Goodluck India Limited (530655) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Goodluck India Limited Q3 and 9 Month FY '24 Earnings Conference Call. We have with us today, Mr. M.C. Garg, Chairperson; Mr. Ram Aggarwal, Chief Executive Officer; and Mr. Sanjay Bansal, Chief Financial Officer. [Operator Instructions] I now hand the conference over to Mr. M.C. Garg, Chairperson, Goodluck India Limited. Thank you, and over to you, sir.

Hello. Good evening. On behalf of everyone at Goodluck India Limited, my pleasure to welcome all of you on this call. The quarter ended 31st December 2023 or Q3 FY '24 continued to be very rewarding one. The results are already in your hand. Efforts put diligently by the team into fortifying and expanding the business are now bearing fruits, which we will discuss a little later in the call. Q3 FY '24 continued to be an eventful one. We've been improving our product mix by expanding our footprint in the value-added, high-margin products. This needed a steady stream of working capital, one other critical area which we have successfully strengthened in the past 3 quarters. In the past quarter, we successfully closed our QIP, around of INR 200 crore, which drew good support from investors names such as Bank of America and Morgan Stanley. They have participated in around the quality of investor on board is heartening and will continue to motivate us to sustain our growth momentum in the future. We witnessed the positive momentum on the demand side, point to the robust economy, rising CapEx spending by the government, China Plus strategy on the export side and our momentum towards offering value-added products. Exports have been our thrust area for last 20 years. Our exports are roughly, in the value terms, almost 25%. However, export -- there have been a worldwide slowdown in export, but we have been able to maintain our momentum on our export. We'll close almost the same level as last year, in spite of continued export decline. This encourages us. It has been a fortune for us that our additional capacity which we installed in our Gujarat plant just came on black -- came into production just in time when the demand was declining, and we are able to make up shortage by additional production. This gives us confidence that we are going to do the -- once things turn around, we are going to export -- increase our exports. The new plant in Sikandrabad, which is coming for hydraulic cooling, will also primarily meant for export. It will add -- it will give a good boost to the exports. Besides that, in the last 2 quarters, we have already gone into defense and aerospace also, for which the site development work has started, and we could be in production in the first quarter of the next financial year. It will be -- we'll be producing forging components. Besides that, I have few things to add. We are into one body section we make. The government of India has decided to replace hard diesel buses in the urban Renewal Mission program, all the buses will be replaced by electrical vehicles and there is going to be a huge demand for tube, which we manufacture. The big parts -- big consumer like Ashok Leyland, SML and Olectra, they are our prime customer, and we hope this will give a good boost to our value-added segment. As you see in the results, our margins have improved because of our continuous effort. We have been adding value with volume, which has helped us to maintain our march towards a sustainable growth in the industry. And I take this opportunity to thank my team, my investor, shareholder and my clients for encouraging us with their trust and support. I would now request Mr. Ram Aggarwal, Chief Executive Officer, to discuss in detail about the company's performance in Q3 and 9 months FY '24. Over to you, Ram.

