JTL Industries Limited (534600) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the JTL Industries Q1 FY '25 Conference Call, hosted by Nuvama Wealth Management. [Operator Instructions] I now hand the conference over to Mr. Souvik Mohanty from Nuvama Wealth Management. Thank you, and over to you, sir.

Thank you, Sagar. Good morning, all. We welcome you all to the JTL Q1 FY '25 conference call. We are joined today by the senior management of JTL Industries, represented by Mr. Atul Garg, CFO; Mr. Pranav Singla, Whole-Time Director; and Mr. Dhruv Singla, Whole-Time Director. We will now start with the opening remarks by the management, followed by the Q&A. I would now like to hand over this call to Mr. Pranav Singla for his brief opening remarks. Over to you, Pranav.

Good evening, everybody. Thanks, Souvik, and thanks, Nuvama for hosting the call for us. And thank you, everybody, for joining us today. I am delighted to welcome you all to the JTL Industries earnings conference call. We will be discussing our financial performance for the quarter 1 of financial year '25 as well as providing an overview of our ongoing capacity expansion. Before we delve into the details of our results, let me briefly provide you introduction of the company. With three decades of experience, JTL Industries has grown into a rapidly expanding reputable player in steel tube manufacturing. Our product range includes ERW black steel tubes, galvanized pipes, large diameter steel tubes and pipes, solar structures and hollow construction materials. We specialize in producing VAP products like galvanized pipes, which ensure superior quality standards and impeccable finishing across all our offerings. JTL operates 5 cutting-edge manufacturing facilities across India, located pan-India in such a way that 3 of the plants are in Punjab, 1 in Maharashtra and 1 in Raipur. We recently did a takeover of 70% stake in Nabha Steel company, which is also located in Punjab as well. In June '24, we successfully launched the first phase of Nabha Steel Limited, achieving figures of 10,000 tonnes. This milestone has a significant step in JTL's backward integration strategy, enhancing our product portfolio and positioning us as one of the top solutions providers. The integration is expected to improve yield, generate synergies and boost profitability. In Q1 of FY '25, JTL Industries delivered a stable financial results, demonstrating sustained growth year-over-year. Our revenue for the quarter reached INR 5,153 million, up from INR 5,050 million last year, driven by strategic market expansion, increased product demand, higher sales volume and enhanced product offerings. EBITDA for quarter 1 FY '25 stood at INR 438 million, reflecting a 21% increase from quarter 1 FY '24, underscoring our efficient cost management and operational excellence. The EBITDA margin improved to 8.5% in quarter 1 FY '25, up from 7.2% in quarter 1 FY '24, driven by strategic focus on higher-margin products and increase in scale. Sales volume grew by 10% year-on-year, reaching 85,674 metric tonnes in Q1 FY '25, compared to 77,342 metric tonne in quarter 1 FY '24. Notably, VAP products contributed 25% of total sales mix, with sales volumes of 21,261 metric tonnes. Quarterly exports stood at all-time high at 7%. And the total loss of sales were 5,917 metric tonne. I'm open to questions.

[Operator Instructions] Our first question is from the line of Parth Kotak from Alpha Plus Capital.

Congrats for a decent set of results. So I just wanted to get an update on Nabha Steel. We are manufacturing HR coils over here, which will be used for backward integration. So some 10,000-odd metric tonnes of sales that we've received is not the sales volume, right? It's just the volume that you're using for our backward integration.

So what the process over there is -- thanks for the question, first of all. So right now Nabha is in a phase, which is not currently making the exact product the steel required at JTL. It is about a quarter away from the product that we require at JTL. The product that we are delivering at Nabha right now is sellable in the market right now. That's what we did this quarter. And being it a partnership firm as of now. So the top line and the volumes couldn't be added to JTL this time. It's in the process of becoming to a limited company, which will happen this quarter. And accordingly, everything will be added to JTL afterwards.

Okay. Perfect.

Later on, it will be making coils, as you mentioned, which will be used for our backward integration. But now we sold everything in the market.

Super. Super. I think that's really helpful. And -- so then the revenue that we've generated from Nabha basically has, I think, mentioned in the note is included in other income. Is that the right understanding?

Only the share of profit to the extent of 70% is what is included in the profit. And -- that's all.

Okay. Which would be to the tune of about INR 4-odd crores. So I just wanted to know the contribution that's come from Nabha. Because I'm asking this question primarily because in order to calculate, although you've given the breakup, but EBITDA per tonne, then we don't include either the profitability or the volume from Nabha, right?

I don't have the exact amount handy with me, but around INR 96 lakhs, INR 97 lakhs was the data of -- the PBT from there.

Okay, perfect. Perfect.

Next question is from the line of Bhavesh Chauhan from Aditya Birla Money.

