Kalyani Cast-Tech Limited (544023) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Kalyani Cast-Tech Limited FY 2024 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Naresh Kumar. Thank you, and over to you, sir.

Thank you, Mr. Sagar. Dear Kalyani family, [Foreign Language]. Today's brief agenda about this con call is some of the shareholders are new. So we will be telling about our company, brief introduction of our promoter group. We will discuss the financials of FY '23-'24, future plans and then what are the major drivers of our growth, we will be discussing that also during our conversation. So about the company, the company has started its operation in 2014 as a small steel foundry and major customer at that point of time was Indian Railways. In 2021, the company has diversified into container manufacturing and made this dormant sector live and bubbling. Earlier, there was not much of container manufacturing activities were taking place in India. So we were basically driver for this kind of manufacturing in India. The company has manufactured more than 8,000 containers in these 3 years till now and saved almost INR 220 crores of foreign exchange in the last 3 years. The company's main focus is to design and develop containers for the clients in order to reduce their unit cost of transportation. As you may be aware that the reduction of logistic cost is the focus point for the government. Comparatively, our logistic cost in India is higher compared to other developed economies. So our focus is to how we can reduce the transportation cost of our customers besides, of course, the manufacturing of these kind of containers. Our innovative ideas are appreciated by Minister for Railways, Mr. Ashwini Vaishnaw, Government of India. And he, along with 150 Railway officers visited our plant to appreciate and understand various innovative ideas we do and which are benefiting Indian Railways. So now I will be giving you a brief introduction about our promoter Group. I'm Naresh Kumar. I'm MTech in Mechanical Engineering from IIT Madras. I served Indian Railways as Class 1 officer 17 years. I have been the architect of many innovative works in Indian railways like running of double-stack trains, running of double-stack box container trains for electrified route. I have been engaged in design, development and manufacturing of special containers in order to reduce unit cost of transportation. Our mission is how we can reduce the logistic cost overall. Another promoter group is Mr. Jai Prakash Bangani. He is basically based in Kolkata. He runs his own NBFC firm and he helps the company in making strategic planning and advice on financial matters. The third promoter group is Mr. Javed Aslam. He's a civil engineer. He is running his own business of real estate in India and abroad, and he advises company on strategic important issues. Now we will be discussing the financials of the FY '23-'24. The highlights of the financials are total income has increased by 50%, from INR 6,336 crores to INR 9,511 crores on year-on-year basis. EBITDA has increased by 21% from INR 11.65 crores to INR 14.13 crores. Profit before tax increased by 22%, that is INR 13 crores against INR 10.76 crores. Profit after tax, that has also increased by almost 19%, INR 9.6 crores against INR 8.05 crores. And the number of vehicle terms also, we have increased the number of containers manufactured by 50%, from 2,370 to 3,550 containers. Basically, we make various kind of containers like 20 feet, 40 feet, 40 feet heavy strength to 40 feet for -- 42 feet for coils, et cetera. So there is a unit called TEU, that is 20 feet equivalent. The cost of the TEU is INR 2.66 lakhs. And whatever the cost of the containers, we divided it by that. So the number comes from there. The earnings per share has substantially increased from INR 6.06 to INR 16.43. The book value per share is now INR 70.13 against INR 28.50. Current ratio increased to 3.99 from 2.3 on a year-on-year basis. Debt-to-equity ratio has decreased substantially from 0.24 to 0.15. Now I'll be discussing about the major clients during the previous years. Our biggest client has been DP World, CJ Darcl, Tristan Logistics, Navkar Corporation, [indiscernible] Mazagon Dock Limited is a Government of India company under the Ministry of Defense. Silmar Shipping of Russia, that is, we have done for export [indiscernible] containers for them. Now I will be discussing what is the status as of now for the FY '25. The company has sufficient orders for this year, and there's a lot of buoyancy in the sector comparatively. And we have got orders for special containers like dwarf containers for steel products, 42 feet containers, 40 feet containers for coil and pipe transportation. And in addition, we have got 20 feet containers for enhanced capacity, which are having the side access doors also. So presently, in last 2 months, we have got orders of around INR 80 crores for this financial year or around 2,400 TEUs for this FY, and we are expected to complete these orders by 15 October 2024. And now we are in negotiations for further orders. So this time, we will be making almost 5,000 containers in this FY against 3,550. So in order to fill the buoyancy in this sector, the company has taken advanced steps in increasing the capacity to meet the increased demand of our customers. So we are adding additional cranes. Shear and bending machines, we have already added one set each. And we are developing some of the little less utilized area for the productive use. The approximate cost of this CapEx will be around INR 100 lakhs, around INR 1 crore. And in addition to the above customers, we have added 2, 3 new customers at this point of time during this FY, and we are expecting good amount of orders from them. Again, the major driver for the growth during this year or the years to come, Indian Railways have liberalized its maximum dimension compared to the previous one. And now we can make more higher containers. You can load even the light cargo to the capacity of the wagons. So this we have already got orders from our one of the customers. And we are making containers for steel products and pipes. Our focus in this financial year and the year ahead would have been customized containers for the bulk cement and fly ash, customized for bulk food grains. There is a lot of focus of Indian railways also to increase their commodity basket and to enter into the more finished goods, which can be transported through rail. So container will be used for those kind of cargo and finished goods. Another big development which is taking place for us is that till now, our focus had been in the domestic market. So now we wanted to enter into the global market also. And in this regard, we have engaged a consultant in Dubai for exploring possibility of setting up of a container manufacturing somewhere in UAE to take advantage of these CEPA agreements with various countries of the UAE. Jafza and Dubai government are very keen to have this kind of facility in UAE, and we have got a number of meetings with their higher officials in this regard. Thank you for your participation in this con call and listening to us patiently and assure you that your company is in the safe hands. We would like to hear your valuable suggestions and questions, if any. Please feel free to ask any clarification. Thank you so much.

