Isgec Heavy Engineering Limited (533033) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Isgec Heavy Engineering Limited Q1 FY '25 Earnings Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Nidhi Shah from ICICI Securities. Thank you, and over to you ma'am.

Thank you so much, Luke. Good evening. On behalf of ICICI Securities, I would like to welcome you all for the Q1 FY '25 earnings call of Isgec Heavy Engineering Limited. From the management today, we have with us Mr. Aditya Puri, Managing Director; Mr. Kishore Chatnani, full time Director and CFO; and Mr. Sanjay Gulati, Whole Time Director and Head of Manufacturing Unit. I would now like to hand over the conference to the management for opening remarks. Thank you.

Good afternoon, everyone, and thank you for joining us for our earnings conference call today. I hope this message finds you and your loved ones well and safe. We look forward to engaging in a constructive discussion with you. Our quarterly financial results were published yesterday. We have uploaded our presentation on BSE, MSE and our website, www.isgec.com today. For regular updates about the company, please visit our website, and you may also follow us on social media platforms. Quarterly results. The standalone total income increased by 7% to INR 1,243 crores in June 2024 quarter compared to June 2023 quarter. The standalone profit before tax increased by 42% to INR 111 crores in June 2024 quarter compared to June 2023 quarters. The consolidated total income increased by 11% to INR 1,549 crores in June 2024 quarter compared to June 2023 quarter. The consolidated profit before tax also increased by 33% to INR 96 crores in June 2024 quarter compared to June 2023 quarter. In the stand-alone results, manufacturing revenue has increased as there are good orders for all products and the additional capacities created with investments in the last years have come into operation. Borrowings. Our fund position has improved. On a stand-alone basis, we closed the June 2024 quarter with a net surplus of INR 133 crores as compared to a net borrowing of INR 356 crores at the end of June 2023 quarter. The consolidated net borrowing has also improved substantially. Our consolidated borrowing has reduced to INR 491 crores on 30/06/2024 as compared to INR 1,066 crores as at 30/06/2023. That is lower by 54%. Order booking. Stand-alone orders booked during the -- sorry, during June 2024 quarter are INR 1,025 crores as against INR [ 816 ] crores in June 2023 quarter. The consolidated orders booked during June 2024 quarter are INR 1,124 crores compared to INR 1,152 crores of orders booked in June 2023 quarter. The orders in hand position is strong. Consolidated orders in hand as on 30th June 2024 is INR 7,741 crores. Of the consolidated order book, 69% is for project business and 31% is for manufacturing business. The order book include INR 1,316 crores for international orders which was about 17%. The order book includes the order book in Isgec Hitachi Zosen, which is very good. It has INR 1,022 crores of orders as on 30th June 2024. The order book is well diversified across various sectors and customers. Market demand. The overall demand trend is encouraging and the inquiry position continues to be robust. Export inquiries have also picked up. Philippines project. Most of the [indiscernible] related construction works have been completed except for some portion of piping, electricals, instrumentation and partial road, rail, flooring, painting, et cetera. The plant has manufactured and sold about 3.5 million liters of ethanol between April 2024 to July 2024 so far. The plant is temporarily shut for some corrective actions for some deficiencies in effluent treatment and disposal-related matter pointed out by local government authorities. We hope the plant can restart later in this month. My colleagues and I will be happy to answer any questions.

[Operator Instructions] The first question is from the line of [ Nirav from Arc Investment Managers ].

Is my voice clear?

Yes, sir.

My question is specifically pertaining to a couple of segments. So sir, just wanted to get some idea, how is the captive power market in India? So based on your assessment for FY '25. How big can be in market for captive power India? If you can help with -- help on this number within income, megawattages, it would be really very helpful. Also, according to you, what can be the outlook for waste heat recovery plants in India for the next couple of years? These are my few questions initially. I will ask further questions.

So we think that the market, the captive market, will remain -- the demand for captive market, the captive power plants, will remain robust. This is also because the process industries require steam in addition to power. So it should remain robust. So the waste heat recovery boilers, the demand for waste heat recovery boilers, because that's an efficiency increasing, it's a move to decarbonization, so people are investing in that. So we can't give out any specific numbers, but we think it will remain robust.

Sir, according to you as compared to last year, how much growth can we see maybe in terms of inquiry pipeline or something like that? It would be really very helpful.

So we can't give you any concrete numbers. But we think the market will remain robust.

Got it. Sir, my other question is -- my other question would be pertaining to boilers for thermal power plant. So the market for thermal power plant seems to be buoyant, and there seems to be only one player who's bagging most of the orders. Just wanted to check, do we intend to get into that particular market as well?

