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

Ladies and gentlemen, good day, and welcome to the Kriti Industries Limited Q1 FY '25 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 day, ladies and gentlemen. On behalf of Ventura Securities Limited, I welcome you all to Kriti Industries Limited Q1 FY '25 Earnings Conference Call. The company is today represented by Mr. Shiv Sing Mehta, Chairman and Managing Director; and Mr. Rajesh Sisodia, Chief Financial Officer of the company. 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 first quarter of the financial year 2025 and financial year ending 2025. In Q1 financial year '25, total sales volume were 24,714 metric tons as against 25,473 metric tons in Q1 of financial year '24, which was a decrease by roughly 3% on year-on-year basis. The reduction was primarily due to sluggish business in institutional business, which reduced from 5,091 metric tons in Q1 financial year '24 to 1,295 metric tonnes in Q1 of financial year '25. On other segmental front, the company registered a 12% year-on-year growth in volume in agriculture products. In Q1 financial '25, it also registered approximately 50% year-on-year volume growth in building materials as compared to Q1 of financial year '24. I will hand over the call, our CFO, Mr. Rajesh Sisodia, to give you the financial highlights.

Thank you very much, sir, and very good evening, everyone. Let me take you through the financial performance of our company on a consolidated basis. The Q1 financial year 2025 revenue is around INR 257 crores, which has declined by 8% on a year-on-year basis. The Q1 FY '25 EBITDA stood at about INR 24 crores with an EBITDA margin of 9.45%, which grew by 323 basis points on a year-on-year basis as compared to Q1 FY '24. Net profit was reported at around INR 14 crores, which grew by 77% on a year-on-year basis. In Q1 FY '25, the PAT margin stood at 5.37%, which grew by 258 basis points on a year-on-year basis. Thank you very much. I would like to open the floor for questions from investors. Thank you.

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

Congratulations to you all on a wonderful set of numbers, sir. My first question is with regards to the fundraise which we have done. We raised almost INR 150 crores of money in July through warrant issue. And on full conversion, it will almost amount to a 20% diluted equity. So first, if you could share what are the reasons to raise these funds, what are our plans with the funds being raised? Where do you need to -- you will be utilizing these funds? That is my first question.

Rahul, as you know, building material industry on an average is growing in double digits country wide So this industry is offering opportunities to the manufacturers, and they must look forward to next 3 to 5 years horizon how the companies can be built to a more capable and more desirable level of operation. And in this pursuit, your company is also looking at avenues of growth, and this fundraising through warrants, which will happen over 18 months from now, the money will be deployed for the growth of the organization.

Sir, if you could share some more details specifically whether we are planning a greenfield plant, which we have been talking about for last -- quite some time. And of course, due to the fire, those plans were delayed. So in the previous call, you had mentioned that a 20,000 tonne greenfield plant will cost around INR 35 crores, INR 40 crores. So if you could share detail, sir, that will be really helpful. Out of this INR 150 crores, there must be some planning behind raising this money. So what exactly are we planning? Maybe it might take 12 to 14 months to finalize and come up with a plant. But at least we need to understand how is the money going to [ visualize ] in terms of creating what kind of capacities in various segments.

You must have seen in our declaration that this INR 150 crores, approximate, what we will raise over this period of time, the capital expenses or capital deployment will be almost to the extent of INR 90 crores after that. So all this is going into creating new assets and increasing our capacities and range. So it will be at one location or 2 locations, that is what is on the drawing board. So this is where our Board will take a view and take a final call shortly.

So this will include a greenfield plant?

That is just possible and that is quite feasible because growing at a regional level and growing at a different level adds a lot of value in terms of logistics management. The whole value chain comes through logistics costs as well.

I'm sorry, with regards to building products, typically we spend INR 40 crores in the previous year, and we have spent further INR 10 crores in the first quarter, as mentioned in the presentation. But today, at what capacity building products stands? And with this additional INR 10 crores, what kind of revenue we can do at peak utilization?

You see, at the peak utilization as we've been maintaining, we would be able to generate a business volume of over INR 200 crores.

Okay. Sure. And sir, with regards to margins, this quarter we have reported wonderful margins. Typically, we have somewhere -- sorry, on the operating front, we have reached almost double digit, 9.5% margin. And in this quarter, we had lower industrial proportion to the overall top line. But as we go quarter-on-quarter, the industrial volumes also pick up, which is the lowest margin segment for us. How do we see margins going ahead?

As building material volume will increase, the margins should improve, because if you look at the whole business value chain, building products offer better margins as compared to other segments.

So you feel from 9.5% we can still go up further or this will be sustained for next few quarters or so?

[indiscernible] more should really go up. It will not happen overnight. But yes, that is the trend and that is the direction we shall move.

Sure. And last question, sir. We have clocked around 2,400 tonnes of volumes in this quarter, which is the [indiscernible] building products. And year-on-year, a very good growth of roughly about 45%. So from here on, sir, going ahead, how do we see our volumes picking up in building products. We were aspiring to grow our Building Products division year-on-year by 50% to 70%. So how do we look at this year in terms of volumes on building products?

