JNK India Limited (JNKINDIA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to JNK India Q2 FY '25 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference call is being recorded. I now hand the conference over to Mr. Mohit Kumar from ICICI Securities. Thank you, and over to you, sir.

Thank you, Siddhant. On behalf of ICICI Securities, I welcome everyone to JNK India Q2 FY '25 Earnings Call. We have with us today, Mr. Arvind Kamath, Chairperson and Whole-time Director; Mr. Pravin Sathe, Chief Financial Officer; and Annie Varghese, Senior Manager, Investor Relations. Without further delay, I will now hand over the call to the management for their opening remarks, which will be followed by Q&A. Over to you, sir.

Thank you, Mohit. This is Arvind Kamath here. Good afternoon, everyone, and thank you for joining us for JNK India's Q2 and H1 FY '25 Earnings Call today. We appreciate your continued confidence and interest in our company as we progress on our growth journey. The first half of FY '25 has been a period of diversification and strategic milestones for JNK India, demonstrating the resilience of our business model and our ability to adapt to a dynamic environment. From a financial perspective, we delivered total revenue of INR 1,981 million in H1 '25, which is a year-on-year growth of 47%. Our order book remains strong at INR 13,116 million, which is an all-time high with an inflow of INR 8,782 million during the first half. This performance reaffirms our ability to execute and scale operations efficiency while maintaining trusted relationships in critical sectors such as oil and gas, petrochemical, and refining. The first half of FY '25 has been marked by numerous significant milestones for us, including the introduction of and receipt of orders for new product lines, the transition from a private to a publicly listed company and the establishment of a strong presence in the heating equipment sector. During H1 '25, we secured several major orders, both domestically and internationally. In Q1 '25, we succeeded in securing cracking furnaces and incinerators. In Q2 '25, we achieved a key milestone by securing our first order for fire heater for United States, thereby establishing the foothold in the U.S. market. This is the first order for JNK India and as well JNK Korea for the U.S. market. Additionally, we won our first order for an HPCL TDAE process plant unit from HPCL for their Mumbai refinery. So this is also our first order for the process plant for them. And we also received a flare package for Adani Mundra Petrochem Limited Green PVC project in Mundra, Gujarat. This underscores our ongoing commitment to providing sustainable solutions. To sustain this momentum, we continue to diversify and innovate. Our expanded portfolio, including renewable energy solutions like solar, ETC and hydrogen production infrastructure aligns with the growing emphasis on sustainability and clean energy. With our world-class manufacturing facility in Mundra, Gujarat, our strategic collaborations with the JNK Global, we are well prepared to capitalize on emerging opportunities and navigate the complexities of this evolving marketing market landscape. Looking ahead, we are focused on delivering sustainable growth by executing our strong order book, enhancing operational efficiencies and strengthening our market presence. I'm confident that with continued support of our stakeholders, we will build on this momentum and achieve new milestones. In conclusion, H1 '25 has been a period of growth, diversification and strategic progress for JNK India. We look forward to continuing this trajectory and delivering consistent value to our stakeholders. Thank you for your time. I will now hand it over to our CFO, Mr. Pravin Sathe, for a financial overview. Thank you.

Thank you, Mr. Kamath. Good afternoon, everyone. This is Pravin Sathe, CFO of JNK India Limited. I am pleased to present the financial performance of JNK India for the Q2 and H1 '25. In Q2 FY '25, the company achieved a revenue of INR 1,074 million, marking an 11% increase year-on-year. Our operating profit for the quarter amounted to INR 337 million, reflecting a margin of 31.4%. Profit after tax for Q2 FY '25 increased by 21.5% quarter-on-quarter to INR 77 million, with EPS at INR 1.42. Our order book, a key indicator of our future revenue potential, is valued at INR 13,116 million as of September 30, 2024, with INR 1,694 million in new orders secured during the second quarter. For H1 '25, the performance is equally commendable. The total revenue increased by 47% year-on-year, reaching to INR 1,981 million. Operating profit for the first half was INR 690 million with a strong margin of 34.8%. The profit after tax for H1 '25 was INR 141 million, with a margin of 7.1%. Our revenue mix continues to be dominated by the heating equipment, which contributed 83% of our order book. Geographically, 91% of our orders were domestic while 9% came from the international markets. End user industries, such as petrochemicals and refining remain our key contributors, accounting for 63% and 28% of the order book, respectively. While our growth trajectory has been strong, our EBITDA margin for H1 '25 decreased to 13.9%, mainly due to the increased operational costs as we scale up. These are investments which are essential to support our growth. Looking ahead, our diversified portfolio and strategic emphasis on the sustainable energy solutions, we are well positioned to leverage emerging opportunities and deliver consistent value to our stakeholders. In closing, I would like to thank you all for your time and attention today. We appreciate your continued support and interest in JNK India. We now welcome any questions as you may have and look forward to engaging with you further on our performance and strategy. Thank you.

