JTL Industries Limited (534600) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '25 Earnings Conference Call of JTL Industries Limited hosted by JM Financials. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Dharmesh Shah from JM Financial. Thank you, and over to you, Mr. Shah.

Thank you. Good evening, everyone. I warmly welcome, everybody, to JTL Industries Quarter 3 Earnings Conference Call. On the management side, today, we have with us Mr. Pranav Singla, Executive Director; Mr. Dhruv Singla, Executive Director; Mr. Atul Garg, CFO; and Mr. Amit Gaur, Chief Strategy Officer. Without taking any more time, I will hand over the call to Mr. Pranav Singla for his opening remarks. Over to you, sir.

Hi. Good evening, everybody. Dear all, good evening, everybody. I hope you are -- you and your families are having a wonderful start to this year. I, Dhruv Singla, Executive Director of JTL Industries. And I'm delighted to welcome you to our financial year Q3 and 9-month earnings call. Joining me today are Mr. Pranav Singla, Executive Director; Mr. Atul Garg, Chief Financial Officer; and Mr. Amit Gaur, Chief Strategy Officer at JTL. It's great to have you all here as we share our performance highlights and updates on key strategic initiatives. For those new to JTL Industries, let me briefly introduce our journey. With over 3 decades of experience, JTL has grown into a trusted leader in steel tube manufacturing. Our diverse product portfolio include ERW black steel tubes, galvanized pipes, larger diameter steel tubes, solar structures and hollow sections. With 5 advanced manufacturing facilities strategically located across India, we deliver quality, value-added products that meet the evolving needs of our customers. Our acquisition of Nabha Steel has further solidified our operational capabilities and market presence. Now I'll give you a brief about our performance highlights. Let's dive into our Q3 financial performance. This quarter, we achieved a total income of INR 4,525 million. Our EBITDA stood at INR 351 million, translating to an EBITDA margin of 7.78%. We also reported a profit after tax of INR 249 million with a PAT margin of 5.5%. Our 9-month performance has been encouraging despite market challenges. We achieved a total income of INR 14,604 million for 9 months financial year '25. EBITDA for the period stood at INR 1,046 million, with EBITDA margin of 7.24%. Profit after tax came to INR 820 million, resulting in a PAT margin of 5.61%. Sales volume for the quarter were 97,488 metric tonnes, underscoring our ability to cater to strong market demand. Value-added products contributed 21% of the sales mix, aligning with a focus on higher margin offerings. Export volumes doubled year-over-year, reaching 26,859 metric tonnes for 9 months, which now represent 10% of our total sales compared to 5% in the previous year. Our 9-month performance has also been remarkable. We achieved the highest ever volumes for the first period of -- for this period at 2,97,000 tonnes, a growth of 14.3% year-on-year. Value-added products accounted for 24% of the 9-month sales mix, significantly enhancing revenue contribution. Nabha Steel contributed 33,277 metric tonnes for year-to-date volumes, emphasizing its role in our growth strategy. Some other key developments during the quarter Jal Jeevan Mission contract. During this quarter, JTL secured INR 265 crore order at L1 -- as a L1 bidder for supplying 36,000 metric tonnes of galvanized mild steel tubes for Jal Jeevan Mission in Jammu. This highlights our ability to deliver high-quality value-added products while contributed -- contributing to critical national infrastructure projects. Raipur plant expansion, as shared during the last earnings call, the expanded Raipur facility is performing as planned with its capacity doubled to 2 lakh tonnes -- metric tonnes per annum. The facility now offers larger tubes and pipes, 4 inches to 8 inches and 200 new SKUs with 50% of the capacity dedicated to value-added products, further supporting our goal of reaching 1 million metric tonnes by the end of the year. Mangaon DFT line installation utilizes the process -- JTL is in the process of implementing of Direct Forming Technology reflecting company's commitment to innovation and profitability. DFT will enable the direct production of square and rectangular sections from HR coil. The innovation streamlines production, reduces waste and expand the range of high-value products with great precision. DFT positions JTL as a market leader, enhancing its ability to meet diverse customer needs. This is expected to open up new opportunities in the export market and allow the company to penetrate into the newer markets for structural applications and multi-storied buildings. Looking ahead, we remain optimistic about the demand for the structural steel driven by sustained infrastructure investments and strong project activity across key sectors. Our strategic positioning across primary and secondary markets provides the flexibility to adapt to varying demand conditions. This adaptability ensures stability and positions us for consistent growth. In closing, I want to reaffirm our commitment to delivering value through operational excellence and strategic expansion. Great. Thank you for all of you to joining us today. And I now open the floor for your questions.

