Kriti Industries (India) Limited (526423) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Kriti Industries Limited Q4 and FY '24 Earnings Conference Call, hosted by Ventura Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Tushar from Ventura Securities Limited. Thank you, and over to you, Tushar.

Thank you. Good evening, ladies and gentlemen, on behalf of Ventura Securities Limited, I welcome you all to Kriti Industries Limited Q4 and FY '24 Earnings Conference Call. The company today is represented by Mr. Shiv Singh Mehta, Chairman and Managing Director; and Mr. Rajesh Sisodia, Chief Financial Officer. I would now like to hand over the call to the Managing Director of the company, Mr. Shiv Singh Mehta, for his opening remarks. Thank you, and over to you, sir.

Good evening, everyone, and welcome to the earnings conference call of Kriti Industries India Limited for the fourth quarter of the financial year 2024 and financial year ending 2024. In Q4 financial year '24, total sales volumes were 17,554 metric tons as against 15,083 metric tons in Q4 of financial year '23, which grew at around 16% on year-on-year basis. Also on segmental front, in Q4 '24, the company registered a growth of 75% in volume in the Building Products business compared to Q4 of financial year '23. I'm very happy to inform you that the company has achieved a strong revenue growth for the full year with significant turnaround in margins and profitability versus last year. During financial year '24, the company registered an overall growth of 28% and 18% in volume and value, respectively. On a year-on-year basis, with total sales volume of 75,655 metric tons against a sales volume of 59,148 metric tons. Sales volume for the Agriculture segment grew by 16% while Industrial Solutions grew by 59% and Building Product by 75% year-on-year. I will hand over the call to our CFO, Mr. Rajesh Sisodia, to give you the financial highlights.

Thank you very much, sir. Very good evening, everyone. Let me take you through the financial performance of our company on a consolidated basis. The Q4 2024 revenue is around INR 195-odd crores, which indicates a growth of 3% on a Y-o-Y basis, with one-term growth of 28% and price-down effect of 7.5%. The EBITDA stood at around INR 14 crores, with an EBITDA margin of 7%, which the company has been able to showcase in last 3 quarters. There is a dip by 124 basis points on a Y-o-Y basis. Net profit was reported at around INR 4 crores in Q4 2024, and the PAT margin stood at 1.85%. The revenue for financial year 2024 is around INR [ 867 ] crores, which grew 18% year-on-year basis. EBITDA is around INR [ 60 ] crores with an annual EBITDA margin of 6.87%. And net profit of our company was around INR 22 crores. The PAT margin on annual which stood at 2.53%. Regarding the segment-wise revenue, for financial year 2024, Agriculture, Industrial Solutions and Building Products contributed 62%, 26% and 12%, respectively. Thank you. I would like to open the floor for questions, if any, on the results.

[Operator Instructions] Our first question comes from Rahul Jain from Credence Wealth.

So a couple of questions. Sir, on the overall demand scenario, since we are going into the next year and the quarter one happens to be our best quarter with regards to more towards the agri part. So how are we looking at the overall situation on the ground in terms of demand? We have already crossed about one month and some more days. So until now, have been the demand from the agri side and also the other segments, that is my first question.

The demand scenario looks to be fairly good because prices are affordable and we are seeing good traction on the top line.

So are we in for a record quarter in terms of revenues?

Yes, it looks to be a good quarter. Agriculture demand is quite robust.

Okay. And sir, in terms of the margins part. Even prior to, say, COVID also, when we were recording around INR 400 crores, INR 450 crores of sales or INR 500 crores of sales, our EBITDA margins have been in the range of around 7.5% -- 7% to 7.5%. Leaving aside 1 or 2 years where probably we gained on inventory or we lost on inventory. Today, our revenues are almost about INR 860 crores. The operating leverage doesn't seem to be kicking in. And this is based on my understanding on the numbers, what I can read is other expenses have gone up sharply. The last 6 quarters, the average run rate of expenses on the other side, the other expenses are in the range of INR 19 crores, INR 20 crores, which was in previous 1.5 to 2 years was in the range of INR 11 crores to INR 12 crores. So basically, sir, INR 11 crores to INR 12 crores has gone up to INR 19 crores, INR 20 crores in last 6 quarters. Every quarter, we are spending around INR 19 crores to INR 20 crores. So additional around INR 8 crore, INR 9 crores, if you could share some details where has been the spent majorly, get a sense whether these expenses can result in some kind of benefits going ahead.

