Goodluck India Limited (530655) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Goodluck India Limited Q1 FY '25 Earnings Conference Call. We have with us today Mr. M.C. Garg, Chairman and Managing Director; and Mr. Ram Aggarwal, Chief Executive Officer. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to M.C. Garg, Chairman and Managing Director of Goodluck India Limited, for his opening remarks. Thank you, and over to you, sir.

Hello. Good morning to all of you. I welcome you all on this conference call. I am pleased to share with you highlights of the company in the first quarter. And I take a pleasure to inform you that for the first time, company dispenses 1 lakh tonne in the first quarter, and it was a continued growth. Year-on-year, we have grown by around 17% and profits have jumped by around 27%, and the results are in here, you must have noticed. The Indian economy is growing. The domestic demand is strong. Of course, there were challenges in the first quarter, because of the national election. There was a lot of uncertainty and disturbance all over. In spite of those challenges, we have recorded a reasonably good growth over year-on-year. We are expanding our investment in the plant of [indiscernible] continued as per schedule. The plant is likely to be commissioned by end of August. Trial production will start and the commissioning -- commercial production will start in month after. This plant is one of its own kind, one of its own range first plant in India, one of its first plant in India, and there are very few plants in the world to cater to that range. We will be making -- it will replace seamless pipe and these products, which we are going to make, are going to be of immensely used all over the world, demand is very high for the construction industry. There are destruction taking place, the war taking place and when the war will be over today or tomorrow, maybe a month or 2, the reconstruction will start. At that time, there is going to be huge opportunity, and we will be there. Besides that, our subsidiary, Goodluck Defense and Aerospace work on that front is going as per schedule, rather ahead of schedule, our land development is over. Shell is under completion. Machinery will come by November. And we are likely to start ramp production by end of the fourth quarter, and then the production should be started in the first quarter of next year, while it is almost 6 to 8 months ahead of schedule. We will be manufacturing 155 mm gun shells and that production, as on date, we have a very strong demand with us. The inquiry is very encouraging, and we hope that this plant commissioning will be a game changer to the company. Besides that, we continue to grow and we will continue to grow. We are generally -- for the last 3 years, we have been growing at the rate of almost 20%. We hope to grow. However, there are challenges, I can share with you. In export, in particular, we are almost doing 25% exports. And for last 2, 3 months, there has been a logistic challenge. The ship shortage is there. So container shortage is there and this is affecting our working. But in spite of that, our business model is like that. We are a diversified product company. Product profile, market profile will see us through will be the least affected by these challenges, and management is confident to sail it through. I have explained you limitedly -- limited manner, whatever company is doing, and I'm confident that in time to come, we are going to meet our targets as we have given the guidance earlier. And now I hand over you to Mr. Ram Aggarwal, CEO.