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

So my question is with regard to the sales volume. So we had a guidance of 4.4 lakhs of sales volume for FY '25. So with these 9 months, it implies that the fourth quarter run rate will be quite high. So any color on that, how the fourth quarter sales volume will be?

Thanks, Aditya for your question. Basically, what happened was in a situation since the past 3 quarters, the CapEx that was planned, the DFT was planned to start in quarter 3 got pushed to quarter 4. Because of that great execution, the sales volume that we get has to be...

I'm sorry to interrupt, sir, your voice is breaking right now. Yes, sir. Please continue.

So Adityaji, the sale volume that we had to achieve in quarter 3 was under the performance...

I'm sorry to interrupt, sir. We are losing your audio actually, for some reason. Sir, would you like me to connect you again?

Yes, Adityaji , I will continue from there. Yes. So what Pranav was continuing to say is that -- since our DFT expansion got delayed a little, and we were supposed to start in the third quarter, but it delayed further to the fourth quarter, and we'll be soon starting it. Yes, it's correct to say that our fourth quarter run rate shall be a little higher than the third quarter. We have been maintaining a steady rate of about, say, 1 lakh tonnes of volumes per quarter. And going forward, we are poised to achieve, say, 1,25,000 tonnes to 1,35,000 tonnes in the fourth quarter and maintain the guidance near to the guidance that we had given earlier at the starting of the year.

Okay. And also, if you can just elaborate on this revenue coming from Nabha Steel. So is it reflected in other income and if I see because other income has also fallen in this quarter. So from the total sales of...

Yes. Right now, Adityaji, we have only shown the quantity inclusive of Nabha Steel, but there is no revenue that is showed in JTL or Nabha.

So where it is reflecting in our income statement? Is it coming in the cost and in the cost lines?

Yes.

So the other income is...

As a profit share, like we have a 67% holding in Nabha. So the -- we have the other income showed in our -- the income is showed in other income.

Yes. So Nabha's volumes are reflecting in other income you mean, right?

The volumes are reflecting the entire volumes, but the share of profit is reflecting in the other income.

Other income. Okay. Second question is any color on our expansion plans? What is the current capacity? And any color on our next phase of expansion of 2 million tonnes?

Yes. So by the end of this year, we'll be reaching 1 million tonnes of capacity by the installation of DFT. We -- at the starting of this year, we stood at 6,86,000 tonnes. We -- in the third quarter, we went live with 1 lakh tonnes of production in our Raipur plant. And the 14,000 tonnes balance in [indiscernible] will also come by this end year. So -- and another 2 lakh tonnes will come by the DFT line in Mangaon. So we'll be at 1 million tonnes of installed capacity by the end of this financial year. Going forward, in the next 2 years, we'll be up and running with the next 1 million tonnes. It is coming up in phases in Maharashtra plant at a single location, which we will be up and running in various phases. So the H1 of the next year would see, say, about 2,50,000 tonnes of capacity being installed. And you can safely say that by every half a year, a similar capacity will be installed in the next 2 years to complete our total expansion of 1 million tonnes.

The next question is from the line of Aman Soni from Nvest Analytics Advisory LLP.

Sir, my first question is, can you provide your perspective on the recovery trajectory for steel price in Q4, along with the insight on the recovery of the government expenditure in infrastructure development during this similar period?

Yes. Hi, Amanji, how are you? See, sir, the Q4, we have seen a considerable step from the government regarding the safeguard duty, which when implemented, we are awaiting the decision in the budget or soon. After when implemented, we shall see a considerable rise in the prices of steel, so to say, which will entail that the cheap incoming material will not be available to the Indian market. This has certain demand implications in the next quarter wherein there is short supply of material and material being supplied would be, say, of higher value. So from here, it's very critical to see how the government performs while putting up a safeguard duty and going for price hike for the Indian mills. And simultaneously, we are banging big on the budget, which is soon to be announced. On the newer projects that will come and entail for this year ending and also the next financial year. So all in all, we are riding on the horse of the growth story of India. And we are very poised for this development. And going forward also, we are very optimistic about the growth of the Indian infrastructure.

Sir, is there any indication of potential reduction in the government CapEx for infrastructure in this budget?

So we are only hearing good news about expansion in budget, but not the reduction. So -- but it's hard for me to guess here what is going to happen.

We'll take the next question from the line of Vikash Singh from PhillipCapital.

Sir, just wanted to understand once we have this 1 million tonne capacity in FY '25 and after DFT completion, how is the value-added versus the general product mix would be plus the secondary versus primary mix at the end of FY '25 for that?