I told you earlier developing building material is taking a lot of efforts in terms of footwork as well as detailed retail efforts and dealer development initiatives. So as we are trying to expand in building materials, initially, our expenses will continue to be a little higher. And as the volume ramps up, we will be able to distribute these expenses on a larger sales base. So then -- it is only then you may see that our expenses per unit of sales will be within range and then our margins should look up.

Sir, are we done with the other expenses? Or are we done with the development and promotional and marketing expenses or building products from here on, the growth in that expenses will not be large enough for it to be very minimal?

It will not -- it will certainly proportionately come down because as the markets mature, as the sales grow for every territory, the per unit expenses would certainly show a better margin for the performance of the company.

Sir, last question, sir, on the CapEx side. Our gross [indiscernible] is up and plus we have a CWIP also in the balance sheet. So with regards to the CapEx, if you could share more details and also the building products, I understand a lot of this is going towards building products, the expansions of the SKUs. So till date, whatever capacity we have built in the building product division, at this peak capacity utilization, what kind of revenue can be generated from the Building Products segment?

Building Product, as you would know, this year, we have shown a total sales, which has grown by almost like in terms of tonnage about 79%, 80% to about -- how much is 75% -- 75% growth. So obviously, this all addition of range and product quantities, the initial investments have to be high. So this is where most of our expenses are in developing range, developing capacities, appropriate requirements of market for CPVC, for UPVC, for fitting, for pipes. So we are now almost ready up to a level where we will be able to expand our market because we have a larger range to take that.

Sir, just to clarify. This existing capacity, which we have already built to date, that can add peak utilization, can you give us what kind of revenues in this segment? Capacity past year...

INR 170 crores as a revenue. We are at about 100-odd -- INR 103 crores, INR 104 crores today last year. But the capacity here is -- we can -- if all the sizes are properly utilized, we can easily expand our sales from 1.5 to 1.6x of current sales.

Our next question comes from the line of Ankit Gupta from Bamboo Capital.

Sir, on the Building Product side, the kind of efforts we are making, last year and despite having a low base of less than 5,000 metric tonnes of sales in FY '23. Sir, our Building Product sales in volume terms has grown by 62% last year. And if we look at the quarterly performance over the past 2, 3 -- past 3 quarters -- past 3, 4 quarters, our Building Product sales has been around [indiscernible] tonnes per quarter. And it has remained in that range for almost 3 quarters now. So how do you -- what has been the reason for the sales to be stuck in that range for past 3 quarters? And how do you see the growth in the Building Product segment for FY '25?

Our growth in terms of tonnage in Q4 to Q4 is about 75%. And if you compare our sales in Q3 to Q4 in Building Materials, it is about 23% growth quarter-on-quarter.

Just wanted to clarify, the numbers given in the presentation of our Building Products is around INR 1,674 metric tonnes compared to 1,237 metric tonnes last year.

Our sales in Q4 is about 1,149 metric tonnes against last quarter was [ 1,753 ] metric tonnes. So it's about 23% growth.

Okay, maybe some error in the -- Okay, sir. So how do you see the growth for next year and how do you see scale up...

Right. We are hopeful to sustain this.

Okay. So even on a base of, let's say, INR 100 crores being sold...

Rather going forward, we're able to do better as our range is now available. Our marketing abilities have improved. So we are quite confident that we should be able to maintain the growth rate.

Sure, sir. On the margin front, like in this quarter, has there been any inventory loss that we have incurred because our realization have come down?

No, no -- any inventory loss. But yes, our expenses have grown because of our efforts on the marketing side. And as our range has come down, the largest portfolio of higher diameters, we have to put in a lot of effort in terms of putting products on the shelf everywhere.

Sir, let's say, let's assuming on the prices for [indiscernible] stay at the current levels and with the significant expansion in the Building Products that we are envisaging for FY '25. How do you see the margin for the company panning out for FY '25? Last year, we reported close to 7% -- 6.8%, 7% EBITDA margins. For next year, how do you see the margin shaping out?

The margins will certainly improve because Building Products is a major area where we are putting in investments and where we are, I mean, seeing the traction quarter-on-quarter. Once the volume of Building Product grow, our expenses will be distributed on a higher base, and that's where the margins will improve.