[Operator Instructions] The first question is from the line of Sagar Gandhi from Invesco Mutual Fund.

Yes. Sir, my question pertains to the CFO, which is on this first half. So we've seen deterioration from approximately INR 10 crores in March '24 to INR 63 crores -- negative INR 63 crores during H1 of FY '25. So can you throw some light? What I understand is it is predominantly due to increasing receivables and increase in payables, if you can explain this?

Sagar, can you repeat later part of your question because I didn't get your voice.

Okay. So my question is, sir, net cash from operating activities in H1 FY '25, as per the price increase, is that INR 63 crores -- negative INR 63 crores versus negative INR 10 crores in March of '24. So what I can understand is there has been some deterioration in working capital, trade payables have gone up, and trade receivables have gone up. So if you can please highlight why this deterioration in working capital cycle has happened?

Yes. So typically, for this H1, if you see, the major receivables are of the PSUs. And therefore, the receivable period has slightly gone up. And so far as the payables are concerned, the payables have gone up. They are in proportion to the increase in scale of operations. So since the operations have gone up, the purchase, if you see, there is increase in direct cost. The purchases figure has got up from the last H1, if you compare. Therefore, the payables have also gone up in that proportion.

So sir, will this be because we are expecting superlative top-line growth for subsequent years. So do you think this is the new working capital cycle?

So this will not be the working capital cycle going forward. Typically, in our case, what happens is, in the initial stages of the projects, the working capital cycle is a bit on the lower side and in the middle stages, it typically increases. And towards the end also, when the service portion or the installation and commissioning happens, the payables portion reduces and the receivable portion increases. So when there are new projects coming in, in this H1, when they will start generating the revenue, this working capital cycle will again come to the normal cycle that we have been projecting. So this revenue consists of mainly those projects, which are at the fag end, and therefore, you are witnessing such a vertical cycle in this H1.

My next question is, sir, does Q2 also contain onetime ease of costs like it was in Q1? Q1, you reported INR 5.5 crores of ease of cost. So does Q2 also have that and what is that number?

There was INR 5.5 crores ease of cost in the quarter 1 and now since the share prices, the closing share prices were lower as compared to the Q1 closing prices, the ESOP reserve has come down to INR 4.45 crores.

Okay. And sir, as you highlighted last time, FY '25 will see this ease of cost. But from '26 onwards, there will be no provision in this regard. Is that understanding correct or wrong?

Yes, yes. Based on the current ESOP that have been given, the last option would be exercised in March '25. So there will not be any ESOPs under the current scheme for the financial year '25-'26.

Our next question is from the line of Abhinav from ICICI Securities.

My first question is Saudi Arabia's petrochemical capacity is expected to double in the next 5 years from probably 75 million tonnes per...

Sorry to disturb our, but can you be a little later, please?

Sir, now is it better?

Yes.

So my first question was that Saudi Arabia's petrochemical capacity is expected to double in the next 5 years from approximately 75 million tonnes to more than 140 million tonnes per year. So how do you think about the market and our capability to cater this market?