Are you talking about those large 600-megawatt boilers at power plants. Are you talking about this?

Yes, the large ones. I think the market trend is for 800-megawatt boilers.

No. We may do some small packages. We may bid for some small packages, but not -- we are not planning to get into those, the big plants.

Big ones like 800-megawatt? Because...

We will not be doing that. We might do some small packages, but we will not be going...

What would be the scope of work in the smaller packages? If you can elaborate a bit.

If you are successful, maybe INR 100 crores. Scope of work, maybe things like handling plants maybe. Some small air pollution control, material handling, some piping.

So you're saying that your scope of work will be -- would be focused more towards the balance of plant part aspect. Am I right in my assessment?

But only some aspects of the balance of plant, not the complete balance of plant.

The next question is from the line of Nidhi Shah.

Am I audible?

Yes.

Yes. My first question would be reconfirmed, is it PAT was INR 500 million, and the stand-alone profit was INR 550 million? Can you please help us with the profit of the subsidiaries, how we move from these stand-alone to the consolidated?

You are talking about the quarterly numbers? Can you repeat the numbers that you just said?

Basically, could you just walk us through this from -- how do we get from the stand-alone profit to the consolidated profit? As in the -- what is the profit of the subsidiaries?

Yes, we can tell you the profit of the subsidiaries. So current profit. So you have noticed that Isgec Heavy Engineering Limited standalone, there is an other income component of about INR 28 crores. Have you noticed that ma'am?

Yes.

Okay. So out of the INR 28 crores, about INR 21 crores -- INR 22 crores is dividend from subsidiary companies. So when you consolidate that, it gets -- I mean, at Isgec. But if you are looking for profits from different subsidiaries, I'll just tell you. There are -- Saraswati Sugar Mill has done about INR 20 crores profit in this quarter before tax. Isgec Hitachi Zosen has done INR 5 crores profit before tax. Eagle Press & Equipment Co., the Canadian company, has done INR 9 crores profit before tax. Isgec Redecam -- so all the other companies, there are minor amounts, less than INR 1 crore each. And there is a loss in the Isgec Investments, which actually hold the Philippines companies. So there is a loss of INR 29 crores there, which is largely a foreign currency loss, foreign currency mark-to-market loss. It is not a realized loss, it's just a foreign currency mark-to-market loss. And as I said, the dividend which is received from the subsidiary companies, that gets in the consolidated. I hope I've been able to answer you question.

Yes. Could you also tell me, how is the order pipeline and the inquiries shaping up for this quarter, which is Q2, and for the rest of the year?

It is buoyant right now. It seems the order booking for the rest of the year should also be good as of today.

So what are the segments that you're seeing maximum growth from? Could you give us some color on how the industry looks as of now?

We supply to a great number of industries. And so -- and we are not dependent on any one particular sector. There are some parts of the business that are actually more machinery and ethanol. But otherwise, we supply to a large number of industries and we continue to get orders, diversified orders, from everywhere. So I know there is [ egregious ] slowdown in chemicals. So maybe we are not getting from one portion of chemicals, but we are getting from the other portion of chemicals or from oil and gas. The composition of orders has not changed drastically since the last time we spoke.

[Operator Instructions] The next question is from the line of Abhijeet Singh from ICICI Securities. Sir, you are not audible.

Is this better?

Yes, go ahead, please.

First question is on...

Mr. Abhijeet, sir, your voice is very disturbing, it's very cracking. Could you please return to the queue with a better network?

Sure. Sure.

Now you can go ahead, it's good.

Yes, yes. So my question is on the margin. So while the manufacturing business, the segment of manufacturing has shown pretty much a robust improvement in margin sequentially. But sir, the -- I mean, absolute margin for the industrial projects business has been hovering around a similar level of 4% to 5%. So sir, what are the steps that we are taking as of now? And what are the levers we have to improve upon this margin profile of industrial projects? If you can delve upon that.

So I -- we were -- dwelled on this earlier also in earlier calls. We have a new strategy decided not to go into very long-duration projects. We're going in for smaller-duration projects. We're going for projects which have a comparatively lesser portion of civil and site work because that's where most of the difficulties are being set. And as this proportion of these orders reduces, we can expect -- slowly, but we can expect some improvement in the margins. We are focusing more on technology-led projects, industrial projects.

Right. So can we expect margins moving towards double digits in the next 2, 3 years? Is that something that you're targeting as of now?

Margins -- improve. Margins will improve. But in project business, double digits are very difficult.

Right, right, sir. Sir, also, I mean, barring this quarter, if we talk about FY '25 as a whole and maybe even the next year, sir what kind of execution do we expect in the industrial projects business, particularly? Because here, I mean, do you see any risks to execution? Like because there have been some moderation in growth in Q1 across the industry. So how do you look at it going forward on a 1- to 2-year basis?