Thank you, sir. First of all, I would like to thank everyone for taking out time for attending today's call. As pointed by Mr. Garg, India is at the cusp of tremendous growth and well poised towards becoming third largest economy with a GDP of USD 5 trillion. Government focus on Gati Shakti, Jal Jeewan mission, infrastructure spending will be INR 11.1 lakh crores announced in budget, 2 crore houses for middle class, 1 crore houses rooftop solar, 2.6 lakh crores for railway making 4 corridors, roads by NHAI already at top speed, defense outlay increased, nothing is left where development scope is there. So your company is well poised to ride out -- ride on the wave of development as we are in auto, defense and infrastructure. In last 2 years, your company has expanded in infra by making first bullet train projects under a joint workshop of L&T, IHI Japan and Goodluck at Bhuj, Gujarat. Having the first mover advantage, we have completed almost 7,000 tonnes fabrication. In auto sector, if you see, we are entering construction industry machines, such as hydra, those are -- by making hydraulic tubes of 15 mm thickness, virtually replacing seamless tubes. We will be one of the few plants in the world. In Forging sector, as Mr. Garg has told, we have incorporated a subsidy, Goodluck Defence and Aerospace Limited, where we will make those parts for artillery and aerospace sector. We are consistently assessing and enhancing our production facilities, conducting R&D for new projects with same asset base, which is our USP. Mechanizing and digitalizing our manufacturing operations collectively is our aim. In all verticals, with the new software we have installed, market analysis has taken a central stage and helping in tapping new markets. We are upgrading our tube mills for new shape and sizes to meet international demand. Our employees, they are our biggest asset, and company is initiating steps to help them grow and become our partner in company growth story. Sustainability is our aim. As we had told in the last con call as well, company is continuously investing in measures which will offset millions of kg of CO2 emissions during the project lifetime. In a strategic development, company has made significant inroads in road safety sector by adopting European design and subsequently reducing cost of crash barriers. Company is planning to introduce design in India as well as overseas in association with our overseas partners. Qatar Stadium is one of the example of our joint efforts. With all the above initiatives, we feel much more is yet to be done. It's a continuous evolution process to enable us to remain ahead of our competitors. At the end, I would like to emphasize our aim, invest in equilibrating equipment to enhance our productivity with financial prudence. Going forward, the rising demand for steel and infra-favored government policies and conductive business environment are expected to result into an even brighter future for our engineering precision products. Thank you. Now I hand over the call to Mr. Sanjay Bansal, our CFO.

Thank you. I welcome on behalf of Goodluck India Limited. At the outset, I, Sanjay Bansal, welcome you all for joining us for conference on the performance of the company in Q3 and 9 months of financial year 2024. Regarding Q3 performance standalone, the sales was increased to INR 878.27 crores as against INR 705.94 crores (sic) [ INR 705.95 crores ] during Q3 of previous year, registering a growth of 24%. However, EBITDA for the quarter stood at the rate of 8.62% of sales, amounting INR 75.66 crores as against INR 53.37 crores during Q3 of previous year. The profit before tax, including other comprehensive income, was at INR 31.75 crores in Q3 of current year as compared to INR 18.40 crores in Q3 of previous year. With the performance of the company in 9 months of current financial year, the sales has been increased by 14%. EBITDA margins have improved to INR 220.21 crores (sic) [ INR 220.22 crores ], EBITDA margin percentage 8.40% of this as against 6.85% during 9 months of last year. However, PAT margins have been increased to INR 95.04 crores, registering a growth of more than 60% as compared to 9-month period of previous year. The earnings per share has been at INR 11.36 (sic) [ INR 11.38 ] per share in Q3 of 2024 as against INR 7.02 per share during Q3 of previous year. However, EPS of the company in 9 months of current fiscal for standalone was INR 34.58 per share. On financial front, our interest cost and other expenses have -- are almost flat due to increasing level of activity during 9-month period of current year as compared to previous year. Thank you very much. We may now start question and answer.

[Operator Instructions] The first question is from the line of [Ayush C from Rawas Capital].

I just have one simple question. Could you just elaborate on the segment-wise revenue for each of your segment?

The segment towards value was -- as under our general product structure, pipes, et cetera, contributes 50% of the sales. Structural division contributes 10% of revenue. CDW and ERW precision tubes contributed 25%, and Forging division contributed 15%.

Yes. Just one more question. Also, are we on track for the guidance given for FY '26?

Yes. We are -- we are on the track what guidance we had given. It is as per the -- as per our planning.

The next question is from the line of Harsh from Kriis PMS.

Wanted to understand the new policy for the government for rooftop solar. Would our products be useful in those structures as well?

Yes, definitely. Because in every solar product, whether it is ground base or a rooftop base, the area is part of the structure. Only the models are mounted. So with this, there will be a good demand of the structures, which company is manufacturing.

Got it. Perfect. And on the subsidiary, which has been created for defense, how fast do we see that subsidiary getting EBITDA positive and getting into a significant revenue proportion, say 10% revenue contribution?

This should be possible by third quarter of next year.

Okay. So we are expecting 10% revenue from defense?

Sir, basically, from defense, we will be then -- it will be at the full capacity. It will be giving a revenue of INR 350 crores to INR 400 crores.

