JTL Industries Limited (534600) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the JTL Industries Limited Earnings Conference Call, hosted by PhillipCapital Pvt Ltd. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vikash Singh from PhillipCapital (India) Pvt Ltd. Thank you, and over to you, sir.

Thank you. Good evening, everyone. I warmly welcome to everybody on JTL Industries' Quarter 2 FY '25 Earnings Conference Call. From the management side today, we have with us Mr. Pranav Singla, Executive Director; Mr. Dhruv Singla, Executive Director; Mr. Atul Garg, Chief Financial Officer; and Mr. Amit Gaur, Chief Strategy Officer. Without taking any more time, I hand over the call to Mr. Pranav Singla, for his opening remarks. Over to you, sir.

Good evening, everybody. I hope you on your family are having a wonderful Diwali, filled with joy and prosperity. It's great to have you all here for our Q2 '25 earnings call. Today, I'll share our financial performance and give you an update on our ongoing initiatives. For those who are new to our journey, let me take a moment to introduce JTL. With 3 decades under our belt, we've become a trusted name in steel remanufacturing. Our product range is diverse, that is ERW black steel tubes, galvanized pipes, large diameter steel tubes, solar structures. We take pride in producing value-add products, ensuring top-notch quality and everything we offer. Our [ sites ] advanced manufacturing plants are located across India. Now let's dive into our Q2 FY '25 performance. We achieved a total income of INR 4,874 million this quarter, demonstrating a resilience and adaptability in the market. Our EBITDA came at INR 377 million with a EBITDA margin of 7.7%. We are also pleased to report a profit after tax of INR 264 million for Q2, giving us a tax margin of 5.2%. Our sales volumes reached an impressive [ 1 lakh 3,193 ] tonnes, reflecting a solid growth of 26% compared to the same quarter last year. Notably, value-add products made up to 25% of our total sales mix. Turning to our H1 FY '25 results. I'm excited to announce that we achieved a record EBITDA of INR 815 million, making the first -- making the highest for any first half in our company's history. Our total income for H1 stood at 10 -- [ INR 1,0069 ] million and year-to-year date PAT at INR 571 million, which is a 7.1% increase compared to last year. As part of our growth strategy, we are enhancing our manufacturing capabilities. Our new GST lines are on track with machinery already delivered to our Mangaon plant. The solution is underway, and we expect trial runs to begin by the end of November. This technology will allow us to use large diameter -- diameter structural tubes, expanding our product portfolio and improving our margins. As a [ reliability ] we've doubled our capacity from a lakh tonne, [ a couple lakh tonnes, ] enhancing our overall pipe manufacturing capacity to approximately [ 66.8 ] lakh tonnes for the company. That expansion is part of our goal to reach 1 million tonne capacity mark by year-end. Specifically, the Raipur facility will now produce larger and more diverse tubes and pipes, with an increased size range from 4 inches to 8 inches and addition of 400 new SKUs to better serve various industries. In July, we raised INR 300 crores through QIP at an issue price of INR [ 2 11 ] per share. These funds are primarily directed towards expansion -- capacity expansion, working capital and general corporate purposes. In September, we also converted the warrants issued in January 2023. Looking ahead, we are optimistic about the continued demand of structural [ scheme ] given by infrastructure investments and sustained product actively across key sectors. By this, I move unto questions from everybody.

[Operator Instructions] The first question is from the line of Sneha Talreja from Nuvama Capital.

Couple of questions from my end. Firstly, what was the inventory loss in this particular quarter?

Thanks, Sneha, for the question. Inventory loss was to the tune of INR 900 to INR 930 this quarter.

Per tonne?

Per tonne, per tonne.

Understood. Secondly, what I wanted to understand was you were in need -- kind of changed the strategy towards pushing volumes and on basis on certain discounts that it is offering. What is the impact that you're seeing on the market with respect to volumes and any change in your volume guidance or EBITDA per tonne based on those strategies?

See, Sneha, we at JTL, always have been a margin player. And being that we having a wide SQ range, we never wish to participate in a price war when the prices are plummeting in the market. And given the comparison of primary secondary market, we don't -- we didn't offer any further discount to what the [ business ] company is offered. And we didn't have any extra discounts passed on this quarter.