[Operator Instructions] Our first question is from the line of CA Garvit Goyal from Nvest Analytics advisory.

My first question is on our margin side. So we were having the margins of somewhere around 4.5% in FY '22, which further increased to 18% in FY '23 and currently at 14%. So my first question is, what is the expected sustainable margins moving forward? And what are the factors that have contributed to these significant margin fluctuations in the past?

So you are comparing 3 years now, '22, '23, '24?

Yes, yes.

Okay. Basically, you see we have started the container manufacturing in '21 only on the major scale. And that was our first year of manufacturing containers. And we took orders considering the steel prices at that time which were prevalent. Due to COVID, the steel prices were very low. But suddenly, after around 6, 7 months, the steel prices have increased substantially. So there were less margins at that point of time. And we were really wanted to get more orders, so margins were also less during that period. While the situation has slightly reversed during the later year in the '22, '23 years, so there we have got good margins. For the '23-'24, if you see the first half, we have got EBITDA of around -- what is the percentage? -- around 16%, 17%. For the second half, it has come down to 14%. The main reason for this is that during the second half, we have got some government orders. We wanted to have our credentials for the government orders also. So we have to take those orders on tender. So their margin was slightly lower compared to other containers.

So how the margins will shape up going ahead? Like what kind of sustainable margins...

Basically, let me tell you PBT and all, I will not be able to comment, but I will be able to comment on PAT. PAT will be between 10% to 13%, anywhere [indiscernible] 13%. And this year -- Am I clear?

You were not audible.

Sir, we had lost your voice in between. So if you can...

Should I speak again?

Yes, sir, the last sentence.

Yes. Basically, you see, this time, we are expecting to grow by 40% to 50% during this financial year. And our PAT will be around 10% to 13% of that.

10% to 13% is the PAT margins and 40% to 50% is the top line growth. Is that correct?

Yes. Top line growth. Because you see, we have already got INR 80 crores of orders that we will be able to complete by maximum 15th of October. So we have got another 5.5 months to reach to that point. And there is a good buoyancy in this sector at this point of time.

Understood, sir. And sir, you mentioned like we are focusing on the specialized containers. So is there like -- we are participating for the government projects. So who are the other competitors? Like, why we have to compromise on the margin side that you mentioned that in second half, we got the orders from the goverment...

There are small competitors, like one is the DCM Container, and there is a DB Shipping Container. There are small, small competitors, which take the small, small orders and giving competition for this.

Understood, sir. And sir, like what are the new business opportunities or any kind of diversification that the company is currently exploring? So can you put some color on that, apart from this container business?

You see, we have got some plans for the diversification. But we -- at this point of time, it is still on the drawing board. Once the things are at a certain point of time, then we will let you know through our BSE exchange or this thing.

There's nothing specific right now, right?

No, plans are there, but they are on the drawing board. Unless they shape up to some extent. We don't want to disclose that.

Understood. And sir, lastly, on the steel prices, like how do you see our business getting affected from the fluctuation in the steel prices? Like, whether we are able to pass on the effect of the increase or decrease in the steel prices? Or how do you see it going ahead?

