. EBITDA stood at INR 130.66 crores as against INR 88.73 crores in 9 months of previous year, increase was INR 47.25 crores. EBITDA per ton for 9 months stood at INR 6,779 as against INR 5,353 in 9 months of previous year. 9 months profit during current 9 months stood at INR 50.72 crores as against profit of INR 21.87 crores in previous year, 9 months. Company is also focused our company is also focused on minimizing finance cost, which is reflected in the quarter as well as 9 months. Finance cost for Q3 financial -- current financial year was at 2% as against 2.77% in Q3 of previous fiscal year, and 2.28% during current 9 months as against 3.71% in 9 months of previous year. That's all from my side. We can now open for -- floor for question and answer. Thank you.

[Operator Instructions] The first question is from the line [ Patil Joyansa from NVS Brokerage ].

Yes. Congratulations on a great set of numbers, sir.

Yes.

Congratulation on a great set of numbers, sir. So we just got a couple of questions. They are all quite broad-based questions actually. So the first question is, now we are almost at the end of January and only 2 months to go. What kind of top line and margins would you'll be achieving during the current financial year and a year going forward, that is in FY '23?

Likely to be in line with the last 3 quarters performance.

Sorry, sorry.

Likely to be in line with the last 3 quarter performance.

Okay. So the third quarter performance, right?

Yes.

Yes. Okay, sir. And sir, your debt is almost -- your long term is around INR 105 crores and the working capital is about INR 376 that is almost about INR 480 crores, and you are paying almost INR 60-odd crores in finance costs. Any plans to reduce your debt during the current year?

You see, we have reduced our finance cost drastically while better utilization of working capital. Our focus is to further reduce the debt. So our net 12 months repayment would be about INR 48 crores. So definitely next financial year, about INR 50 crores would be -- long-term debt would be reduced.

'23 basically.

Yes. yes.

Okay, Okay. Okay. Sir, with this -- you have actually got a letter of intent for this INR 200 crores, right, for the billet train, and you said you are expecting another INR 1,000 crores from the project in coming couple of years. Am I right?

Right.

But sir, my question is the bullet train project is quite a bit in distant future. So how confident are you? Because this is practically a very high value-added product, what you'll be supplying. So how confident are you in achieving that kind of numbers? Because the INR 1,000 crores would practically mean almost 1.5 quarters of revenue for you.

See, basically, what we have projected in this con-call, that is not INR 1,000 crores of high speed rail. That is all the fabrication projects. What you will see it will be high speed rails. It will be rapid rail, what we are doing near Ghaziabad, it is RRTS. So from every place projects are coming so that will be outlook for the next 2 to 3 years.

Okay, okay. Okay. Got your point, got your point, sir. Perfect, perfect. And sir, this precision tube to the order book of 300-megawatt what, what is the value of that?

Pardon?

This precision tubes order book of 300 you have megawatt you have, what is the order book for that -- what is the value of the order book for that?

The order, basically, this is a 300-megawatt in this, the structure part is almost 10% to 12% only.

Okay. And what would be the value for that?

So for that, you can say it will be almost 40 -- INR 30 lakh per megawatt.

INR 30 lakh per megawatt by, say, 30 megawatt, right? So almost say INR 9 crores to INR 10 crores.

Yes. Yes.

Okay. And sir, this quarter, you have actually drastically improved the margins and everything. Would this continue going forward in the future?

Yes.

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

Sir, can you share the status of the L&T LOI.

Basically, this LOI is for the manufacturing of the combined project for the Mumbai, Mumbai-Ahmedabad high-speed railway corridor. So L&T has taken this LOI from national high-speed railway. And in turn, they have given this order to us for manufacturing this. However, erection and other works L&T will be doing. So a test sample is under fabrication at the plant. And once it gets cleared from the Japanese counterparts, then the actual production will start.

So when it's start generating contributing into revenue?

I hope in the first quarter of the next financial -- it should start.

Can you share which are the top contributing clients domestically and globally? And who are our top 2, 3 competitors in the industry?

It is very difficult to name the customer as on date. However, competitors, there are different competitor in different segments like in auto tubes, our very old established pioneer, you know under TI in structure, in forging, there are brand names who are extremely so long are our competitor and our peers to see not the competitor because there is enough room for everybody and everybody can supply it. So we don't take them as a competitor. But there are the peers in the industry, with whom we are competing.

Okay. Sir, in last quarter, we faced some raw material availability issue, do that ease out in Q3?