Understood. And on Nabha, I wanted to understand the sales. When is it likely to get completely integrated because our earlier sense was that Nabha sales volumes be integrated, and we are currently seeing Nabha sales separately. So when is this likely to get integrated or we'll continue to see this as a separate sales count of?

There are some benefits that we have to take under the Punjab government. And for that purposes, we couldn't just get the company under us in this quarter itself. But we've got the benefits that we're coming to receive. And within this quarter, Q3, you see Nabha coming into JTL Industries.

So we no longer see a separate sales coming from Nabha, it will be your overall sales volume?

Exactly. We will see the total sales volume happening in as a whole from one company.

Will it be completely backward integrated? Or will we see the sales volume coming up?

As it will be basically the same process that we are doing at the Raipur plant. And as I mentioned earlier as well, we're in a situation where the production from Nabha was currently being sold to the market because they were not fitting the same requirements to what we use JTL. But going forward, starting this quarter onwards, we've already started accepting [ VAT ] from Nabha. So you'll actually see effect in which the volumes will come under JTL. So the final product will be under JTL. There are a few modifications that we had planned and most of them already done. So as soon as they are completed, we'll be set to use the product in JTL as well.

Understood. So that will take how much time approximately when you'll be utilizing this particular plan completely for backward integrated purpose?

By the mid of last quarter.

[Operator Instructions] The next question is from the line of Aditya Welekar from Axis Securities.

Congrats for such a resilient quarter, Pranav, despite being a very tough quarter. So I have some 2, 3 questions. So last one is on the sales volume guidance. So we are targeting some 30%, 35% year-on-year growth for FY '25. But now our focus is shifting to FY '26. So any growth rate you are expecting -- what kind of growth rate you're expecting in sales volume for FY '26?

Thanks, Aditya, for your questions. We maintain our previous sales target. This year as well, if you look at the run rate, we've already closed close to 2 lakh tonnes in H1. So given a 10% increase in -- like the minimum 10% increase in volume in Q3 and a further 10% increase in Q3 again in Q4. So we'll easily be able to clock our before-mentioned target of reaching 4 lakh -- 4.4 lakh tonnes to 4.5 lakh tonnes release for the [indiscernible]. And further, as next year proceeds, our DFT, as we mentioned, will be running -- up and running the last quarter by the end of this quarter. So as the volumes will pick up, the numbers will pick up and the volumes in next financial year will come up in a better way as well. And plus today itself, we announced the trial run of Raipur facility, where we have increased the capacity from 1 lakh tonne to 2 lakh tonne. So all these factors will play in part and our yearly targets to achieve a [ 230% ] growth every year in volumes is still on target.

Okay. So in '26 also, we can assume 30% year-on-year growth in sales volume?

Yes, we can -- we can say that. But there are obviously some slowdowns that happened in Q1 and Q2 because of monsoon and other factors. But if you look at the whole year [ volume ] picture, we'll be able to deliver the same run rate of 30% growth, 20% growth in the coming year as well.

Fair enough. And on the value-added product, we have a target of 40% for FY '25. So how confident we are for touching back in '25? Any color on '26, how it will grow in '26?

I believe so. Our year ending target for VAT is 40% and as the DFT will start, as I mentioned by the end of this quarter and the producer from DFT is totally value-added. So the DFT can -- if utilizing full capacity, can also make up to [ 700 ] times a day as well. So we can see the volume picking up in that way and our 40% target of VAT will be covered from DFT itself. And recently, in this quarter itself, we announced when we had started a -- our GI plant in Maharashtra, a second GI plant in Maharashtra. And the result of that, we saw the volume increase happening toward exports from Maharashtra itself. So all these factors locked in, we will be able to maintain our target of 40% for VAT. And when I say my [ wrap sheet ], my VAT products are only products which give me a beta per tonne of INR 10,000 [ plus ]. So with that, that guidance will still maintain our core guidance for the year end.

And for '26 because we will have full exposure to BFT in [ Pradesh ], so that share will increase from 40%?