You see, basically, fluctuation, organic fluctuation in steel prices are sometimes INR 1 higher or sometimes INR 1 lower. So that doesn't make much of a difference. So per container, we use steel around 1,800 kg to 1,900 kg. So if it is INR 1 difference, so maybe adverse impact of INR 2,000 on the margins or sometimes if it is lower, then it may be around INR 2,000 bonus for us. So that doesn't reflect much unless there is a COVID-like situation where the fluctuations were very high.

Actually, my question is more towards the passing on effect, like whether if there is an increase...

No, we have got fixed price orders. We have got fixed price orders. We don't have any price variation clause in our orders.

So in that case, obviously, if there is an increase in the raw material, our margins will get impacted, right? Is that the understanding?

Slightly, yes. Yes, yes. Generally, our orders are not more than 3 to 4 months old. So we complete those orders within 3 to 4 months. And then the fresh order will be at the basically revised steel cost and other raw material cost.

Understood. And sir, you mentioned we have INR 80 crores of order book, which will get executed by October '24. What kind of new negotiations that we are currently into, which will further drive the growth for rest of the year, like you mentioned 40% to 50% top line growth?

We have got -- this time, we have got good inquiries, and we have been negotiating with them, and we have given them the time lines and all these things. So as I told you, this sector fortunately...

What is the pipeline size that we are into currently?

So we told that INR 80 crores we have already got. We will be around INR 140 crores to INR 145 crores to INR 150 crores this time.

The next question is from the line of Rohit Singh from Nvest Analytics Advisory.

My question is already answered.

Our next question is from the line of Ayush Wadwani from Folgans Capital.

Just wanted to know total order book as on date. Can you mention it to us?

Yes. That I mentioned. At this point of time, we have got order book of around INR 80 crores.

I thought it's until October.

No, order book is there, but these are to be completed by first week of October.

And second thing, I just wanted to ask you, what our current -- I just wanted to know current capital -- our current utilization of our plant of containers basically.

The current utilization is around 70% to 75%.

Okay. Any future plans for any CapEx for production?

I think -- I have mentioned around that we have already planned the CapEx of around INR 1 crores, out of which around INR 30 lakhs we have already utilized and INR 70 lakhs, we will be utilizing within 1, 1.5 months.

Okay. Any future plans for fundraise of anything specific for any diversification, as you said?

We may require if our Dubai project takes some sales, that at that point of time, we may require some funds.

The next question is from the line of CA Varun Agarwal from Networthy Financial Services.

Sir, we have seen a slight drop in revenue in H2 compared to H1. Can I know the possible reasons for that?

Yes, that is there. As I explained you that in the second half, the steel prices were almost INR 3 to INR 4 lower than the first half. So we have to give these discounts to our end customers because we can't keep charging higher prices. That is number one. Number two, as I told you that we have to take certain government orders that [indiscernible] through tenders and there we have to keep the margin and the top line, both on the lower side.

So you mean to say that in H2 compared to H1, volume-wise, we have shown growth, but value-wise, it is down.

Yes. We are almost the same -- that number of containers -- just a minute, please. In the meantime, you can ask some other question. I asked my CA to see that.

Okay. I did not hear the comments about the Dubai expansion very clearly in the opening commentary. Can you update me the status of that?

So I read that paragraph again for your this thing. Your company has been amongst the leading players in domestic market. Now it has planned to go into global market, making the world as its battleground. In this regard, we have engaged consultants in Dubai for exploring the possibilities of setting up a container manufacturing plant in UAE to get advantage of CEPA and with various other countries, including India. Jafza, that is Jebel Ali Free Trade Zone Authority and the Dubai government, they have visited us in India, and we have also visited them in Dubai. And so we have got a number of meetings in this regard. Am i clear, so far?

Yes, sir. So whatever is the conclusion of this visit which they have done, that will come forward before us this year itself, right? Whether it is positive or negative?

Basically, we have to evaluate that. We have to keep our viability intact. So that's not that effective because then we will be entering into the EXIM market and China will be the direct competition in that. So they are offering some ELP kind of thing also. Let us see how much we will be able to convince them. So we are keeping our fingers crossed at this point of time on the project. So we are taking help of the consultant who is Dubai based.

Right. And compared to last year, our trade receivables have jumped from INR 1.6 crores to INR 16 crores. So are we facing any slowdown in the payments from our debtors?

Just a minute. What is your question?

Compared to last year, our debtors or trade receivables have increased quite a lot. So our payments are in time or we are experiencing any delay in payments?

Actually, you are asking of the...