It eased out a bit in Q3, however, supply still remains concern at our part. Due to various factors prevailing in the market, not many suppliers are available. In India, however, of late, government has removed all import restrictions, removed all [indiscernible] dumping on HR coil import. So problem of supply should ease quite a bit. However, demand for this product remains strong as on date. And we have been able to get better supply of raw material in the third quarter compared to the second quarter.

So how do we have plan to achieve our targets?

We don't -- please, please, carry on.

So there is some supply side problem now later side issue, which is not ease out yet. As we've seen the sharp jump in freight cost also.

I should explain there are no issues. There is no easy supply route. We have a customized customer base and product base. So this issue will always remain. It is not a vanilla product. We don't make out of vanilla product. We have to have the material and get it produced by HR manufacture and for customer requirement. This will always remain an issue. And fortunately for us, our relationship with our suppliers is far excellent and we are getting full cooperation. In spite of shortages, we got our supplies, whatever we needed.

Right. So what's our debt repayment for the 9 months?

Our debt repayment during first 9 months was INR 34 crores.

INR 34 crores. So still, we are -- we are targeting the debt free company, right, long-term debt free?

Yes, yes. In next 3 years, we are targeting debt free company.

It can be achieved in the next 2 years?

Next 3 years.

3 years. Okay. And sir, what are our ROCE target.

ROCE target is 15% in the next 2 years.

[Operator Instructions] the next question is from the line of [ Aniket Raitkar ].

Congratulations on the good set of numbers. Yes. Sir, I have a couple of questions. As we can see, the solar sector seems to be very focused area right now. So what are our plans and targets for the order book and the margin?

So basically, you are talking about the solar sector. So right now, you're seeing everywhere everybody is talking about the solar or renewable energy. And solar is a greater part of it, like Government of India is targeting 100 gigawatt, Reliance, a private company, they are also targeting 100 gigawatt. And since that the international players in the India solar, they all have given a commitment that by 2030, they have to put down the carbon imprints. So what I look forward, there is everywhere demand for the solar products. What we are making that is the solar support structures. And we see as the demand increases, margins will increase because capacity is still limited.

Okay. Okay. Okay. So sir, my second question, basically which geographies we are targeting I mean for our segment, particularly?

Yes. So basically, you see now everywhere, if you take an example of U.S., U.S. is also targeting because there possible consumption is more. So they have to put more pressure more on the solar and renewal. It is solar wind, combined hybrid. So these geographies are around U.S. and its countries, U.S. and its allies countries. There is a geographical area where demand is likely to come.

So can we say U.S. is the high-growth potential geography right now as we are targeting most?

It seems, right now, it seems.

Okay. Okay. Okay. So sir, as company is focusing more on the value-added segment. So how we see the contribution of various value-added segments on in future, what are our plans for this value-added segment?

Basically, what we are doing right now, our infrastructure, our auto tubes and our forges. These are the value-added part, which we considered where the EBITDA margins of more than 10%. We consider it a value added. And we are going towards it every quarter, we try, our aim is 75, 25. But until now, we have not achieved it. But in the next 2, 3 years, we want to achieve it.

Okay. So sir, 1 more question. As you can see, the raw material availability was an issue in the last quarter. So how do we see it going forward? And what are our plans for this raw material issue continuously increase in the raw material prices?

The raw material prices are a bit stabilized off late for the last 1 month. We see stability in steel prices whether there is little correction has come in the brand. I don't see any crash coming into the prices, but price is stabilizing slightly at a lower level and availability is likely to improve.

And sir, 1 more last question. What is your cash flow and the free cash flow status right now?

You see during the good profitability cash flow status is very good as on date.

The next question is from the line of Chintan Desai from Param Capital.

I have 2 broad questions. One is pertaining to what is the ROCE and working capital cycle if we want to spread across those 4 segments that we operate in? And when we speak of regular products versus the engineered value products, what could be the EBITDA per ton between these 2 segments?

Can you repeat the question?

So my first question is across the 4 segments that we operate in, what would be their ROCEs and working capital cycle in days? And secondly, when we say that around 38% of our products business mixes towards regular products and rest of engineered value. What would be the EBITDA per ton between these 2 segments?

EBITDA per ton, I'll come to the second question. EBITDA button in 30% is around 3%. And in other quarters, we were around 10% to 11%. And other question was ROCE, ROCE as a company, I can tell you, but segment-wise, I have not worked out.

Okay. Got it. And working capital cycle across at least this.

Average is 30 days.

30 days. Okay. Okay. So all the 4 segments have a similar working cycle. Can we say that?