So I think motivation is probably because of the elections and because of the global environment. So I can't comment on what happens in the world. I know there are uncertainties in the world. But we do not foresee any significant changes in the demand. We are also concentrating more on exports. So if there is some fall in domestic demand, we hope that we will get compensated from exports.

The next question is from the line of Deepesh Agarwal from UTI AMC.

My first question is on the sustainability of the present margin. So this quarter, you reported a very strong margin in the present business on a consolidated basis. So this 13.5% kind of margin, how sustainable is this?

Sorry, you're talking about the manufacturing segment?

Manufacturing, right, manufacturing.

They're going to be sustainable and they'll be around this figure.

So going ahead, we should be doing the 13.5% kind of margin in manufacturing? Is that in guidance?

Somewhere there. Double digit.

Double digit. Okay. Sir, the other question is on Philippines. Is that understanding correct, whatever the losses we see in the Philippines project and under construction, that is purely because of ForEx?

So there is -- as you know, the plant operated for some time, it was not operated at full capacity because we caught the season late, the sugar cane season late. But there is a INR 29 crores loss that I spoke about a little while ago for the quarter. Out of that, about INR 22 crores loss is ForEx currency mark-to-market, which is basically because the Philippines peso depreciated more against the dollar compared to dollar to rupee. So that loss, I mean, it's a mark-to-market loss. It's not a realized loss. But it's a reported loss.

Understood. And this -- so once this plant gets operational after those hiccups, should we still see that INR 500 crores, INR 600 crores kind of a top line in probably '25...

We continue to expect that when the plants will operate at full capacity, starting mid of November, it will be about INR 500 crores in revenue for the year. And it will continue to have 23%, 24% kind of EBITDA.

Okay. Okay. And sir, I want to understand, what is the thought process now about exiting this plant? Because now the plant is operational and it's been a drag for us for quite a while. And I am sure managing it from India, the Philippines plant would be also a challenge. So what are the steps you are taking to actually sell your stake in this plant to some strategic partners?

As of now, we are focusing on running the plant well. You are right, it is not the easiest thing to run it from a -- run a plant in a foreign country, sitting here. So we are working and focusing on running the plant well. As and when we have any news about disposing the plant, we will certainly share at the appropriate time.

Sure, sure. The other question is to Mr. Puri. Sir, if I look at your order book over last 3 years, it appears to be flat versus the number -- earlier order book number, is flat. I understand you're focusing more on the manufacturing orders over the project orders. But I don't see such a sharp jump in the manufacturing order book also. So what are your thoughts with respect to your growth appetite? Would we see the growth coming back or in check, like it used to see over the last decade? Or how?

So it's not that we are favoring the manufacturing over projects, but it is also true that we are concentrating on technology-led, small, shorter-duration projects with comparatively less site work. And I think in spite of sort of narrowing down the breadth of the project business, we've still managed to have a good order book in the project business, and we will grow this. So it's like saying that we have exited some certain types of project business. But in spite of that, we had a reasonable order book. From the other side -- or from the other projects, industrial projects, that we are [ realizing ].

Sure. And lastly, if you can share what is the current outstanding order book on FGD? And where are you on completion of those legacy FGD orders?

So most of the -- except for 1 SKD plant, the -- 2 out of the 3 should be completed within this financial year or the first quarter of next year. Yes, certainly within this year. The third one will continue for some time.

And how much of the money would be stuck in these projects in terms of retention or these receivables?

So the two that we are expecting to complete in this year, we are hoping -- there is about INR 400 crores of milestone mill payments which we're seeing. And we are expecting to receive, out of the INR 400 crores, to maybe INR 300 crores, INR 325 crores, INR 350 crores out of that in this current year; and maybe INR 50 crores or so will spill over into the next year.

[Operator Instructions] The next question is from the [ Sandeep ], an individual investor.

A couple of questions. So the first one is on the Philippines business. Can you repeat, how much was the sale of ethanol in the first quarter?

3.5 million liters.

But it's not reflective in the revenue of the...

Yes. Yes. Because as Mr. Puri mentioned in his remarks, there is still some amount of work required to complete the plant. The plant is operational, but there is still some amount of work required to complete the power plant. And therefore, our auditors, both in Philippines, KPMG, and here, they are continuing to show in current, CWIP. And the revenue there -- so we are not capitalizing the CWIP, they will be doing that in this quarter and quarter -- in the September quarter, where they are showing the revenue -- not putting it as a commercial revenue. The revenue generated during the trial and commissioning period.

So that's getting adjusted against the CWIP, is it?