Okay. So like we are targeting to early double-digit kind of margins given the sale that we were expecting...

We are trying our best to hit a number, which is towards double digits. Let's hope that quarter-to-quarter, we are able to demonstrate it.

Our next question comes from the line of Viraj Mehta from [ DBD Capital. ]

Sir, my first question is regarding our agri markets. On an aggregate level, in the district that we are present in Maharashtra, what is, at some point, 2 years back, you used to say that wherever we are present in Maharashtra, we have 10% market share. What will be your market share today in Maharashtra?

We are around the similar level. I mean exact -- district by district may vary a bit. But on average, we will be around 8% to 10% market share in different areas.

And sir my second question is aspirationally, sir, if I look at some of our larger players, even in BP or in Agri business, they grow on like very large base, a few thousand crore revenue, INR 8,000 crores, INR 10,000 crores and even in piping INR 5,000 crores, INR 6,000 crores revenue. Their aspiration and they actually grew much faster than us even on that base on volume terms. What is it with such penetration, I mean, we basically are investing also, we are increasing penetration also but someone that doesn't translate into numbers, right? I mean what is that we that we are missing?

So it's a very important question, which we, as management, have been reviewing and internalizing. But you see, unless you go multi-locations, the volume growth will have to be within a range of what we are achieving. But once we -- because India is a very large territory, transporting pipes beyond a limit is always a cost, which is a challenge. Building Material is somewhere where costs are affordable. So as our Buildings Material business will grow, we'll be able to reach out to larger, bigger distant territories, and that's where we may see more traction in coming days because Building Products are comparatively of a higher-margin business as compared to Agriculture business.

Sure, sir. And sir, a few years back, we used to talk about our new plant in South India in Karnataka. With now reaching INR 850 crores, INR 900 crores top line, where are we in terms of diversifying locationally? And also providing us easier access to South India market?

Yes. We are seriously debating within our team to do it, actually, the fire incidents, which we had in a major setback. And that's why we -- our plans and our supplies during period had impacted our business plans, but we are again rebuilding all the initial plans.

Our next question comes from the line of Dhwanil Desai from Turtle Capital.

Sir, my first question is FY '23, Q1 was on a very low base because of the fire incident. So if you adjust for that, there is hardly any growth compared to FY '22 because FY '23 first quarter date was low by agri side of it. Sir, again, coming back to the earlier participant's question, we are getting into fully geographies. We have time to get higher market share. But agri segment in spite of lower PVC price seems to be somehow not growing on single-digit volume growth. So what is it -- so is it that we need to go to the double-digit kind of a growth? We need to have another plan without that we can't move low to double-digit volume growth? Is that a right assumption to make? Can you talk a bit more about that?

See, we had a fire almost about 2 years back. The last year data to this year is not based on fire. Last year was a clear operational year. So based on that quarter-on-quarter, there is a growth in agriculture, which is about 18%, 19%, what is that number? Agriculture side is about 16% growth on the say, annual basis. Quarter-on-quarter, it's 14%. So the Agriculture side, staying here within a limited geography from one location will always be a constraint. We will have to go multi-locations, then only we can expand agriculture faster because any area to have a market share beyond a reasonable 45%, 50%, 55% is very difficult to grab. So we are certainly planning for a multi-location, which we will -- I mean, once our plans are frozen, we can take a call on.

Okay. Sir, my -- again, correct me if I'm wrong, but I think the fire took place in May or April or May of 2022, which is first quarter of FY '23, isn't that right understanding?

First quarter was impacted.

So sir, if I adjust for the entire year, and because the first quarter of FY '23 was a very low base, right? So because we have some business because of the fire. So the actual volume growth on a normalized basis is much lower than what it look. Isn't the right way to look at it?

I would say to partially what you are saying has a merit, but we are seeing traction quarter-on-quarter if we see. We will be able to see that unless and until we go multi-location and growth beyond a point from a single location will be always a challenge.

Okay. Got it. And sir, I think you have been talking about the second plant or multi-location strategy for some time and for various reasons, we have not yet decided on that. But what are the key parameters, as a management, you look for to go for this multi-location? I think one thing you talked about repeatedly on earlier call was that you need to have a critical volume in a geography to give the low demand for that plant. So I'm saying what are the decision points which will come in the near future or medium-term to -- which will help you take that decision?