Going forward, we are consolidating as we've been maintaining the current dealership. And now once we are through this process, we will be expanding our dealership further. So we hope to see a continuous growth in terms of building material volumes.

Our next question comes from Sunny Gosar from MKVentures.

Congratulations on a good set of numbers in a slightly challenging environment for the industrial segment. So my first question is on the industrial segment. We did only about 1,250 tonnes of volume against last full year volume of almost 17,000 tonnes. I believe there were some basically some issues related to the election. So for the full year, what is the outlook for the industrial segment? And for the next 3 quarters of the year, what kind of volume run rate can we expect from the industrial segment?

We have always maintained that we are not very keen to grow industrial segment beyond a limit, because here we always find that there are challenges in maintaining right cash flow cycles because most of the EPC contractors are dependent on government suppliers, and who in turn are dependent on their payments. And these cycles, many times, for unknown reasons, get a little longer than the anticipated periods. Number two, these businesses don't offer that kind of a margin which we are trying to look at. So that's why we will always restrict our numbers. So going forward, we will analyze what kind of environment we are in, what kind of payment cycle, various state governments, because most of the state governments normally are not able to maintain the cash flow cycle for EPC contractors who are our customers in this particular case.

Got it. But from a full year perspective, against the 17,000 tonnes that we did in FY '24, do we likely see a growth, degrowth, flat? For some perspective on that will be very helpful.

We will be certainly growing both on agriculture side and building material side. And on industrial side, we will wait and watch and see how things pan out in terms of overall cash flow cycle for EPC contractors.

Got it. Got it. That's helpful. Also, your annual report mentioned about some CapEx in the column pipe segment. So can you give some perspective of like how large this market is? What kind of capacity are we building? And like how is the realization and margin in this segment?

You see column pipes is a product which is towards more quality and better value-add in agriculture segment as well as in building materials segment. We are definitely focusing on a product which will be, quality-wise, very good. And we even have automated processes so that sustenance of product quality is ensured. So we have made some CapEx and the production is being improvised because we're already in this business. This is something not totally new that we are doing. But we are enhancing our -- and fortifying our product quality end markets. And we see a continuous growth. The market is very large in column pipes country wide, but we are offering in the limited geographies where we are selling column pipes, where our agriculture products are present.

Right. And in terms of the realizations and the margins as compared to the current average realizations and margins for the agri segment, is the column pipe as a product category better than the average?

Yes. Column offers much better margins as compared to agri pipes because we are -- engineering also gets into processing as well as in manufacturing.

Got it. Got it. And one last question from my side before I get back into the queue. On the building products side, basically we had guided for about INR 160 crores to INR 170 crores of aspirational top line for FY '25. Basically, are we likely to be on track to achieve that? And from an organization standpoint, like in terms of capabilities, dealership, employee [ sent ], like how is the organization shaping up to achieve those numbers?

I think we are on track. We are doing reasonably okay for our plans. And today, what looks like that we should hit the numbers as we have projected.

Got it. And from an employee and organizational capabilities, like are we -- like what are the steps that we are taking to scale up so sharply in the Building Products segment?

You see organization is a dynamic subject. We have to continuously upgrade, renew and enhance our capabilities as per the evolving market. So it entails a lot of internal training, it entails a lot of experience sharing and strengthening wherever required. So it is a continuous process. We look at it very, very deeply and very carefully.

Our next question comes from Shivaram Krishna, an individual investor. p

Please accept my congratulations for an excellent set of numbers, sir. My first question is like while the revenue has gone down, the profit has gone up very significantly, very excellent trend. Is it maintainable in the coming quarters, point number one. And secondly, I think in the last conference call, you mentioned a possibility of [ delivering ] a little more than the [ INR 1,050 ] crores ] of revenue in the current financial year. Is that still a target that you're working on? And the next thing, what is the vision for this company, say, about 2, 3 years down the line? What sort of revenue are we talking about? What sort of an EBITDA margin or what sort of profit after tax margin? What is the vision that you are working on for the company for the next 3 year?

See, as you would know, when you talk of the EBITDA, there's a lot of headroom. We are at a much lower EBITDA margin as compared to the industry average. So first, our target is to bridge this gap and reach towards what is the industry doing, and our aspirations should be aligned with that. Number two, for that, as you have said, that we are looking at the growth numbers of about 20%. Yes, certainly we are. The only point, as I was explaining in Q1, you must have seen in our numbers, building material and agriculture are going well, and that will support our top line growth. Industrial business, where we are not very sure about the kind of headwinds we may face and we may see in the market, we'll be very careful because not to run after top line but to ensure that our business policies are in place and we follow them. Have I been able to answer your question?

How about the vision for the company, say, 2, 3 years down the line.