Your customer payments.

Yes, debtors basically -- mainly that good amount of money was stuck up with the government department because they have got their own cycle. It is primarily produced from the March and last week of the February.

So post the end of this year, have we received this money or is it still stuck with the government?

Yes. We have received.

Okay. And are we facing any pricing pressure from the competitors that is why we are feeling pressure on our margins, sir?

That was primarily for the government containers, which are to be taken on the tender basis, not on the one-to-one negotiation.

Okay. So the volume number, were you able to check, sir? Volume H1 versus H2 volume?

H1, we have manufactured 1,850 containers and H2 1,700 containers. So there is a dip of around 150 containers.

And FY '25, what is the number we are targeting, sir?

around 5,000.

The next question is from the line of Bharat Bhusan, who is an investor.

I have a simple question. We have an order book of INR 80 crores. And am I audible?

Yes, yes, please go ahead.

Yes, we have an order book of INR 80 crores. Can you bifurcate, out of this INR 80 crores, how much is your inland containers and how much is for the EXIM containers?

Basically, these are all domestic containers. EXIM is always a bonus for us. But as I told you, basically, the containers which we manufacture are being used by the container train operators who have licensed to run their own container trains from Indian Railways. So basically, presently, the whole order book is from the domestic containers only.

So can you please put some color on that? Is there any problem with our prices of the EXIM containers because there are some Indian container line companies who are placing orders for EXIM containers, either with some Ahmedabad based companies or some Chinese companies, but why we are not able to compete with Indian companies for EXIM containers?

You see there are very few requirement of the EXIM containers for the Indian companies. Basically, there is not a big shipping line. The EXIM containers are owned by the shipping lines, and there is no big shipping line in India, which operates container ships from out of India. And China has got advantage in this regard because one is the economy of scale, another is the government support in terms of PLI. Third is that China is a net exporting country. So with the containers, they even give the cargo also so that the empty repositioning cost becomes 0, in fact they earn out of it. So these are the advantages, which will come to us maybe next 3 to 4 years when we will be also doing a good amount of merchandise export and government may think of helping us in terms of PLI, then we can enter into that also.

Okay, sir. And what is our current capacity for manufacturing?

Our current capacity, as I told you, we are using almost 70% to 75%. Again, we have taken measures to increase the capacity by another 40%.

No, that is capacity utilization. What is our total capacity, monthly capacity?

Monthly, we can do almost 400 containers a month.

The next question is from the line of Jaideep from Sundaram Family.

Sir, I have two, three questions. The first question is, actually, in H2, we mentioned we have delivered 1,700 containers versus 1,850. Was there any reason for -- because usually we tend to grow, but is there any reason for the slowdown?

I didn't get your question. Can you repeat? The sound is also not very clear.

Okay. Sorry, sir, I will repeat once again. Okay. So in H2, we have delivered 1,700 containers versus 1,850 in H1. Is there any reason for this slowdown?

No, there is not much of a reason for slowdown. There was a little bit of issues with the railways. They have increased the prices of their domestic transportation by 10%. So there was a little bit downtrend, but not much because that has been now covered and now we have got sufficient orders on that account.

Okay. And second question I have is we have an order book of INR 80 crores. Out of this, how much is government and how much is private? I'm thinking about the margin.

This is around 300 number of containers, which will be around INR 10 crores is the government. And rest of the things are from the private.

Okay. Sir, my third question is on this -- if you look at -- we're talking about 5,000 containers in 2025. What is the overall market size in India, meaning we are the market leader. So what is the -- how many something in demand in a given calendar year?

Mostly, we are having 50% to 60% of share in the Indian market.

Okay. So it's around 10,000 containers, roughly 10, 000 to 12,000 containers.

Yes. Basically, when we have started manufacturing in 2021, we were able to fulfill the increased requirement of the various container train operators. There are a very few imports from China for the container.

Actually, that was my next question, sir. So for any demand in India, how are we competing with China? Because, for example, they are super cost competitive and...

You see from my introductory this thing, our focus is on the spatial containers. We add some USP to even our normal containers, the standard containers. So that benefits to the customers, our customer. So if you are making any kind of modification from the standard, then China is not cheaper because then it has to come as a product from them instead of a process line.

Actually, I have seen one of your detailed videos, sir. It was very, very informative. It is in YouTube. Yes, I followed that. And my last question is, you talked about PLI. And is there any current proposal submitted to the government in regards to PLI? Or is it expected?