See, we are looking for a critical volume and we were towards that when our plant fire disrupted our supplies. So we could not continue the momentum which we had got at that point in time. So we have been once again realigned that momentum. And we are seeing improvements suddenly. But once we are reached there and then there was a breakage, so once again, you have to build that territory, which we are being working towards. So now we are hopeful that we should be able to show significant improvement towards these territories where we want to achieve critical volumes.

Okay. Got it. And sir, you have been saying that we are investing on the Building Product side to scale up the business and hence the margin slightly subdue because of that. So is it fair to assume that on a Building Product stand-alone, let's say, it normalized margin at 12%, 13%, 15% because we are investing at the current scale, which may be a subscale business as of now. Our margins are lower than what it should be, let's say, 14%, 15%. Is that the right way to look at it?

Yes, because our expenses are much higher per unit sales. Even prices are reasonable with -- price, the expenses per unit are much higher. That's why our margins shrink.

Okay. Sir, you think when we reach that INR 170 crores, INR 180 crores, we should be able to get to at least 12%, 13% kind of a margin on a Building Product basis? Or you need much higher scale to get to that number?

People are having better margins than 12%, 13%, but we internally look at 12% margin once we reach that number on Building Material.

And sir, last question. sir, you said that with the CapEx that we have done and we are currently in WIP, we can do INR 170 crores, INR 180 crores kind of number on the Building Product side. Now as we have aggressive growth plans on the Building Product and INR 100 crores, INR 105 crores base, even if we go 50%, 60%, we'll again be kind of run in the out of capacity to that extent. So do we continue to do further CapEx on the Building Products side, what are your thoughts on that?

It will all depends on the progression of sales. But yes, we are ready as an organization. If there is a situation where we feel there is a justified reason for us to increase our CapEx allocation, we will not hesitate from that.

And last, just a clarification. I think in your presentation, the volume or tonnage for building products is 1,674 tonnes, which I think you mentioned is around 2,100 tonnes, right? Is that -- did I hear you correctly?

Yes, 2,149 tonnes is the number.

2,149 tonnes. Okay.

Our next question is from the line of Miraj Shah from Arihant Capital.

I just have a couple of questions. First is a clarification. At the start of the call and to answer to one of the questions you had that at peak utilization you can do INR 170 crores. Was this for the agricultural segment? For which segment was this for? I hadn't try catch...

Building Materials.

Building Materials. Okay. Understood. And post that, you said 1.5 to 1.6x of current. So that is Building Materials only because you're doing INR 99 crores of top [indiscernible] that segment?

Building materials only. We have done INR 103 crores, INR 104 crores this year.

Understood. Okay. Sir, the next question is that in your presentation, I can see that our capacity for building materials is close to 6,600 tonnes. And this year, we did a top line of 6,700 tonnes. Now we -- in our thought process going ahead, we're saying that with the increase volumes in Building Materials, we'll be able to have better margins and better scale as well. So you've also mentioned about INR 20 crore CapEx that you've done. So what is the current actual capacity of building materials that is available now?

We are almost like -- during last year, we have done -- 6,580 tonnes, and we can easily scale it up under 1.5x, so it will be about 9,000 tonnes to 10,000 tonnes.

So we have a capacity of 9,000 tonnes because in the presentation, it's just 6,600 tonnes?

No, 6,600 tonnes -- capitalization is still -- has been done. So it's a whole number. It's about almost 9,000 tonnes that we can easily do. The capacity is already installed.

Okay, sir. Our current capacity is 9,000 tonnes. And this includes the CapEx of INR 20 crores that is mentioned, right? So in INR 20 crores, you've added 2,300 tonnes for Building Materials. And sir, I just wanted to have some clarity on the point that you mentioning to go multi location. So what is the progress on that part? Have you finalized any locations? Or have you started any plant in any location, if you can just throw some light.

We still -- our plants has to be crystallized. We are looking at a critical mass which we are going towards. Actually we have planned this, but because of disruptions year before last, our plants have -- I mean had to be revisited, which we are in the process.

Understood. Okay. And sir, can you also mention the order book that you have currently?

See, in agriculture, every day there is continuous order inflow because we have dealers. So -- there is always continuous order inflow and supplies. There may be shortage in some sizes, there may be some available stocks. But overall, in few days, everything gets supplied.