Got it. And that would be in the third quarter next year.

It will be almost H1 of the FY '25.

The next question is from the line of Rakesh Roy from Omkara Capital.

My first question is regarding the defense business. Can you explain what type of equipment or what type of material we are supplying to defense companies? And who are our major client?

So basically, what we are doing, we are making forgings, forgings which can be used in all the artilleries, which can be used in the helicopters, which can be used in the guns. So -- but we are not known -- we don't know in which part it will be used. We get the drawings and then we supply.

Okay. So the forging is for -- especially forging for like titanium or just a normal steel or stainless steel?

It's a mix of the material. It may be carbon material, it may be inconel, it may be titanium, it may be aluminum, any kind of material, it is as per the DRDO specification. So...

Okay. Yes, sir. Yes, please, sir.

No, okay. Okay. You please continue.

No, my question is, sir, how much your defense products do we have currently validated until now -- till date from different companies? And how much is the addressable market for next 1 or 2 years?

Basically, what we are doing in for -- in defense, we are supplying from our Forging division, and it is not a significant revenue. It's hardly a 2% to 3% revenue of the company. But with the coming off -- with the incorporation of this new subsidiary, we will be making significant supplies to the government as well as the exports for the defense purpose, defense and aerospace both.

Exactly. All correct, sir. So how much we are looking from the domestic and how much we're looking from the export market for defense business?

Right now, it is very difficult to tell because geopolitical conditions are changing very fast. Till 1 year back, India was an importer. But today, India is trying to become an exporter of the most missiles. So this will depend when our full production comes, then what will be the geopolitical condition. Then, it will decide the share of domestic as well as the international demand, but the demand is very high.

Okay. So just use my math here, INR 350 crores to INR 400 crores, is that annual level?

Annual, definitely.

Yes. Yes, sir. Right, sir. Sir, my next question regarding -- sir, you said -- any plan to -- you are targeting a INR 400 crores annually, that this will go like area of INR 400 crores to INR 500 crores, INR 600 crores in next 5 to 6 years? What's the plan, sir?

Basically, right now, we cannot tell it because it's all in the future. Right now, as for the capacity, this is our estimation. As we move on, we can let it know.

Okay. And who are our major or big client in defense business, in POC or private?

This cannot be told because it's a defense. So it is a thing which we cannot declare.

Agree, right. Last question on defense, sir. Any plan to hive up your defense business in near future because you are targeting INR 400 crores and this will go to nearby INR 700 crores , INR 800 crores, so next 3 to 4 years, are you planning to hive up this defense business to get the value?

No. It's already a new company. It's already our subsidiary. So I don't think so that it will be required.

[Operator Instructions] The next question is from the line of [ Arjun Agarwal ] from [ Investo ].

First of all, congratulations on a very good set of results. I have got a couple of questions. The first one is what measures are we taking as a company to reduce the power cost?

What company is doing, right now, everybody is talking about the sustainability, everybody is talking about the carbon fuels, carbon footprint, so your company is also thinking in this action. The company is already taking action because we have taken almost 30 megawatts solar power for our total plant and it is almost 30% to 40% of our demand. So this way, our power will be reduced in the coming future. This year, also, it will have an impact.

Not only this, we have entered into an agreement. As per the new government policy, 10 megawatts, we will take solar power at the rate of INR 3.4 per unit for next 25 years. That agreement has been signed. Already, we have signed an agreement of 6 megawatt. It has been enhanced to 10 megawatts. So the power cost will drastically reduce. Those who are producing solar power energy, they have been allowed to give a preference to the consumer in U.P.

[indiscernible]

Your voice is not clear.

Am I audible now, sir?

Now yes.

Yes. Sir, one more question I just want to ask. Based on the things that are going globally, based on the Red Sea scenario that we are facing, so are there any issues with the exports cost, means logistic costs, that we are facing right now as of now?

So there are -- there is a problem. But fortunately for us, 25% of exports are to the areas which are not covered by Red Sea. Only 80%, maybe 75% export remains, which is affected, right? Out of that, almost -- out of 75%, 70% we have above the value, above the contracts. So we are not affected. Only marginally we are affected, where we will be definitely affected. But effect will be minimal though most of our competitors Europe and America on FOB basis.