Sir, in terms of channel checks that we did, it seems like the competitive intensity in this pipes industry is increasing because the balance sheets of many of the companies have become stronger. So I would like to know what is your view on that, that most of the companies are targeting 20%, 25% volume growth, but supplies are likely to increase much faster, maybe putting pressure on margins, maybe volume growth may not come in as fast as everybody is targeting. So what are your views?

Thanks for the question. So we are fairly positioned well in the market and have a decent size, assets as well. And given the capacity, we do see challenges at times, but altogether, the Indian growth story is intact and so is the company. So a little bit of slowdown in the growth story might happen because of elections and the VAP share might go down because of election that has happened in this quarter or the past quarter. But going down ahead, we see everything should normalize very soon, even the exports have. If you see, it is highest export we've ever done. So everything globally has been improving and we are positioned in the market in such a way that we are there in both primary and secondary, both. So the dealer has to say something. It's either primary or secondary. So we are in a lucky spot that we don't see a lot of pressure. So things are aligned and the demand -- when it becomes soft, we set ourselves secondary mode. When it's strong, everything is selling as equal.

Also to add here, what we are -- when we are expanding what we are doing is not increasing our capacity in the current format that we have under production. So we are increasing our range and everything. So our aspects are of increasing SKUs.

Okay. And we had a weak quarter this time in terms of volume growth. I think we are targeting more than 25% volume growth. So is it that we are going to cover up in the next coming 3 quarters, so that average growth is north of 20%.

As we mentioned, our major capacities are coming in H2, by the end of H1. So the jump in everything would be visible thereafter only. And for -- to defend ourselves, it was a fairly 11% up quarter -- year-on-year. And given the industry and the overall election scenario, so that is something that we decently satisfied with right now. And also the Nabha volume, how I mentioned, couldn't be accounted for in JTL right now. If that was there, it would be 97,000, 98,000 tonnes anyway in the JTL. So altogether, everything is according to the target that we had in the mind, and we told as well.

All the best.

The next question is from the line of Vikash Singh from PhillipCapital.

I just wanted to understand one thing, if I look at the Y-o-Y perspective, while my value-added product sales had percentage wise declined significantly, I still managed to do better EBITDA per tonne. So effectively, just wanted to understand, has anything changed in the product mix or is the function of something else?

See, in our range of products, what happens is that we are able to look into and produce those things which give us a higher value-added products. In value-added products also there are the thicknesses and sizes, which give you higher returns than the other normal commercial material, which is, say, galvanized pipes. So in the first quarter, our value -- even after our quantity, value-added has decreased, we are able to maintain a higher EBITDA level. It's because that we produce those smaller gauge and lighter thicknesses more in this quarter. So that is the reason that you see the quantities less because if I'm producing -- say, for example, if I'm producing a higher [ dire ] and higher thickness material in my galvanized pipe, I can evendouble the capacity. But at times when the demand is such and also when we see that, that we are able to make higher margins on certain products, so we have to sacrifice at times quantity to margin.

Also every company way of telling their VAP production is very different. For me I define everything which is above INR 7,500 under VAP. If I bring that figure down to INR 5,000, my VAP share is already at [indiscernible]. So it's every company way of defining products in their VAP category, like I don't have a lot of SKUs right now. So the basic things I mentioned in general commercial grade product and galvanized pipes. If I further baked up, the commercial breakup as well, which is bigger section pipes, like 12-inches of pipes, small section pipes. So all those demands are different EBITDA, which is towards higher EBITDA, how that the company explains. But for me, right now, the standard I have kept is only galvanized pipes as value added.

Understood. My second question pertains to our annual volume guidance as well as EBITDA pattern guidance. Given that majority of the capacity is coming in the second half and would take some time to ramp it up also. Do we want to tone down our [ assumptions ] or we are still holding to it?

Whatever we mentioned before, we are confident of that. And everything is in line.

So basically more than...

So first quarter, as I mentioned, Nabha sales volume should be counted for as well. Those numbers show 86, which is 97 effectively. So if you think it that way, it's almost the same.

Understood. And just one clarification, basically, in Nabha, the next quarter onwards, we will be merged, right? We will be merging it and would be a combined number?

It will be a subsidiary.

Okay. It will be a subsidiary. Fine. Sir, one more question regarding the plans to have that the additional 1 million-tonne in the Maharashtra. Any update regarding the progress? How much we have spent so far on that project?

So -- Vikash Ji, the DFT has already arrived at the plant. It's under the installation phase. And it's before time that it has arrived. We're expecting it to arrive later this quarter. Everything is in the plant, and it would be -- setting up right now.

Understood. And sir, just one last thing. In terms of demand side, basically, though the monsoon has started, but on a like-to-like basis, do we feel that the demand is better than the last monsoon because there was a long period of election, and then probably would have led to destocking. So your views on that if you see that this demand is still better than what it was in last season or is more or less similar, if you could give us some idea about that?