Yes. So at a capacity of, say, 6,86,000 tonnes, we were roughly at a capacity of 3 lakh tonnes for the secondary and the balance for the primary. By the end of the 1 million tonnes, we are not expanding in our secondary market. We are only expanding in the primary market since we are increasing our value offering and size offerings. So by the end of it, we'll be at, say, 70% of primary and 30% of secondary. To answer your next part of the question of value addition, we shall be -- at the current capacity, we are at about 24% of value-added products with DFT, which is by its inception only a value-added product. So we are targeting about, say, 40% to 45% of value addition in the next financial year as our kitty offering. And for -- when we move towards 2 million tonnes of capacity with our other products, we will be targeting a value-added ratio of about 55% to 60%. So that is what our long-term targets and short-term targets are for the value addition.

So from next year, we will see the value addition improvement effect on the EBITDA coming forward.

Yes, yes.

Is that the correct assumption?

Sorry?

Yes. And then secondly, the new products which you are targeting up to 350 by 350, how is the competition in that space? And just wanted to gauge your confidence on whether you would be able to sell the entire quantity as well?

Yes. So see, we have installed this production line in our Mangaon unit, which is in Maharashtra. We would be the only one in that area producing it. So we are next to the port. There is a very good demand from the export market for these products of structural steel wherein this has already been implemented in abroad for a number of years. See, a section of 350 by 350, we would essentially be the third ones in India after APL Apollo and JSPL to implement this size. So not a lot of competition in this area there. And so we are very confident in this. And also with our installation in process and people knowing that we are installing this, we already have a lot of interest going around. We are just waiting for our coal trials to happen for us to offer this material in the market at our own will. So that is what we're waiting for at the moment.

Understood, sir. Sir, one more question regarding what is our cash position right now? And given our 2 years of CapEx plan, how should we see this cash moving or the overall the net cash or net debt position we would have by FY '26 or FY '27 as per your internal estimate?

So we are currently at 0 debt position. And going forward as well, we are well equipped with the recent QIP and the promoter infusion that we have done for the expansion -- the capital expansion that we've done and for the working capital that is needed. We might -- going forward, only need certain working capital, which our bankers are already behind us to take it forward. But apart from that, there would be no long-term debt the company intends to take. So we -- as -- since the last decades, we have been debt-free. We intend to be debt-free for the next coming years as well. So we are not taking any long-term debt, and we have a good cash position. We have a good internal accruals for financing our both working capital needs and capital needs.

Understood. And sir, just one last question. In Nabha space, next year a volume target and when we are actually basically merging it with the listed entity. If you could give us some idea about that?

We are in process of merging it. We shall be completing the merger. It won't be a merger, so to say, it will be -- since we have 67% share, we can only -- right now, Nabha is a partnership firm. So we are converting it into a subsidiary and will be a subsidiary...

Yes, basically, the consolidated account...

Yes. So by -- our target is to get the consolidated accounts by end of this year and portray them in the financial results of the company by the end of the day.

At the end of the year, we mean the same financial year, it will happen in this quarter itself.

The next question is from the line of Sneha Talreja from Nuvama.

Just wanted to get an update. You just mentioned that you are looking at DFT in this particular quarter itself. Who's DFT coming in and the kind of value-added mix that you already shared on the call, where do we see our EBITDA per tonne going?

Here, with DFT expansion, we -- like I say, we've had a good interest in the current projects that are ongoing. And since it's going to be a value-added product from day 1, it solely depends upon the volumes, how we go forward. But yes, we would see an uptick of about, say, it's easy to say since we will be 20% of our capacity is DFT, it will be easier to say that INR 200 to INR 250 uptick in the EBITDA level is achievable from there. So -- but it will be more viable to portray it once we are up and running and we see how commercialized we can get it going. Since it's a specialized grade product, we do have a good interest at the moment. And going forward also with the incoming of all the infrastructure projects such as railways, airports, multistory buildings, we don't see this product being replaced by anything else.

I understand that, but this INR 200 to INR 250 per tonne is from which level are you talking about? The reason I'm asking is this quarter also, we have seen margins to be subdued. Is there any specific one-off? Or is it just because of the operating deleverage that we are seeing and some price kind of price pressure, which is continuing on the channel front?