Okay. Glad to hear that, sir. And sir, the last question from my side is -- like based on the -- that we have -- the news that is floating around, that based on the -- that renovation of all the railway stations and the foot over bridges that has been planned by the government, especially by railway ministry. So what are the implications? I just want to know that is there any application of our product in the foot over bridges and all the -- all other things that railway has proposed?

Yes. We are doing all the FOBs. There's a new trend of stainless steel FOBs. So we have already entered into this. We are making one FOB of stainless steel in Vishakhapatnam. So in all the FOBs in all the business and the railway station buildings, yes, because some New Delhi railway station building is coming up. So we are bidding with L&T. And if L&T and these other big players get it, we will get a good portion of revenues in there.

The next question is from the line of [ Piyush Arora ] from SOIC Research.

Sir, my question was, what is the margin profile of the defense business?

Margin profile, right now, we are doing only 3%, 4% business. But I expect in the field which we are going, there, margin profile should be 20% plus, EBITDA margins of more than 20%.

[Operator Instructions] The next question is from the line of Anuj Gupta from IIFL Securities.

Just wanted some basic understanding. So let's say -- if you can give a breakup of your existing revenues in terms of end segments. So let's say what portion will be auto, what portion will be export, what portion will be infrastructure or construction industry. If you can just break up your revenues broadly in that way.

Basically, our infrastructure section, which we'll talk, it is almost 60% now. And our auto section, it is almost 25%. And our forgings division is almost 15%. This is -- this is the breakup.

Okay. And in the infrastructure segment, it is basically the ERW tubes, which you supply, right? Nothing...

No. No. No. Infrastructure section, it contains many things. One, number one, if you call it, it is a structure tubing, structure tubing which is being used in the bus bodies. It is a solar power. So we are giving solar structures. And in railways, we are giving FOBs. We are giving railway bridges, like we're supplying to the bullet train, first bullet train from Ahmedabad to Mumbai. We are talking of electrical towers, talking about telecom towers. So all kinds of industries encompass the total structure division.

Understand. And similarly, if you can maybe give some picture on how the profitability different across these segments, auto versus infra versus third segment which is exports also?

Basically, in infrastructure, if we talk about the railways in the electrical lines, there is normally 9% to 10% EBITDA. And in the structure tubing, because it's a general type of thing, so there the margins maybe 3% to 4%. In CDW, it is normally 12% to 15%. In forging, again, it is 12% to 15%.

Okay. And you had mentioned initially that you are also going in some hydraulic tubing.

This is the part of the CDW. This is a part of CDW.

Okay. So that will go into the infrastructure equipment, right, the heavy equipment, which are made by...

No, no, no. It will go again in the CDW because we will be making the hydraulic tubes. I have just told that it will be used in the construction machinery.

Understand. Understand. So there also, the margins would be similar to what you do in CDW or auto segment?

They will be good margins but let it come into production then it will show in the balance sheet.

[Operator Instructions] The next question is from the line of [ Kanika Keimani ] from [ Ufri Capital ].

Actually, I want to know what kind of top line growth are we expecting in the next 2, 3 years and, accordingly, the margin for it? Like with the defense company and everything, do we expect the margin [indiscernible]? Or is it going to be on the same line?

This year, the top price should be almost 3,500 plus and in the next year, it should be 4,000 plus. And by FY '26, it should be 4,500 plus. This is what we expect in coming 2 years.

Okay. And the margin remains the same. I guess, is it sustainable with defense and everything coming in?

Defense and aerospace, it will come only FY '26. So by that time, the margins we are expecting right now, we are almost at 8.4% EBITDA. And next year, we are expecting almost 9%. And in FY '26, without defense, we are expecting 9.5% plus. And the defense margin, when it comes into the operation, that -- it will be added to that.

The next question is from the line of [ Anupam Gupta ] from IIFL Securities.

Again, can you give a picture on the exports? Is it mostly for auto? Or where does the export cater to and which geography, broadly?