Yes. I mean. Yes, thank you. So basically, it's a very relevant question because we have a very credible offering as cracking furnace for petrochemicals and also fire heaters and flares. But as I told in the opening remarks, basically, we received -- JNK India received the first cracking furnace order for the Reliance Petrochemical expansion for their Dahej and Nagothane plant. So this helps us in terms of getting directly acceptable and also having reference for the cracking furnace in JNK India as well. JNK Global, as such, had supplied making furnaces in Korea and other parts of the world. So all these petrochemical complexes, we see a huge opportunity in the next 5 years. So for example, the petrochemical projects which are already sort of kind of going ahead are at BPCL Bina and IOCL Paradip which have already started licensing and working on and we are already in touch with them to ensure that we also are in the bidding stage for these projects.

Understood. So my next question is regarding CPCL's Nagapattinam plant. When can we expect this tender to come up?

This project, as you may be aware, was under hold for the last 1.5 years. We have also bidded some significant fire heaters opportunities for this project. But now there is some traction and I think, as IOCL board is likely to give a clearance, we hope and expect that this should also get a clearance in the next couple of months. But they might have to refloat all the tenders because the tenders have been quite old since earlier.

Understood. And sir my last question is, can you give guidance for the margins for full fiscal year, considering that the EBITDA margins quarterly -- on a quarterly basis have been volatile to some extent? So for the full fiscal, what can we expect in terms of the margins?

See, so far as the guidance for the margin is concerned, we have been striving hard to keep it as near as 18%, but the cost of operations due to the increase in scale and due to the ESOP reserves also, the margin has got affected in the last 2 quarters. But now the revenue from the new work orders that we have received in Q1 and Q2 will again -- will start coming in from Q3 and Q4. So we anticipated to get better as we go on in Q3 and Q4.

[Operator Instructions] Our next question is from the line of Gaurav Uttrani from IIFL.

Sir, my first question is on the order which you mentioned in the initial remarks for the first order, which JNK India and JNK Korea has received rates from U.S. So could you just highlight like what is the opportunity which we are seeing in the U.S. market? And what is this order above? And similarly for that, in terms of how we are seeing the margins of these orders and execution timeline for the same?

Yes. This is basically a small refinery expansion called CVR expansion. The order is through the KBR. KBR is the largest licenser -- one of the globally renowned and largest licenser in the U.S. So the significance is that, this is a small order for us. As I mentioned, this is the first order from JNK, not only from India, from JNK Korea as well for the U.S. market. So basically, getting accepted in U.S. itself is a very significant milestone for us because, generally, U.S. market has been taking these critical equipment either from U.S. or Europe, mainly till date. So I would say, this is one of the first opportunity wherein a Korean or an Indian company has to supply this details to them. So that's the significance of that. So this delivery period for this order is about 15 months because this is a comparatively small fire heater. It's only a supply part of the job and this margin is as a whole export order margin for this job as well. So we've again with you one more inquiry from KBR now for the U.S. market, one more opportunity has come up. So that's the basic advantage. Once we get it through and we supply, the other opportunities also open up.

So we expect similar sort of orders in the coming orders because see with change in government, they will be promoting more production and manufacturing in the U.S. country itself rather than procuring from countries like India. So we expect similar sort of trajectory to continue post the approval is what you are trying to say?

I mean we -- basically, see what happens, even in U.S., there are many projects which are coming up, could be like a Sustainable Aviation Fuel opportunities or allied petrochemical opportunities, which are coming up, which would require a lot of -- even including the green ammonia or ammonia synthesis loop which we are also in talking actively with KBR. So these opportunities will give us a new opening opportunity for the U.S. market as well.

Okay, sir. And sir, secondly on the inflows. In last quarter also, you mentioned about one of the big orders which we are expecting from the Russian markets for the fertilizer industry, and that was really big. So are we still L1 in that and when can we expect that order to materialize? Will it be in FY '25? Or will it stay for FY '26?

Yes. We did mention that the opportunity of the Russia is still alive for the fertilizers. But even in the last quarter, we mentioned that the finalization is expected in the third quarter or fourth quarter of FY '25. So it's in that schedule only even now.

Okay. And sir, what would be the quantum of the same?

I mean, in Russia, the total opportunities what we have is about something like -- almost like INR 2,000 crores is a big pipeline what we have.

