Jai Balaji Industries Limited (JAIBALAJI) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Jai Balaji Industries Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Sana Kapoor from Go India Advisors. Thank you, and over to you, ma'am.

Thank you, Hooda. Good afternoon, everybody, and welcome to Jai Balaji Industries Limited earnings call to discuss Q1 FY '27 financial performance. We have on the call Mr. Aditya Jajodia, Chairman and Managing Director; Mr. Raj Kumar Sharma, Joint Chief Financial Officer; Mr. Vijay Bagri, President, Finance; and Mr. Ajay Tantia, Company Secretary. We must remind you that the discussion on today's call may include certain forward-looking statements and must be therefore viewed in conjunction with the risks that the company faces. May I now request Mr. Aditya Jajodia to take us through the company's business outlook and financial highlights, subsequent to which we will open the floor for Q&A. Thank you, and over to you, sir.

Thank you, Sana. A very good afternoon to everyone. We are pleased to welcome you all to our Q1 FY '27 earnings conference call. Our investor presentation and the financial results have been uploaded on the exchanges, and we hope that you had the opportunity to review them. We are very pleased to report a healthy start to FY '27 with JBIL delivering a very resilient performance in Q1 revenue. The adjusted EBITDA and the PAT increased by 24%, 46% and 21% year-over-year, respectively, which reflects the benefits of price normalization, operational efficiency and our continued focus on improving the product mix. Talking about the industry environment, the ductile iron pipes market continues to remain subdued in the near term, primarily due to the slow government ordering and project execution. However, we believe that the underlying requirement for water and irrigation infrastructure remains very strong with a meaningful pipeline of government-led projects supporting the medium- to long-term demand outlook. A key structural driver is the Jal Jeevan Mission 2.0, which has been extended up to December 2028 with a total outlay enhanced to INR 8.69 lakh crores, including INR 3.5 lakh crores of central assistance. The restructured mission moves beyond infrastructure creation towards reliable and sustainable water services. And with also greater emphasis on service delivery, source sustainability and operations and maintenance. The AMRUT 2.0 also continues to provide a meaningful opportunity for the DI pipe industry, with its focus on urban water supply, transmission and distribution networks, sewerage and water treatment infrastructure. In addition, the progress on major river interlinking and irrigation projects, including the Ken-Betwa and the Polavaram Godavari-Krishna link, provides further visibility for DI pipe demand over the medium to long term. While the near-term environment remains measured, we remain constructive on the recovery in government ordering and project execution as fund releases improve. We will continue to monitor the pace of execution closely and remain prepared to ramp up our expanded DI pipes capacity as demand conditions improve. On the Ferro Alloy industry front, the segment continues to witness strong momentum with realizations improving consistently over the last 5 quarters. This is supported by a very healthy steel demand and increasing requirements for specialized and high-performance steel where ferro alloys play a critical role in enhancing strength, durability and other performance characteristics. We, therefore, remain very positive on the medium-term outlook for this particular segment. Now coming to our strategic initiatives in Q1 FY '27. We have committed to strengthen our capacity base. Our DI pipes capacity has increased from 5 lakh tonnes to 5.5 lakh tonnes per annum, positioning us well to ramp up utilization as the demand revives and market conditions improve. In parallel, our specialized ferro alloy capacity is also being enhanced to 1.9 lakh metric tonnes per annum from 1.66 lakh tonnes. And our blast furnace capacity will increase to 7.5 lakh tonnes per annum from 6.3 lakh tonnes capacity and sinter capacity to 12.08 lakh tonnes from 9.08 lakh tonnes. These enhanced capacities are expected to be commissioned by Q3 FY '27. These investments are aligned with our broader strategy of increasing the contribution of value-added products, improving operating leverage and strengthening the balance sheet. As part of our Jai Balaji 2.0 strategy, we remain very focused on specialized products like ductile pipes, specialized ferro alloys and also on cost reduction and sustained debt reduction. Our integrated operations are further supported by 3 dedicated railway sidings, which provide a significant logistics advantage by enabling efficient movement of raw materials and finished goods, and while reducing transportation costs and turnaround times. We have also continued to make strong progress on deleveraging with our net term debt reducing significantly from INR 3,408 crores in FY '21 to INR 188 crores in Q1 FY '27. Our net term debt to equity ratio stands at a healthy 0.07 in FY '26 and providing us with a strong financial foundation and ample headroom to support future growth. We remain committed to further strengthening our balance sheet through sustained debt reduction. On the CapEx front, we have made strong progress on our ongoing expansion program. We have already invested INR 1,076 crores, mostly through internal accruals, while the overall project outlay has been revised from around INR 1,000 crores to INR 1,112 crores, primarily due to technical upgrades, additional ancillaries, some inflation and some time overruns also. The balance of around INR 35 crores, INR 40 crores is expected to be completed by the end of this current financial -- by the end of this current year 2026. These investments will further strengthen our capacity base and support the next phase of our growth. Coming to our operational performance, the production accounts -- across key products remained very healthy during the quarter, while offtake was led by pig iron, TMT, billets, ductile iron pipes and ferro alloys, and the sales remained broadly stable, reflecting the current market environment. Importantly, value-added products accounted for 42% of the total sales in Q1 FY '27, highlighting the continued progress in our product mix. Realizations improved across key products during the quarter, led by a strong 46% year-on-year increase in ferro alloy prices and a 16% year-on-year improvement in pig iron prices while sponge iron and billets remained broadly stable. Specialized ferro alloys continued to be a key driver of growth, contributing around 27% of revenues in Q1 '27, supported by the specialized product portfolio and long-term customer relationships and premium realizations. Coming to our financial performance, revenue grew 24% year-on-year to INR 1,683 crores with value-added and specialized products now contributing around 40% to 45% of revenue. Adjusted EBITDA and PAT increased by 46% and 21% year-over-year to INR 154 crores and INR 85 crores, respectively, driven by price normalization and operational efficiencies. Operational EBITDA stood at 9% and the PAT margins stood at 5%, respectively. To conclude, we remain encouraged by the structural opportunity in the pipes industry, supported by the Jal Jeevan Mission 2.0 and AMRUT 2.0, irrigation and river interlinking projects. And with our DI pipes capacity now at 5.5 lakh tonnes per annum, expanding specialized ferro alloy capacity, increasing contribution from value-added products and continued focus on financial discipline, JBIL is very well positioned to capitalize on the next phase of the industry recovery. We remain focused on strengthening operating efficiencies, improving our product mix and creating sustainable long-term value for our stakeholders. We can now open the question -- we can now open the floor for question and answers. Thank you, and over to you moderator.