Over 85% of exports are to the developed markets, like Australia, Europe and America. It is not only auto tube. It is general, in meaning by general purpose [indiscernible]. Each segment has a specific requirement. But we fortunately have exclusive brand that we are most preferred supplier of our product in all these markets.

The next question is from the line of [ Piyush Arora ] from SOIC Research.

I think this question was asked earlier, just reconfirming. When is that defense capacity going live? And do you -- I think, [indiscernible] the INR 300 crores to INR 400 crores revenue. When do we expect that, this financial year?

I could not understand -- could not hear. Can you repeat?

Sir, I think this question was also asked earlier. So this -- so the defense capacity, when do they go live? And when do we expect the INR 350 crores to INR 400 crores top line to come back?

Well, it will take almost -- because it will start in the first half of the next year, next financial year, and to ramp up the capacity, it will take time.

From FY '26.

From FY '26 onwards?

Yes.

[Operator Instructions] The next question is from the line of [ Arjun Agarwal ] from [ Investo ].

I just want to ask one more question. Regarding the high-speed rail corridor, the order that we got from L&T, sir, can you just give a breakup cost, if possible, that how much order we have delivered or is in the pipeline and how much is under the production?

Basically, we have completed 1/3 of the order and balance 2/3 is under production. And some more orders are expected from L&T because we are the only one who have completed this quantity so far.

Regarding, sir, the high-speed rail corridor or some other railway...

Regarding the high-speed rail corridor. You were specific about the high-speed rail corridor.

Yes. I was asking. Okay, yes. And sir, I just want to know one more thing about the business, if it's okay. I don't know whether I'm correct or not. But sir, are there any opportunities for our products in the dedicated freight corridor also?

Yes, definitely. In the dedicated freight corridors, there are steel bridges. And in the -- it was for the WDFC, western dedicated freight corridor. We had given almost 12,000 tons of steel bridges. And the new corridors, which have been announced in the budget, I hope we will have very good quantities from there.

The next question is from the line of [ Anupam Gupta ] from IIFL Securities.

Sir, when you say that you have got these large orders from L&T and you expect orders from DFCC as well and when you say that you make bridges as well, so how does this work? Do you only supply them material? Or are you also responsible for construction of it? Or -- and who takes the working capital risk here? How does the contract work with L&T, let's say?

In this particular contract, L&T is giving us the material. So on the working capital side, L&T has to take it. We are only for fabricating and supplying. In this particular contract, the action has to be done by some other agency. But in general, when we do the build work at many places, we supply the material. We have the material. But as far as construction civil is concerned, we are not in that business.

Okay. So when you say erect, you will take the working capital risk as well till the project is complete.

Normally, we don't take working capital risk because our 70% of the bridge parties, they give the material and they finance the working capital.

Okay. So in the sense that they'll basically buy out the HR coil for you and you will do the conversion effectively?

No. It is made by the place, basically, which is purchased from Steel Authority, JSPL and JSW. And those plates are fabricated and painted by us and supplied to the site.

Understand. Okay. And when you -- and in the CDW segment, it is primarily for auto, where it will be more like ongoing contracts with direct pass-through of raw material, right? Or there, it is not contract -- short-term contracts there?

We have these -- we have schedules of week-wise. So we have a visibility even for 6 months, 1 year. But definitely, sizes keeps on coming on a monthly basis. So we supply it accordingly. At times, the raw material was the same, what you wanted to know.

[Operator Instructions] The next question is from the line of Rakesh Roy from Omkara Capital.

Yes. Sir, one question, you have guided -- FY '25, you are targeting 4,000 or 4,000 plus, and FY '26, you are targeting 4,500 plus. So this includes the defense revenue also, sir?

No. No. It does not include.

[Operator Instructions] So there are no questions in the queue. Shall we close it, sir?

Yes. Okay. I wish to thank all participants for joining us on call today. In past half an hour, I hope that we have been able to answer all your queries and could also throw some light on the way forward for Goodluck India Limited. In case you have more queries, we request you to please e-mail us on [email protected]. Thank you, and have a good day.

Thank you, sir. Ladies and gentlemen, on behalf of Goodluck India Limited, that concludes today's session. Thank you for joining us. You may now disconnect your lines.