See, in the entire year, we've seen prices going down and the realizations also suffering. That's the reason there's a lot of destocking that has happened and also the prices from a level of HR coils at about INR 52, INR 53, we saw a bottom of about INR 50 -- INR 46. So therein, a lot of channel destocking has happened, a lot of destocking from our end has happened. So there has been [ EBITDA level subduation ] there as well because of those challenges. And however, we've been able to maintain our volumes by the end of the day, but we would have liked to grow it further. So here are some challenges that are there. But with these value-added products that we are going to offer, we believe that we are going to expand our EBITDA therein. So that's the reason I'm saying that from a level of -- a healthy level of about INR 4,400, INR 4,500, we can see an uptick of INR 250, INR 300 therein. Right now, these levels at INR 3,800, INR 4,000 are a subdued level of the year of price correction, I would say.

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

Just a question on whether did we still offer any discounts this quarter because of the destocking happening like last quarter?

See, there are normal discounts of cash discounts that are happening in the market, but we don't offer a lot of discounts per se. Again, since we are offering materials at different fronts, be it government, be it dealer channels, OEMs, exports. So when you see our data, we -- in the 9 months, we've doubled our exports, wherein the challenges over there. However, we do have to offer the material at the current prices of HR coils. So discount in that manner have to be offered on the part of inventory, which is unsold, so to say, but not to push the material thereafter. So what has happened in the recent months is that even after -- since the material was available in good quantities, no amount of discount could push the material because the demand itself was a little subdued.

Sure. Okay. And so we like -- and any imports of HRC were there this quarter or now since prices are more at par with import parity, we would not probably see any more HRC imports unless it's for export purpose?

The newer HRC imports have stopped happening due to the ongoing rumor of the duty coming in, the safeguard duty coming in. But in the last 9 months, there has been a good imports of HR coils from all the players in the market, including AM/NS, JSW, all of them. So -- but now since the duty is there, we don't see any newer imports happening. But that doesn't stop us. As I say, as I've mentioned earlier quite a few many times that we are -- we have the possibility to import for the purpose of reexport. So as and when the market is correct and the prices abroad are cheaper, we can import for the purpose of reexport without any safeguard implications or without any duty implications. So that benefit will always remain with an exporter company.

Sure. So just also, if I heard it right, so you are probably targeting about 1 lakh to 1,30,000 tonnes of new orders per quarter. So does that mean that this year, I think since our 9 months, excluding Nabha is about 2,60,000 tonnes. So probably FY '25, if I add 1 lakh tonnes, so would we end up somewhere at about 3,60,000 or 3,80,000 tonnes for FY '25?

You mean excluding Nabha?

Yes, excluding Nabha because Nabha, I think anyway would be more of backward integration, right? So that will not reflect in our end volumes.

No, no. See, Nabha is, yes, backward integrated, but the products that we are making in Nabha, we are ourselves not currently consuming those products, but we are offering those products on the market, wherein those products are actually applicable. So to answer your question, keeping Nabha aside, we are targeting, say, another minimum 1 lakh tonnes production in JTL and a level of about 3,80,000 tonnes would be what we'll be achieving in JTL plus the Nabha volume of another 20,000 to 25,000 tonnes. So a level of about 1,30,000 tonnes on a consolidated basis is our target in the next quarter.

The next question is from the line of Harsh Vasa from SBI Securities.

So actually, one of my questions is already answered. One question I had is like, sir, any guidance on EBITDA per tonne for the next year?

Yes. See, EBITDA per tonne in the last year, we've maintained a good EBITDA per tonne of above INR 5,000 levels. This year, due to the consistent correction in prices, we've seen it coming below INR 4,000 as well. So it all depends upon how the market is performing, though. Our target always remains to have a healthy EBITDA level of about 7% to 8%. And with the coming of DFT, we are targeting it to be close to getting to double digits. So that is what guidance I can give you, but it's very hard to put a number to that guidance at the moment.

The next question is from the line of that [ Yatharth Saxena ], an Individual Investor.

So I have a question like the revenue of INR 250-odd crores on a consol basis. So how much you are making from the Nabha Steel and how much you're making from the tube business? Because if I will be taking the EBITDA per tonne, so this is INR 4,000 crores, which is inclusive of Nabha Steel revenue and EBITDA. So can I have the breakup on both the fronts?

Please come again in the question, I missed out some parts of it.

So I'm saying, can I have the margins for Nabha and tube business individually.

So at the moment, we are not able to give you the margin separately. And in both of them, we are able to consolidate and provide it to you by the end of the time. So only the share of our profit in Nabha Steel is what we are showing in the other income, as we mentioned earlier. So the other things that you are mentioning, we are not at the liberty to give you out at the moment. And as soon as we are able to convert it into a limited company and get it consolidated under JTL in a proper manner, we'll be able to put out more data in front of you for that.