Hi-Tech Pipes Limited (HITECH) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Hi-Tech Pipes Limited conference call. We have with us today, Mr. Anish Bansal, Whole-Time Director; and Mr. Arvind Bansal, CFO. [Operator Instructions] Please note this conference is being recorded. I now hand the conference over to Mr. Anish Bansal, Whole-Time Director of the company. Thank you, and over to you, sir.

Good morning, and welcome, everyone, for our Q2 FY '22 earnings conference call. I hope each of you and your families continue to remain safe and healthy. I'm joined on the call by Mr. Arvind Bansal, CFO of the company. I hope everyone has had a chance to go through our results and updated investor presentation uploaded on this day. We are delighted to report strong growth in our revenues and profitability in Q2 FY '22 on a year-on-year basis. This was primarily led by strong volume growth of value-added products, better realization and part inventory gain from increase in raw material prices. Despite the challenging environment in H1 and Q2, we have been able to increase our operating profit and profitability, led by higher realizations and better operational efficiencies and higher sale of value-added products. Sales realization has improved considerably on a year-on-year basis, primarily led by increase of steel prices. Moreover, our share of value-added products has increased to 23% during the quarter as compared to 14% last year, which has helped significantly in improving the sales realization. Our EBITDA on per tonne basis has improved by 68% to INR 3,742 per tonne in Q2 FY '22 as compared to INR 2,224 per tonne in Q1 FY '21. Though the raw material prices have increased on year-end business, we have been able to improve our operational efficiencies, which has benefited us in the margin improvement. The company is delighted to inform that the commercial production of Continuous Galvanizing Line has started at Sikanderabad facility. This value-add product is of superior quality and is available in multiple sizes as per customer requirement. With the high durability, the product finds applications in industrial roofing, warehousing, construction, furniture, white goods and household rooftops. The launch of this product will enable the company to penetrate in the Indian roofing industry and expect it to contribute to the company's top line meaningfully in the coming period. The Board also takes great pleasure to inform that the company has received, in principle, approval from BSE Limited to list its share on the main board of Bombay Stock Exchange. Now the shares of the company will be listed on both the recognized stock exchanges of India: NSE and BSE. Our target is to reach 1 million tonne capacity from the current capacity of 5.8 lakh tonnes. However, our focus remains on improving the capacity utilization and increasing the share of value-added products. To sum it up, we at Hi-tech Pipes remain very positive on India structural growth going ahead. We remain committed to increase our capacity from 5.8 lakh tonnes to 1 million tonnes. We believe that we will see considerable growth in our sales volumes this year and going ahead. With the improvement in operating margins, led by various factors, we expect increase in our profitability in the coming period, which would further strengthen our balance sheet. I will now hand over the call to Mr. Arvind Bansal, our CFO, who will take you through the financial results for the quarter ended September 30, 2021.

Good morning, everyone. I will take you through the financial results of Q2 FY '22 and H1 FY '22. Our revenue from operations for the quarter grew by 21% on a year-on-year basis to INR 460 crores as against INR 382 crores in Q2 FY '21. The revenue growth was primarily driven by significant increase in our sales volume of value-added products and higher realizations. Our EBITDA for the quarter increased by 27% on a year-on-year basis to INR 24 crores as against INR 19 crores in Q2 FY '21. Our PAT increased significantly and stood at its INR 10 crores as against INR 6.5 crores in Q2 FY '21. Current ratio has improved from 1.34x in FY '21 to 1.43x in H1 FY '22. Interest coverage has improved from 1.96x in FY '21 to 4.68x in H1 FY '22. Debt/equity ratio has improved from 1.45x in FY '21 to 1.34x in H1 FY '22. Return on capital employed has improved 13% in FY '21 to 15.5% in H1 FY '22. Return on equity has improved from 12% in FY '21 to 17.2% in H1 FY '22. Net working capital days has improved from 71 days in FY '21 to 66 days in H1 FY '22. Return on equity has improved from 12% in FY '21 to 17.2% in H1 FY '22. With this, I would like to open the floor for questions. Thank you.

[Operator Instructions] The first question is from the line of [indiscernible], an individual investor.

Congrats on the results. I actually had a question on the volume growth. So we have seen a sharp volume decline on a Y-o-Y basis around almost 24% to 25%. What exactly is happening there? And is that the trend? Or what do we expect for the full year for the company?

So in Q2, we have -- in last year Q2, we had a lot of pent-up demand. So there was a sudden demand spike in last year, but that was despite the monsoon. But this year, we have seen the monsoon playing a very, very important impact on the final demand on the project side. So a lot of the orders we have in hand are from the projects. And they have postponed the purchases after the monsoon. So from October onwards, we are seeing the demand, which was impacted because of monsoon, has come back to its maximum now from -- starting from October. And also in Q2, the company had significant export orders. But the orders could not be executed because of the logistic issues. But now from this month, even the logistic issues, they are coming back to normal. And we are expecting back to our original volumes from Q3.

Okay. So is there any -- is there -- does the steel price hike, does that also affect the volumes in some way?

So basically, when these prices are up, so the demand from the final consumer, you need [indiscernible] projects. So they try to postpone the purchases. Because even there, when they are doing contracts with the government, so they are on a fixed price basis. So once these steel prices go up, so they will try to renegotiate with the final authorities. And that takes time, so -- but now everybody has realized that these steel prices will remain high for the rest of the financial year. So they will -- eventually, they will have to go ahead and go for the procurement.