Working capital cycle for domestic and exports are different. Working capital cycle export is about 20 days while for the domestic, it is 25 days.

The next question is from the line of [ Krishna Mundra ], an Individual Investor.

Hello. Sir, my question is, what are your future CapEx plan? And you are saying that your solar sector area the capacity is limited. So what are the -- is there any specific CapEx in that area and the current capacity utilization?

Our current capacity realization is around 78%.

In all overall. The company overall.

Overall. But we don't have any CapEx plan as of date. However, it will be taken up after the end of the year, we will see what CapEx plan we have. Immediately, we don't have any plan for the CapEx.

[Operator Instructions] The next question is from the line of [ Rohan Mehta ], an Individual Investor.

Congratulations on a great quarter. Sir, just to add on a couple of questions that you addressed earlier, the working capital cycle that is there right now. Do we have any target in mind? Or can we expect the working capital cycle to be around the same level as it is right now?

We have a target to improve our working capital cycle depending on the market situation. when the slowdown comes on the demand a working capital cycle increases in the second quarter, our working capital sign came down to 22 days. But in the end of the third quarter, there was a slowdown in the market. So working capital cycle increased. However, we will be satisfied if it comes to around 20 to 25 days. That's our target.

Okay. Okay. No, sir. And sir, we've seen good exports performance. So is it also likely to continue? I mean what would be your ideal share of exports in the total revenue?

Total revenue is around 35% is our export we are achieving. And we expect it to continue at least in the immediate future, I don't see any credit to this.

Okay. Okay. Because if exports increase, then I believe working capital will also overall improve because, like you mentioned earlier, exports shorter working capital cycle.

Right, sure right.

Okay. Okay, sir. And sir, any targets? Do you have even, say, rough targets for the defense side of the business or any new products that might be in the pipeline for that?

We don't have any target for the defense. It is a difficult area. There are a lot of entry barriers, a lot of approvals are required. We are just starting. And we aim to go big on this. Once our new project gets commissioned, we will be going big in the project, and we'll try to get more business. Of course, we don't have any target immediately that how and how much we can achieve in our spend. Indeed after the plant is commissioned, all played out, we will see.

Got it. Got it. And sir, about the -- for the forging segment, what would be the status of the CapEx that is going on there, sir?

It will be on trial within the first week of February, and the revenue will start flowing from March full-fledged in the first quarter of the next year.

Okay. Okay. So in terms of -- so what can be expected, like you said, maybe the synergies will start coming in from Q1 of next fiscal year?

Yes.

Okay. Okay, sir. So sir, just 1 more question. For each of the individual segments, do we have a separate target or sort of like a road map for the individual 4 divisions?

Yes, we do have , but it is an internal system where we make the target for the next year. So in March, after reviewing all other sectors, we will definitely set the target for the new year. And we will let you go in the next con call.

Okay. Okay. Sir, any guidance on the next initial quarters of the next year? Top line and profit margin, sir?

So this fourth quarter guidance, we can give you, this is lastly truly in line with the last 3 quarters. And it is far depending the budget comes in the first of February. The policy decisions in the budget is going to favorably or adversely affect the business environment we are expecting it will be better for us with our elections around the corner. Budget coming in, government proactive business policies, I see a lot of headwind, lot of business prospects in time to come.

Okay. Okay. Okay. Understood, sir. Just 1 long-term vision question we had around a target of INR 5,000 crores top line would be achievable by what -- by which fiscal year, sir?

Say, next 5 years?

Next 5 years. And profit margins at that stage would be similar to today's levels or around what level would the profit margin be at?

I should not be thinking of it is better than the day's margin. Can I ask you this question? We hope for the better one.

Right, right. Okay. Okay. Just sir, any -- do you see any competition in the domestic or export market that is that is of significance?

So we don't have monopoly anywhere else. -- competitor will always remain, and we will take the competition. We are committed.

So which would be your top competitors sir, in the key markets, India and the U.S., for example?

Truly speaking, in our all the segments, we are in many segments, but fortunately or unfortunately, we are having very reasonable or very small market share. So it seems no threat to us. We have just to improve. It is too big for us.

Right. So in a way, it's a good thing that there is a lot of scope for growth also.

Definitely. I look forward.

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

I would like to take this opportunity to thank each member of Goodluck family. I would also like to thank our clients, creditor, bank, financial institution and other stakeholders. For any further queries or information, please get in touch with our Investor Relations team. Thank you.

Thank you. On behalf of Goodluck India Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your line.