So like-to-like basis, as we are growing every year, it's very difficult to give you a like-to-like basis. Our range has expanded compared to last year and this year also. We've added the kind of range that we gathered more demand in to. But see, monsoon has just arrived, and it is very soon to say what impact monsoon has affected. So it is just the first, say, fortnight of monsoon in India right now. And the impact is there still to be found out. So I would still wait to comment on what impact monsoons have on demand.

The next question is from the line of Aditya Welekar from Axis Securities.

So just harping on this Nabha Steel post selling. As you said, from next quarter, it will be consolidated. So I just want to understand the sales from -- sales volume from Nabha will contribute to our revenue side? Or again you will factor it in profit from associate or profit from subsidiary?

Thanks, Aditya, for the question. So whatever there is RTB so that will be not accounted on the -- like that's the process and whatever we sell outside, the fact is that we won't be fitting in, in our mill, that will be sold in the market. So those will be coming in the profitability as well, similar with how subsidiaries numbers account for.

Okay. So means out of the 0.2 million tonne Nabha capacity, the first phase is now installed. So out of that, some portion will contribute to our EBITDA per tonne increase and some portion will directly contribute to our sales volume. Is that understanding right?

That's definitely right.

So any quantification of that split, means how much will contribute to our external sales volume and how much will contribute to our EBITDA that is our backward integration?

We won't be able to give an exact number on that right now.

So we won't be able to give you exact number on that right now. But in the future, what we will have to do is we'll have to give you a stand-alone or consolidated statement, so that things are more clear.

Yes. Fair enough. And on the guidance, once again, slightly harping on that. So we -- in the earlier call, we have said that we are targeting 30% year-on-year revenue growth and volume growth for FY '25, so -- and 40% VAP share. So with the DFT coming from second quarter, is that VAP target and revenue targets in line? Or do you want to take that?

Everything is in line. There is no change in whatever you mentioned before. Everything is just as in line, as mentioned in the first con call -- the last con call.

Perfect. And lastly, on -- if you can throw some light on primary and secondary steel prices? What is the gap between the two, the patra price and our normal HRC prices?

The last month's gap was around INR 3.5, INR 4. It's a very fluctuating market. The gaps are keeps on rising and decreasing, but we've encountered on an average during the year, the gap is more or less in the range of INR 4 to INR 5 per kg. So -- but having said that, now the use case scenario has -- the use case scenarios of both the patra and, say, the prime coil has -- prime coil material has been widely accepted in different markets. So for light structural steel, people are now preferring for gauges below 2 mm, people now preferring patra steel. And for gauges above 2 mm, 2.5 mm, people are preferring primary coil steel. So there has been a market use case scenario differentiation on that. That is more so how do you understand about it.

Perfect. Perfect. That's very helpful. All the best.

The next question is from the line of Pradeep Rawat from [ Last House Blue ].

So I have a couple of questions. So first question is regarding capacity expansion in the industry. So how much of the capacity are you seeing in the industry adding up? And do you see any threat that the capacity can grow faster than the demand growth?

So the industry -- thanks for the question, first of all. The industry is evaluated by the reports that available online around -- at a size of 40 million tonnes. And the industry growth rate itself is above 14%, 15% every year. How the plants are been set up and being added every year, we personally are growing our capacity by 20% to 25% odd every year. And -- so are few of our peers as well. But we don't see any threat to that because whatever SKUs or products that we are adding, they are new to the market. They are like -- not a lot of people are doing the products. So it's safe to say that we are in a very comfortable position, and the products that we are offering are unique in themselves. So there's no threat that we see as such.

Okay. And sir, during the last con call, you mentioned that we are seeing a demand slowdown due to elections. So how do you see demand shaping up now after the election?

Demand has picked up from before, but the final flow of demand will open up after the budget. So it's a few days away from budget and we should see new government orders lining up after that.

Okay. So the demand is currently like lagging as expected.

It is not lagging, it has improved from before, and it's on track as well. It's just a usual. And the major boost in demand from the government side will -- is expected post elections.

Okay. Fair enough. And my third question is regarding, sir, our current capacity utilization is close to 55% and 60%. So why we are expanding capacity instead of first, increasing our utilization? So can you explain the thought process behind it?

So what happens is how you calculate the utilization of the company is. So on the same mill, you have to make a smaller size as well, which is lighter in weight. And you can make a bigger size as well, which is heavy is weight. So if you are running a bigger size throughout the year, your capacity utilization will probably exceed 100% as well. But this is -- this cannot be done in a given market scenario because when we have to sell somebody, sell load of material to somebody. It's usually multiple SKUs that one buys, the dealer, maybe government or some -- anybody. So to serve the market as a whole, one has to make multiple sizes throughout the year. That's why the capacity utilization decreases. And it's the industry standard that this is a utilization, and it's a footrule that after 65% steel purchase utilization, you can think about expanding.