Hi, good morning, everybody. Thank you for joining us today. I appreciate you taking the time to participate in our earnings call for the quarter ending June 30. Mr. Garg has described the market position in a very crispy manner. But however, I would like to say that the steel industry, in which we are, a cornerstone of our industrial sector, has experienced a mixed performance over the last quarter. On the one hand, domestic demand for steel products has remained robust, driven by the ongoing infrastructure development and a revival in construction activities, rising demand in metro rail projects, defense sectors, such as automotive, real estate, capital goods, continued to show strong demand for steel. As the budget was very clear, our India is likely to become the third largest economy in the world with a projected GDP of $5 trillion. However, Niti Aayog has given a target of $30 trillion; however, it seems very far, but it is not very, very far. In my opinion, what they have given $30 trillion by 2047, it will not be a difficult task with the speed, what India is progressing. Economic activity in the country has demonstrated remarkable resilience, dynamism in the last quarter. I am very much amazed that government is thinking of a 10x expansion. We are at $3.4 trillion. The government is talking about $30 trillion. It's a leap in our future. The Government of India's ongoing commitment to increasing infrastructure spending, it is really remarkable. A huge investment announced in the latest budget, it is 11.11% of our GDP or you can say INR 11.11 lakh crore for the infra, it is a very good. If you consider it if we compare it to U.S., U.S. spending is almost 2.5%, whereas China, which is the icon of the infrastructure development, it is 5%; where -- we are at 3.4%. So we are not very far away. We are going on the way of the China. So as a result as -- any country, it has expanded over the back of the infra only. And Government of India has really appreciated this and we are going on the same track. As far as our company is concerned, for the 3 first months of FY '25, we recorded total operating income stand-alone INR 904 crores as compared to INR 846 crores, which we achieved in Q1 FY '24. The substantial growth was driven by infra, auto, defense and aero. These are the sectors, which company has pursued. And I believe as per the government documents, as per the government actions, these are the sectors, which government is emphasizing and company is already targeting these sectors. So the demand and the company's expansion, it looks in the same range. Our EBITDA for the period stands for INR 79.65 crores. It is up from INR 70.87 crore in the same period of FY '24. This improvement in EBITDA, it can be attributed to many reasons. In my opinion, EBITDA increased due to emphasis on the value-added sectors. We have increased the value addition in comparing to the last one, 17%, we have increased value-added sectors and our continuous improvement in technology and updating the plan continuously to optimize our costs. System-driven data is helping us our marketing innovations. However, due to election, as Garg has said, market conditions were not [ encouraging ]. But our bouquet of products, diversified markets helped us to navigate in these choppy waters. The recent budget is very positive for the country, very positive for your company because government has given funds to road, rail, port projects and it is specific to spur the demand for speciality steel products in which your company belongs. The initiative to boost manufacturing and exports are likely to create new growth avenues for the sector. The basic thing, what government has been talking, why it is talking, it is a sustainability. And your company seized of the issue. We are working continuously on the sustainability of our plant. Government's focus on sustainability and green energy is noteworthy as we move forward, more environmentally-friendly production method, support of green technology, sustainable purchases in the budget is a welcome move. Government has given much boost to the solar industry. It has given much boost to the green hydrogen production. It aligns with our commitment to sustainable growth and our efforts to reduce our carbon footprint. The move towards small and modular nuclear reactor by the Government of India is eagerly watched by all the players in the speciality steel business, because it encompasses a special steel sector. So green energy is again the main focus of our company. Your company has already 10-megawatt solar generation equipment, helping in reducing carbon footprint. Company is aiming for a reduced carbon footprint with every passing year. Waste to green is a new concept, company is going to venture, it will be in line with sustainability goal of the country as well as the globe. Our R&D is continuously working on this goal. And as the defense, which has become a backbone of the country, because for the last 2, 3 years, government has given much impetus to the defense homegrown production and to enter into this company has made a subsidiary, Goodluck Defense and Aerospace as Garg sir has already told, we are doing the 155 mm shell. So why the need has arisen? Because the standardization has grown all along the group. Earlier, there were many sizes of the shells are being used. But in last 2, 3 years, standardization drive is going on throughout the world. And it is a 155 mm shell, which will be produced the most. And the geopolitical wars, they are creating a new fear in the countries, which were not having any stocks of these ammunitions. But with the NATO, with the Russian, with the cold war looming again. So many countries, which were not having ammunitions, which were not having many defense forces are out for purchase. So Government of India, earlier it was purchasing very less, but this year, they have given a quantity of 2.5 lakh shells to a Indian company. So it means everybody is seized of the issue, Israel-Hamas, Russia-Ukraine, China-Taiwan. So everybody is trying to increase its bill size. And this bill size, it speaks well for the company, for the product, which is likely to come. I hope whatever we will make, it will be consumed in a year from the starting of the production. And at the end, I can only say that as Goodluck, we have always prioritized quality over quantity and our financial results are a testament to this commitment. We continue to focus on delivering value for our stakeholders through sustainable and responsible business purchases. Thank you for your continued support and confidence in Goodluck India. We look forward to building on this moment in the coming quarters. So now we are open for the Q&A session.

[Operator Instructions] Our first question is from the line of Bhavesh Chauhan from India Birla Money.

Sir, in light of the volumes that we have done in Q1. First of all, if you could give us what was the growth rate? And it seems like growth rate was below 15%. So are we saying that the next 3 quarters will grow anything to the north of 20%?

Sir, can you repeat the question?

Sir, first of all, if you could give us the volume growth for Q1 FY '25?

Sir, volume growth was 17%, as I told you in the beginning, and we have been growing for the last 3 years. Average rate of growth was 20% approximately. And conservatively, that is a minimum we will be growing in coming quarters also.

Okay. And sir, with the defense project, this prepone kind of -- it will come up in 1Q FY '26 as you said, right?

Yes, original plan commissioning of the plant was we have been able to negotiate machinery delivery earlier. Machinery is likely to come by November this year, and the commissioning will take place sometime in March. And the trial and error production should start in first quarter of '25. However, we have planned in third quarter. So it is very well way ahead of schedule.

Okay. So FY '26 should see meaningful contribution from defense?

Yes. We are expecting it, meaningful contribution.