[Operator Instructions] The first question is from the line of Jyoti Singh from ICICI Securities.

I have a couple of questions. The first one is with the Jal Jeevan Mission 2.0 extended until December '28, when do you expect the increased government spending to actually translate in the DI pipe dispatches?

This is Varun Jajodia looking after the marketing. Recently in this year already around INR 10,344 crores has been released by the center. And gradually, the matching share will be also given by the different states. So we are looking at a post monsoon recovery in the dispatches and the payments, and from third quarter things should improve now.

Okay. What are the key bottlenecks currently delaying this pipe orders, in case like tendering, project execution, funding or is there anything else?

This is coming from the government's backlog because there's a big backlog happened last year. As the last year from the budget of INR 1,560 crores was released by the center. So that backlog remains the constraint. Now things are -- once the funds are released, the things will be coming into shape. And post monsoon the lifting and the laying will be taking place.

Got it. If you can provide us the volume guidance for DI pipes and ferro alloys for FY '27. Also, if you can give a difference in terms of how much is expected from the DI and the other segments?

Ma'am DI contributed around 15% of the first quarter's turnover. As things are opening up, we don't know how it is going to pan out in next 3 to 4 quarters, what will be the demand. So as of now, we are not giving any projections, but definitely, we are ready to encash it as the market progresses.

Okay. So -- and for your...

Sorry, giving any numbers, I think it will be speculative right now because there are a lot of moving parts, different states are giving -- started -- some of the states have started giving orders. Some of the states [indiscernible] problems, it has not opened up entirely for pan-India. So it will be very difficult for us to give you volume guidance right now.

Okay. Any guidance in terms of what sort of utilization you are targeting with the expanded 1.9 lakh tonnes per annum ferro alloy capacity in FY '28. Is there any projection that has been kept for this?

Ferro alloys, we achieved a capacity utilization of more than 50% in the last quarter, and it is [ 27% ] of the turnover currently. So as we commission the new model by December, January, capacity utilization in ferro alloys will remain at 80% to 90%.

[Operator Instructions] The next question is from the line of Rajesh Bhandari from Nakoda Engineers.

Congratulations for good results, good profit. Sir, I wanted to know the basic breakup of our revenue that is [ INR 1,682 crores ], what is the exactly the items if I can get the breakup, because I couldn't get breakup anywhere else.

Yes, I'll read out the numbers to you. Sponge iron is 7.4%, pig iron is 19.13%, ferro alloys is 27.3%, billets are 3.54% minimal amount, TMT bar is 14.83% iron. Ductile iron pipe, the basic amount that I had is 14.95%. Some amount of coke was also sold, that is only 7%. Apart from this, there is 1% of scrap and the fines which have got sold. This completes the INR 1,683 crores.

Okay. Sir, in general [Foreign Language] details?