[Operator Instructions] Our next question is from the line of [indiscernible], an individual investor.

Sir, a question again on the volumes front. So what is our expectations for the year? How much volume do you expect to do in the second half?

The volume for the rest of H2, the company, the internal target is to do a volume of -- in excess of 1,50,000 tonnes for the remaining H1 -- remaining H2. So from October onwards and with the commissioning of our new galvanizing line, that will also increase the volumes for pre-galvanized tubes. The company was dependent on procurement of galvanized coils from the primary players. But now with -- having its own galvanizing line facility, this will significantly improve our volumes.

Okay. And then the parent margins front, which is INR 3,600 for the quarter, is there an impact? Or do you expect to maintain the similar per tonne margin -- EBITDA per tonne for the second half as well? Or do you expect it to change significantly in the second half because of the galvanizing line volumes improving?

Yes. But on a blended level and on a full year average, I think INR 3,400 is what the company is safely expecting to achieve for the coming 2 quarters.

[Operator Instructions] Our next question is from the line of [ Mahesh Waze ], an individual investor.

Anish, Good numbers, congrats.

Thank you so much.

Okay. So yes, I heard from -- well, the industry talk that because the prices have gone up, the patra guys have become a bit more competitive. Have you seen any such development?

So maybe, [indiscernible], patra has been there in India for the last like many, many years. And they have their own market. That is -- patra is made from some scrap. It is a recycled material. And it is not BIS-certified. The pipes made from patra are not BIS-certified. So that finds a very, very like limited market. Right now, because the spread, the gap between primary and secondary steel is big, so these companies are active now. But over the long run, I think, as we have seen historically, this gap does not remain long -- remain -- the gap is not too much for a long time.

Okay. But has it impacted this quarter? I mean, our volume growth, as earlier, the guy also asked, volume growth has been subdued. So has there been any impact from patra?

I would say like there was some impact but to limited levels and in some geographies.

Okay. And our galvanization, now that the commercial production has started, approximately how much will be consumed in-house?

We are expecting 50% consumption to be in-house and 50% for the roofing market, initially.

Okay. So basically, when you say roofing market, the guy who is buying it is just making a corrugated sheet out of it or color-coating it. What is -- what value add will be done by the guy who is buying it from us?

They will be majorly -- they will be their distributors and they will be the profilers. So profilers, they will make it tailor-made to be [indiscernible] like in terms of the length of the sheet, the color of the sheet, the design -- the profile design of the sheet. So they will do the various customizations on our supplied color-coated coils.

Okay. And you said something about second half volumes, I didn't get it actually. You said some numbers, which I couldn't hear, answer to an earlier question.

1,50,000 tonnes.

1,50,000. Okay, fine. One last thing, so what is the kind of CapEx for rest of the financial year in terms of amount?

[indiscernible] most of the CapEx, including for the color-coated line, has already been entered as of 30th September 2021. So going forward, we see a very, very limited CapEx for the rest of the financial year. Most of the CapEx has been captured as of September 30.

[Operator Instructions] The next question is from the line of Anish Jobalia from Banyan Capital.

I just was looking at some of the volumes that the guidance that you had shared in the past. So you were saying that operated at nearly 60% utilization, which meant close to 3.5 lakh tonnes. This was a couple of the quarters before. So now if we were to look at your numbers that you are expecting in H2, so far, we might be short of, say, 40,000, 50,000 tonnes per [indiscernible]. So I just want to understand, sir, from you, what has changed dramatically or -- for us to have a lower volume expectation versus earlier? Would be really good know your thoughts, sir.

Yes. So basically, in H1, our -- the volumes have been lower because of the COVID-led restrictions and lockdowns. But from H2, we are back to our normal capacity utilization. And they were -- from the export front, as I mentioned earlier, there is a huge logistics issue that is going on, the availability of containers. So that is also a major contributor of that. But now that things are back to -- even the monsoons are over and the company has commissioned its galvanized line, so with this, we are expecting a strong volume growth. But we are a little bit conservative in doing a forecast. So we are only giving a very, very like safe and conservative amount.

Conservative amount. Okay. And how do you see the industry also [indiscernible] in H2? We are also expecting a number of volumes, as you mentioned, back to normal. So overall, how is the industry doing? Is it also equally doing well or we are kind of gaining market share to be able to move [indiscernible]?

So in H2, we are seeing the projects which were held because of monsoon and the rising prices. They are getting streamlined now. The demand from the [indiscernible] ministry is quite big. And in H2, there's a huge CapEx outlay planned for [indiscernible]. And along with that, the infrastructure deployment, that will help significantly in improving the total volumes for the company.

And sir, one question is around your definition of value-added products. So do you look at this from a EBITDA per tonne perspective contribution from the [indiscernible] products? So what is your definition of value? How much is the minimum that one needs to do to be able to call it [indiscernible]?

So yes, value-add product means like higher EBITDA per tonne. Anywhere EBITDA, where it is higher than INR 3,000 to INR 3,200 per tonne will be considered as value-added product.

Sorry. So you meant INR 3,000, right, anything which is more than INR 3,000?

INR 3,000 to INR 3,200, yes.

Okay.

[Operator Instructions] As there are no further questions from the participants, I would now like to hand the conference over to Mr. Anish Bansal for closing comments. Over to you, sir.

I take this opportunity to thank everyone for joining on the call. I hope we have been able to address all your queries. For any further information, kindly get in touch with us for any further queries.

Thank you very much. On behalf of Hi-Tech Pipes Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.