Great. Sir, we would like more and more color on the products and everything, but I'm sure you would like to give the color later on, as of now not. So that's it from me, sir.

Our next question is from the line of Prateek Bhandari from [ Art Ventures. ] The line from Prateek Bhandari has been disconnected. Our next question is from the line of Pradeep Rawat from [ Yogya Capital ].

Sir, my first question is regarding our Auto Tube CapEx. So what would be the revenue potential for this particular CapEx? And how much revenue can we generate for this year?

Are you talking about the defense project?

Auto Tube?

The total contribution will be 2 quarters only this year. From next year, it will be fully ramped up, and we are expecting addition of around INR 250 crores this year. And the next year, we are expecting around INR 500 crores.

And we have given the growth guidance of 15% to 20% last quarter. Are you assuming this growth in that guidance also? Or is it additional?

It is included in that.

Okay. And my next question is regarding the defense and aerospace. So how much are we spending on this CapEx? And how big this particular segment could grow for us?

Basically, we are spending almost INR 200 crores on this project, and we are putting up a capacity of almost 1.5 lakh shells per annum. And we expect a maximum revenue of INR 300 crores out of it. However, future will depend on how the geopolitical condition goes on.

[Operator Instructions] Our next question is from the line of Aakash Javeri from Time & Tide Advisors.

Sir, my first question is did we see any slowdown in business this quarter because of the elections?

Sir, I can tell you, our order book was very healthy. There were disruptions. Definitely, there were problems because people were [indiscernible] -- instead of business, they were more busy with elections. So that extra slowdown was there. As such, there was no slowdown in demand. Of course, there were disruptions. We are definitely -- a major part of our sales are in export and in exports, there were problems of logistics. Shipping service has been severely curtailed. Container shortage is there. In spite of all this, we have been able to perform better because our diversified product, diversified market, we have been able to nearly achieve our export targets.

Sure, sir. And sir, the next question is that what is the current total borrowings? And are we expecting this number to increase in the coming period, once our new CapEx goes live or are we planning to reduce our debt levels from hereon? And are we at the peak of our debt levels?

Our total borrowing right now is almost INR 608 crores, and we have good cash flows. But however, as you know, the steel industry is a capital intensive. As that production goes on, as the turnover increases, then we will be needing some more funds. However, we will try to manage within our available means.

Sure. and sir, did I hear correctly that our value-added product contribution was 70% in Q1?

17%, basically, it was in terms of the last year that year-over-year, last Q1 FY '24. In that respect, it was 17% more this quarter year-over-year.

This we are talking about the value-added products volume?

I'm talking about value-added products. In value-added products, suppose it was INR 100 at that time. So this time, it is INR 117.

Got it. And sir, our current value-added product capacity, what was the utilization of that?

Sir, it is because it's a bouquet of 3, 4 products. So it cannot be generalized. However, capacity-wise, if we are talking of infra, yes, we are almost using 70% to 80%. If we are saying of the automobile tubes, then we are using almost 80%, 85%. And in our solar capacity, we are using 50%, 55%.

I would like to add also here management from the beginning, has been always looking for the opportunity where a value addition is the only criteria to expand our volumes. We are not after volume, not without value, we will not go for any production without value addition. And you must have noticed wherever we have grown, whether it's defense or precision tube or for that matter solar. We are very active in solar. These are all value-added segments we are adding. And over a period of time, we want to remain well ahead of all others always and it helps us in individual situations.

Definitely, sir. Sir, my next question, would it be possible to give a breakup of the revenue segments?

Basically, you just send us on the mail and our team will provide.

Sure, sir. And also, would it be possible to give the EBITDA per tonne for this quarter?

EBITDA per tonne is around INR 8,350 per tonne.

Our next question is from the line of Rakesh from Boring AMC.

Sir, my first question is regarding defense business, sir. Apart from, sir, 155 mm shell, what other products we are going to make?

Right now, we are -- we will start with only 155 mm shell.

Okay. And any thought process on India's future, any new additions in defense business?

Actually, you will appreciate that government has started a positive movement for the last 2 years. Rather I would say the last 1 year. So what will be added, it will be -- we will come to know only after when government gives the clearances. Right now, we are focusing on this single product. And as the demand arises, then we will think over the same.

Okay. Sir, maybe I missed it, sir, how much revenue potential we are looking from a defense business, 155 mm sir?

Maximum, we are anticipating it's almost INR 300 crores. But initially, it will be less because it will take time. Production will take time to stabilize.