So Aditya, we have a lot of CapEx going on right now, and there will be a situation when the capacity for [ lakh ] price will increase in a quarter. And on the milling production, we will be able to maintain a higher share of 40% plus as well. But given that we're doing CapEx quarter-on-quarter in other segments as well, fiscal liquid price and [ therapeutic ] segments. So those things will kick in coming quarters. So you can -- it will be very hard for me to give exact number right now on what exact percentage I shall be achieving in VAT next year, but it shall be less than 40%.

Yes, understood. On the warrants front, so all our warrants are now fully converted, right? Or is there anything outstanding?

Only the warrants that the promoters and 1% from public categories subscribed in December -- or early Jan this year, those are pending. So these are a INR 2.5 crores warrants that issued to promoter family and public at shareholder. Other than that, all the warrants from previous situations have been promoted and limited.

Perfect. And one last question, Pranav. So this EBITDA per tonne trajectory. What do you plan will be able to touch INR 2,500 for this fiscal year and for next, can we assume INR 5,000?

So Aditya, again, this number is totally dependent on the production that we do. As I mentioned, the DFT started in Q3. So we did take a little delay in DFT, which we expected it to start in this quarter. But given that the DFT will start in this quarter and as I mentioned, the total value-added product. So the numbers will start adding up towards the similar levels of [ 4,500 ] next quarter onwards. And given that I mentioned that we had an inventory loss close to INR 900 per beta per tonne. And if you add that with our beta per tonne of current situation, so we were already at [ 4,200 ], [ 4,300 ] mark. But -- so we expect that these things will normalize by -- in this coming quarter, and we'll be able to maintain a healthy beta per tonne.

The next question is from the line of Pallav Agarwal from Antique.

I think most of the questions have been answered. But just on the working capital level, I think the net debt also has gone up. So in terms of number of days, can you give some clarity on how the number of receivable days and inventory days have been moving?

Pallav, thanks for the question. So our inventory days increased this time because our inventory levels from what we [ pulled ] last year have increased significantly. And this has happened because we had a few imports which came in towards the end of second quarter. And those imports of coils from our side, from Korea and Japan. So those imports led to higher inventory levels. And given that the prices have bottomed out, it was a strategic move for the company from the company's end to accumulate inventory this time because the prices have bottomed out from what we think and from industry seeing as well. So given ahead, the working capital cycle will improve. But for now, everything has gone up, keeping in mind the pricing, which has bottomed out. The major impact came just because our inventories were towards the high side.

Sure. So with the new DFT plant starting, so maybe we would probably initially have some recognition of inventory over there also to -- till the sales and production ramps up over there?

So I have a little other side. So a new DFT to range of product that we are making initially, it into the [ previous section ]. Yes. So we are making a section in which the market is fairly available at the model is there. So we don't anticipate any inventory development in term of stocks and the purpose of DFT is such that we are able to maintain lower stocks by rotating the rolling as and when the material is acquired. So if it was [ inflation ] machine, I would think twice before putting up the rolling again, but the [ inflation ] machine where I can consistently change rolling asset of demand accumulates within our panel 3 to 4 hours. So acceleration of material in the DFT segment seems not to be there.

Sure. Also, given that you probably global markets, because demand for at steel product seems a little subdued. So is there any -- how competitive is the Chinese -- are Chinese steel producers at least in terms of exports? Because export proportion has been going up. So at least in the case of steel, we hear that because of the dumping from China the prices are low and there is a lot of volume competition as well. So is this scenario different in the case of steel pipes?

See, first of all, I would like to mention that from India, we are usually supplying [ guidelines ] seem due to countries like Europe, U.K., Africa, Australia. So in all these countries, there is [ an accurate duty ] already applied to the Chinese products for the galvanized steel tubes. Wherein the competition from Chinese market is not there. However, we face challenges where the raw material is supplied by the Chinese market. But at the moment, we see that there is a [ huge ] similar that Chinese ever offered and Chinese product is more -- so competitive in the market as far as raw materials competition that we're getting today. So that is from the scenario and it keeps on changing. The benefit that we have is that we have an exporter that we do have right next to the port. Wherever these scenarios change, we are able to import for the purpose of [ re export ]. So as to be able to maintain our viability in the export market.

And then we export, so are we allowed to import without paying the import duties?