Yes. Last year, we had -- there is one organization called Scale, S-C-A-L-E. Basically, the idea was to identify the companies which can be given to PLI and all these things. So container manufacturing was one of them, and we have gone up to a quite this thing. And afterwards, I don't know what has happened and this election came. So let us see with the formation of the new government, something will happen on this.

Okay. Sir, one more question. So we are doing a CapEx of INR 1 crore. How many containers will it increase in terms of capacity? Right now, we are at 5,000.

So basically, these incremental things are to reach up to 5,000 only.

Okay. Okay. Sir, then actually in 2023, we will reach 5,000 and then we are already -- our capacity is 5,000, then how will we grow?

No. Capacity is slightly higher, but we will be able to reach with this kind of arrangement up to 5,000. Actually, capacity is not only dependent on the physical parameters. Then you have to have the manpower and all these things also additional. So that we are looking into those things.

The next question is from the line of Ashok Balani, who is a retail investor.

Sir, actually, my question is regarding your plant. Basically, you have mentioned that your plant is on lease or some rental, and it's going to expire in 2024. So what's your plan further if any problem with this rental agreement?

You see, the land is partially owned by company and partially owned by the promoters itself, me and my wife. No question of any expiry of the lease.

Okay. Second question is regarding what's the margin for the domestic and export? And what's your vision for the next 5 years?

Yes. You see that our primary focus is on the domestic container only. Export, as I told you, unless government supports us in terms of PLI, it's difficult to go for the export containers. So our focus will be in the domestic market only. And as I don't know whether you are aware, there are around 20 companies who have registered as a container train operator with Indian Railways who are paying license fee of INR 50 crores each. And out of these 20 this thing, around 6, 7 are our active customers who are purely in the domestic transportation and others are doing the EXIM transportation. EXIM transportation is basically taking the containers from the ports to the interland and then taking export from the interland and then transporting to the ports. And those containers are owned by shipping lines. As I told you that in India, there is not a major container shipping line who requires containers. So our focus will be on the domestic. And at point of time, railway carries almost 1,580 million tons of cargo and there -- which is around 22%, 23% of the total transport requirement. So as per policy guidelines of the government, this particular 22%, 23% has to go to 45%, which translates into almost more than 3,000 million tons by year 2030 or maybe 2031. So the major increase in this has to come from the balance of goods, finished goods and other this thing. So there is a good requirement of the containers now and in future also.

Okay, sir. Actually, we have been more concerned about your number of customers. Basically, I have seen that most of the revenue is from the 7 of your customers. It's a very concentrated revenue. So is there any plan to increase...

You see -- let me tell you this thing. We have been trying to grow. That's not an issue. The issue is if one customer is down in one particular year, the other customers come into this picture.

Okay. Okay, sir. So is there, sir, any specific plan to increase the operating margins because from 18% to 40%?

You see, in the first year itself, we have outsourced so many activities to our sub vendors. But in this financial year -- if we have outsourced INR 100, now we have outsourced only INR 5 at this point of time. So 95% of the activity we have started doing ourselves. So that will certainly increase our margins without affecting the top line.

The next question is from the line of Jaideep Rai who is an investor.

My question is already answered.

The next question is from the line of Ankur, who is an investor.

Sir, on this government orders, can you give us some color, which departments we got these orders from?

Basically, it is like this that 3 years back, CONCOR has given orders to various organizations. One of them was MDL, Mazagon Dock Limited, which is under Ministry of Defense. So they also got orders for 1,500 containers. So they could not make it, so they outsourced to the other people to manufacture for them. So we got basically effectively CONCOR container orders through them.

Understood. And sir, because this was a tender based, is China allowed to bid for it? Or is it only open for domestic?

Basically, those were by the government. As you know, government has disallowed the Chinese participation for their own...

Their own participation. Okay. Perfect. And sir, in H2, were there any DFC, double stack containers, delivered or no?

We have orders for, as I told you in my introductory this thing, that this time, we have got special orders for large containers for transportation of the steel products. So we have given around 10 containers to one of our customers for the testing and prototyping and all these things. So in the next week onwards, they start from Mumbai to northern part of India, double-stack dwarf trains carrying the steel products.

And sir, this INR 80 crores...

Hopefully, this will be successful, then there will be much more demand on this account. And as I think, I don't know whether people have seen that this double stack dwarf container, now we have extended to Ludhiana and Kanpur also. So very shortly, there will be trains running up to Kanpur and up to Ludhiana carrying these containers.

That's good to know, sir. Sir, in INR 80 crores of order book, how much is from dwarf containers, double stack?