Okay. Right sir. Sir, regarding your -- just you said that your auto tube plant will commission by August 2024, sir?

Auto plant has gone. I suppose what you want to know the right -- the position of the defense front right now.

I'm saying, sir, your auto tube plant sir?

Auto tube plant we will be starting 1st of September.

1st of September, sir. And for FY '26, we are expecting INR 250 crores and for FY '27, we are expecting INR 500 crores?

Yes, yes, definitely.

Okay. The last question in total, in the last few months, how was our value added contribution in the whole number sir?

You're not audible. Can you please speak slowly so that we can understand.

Yes. I'm saying, sir, in Q1, our value-added products contribution is how much, sir, if at all?

Value-add contribution, I have told, it is comparatively 17% more Y-o-Y.

Okay. you said 17% more Y-o-Y in term of the percentage for Q1?

It should be almost 57%, 58%.

57%, 58% sir?

Yes.

Our next question is from the line of Pradeep Rawat from [ Yogya ] Capital.

So sir, in your initial remarks, you said that, that auto tube would replace seamless pipes. So in auto usage, so would it be replacing it completely or in some places for auto usage?

This range of products, which we are going to make is first of its kind in India, very heavy duty, and large diameter pipe, which are now being used only seamless. We will be using the welded pipe for the first time, and there is a very strong demand of this in Europe, America, Latin America and India as well for construction industry. It cannot be -- it cannot completely replace seamless pipes. But in our product range, it will definitely replace.

Yes. And I made your EBITDA per tonne remarks. So what would be the EBITDA per tonne now?

EBITDA per tonne, as I told you, is around INR 8,350 a tonne and is likely to look up -- we are aiming higher EBITDA margin per tonne. The product which we are going to make will definitely have a much higher EBITDA than what our average EBITDA we are getting.

Yes. And what would be the EBITDA margin on the shells that we are going to produce from defense segment?

It is only an estimation right now because we have not made so far. But I think it will be between 15% to 25%. It's the range only. Once we make, then we can tell you.

Then the numbers will tell, but it is going to be much higher than our current product range.

Yes, absolutely. And what was the CapEx that we did for auto tube CapEx?

Around INR 200 crores.

Our next question is from the line of Rohan Patel from Turtle Capital.

Sir, for the quarter 1, what was our sales in volume, sir?

You're not audible, sir, please speak loud.

Yes. So far as of quarter 1 FY '25, what was our sales as per [indiscernible]?

Still voice is not audible. Can you speak aloud, please?

What was our volume? What was your sales in volume terms as per quarter 1?

What was?

Our sales volume?

Sales volume was almost 1,02,000 tonnes for the first quarter.

And what would be the growth rate in this quarter 1?

17% growth rate in terms of the Y-o-Y last year.

Yes. And just to make sure, out of this 1 lakh 57% to 58% was value-added products?

Yes, yes.

Okay. And CapEx that we're doing in defense as well as auto tubes, will this enhance our margins from 8%?

You're not audible actually, sorry. We couldn't be -- we are not able to understand your question because your voice is breaking or something else, not able to hear.

Sir, the CapEx that we are doing in defense as well as in auto tube, will this increase our margin profile from 8% to somewhere around 10%, 12%?

Yes, definitely, it will increase.

And how much that would be?

So basically, I have told this auto tube once -- this year, our EBITDA margin in this quarter, it is 8.8%. And with the implementation of larger tyre -- tube project, we will be racing towards 9.5%, 9.7%. So it will be moving slowly in each quarter and results will show. Regarding defense, we have already told that [indiscernible]. We have not made so far. So we cannot say that it will be 15% or 20%, but it will be in the range of 15% to 25%. And as the production increases in the coming year, say FY '25, then it will increase quarter-by-quarter. But it will be a slow improvement because it will be a blend of the products.

Okay. And just a little bit, a future-related question. After we commissioned the defense plant and achieve optimum capacity. Are we willing to invest more into defense?

It will depend on how that product moves because we have to move slowly. We have to take the baby steps.

Our next question is from the line of Hatim Broachwala from JM Mutual Funds.

Sir, 1 question from my side is that when I look at your EBITDA growth it is appearing 7% on a Y-o-Y basis. And the volume growth is 17%. So what would explain EBITDA growth lower than the volume growth?

Sir, I can explain to you. There are definitely margin pressures have come into play.

Our EBITDA in this quarter, it is 8.8%, from where it has come 7% sir?

No, sir, I'm talking about EBITDA growth.

Okay.

Y-o-Y growth.