Okay. So will it going -- is it going to come in one go or it will be like broken up in parts?

There are about 3, 4 opportunities. One is a large opportunity. The other one is comparing any smaller opportunity.

Okay, sir. And sir, lastly, on the margins which you mentioned that we are sort of cost of operation has increased for us, and we are seeing a better decline in margins. So when we calculate our margin, what you have mentioned in that presentation it also includes the other income. But if you have to remove that, that margin would range would be less in the range of 10% to 11% is what we have gained or say cropped in H1 for them. So average ask rate for the second half would be somewhere in the range of 18% to 19% for both the quarter what we have seen. So 17%, 18% of margin is still doable for the second half or we can expect a decline of say for 200-300 bps from what you have guided every year?

As I said before, when the projects are at the closing stages, the margin profile is on the lower side. So lot of projects in the current order book are towards the closing stages. That is why it is reflecting on the margin like this. But in Q3 and Q4, as I said earlier, the revenue from new projects will also start pitching in. So the margin profile would get better. Even after you remove the other income, it could get better.

Okay. So sir, when you guide for the margins, you exclude that other income, right, 18% when you say for that? Or you include that in other income as a part of margins?

Yes, that's right. But the thing is the guidance of 18% and the history of 18% of turnover for the last 3 to 4 years, there was no ESOP reserve to the extent that, that is there now. So we have to consider, factor out that ESOP reserve also. So if you add back that, then the margin still works out to be somewhere near what we have been anticipating.

Okay. And sir, last question on the revenue front. So generally, you mentioned like we execute 1/3 of our orders in the first half and remaining in the second half. So the earlier what we are expecting that revenue of, say, for INR 650 crores to INR 700 crores. So I think that can be achievable in the second half as we have done only 28% in first half for that revenue?

See, last year FY '24, we did about INR 133 crores in H1. And still, we managed to do INR 480 crores at the end of the financial year. So going by the history, we are hopeful to complete the opening order book in this current financial year, which was around INR 621 crores as opening order book. That is what we are aiming at. And definitely, some part of the newer projects will also culminate into the revenue. So we are still hopeful of achieving the targets.

Our next question is from the line of Hardik Doshi from White Whale Partners.

So again, just continuing on the margin volatility, just wanted to kind of get some perspective. Are the margin profiles different for different end markets? Like for example, I think steel was a larger part of our revenues in this quarter and so -- would generally, the project will see lower than that of refining or petrochemical?

So typically, it depends on what kind of project that is because if we are entering into a new market or new segment, then the pricing would be a bit aggressive and the margin will be a little on the lower. But if we are well established in that market, for example, in the heating equipment for the oil and gas, we are quite established. Steel, this has been our first project in the steel sector. So definitely, we can't have very higher margins when we enter a particular new sector.

And what stage of the project, the execution period is. So there the margin profile could be varied at the beginning of the project slightly comparatively better, but in the mid side -- I mean, later stage of the project, it gets a bit tapered down when the actual expenses at the site and all the complete supplies take place. And at the end, it could get slightly better again.

In the end, it will get slightly better again?

Yes, because there will be the revenues in terms of the commissioning against the commissioning or against the final installation and things like that.

Got it. Okay. And just a clarification, you mentioned last quarter, the ESOP expenses were INR 5-odd crores, and now that has fallen to INR 4 crores this quarter. Is that correct?

Yes, because there has been a fall in the sales price of shares.

Yes. Yes. Okay. I was just clarifying. And so overall -- I mean, even if I look at first half, right, I understand the ESOP cost and it takes those also out. The margin are still substantially lower. You mentioned that there was expenses because of scaling up. Usually, when top line is strong, you get economies of scale. So can you explain what are these expenses as you scale up?

Yes. I explained in my earlier part of the answers that major revenue has come in this half year from the projects that are towards the end. They are in the stage of, say, 70% or 75% completion. So as Mr. Kamath just said, when they are in the middle stages, when you cross the first half of the project, the margin profile a little bit on the lower side. So lots of projects that are contributing to the revenue are at a similar stage. So this is affecting the margin profile in the first half. But in the second half, when the new project start pitching in the revenue, there the margin profile will be bit on the higher side. So that will compensate.