Yes, absolutely. So when we are importing for the purpose of re exporting, the company is allowed not to pay any duties on top of it, there is no BIS requirements for the purpose of re exporting that out. So that is completely valid.

Sure. And lastly, I mean, a major competitor has recently put up a facility in Dubai. So I think the rationale was that maybe when steel prices internationally were lower than domestic prices, so that would give them sort of a cost advantage. So are we thinking of anything on those lines? Or are we more comfortable putting up a 1 million tonne incremental facility [indiscernible], so how does the economics work over there?

See, our target currently is, I think [indiscernible] that we have to [indiscernible] tell our on expansion that we currently are doing and focus in that manner. We -- as you see by our performance, we have consistently increasing our export share as well in the -- in the region. We are not thinking of moving abroad at the moment because we see the Indian scenario of things being on the very aggressive front with development and the government policies. So our motive is to increase from bringing foreign product for the Asian market and then think of going to a second market for the purposes that you mentioned, if they were viable to them or makes sense to us. Right now, [ banking ] is not towards in that direction.

The next question is from the line of [ Hital ] Gara from Max Life Insurance.

I have a couple of questions. So firstly, just wanted to understand currently what is the primary versus secondary mix that you have? And do you see that mix changing in the market?

Thanks for your question. The current mix that we have is close to 53%, to be exact, I think 53% of secondary and the remaining 47% is primary. And -- so both the segments they have a different market itself in the market. So we are not competing with ourselves in the market. It's just a different segment market that we cater with secondary materials and it's a different market that we cater with [ primary ] materials. So there is no confusion as such that we are mixing the products or something like that.

But with the expansions that we are [ doing, do you ] see the mix changing? Or should we understand that more these segments will remain closed to the [ secondary ]?

So with the expansion that we are doing in our facilities, our mix will change and which will be that our major expansions happening in primary segment. So -- which is -- so what primary and secondary is 50-50 right now and will eventually be 20% secondary and the remaining will be primary.

And in terms of the total SKUs, how are you looking at a force expansion? I mean the percentage shares within the products, how should we look at the product mix [ for such ] expansion?

[ A sum ] close to [ 12 million ] right now. And the adding capacity day and with the RSB [ line ], which will be adding by end of this quarter. [indiscernible] SKUs and once my [ 13 ] million tonne staff is well, I'll be having [ adding on ] SKUs.

Okay. And the product mix?

Product mix will be as such and the VAP products will be 45% and -- for the next year and 55% would be general products.

And so that if you say FY '26, you will have flat total VAP products to be closer to 45%. So if that, how should we see the trajectory over the next 3, 4 years? I mean your target that mix that you have?

The target now is 50% once the full capacity installs of 2 million tonnes. On that production, I -- the target is to have a 50% mix of VAP and the remaining general products. And how I differentiate -- we have a very conservative approach of annuity production VAP category. So our VAP is anything about INR 7,000 EBITDA per tonne.

Okay. So that you say almost INR 7,000 per tonne will be included into that, and that will go to almost 50%?

Exactly. INR 7,000 and above as well.

INR 7,000 and above, okay. So for this, like you were mentioning that you are planning to raise this 2 million tonnes capacity in that. From your -- what other capacities in the VAP side would you be adding to reach this targeted 2 million tonnes?

Ma'am, firstly, our capacity today it stands at about 6 lakh tonnes of capacity. We commissioned a new higher IR machinery at Raipur, which makes it at 7 lakh tonnes. By the addition of DFT, will be adding another 2 lakh tonnes of capacity by DFT in market. Also, this will be usually our yearly pipe manufacturing capacity by the end of this year. By 2027, we are going into certain forward and macro integrations, which include narrowed galvanizing CR lines, wider galvanizing for sheet manufacturing and color coating. So those -- all the pillars from 1 million tonnes to 2 million tonnes are a value-added product at different stages. So in that utilization of about 60% to 65%, we are [ estimating ] that matter in the end of '27 will be having close to 50% to 55% of a value-added [ capacity ] targeting about that, but yes, achievable at 50%, 55% of our value-add [ capacity ] with all those are steel manufacturing, galvanized pipes, precoated pipes, the DFT pipes. So that would be where our value-add would be.