Sir, you can write to Sana or to me, my email ID Raj Kumar Sharma is given, I will definitely send it to you. The value added in this combination is around 42%, which we consider ferro alloy, ductile iron pipe. Apart from this, TMT bar is another 14.83%. Our intention and the plant is designed to cater to value-added ferro alloy and ductile iron pipe as around 70% of the sales that we want to do. Now that the ductile iron pipe market is not -- the orders are not coming. Therefore, we have to go for alternate products, the commodity side, pig iron, TMT, billets and all those.

Yes, yes. But now we expect the DI pipe order to come?

Sir, expectation is definitely over there, but given it is a government-backed sector, where the main buyer is directly or indirectly the government, giving any timeline, I think it will be somewhat speculative.

Yes. I know, I know. But the Jal Jeevan Mission or AMRUT Mission 2.0, the way government will be spending, it is expected to improve.

[Foreign Language].

Yes, yes, last year was very bad, yes, yes. Correct.

What we assume is that last year we hit the bottom. [Foreign Language] government is committed to the water laying schemes etc. [indiscernible] since you all know due to which it has been delayed. But now we expect that post monsoon and post release of these funds, these activities will have to pick up.

By FY '28 and FY '30, what kind of turnover can we expect? Turnover and the profits?

Sir, with the given capacity probably which is getting completed in Q3 of this year, or you can say end of the calendar year, December 2026. With the given capacity, it should reach INR 7,000 to INR 7,500 crores in a normal market.

In '28 and what about '30, 2030?

Sir, by that time what will be the capacity, what will be the capacity addition, right now we have not calculated. We are mainly focused on this ductile iron pipe capacity running our basic model, pig iron, TMT, billets, and whatever ductile and ferro. Ferro market has been very good. So we are currently focusing on the ferro market and trying to revise this or working with the ductile iron pipe market. Pig iron, TMT, billets [Foreign Language]. One is [ 6% to 8% ] commodity business EBITDA margin. Other is 12%, 13% plus, and ferro alloy 16% to 17% margins. We will wait for the market to get revised. New capacity in the existing plant that we have almost occupied the entire 400 acres of land that we have.

Sir, war conditions [Foreign Language] things will improve for us?

Definitely it will improve. [Foreign Language].

[Foreign Language].

See that plant we had put up as a trial module and the investment was [indiscernible] very large around [ INR 20 crores ] only. But so far we have not been able to sell even a single piece of pipe. Why we had put up this plant because certain people in the industry, they were sometimes telling us that [indiscernible] so we were very skeptical about it. [Foreign Language]

Which email ID should I send for breakup request?

You can send it to my email ID, Rajkumar Sharma -- RK Sharma. It is given at the end of the presentation.

[Operator Instructions] The next question is from the line of [ Yash Purve ] from [indiscernible] Research.

So my first question is, sir, you have said that from H2 and in FY '28, we will see recovery in the volume. But sir, how are we seeing the competitive intensity? And would we feel any pricing pressure?

See, the competitive intensity will be there because currently, the industry -- our pipe capacity utilization in this particular quarter was only 30% of the enhanced capacity. Similarly, competitors, they also are operating somebody in 25% range, somebody in 30%, 35% range. So competition intensity will be there till the time capacity utilization crosses 65%, 70%. But now -- but this capacity utilization, again, it is a function of the orders. Once the orders are released, immediately it can ramp up also for everybody. As far as the pricing is concerned, the prices, as already mentioned earlier also, the prices already are at rock bottom. In fact, the contribution of the pipe business, practically in this particular quarter, when we attribute it to pipe, it is basically the same similar margins as what we get in pig iron. So not much value addition was there. So from here, things cannot get worse, it has to improve.

Sir, can you please provide any guidance, if possible, on the EBITDA or EBITDA per tonne front?

We missed what you said.

Sir, can you provide any guidance on the EBITDA per tonne front?

You want the current quarter or...

No, sir, in future, you are saying that the prices are already at rock bottom. So any sustainable EBITDA guidance?

[Foreign Language] Prices have come down by 25% to 30%. So what we can only predict at this moment, it cannot get worse. But to provide a really tangible guidance would not be fair to anybody right now. Maybe when we meet next quarter, we'll be in a better position to guide you on the prices.

Fair. And sir, how are you seeing demand on the front of specialized ferro alloys in domestic versus export market?

There's an increasing market always over there for ferro alloys. And our specialty, our customer base is constant, and it is -- and we are getting repeat orders with those customers. And we're also utilizing more than 80%, 85% of our capacity, and we have repeat orders. So there is no concern as such. We are currently exporting more than 42 countries today.

And sir, going forward in next 2, 3 years, how much would be the contribution from value-added and specialized products?