Got it. Got it. So this has nothing to do with like corporate expenses and like this general OpEx overhead, right? This is more to do with the time period of the project?

If you see, there is no much increase in the other operational expenses apart from the employee benefit we expect as compared to the H1 in the last year because the number of employees have grown in this year.

[Operator Instructions] Our next question is from the line of Mahesh Bendre from LIC Mutual Funds.

My questions have been answered.

Our next question is from the line of Mohit Jain from Kriss PMS.

Yes, my first question would be, have we started the Dahej plant order that we received from Reliance regarding gas crackers?

Have we started -- can you come again, please?

Is it better now?

Yes, yes.

Yes. My first question would be, as we started Dahej plant order that we received from Reliance regarding gas crackers?

We have started -- I mean, we have started the work, but we have not billed any revenue till date. We only received the advance payment. And first revenue would be billed somewhat in quarter 3 little bit and comparatively, I would say, more significant revenue will be billed in quarter 4 to start with in this year. But actually, the majority of the revenue will be billed in the next financial year.

Okay. And my next question is, have you started any revenue from CBG segment, compressed biogas this quarter?

Yes. Regarding compressed biogas, we have not started any revenue till date. However, we are in the advanced stage of discussion with a couple of customers regarding the finalization of the orders.

[Operator Instructions] Our next question is from the line of Nidhi Shah from ICICI Securities.

My first question is on the Bina refinery. You mentioned last quarter that they are in the process of opening for orders. So when can we expect these orders to close of Bina refinery?

Yes, the Bina refinery, the inquiries have been just started getting issued. Like first compressor order enquiry has been issued in the last quarter, and for the furnace, the enquiries are expected in this quarter. Generally, these are long lead items. So the order closing would generally take about 6 months after the issue of the enquiry.

All right. And my second question would be on the margins. As you can see this quarter, the gross margins have declined a bit from last quarter. But at the same time, our employee expenses have fallen giving us a better EBITDA margin. So I just want to understand, is there a strategic shift in the way we are managing our costs, our operating cost? Or is this just something that has happened this quarter?

Mainly happened in this quarter because of the execution of the projects, which are at the various stages. So basically, maybe as you know, we didn't get any new or -- I mean, we didn't get significant orders in the last year. So most of the orders which are getting executed in this quarter were at the stage of, say, 60% to 75%, that kind of a trajectory. So that's the reason the operating costs have been comparatively higher.

[Operator Instructions] Our next question is from line of Raj Vyas from TM Investment Technologies.

Sir, I just wanted to know the order wins which you have mentioned. One is the JNK Global order win which is first and the HPCL order win that you have won. So what is the timeline for the completion of the order and the revenue potential for the company?

HPCL timeline is about 18 months to 22 months. That's the period in which we are supposed to complete the HPCL project.

And for this JNK Global from the U.S.A.'s alkalization generation project?

The U.S.A. project, as I mentioned earlier, it's about 15 months. It's only a supply part. There is no direction or installation from our side.

Okay. And you talked about the EBITDA margins of 18%, which is -- that you have said it earlier as well, but the costs are increasing. So what are the like key things that you will take a note of to reduce the cost expenses for the company?

See, the costs are not increasing as such. If you see, the project expenses increased typically as compared to the initial stage of the project. The middle stage is always such that the costs are on the higher side and the margin is on the lower side. So these are the projects -- major contributors to the revenue are all those projects, which are in these stages. Typically, all the projects are at a similar stage. That is why it is seen that rational costs have gone up. So then -- because as Mr. Kamath said, in the last financial year, we did not get as much orders as we received in this financial year. So when there is a lot of order inflows coming in, what happens is there is a typical mix of existing orders as well as the new orders in the revenue, revenue composition. So some projects which are at the middle stages, they give a lesser margin. But those projects, which are at the initial stages, they give a higher margin. So the margins get compensated and you see a better picture.

Our next question is from the line of Aashna Manaktala from HDFC AMC.