Understood. Okay. And sir, I missed one point that you mentioned regarding guidance. For FY '25, can you just repeat, what have you mentioned? I believe you said something about double-digit margins, if you can just repeat it?

In Building Materials, normally, people have much higher margins. So in Building Material, where do you aspire to have margins once you achieve your capacity is about INR 160 crores, INR 170 crores? There, I said we are aspiring to touch double digits in Building Material itself.

Understood. Okay. Okay. Sir, any guidance on the top line for FY '25-'26?

No, we certainly hope to grow at 20% around in terms of top line.

Our next question comes from the line of [ Saket Kapur from Kapur & Co. ]

Firstly, if you could just give a number of how much have we spent on the building material capacity as on date? And what portion is left in the work in progress -- capital work in progress?

How much is the total value? Total INR 40 crores, we have spent. About INR 40 crores is our total investment CapEx so far.

And as on date, we have spent only INR 40 crores on the total capacity of 6,600 metric tonnes...

Right. And we also have certain work in process which will be getting capitalized in coming months.

What is that amount, sir?

About INR 15 crores, INR 20 crores put together.

So in totality, it's around 75 -- INR 65 crores, INR 70 crores that...

INR 60 crores. See what happens then when you go for an expansion, you are also balancing other equipments.

Okay. Come again, sir?

There are balancing requirements which are also part of the expansion. So that is where like in terms of infrastructure, in terms of electricals, in terms of everything. So put together, we are putting that much of money.

And our peak turnover from this building material will be around INR 180 crores?

Yes.

And sir, just for my understanding, I'm new to the company. What do this Building Material constitutes and where are it application? We are in the PVC pipe segment. So when you are saying building materials, what are you alluding to, sir?

See, in any house, if you look or any building you will see, there is a requirement for transportation of water, for sewerage, for drainage, for ducting, these are all part of building material. Plumbing pipes, sewerage pipes, water, drainage, all pipes and fittings.

All pipes and fittings are clubbed as building material?

Yes, yes, yes.

And sir, here, we are catering to B2B or B2C also?

We are generally in the B2C segment so far. And now since we -- I mean we may be getting registrations with various departments where a lot of work has been initiated by government. So we may be now looking at B2B over coming period of time.

Right, sir. Sir, in your presentation, you did mention about the government schemes with the reference to the tap water availability at home. And also, I think with the telecom duct part of the story, wherein the laying off optic fiber cable are laid through your telecom duct pipes. So this telecom duct is also a part of the building material constituent on this?

The segment we are institutional sales and industrial supplies, this is where we are. Telecom duct is not part of building material.

Okay. Okay, sir. That's on the industrial space, that the segment -- Right. And sir, you also mentioned that you are expecting a higher sales from the value-added segment. So that is the ramp-up which you are expecting in the building materials that will contribute to the value-added part?

Yes. That is building material that is column pipes, which are also piped in a borewell, in a building, what we put. So all is that there.

Okay. And sir, this selling is through the real estate people mainly? They are the main buyers, and we have our contracts with them with the type of construction or the real estate that they will be building up? That's how the selling is planned?

So presently, we are selling through our distribution network, which is the retail network. In every city, you have shops which buy products in different locations and territories. But now since we are completing our range, we will be also looking at supplies to building -- builders and contractors who are into the building space -- building developers. Now is the process that we will start.

Okay. And sir, lastly, two points, sir. Firstly, when we look at consolidated numbers, there in your debt number goes down. So if you could explain both for the -- I think so the current -- the long-term maturities, I think. The long-term debt goes down when we look at the consolidated numbers. So can you give us an understanding why -- so why is that so in the balance sheet part?

Yes. I would like to clarify that matter. We had one subsidiary under our company, which is being consolidated. That subsidiary is under the process of closure, we had declared 2 years back. And the name of the company was Kriti Auto and Engineering Limited. So that company had profits, not before. During the course of merger, those profits have been shown as borrowings in the holding company. So when the merger -- when the consolidated financials are prepared, those intercompany borrowings are eliminated. Therefore, the figure goes down from the long-term loans.

Okay. So what is the current number, sir, for the company in long-term...

Approximately INR 9 crores.

Come again, sir, long-term borrowing is?

INR 9 crores.