Sir, I understand there have been certain questions regarding the margins. But as you mentioned that we are close to completion of majority of our projects. So shouldn't for the coming quarter or so, the margin should be on the other spectrum if our gross margins are still at the same level as our historical margin? So would you stand by our 18% margin guidance for FY '25?

As I said earlier, that 18% guidance was based on the historical figures for the last 3 to 4 years. And at that time, the ESOP reserve did not play any role -- any significant role. So that also has an impact. But at the same time, we informed you that we have received new orders which will start generating revenue in Q3 and the significant revenue will come in Q4. So definitely, this will help us in improving the margin profile. So what current EBITDA of 14% is there, so we anticipate it to be on the higher side when we reach Q4.

Understood, sir. Sir, then by '26, we should expect that once that the ESOP cost should go away and are the normalization should come in terms of execution of the orders as well. So what's your view on the margins for FY '26 then?

Yes, correct. That's right. In FY '26, we should go to the normal margin, yes, considering the order book and the ESOP -- the current ESOP cost would go away next year.

Okay, sir. And sir, one more question, in terms of raw materials, what proportion of our raw material would be complete commodity, maybe steel if you could give some view on that?

The raw materials would not be much in terms of what we procure directly. So what we pursue directly, the raw materials would be just about 8% to 10% of the total procurement costs.

Okay. And what is that of the total procurement? I mean -- you mean that the raw materials that you have booked for, let's say, first half, of that, 8% to 10% is for commodity. What do you think of it?

Whatever the total purchase. Suppose, in a project of, say, $100, total procurement cost is, say, suppose about $60, then the raw material procurement would be about $6 for us, direct raw material procurement.

Okay. And that would largely, should I understand correctly, be steel?

It would be steel or higher grade of steel, depending on the type of the equipment involved. It cannot be exactly -- it could be stainless steel or the alloy steel or the higher grade of steel depending on the chemicals what we are handling.

Understood, sir. And sir, in terms of execution for '26. Like for '25, you are guiding that we should be closing our -- executing the opening order book. So for '26 also you could give some guidance in terms of the execution?

I mean, see, the current -- our order book as on Q2 is INR 1,311 -- INR 13,116 million. So basically a complete order book, we will have to close it in the year and next year.

Okay. So we're not seeing any spillover from '25 to '26 as of now? So we are confident of...

No. So this, I mean, at least from the going by, whatever the contractual delivery dates are there, we endeavor to close all these orders by the next financial year. There could be some spillover if there is some delay from the customer's end or something like that. But as of now, we do not clearly anticipate any details.

[Operator Instructions] Our next question from the line of Anukool from InVed.

Sorry, I was looking like on the PAT margins, like what PAT margins can we expect for FY '25 and FY '26, if you can give some guidance on that?

Did you say PAT?

Yes, PAT, profit after tax. The PAT margins that we expect?

So currently, the PAT margins are around 7%. So at the end of the financial year, somewhere it should go up to 10% or so.

Okay. And for -- roughly for FY '26, are we expecting the same?

See, that depends on how much revenue the new projects would contribute in Q3 and Q4. If the component is on a higher side, definitely, the PAT margins would be better.

Okay. Okay. And we are expecting roughly INR 670 crores to INR 700 crores of top line for FY '25. Am I right on that?

See, what we are expecting is the opening order book of INR 621 crores should get executed in entirety by the end of March '25, and some portion of the new orders should also get booked as revenue. So if you take these 2 factors into account, the revenue would be somewhere between INR 600 crores and INR 700 crores.

[Operator Instructions] As there are no further questions, I would now like to hand the conference over to the management for closing comments.

We just -- thank you, everyone, for joining our Q2 and H1 '25 earnings call. Once again, we appreciate your time in joining this call and learning more about our company, JNK India. We look forward to your support and look forward to continuing our journey with your support. If you have any further questions, please feel free to contact us, and we'll be more than happy to address your questions. Thank you.

Thank you, everyone.

On behalf of ICICI Securities, that concludes this conference. We thank you for joining us, and you may now disconnect your lines.