That's what I'm saying. We are certainly looking at a regular growth, and the industry as such is growing at about double digits, 9%, 10%, 11% annually. So we will like to grow much faster than the industrial average and that's where we are this year also projecting that we should try and target about 20% top line growth. So we'll try to maintain this kind of growth numbers for coming 3 to 4 years.

And you did mention about working capital getting locked up in industrial segment. You don't see that happening in agriculture segment?

No, agriculture, we have our own dealership, which is very disciplined and organized where we don't have any problem on that.

You are not actually getting into the government business?

Absolutely no.

And how about that -- are you getting into, seriously, the micro irrigation or drip irrigation. Is that...?

2 No, we are not getting there, because drip irrigation is a little different in terms of its [ DNA ] and ways of working, where we are not very clear that whether we should be venturing that area.

So it's purely agriculture and, what you call, building products is [indiscernible]

Yes. Because micro irrigation means a lot of government engagement in the whole business cycle.

Our next question comes from Tanish Jhaveri from Boring AMC.

Congratulation on a good set of numbers. I just wanted to ask you that the [ current CapEx ] that we have done is exactly in what? And what is the -- like in building materials, what was the difference between the PVC and the UPVC.

You see, this detailed planing will depend on the final decision at the Board level. We are already clear that we have already allotted about INR 90 crores for CapEx in our issue what we're trying to raise for the next 18 months [ money ]. So certainly, this is going towards building capacities and developing our business portfolio.

Okay. And I just wanted to understand what kind of a PVC market outlook do you see going forward?

[indiscernible] question, when you say what type of market means the growth rate in the market?

Yes, the growth rate of the market and how do you see the market panning out, the outlook?

The market is growing, as I've been saying about almost double digit, 9%, 10%, 11%, somewhere in between. And this will continue to grow as India's focus is on developing infrastructure. The government focus, private focus, middle class, everyone. And housing is a major area of growth. So we see a continuous growth in this market.

Our next question comes from Aryan Oswal from Finterest Capital.

Congratulations on the good set of numbers. And sir, my question is that as you are planning for network expansion within the existing states and enter into new states, so can you name the states that we are planning to further into? And what are the opportunities there and who are our competitors in that state?

We've been maintaining that we are quite strong in the states where we are presently operating. That is MP, Rajasthan, Maharashtra. Now we are entering into certain Northern states and Southern states. So we will have to see -- once you enter a new state, you are thinly populated, where you are very strong, you are quite dense in terms of your distribution network. So this is a process. But while we continue growing in our areas where we are strong, we do extra effort of going into the new territories by appointing new dealerships and growing our business in those areas.

Okay, sir. And sir, as you're expecting a 20% top line growth this year, so can we see a margin uptick, or will we sustain the 9% margins [ earlier ]?

That's what is our effort.

Our next question comes from Tanya Kothary from AUM Capital Market Private Limited.

My question is on recent tax rate reduction, like 26% to 15% in this quarter. Could you please elaborate on the factors that contributed to this significant reduction, whether this lower rate is expected to be sustained in the coming quarters?

Can you repeat your question? It was not very clear. 26%, what did you ask for?

The tax rate, sir, effective tax rate. During this quarter, it fell from 26% to 15%.

Tax rate?

Yes. Will this lower rate -- this rate is expected to sustain?

No. The tax rate, because of the higher depreciation allocation and the brought forward loss after the fire, both things contributed to the lower tax rate, which will not be sustained. The tax rates will go up thereafter. But it will definitely apportion the depreciation which is in addition to the regular earlier depreciations.

Okay, sir. So then our general rate is, it's between 24% to 25%, if -- when we calculate.

You see, rate for a public listed company is 25 point -- I don't remember -- plus surcharge something. So it becomes 26%, 27%. I don't remember exact number, but that's where it is.

Okay. Sir, are there any specific products within Industrial Solutions that performed better during this quarter, so there were [ little ] fall in the same?

No, the demand and the product required in India are more or less same size. The only question is that during this quarter, we are very conscious and clear that the payment cycle of the EPC contractors who are basically the buyers were a little difficult, as we anticipated or we thought. So we were very conscious and careful.

And last year, we did around INR 250 crores or -- I'm not exactly sure. But this year, how much do you -- what kind of sales numbers we expect from this segment?

For this segment, we will watch how the government policies in terms of EPC contractor, cash flow cycles, is witnessed by us going forward after the [indiscernible] as such. This quarter, I don't see much happening in the building -- I mean, in the industrial sector because presently, there's normally throughout rainy season, the EPC contractors have to remain sluggish and they don't do much of the groundwork. So any activity [ erupt ] will be after rains, that is from October.

Our next question comes from Dhwanil Desai from Turtle Capital.

Sir, my first question is on the building work side. So in last few quarter calls, we have mentioned that in spite of scale-up on the building products, the margins were a bit muted in FY '24 because we were investing money in building the building product business. And from FY '25 onwards, we are expecting better margins will flow through. So are we expecting that with building products going to INR 160 crores, INR 170 crores, the margin delta that we were expecting will come through this year?

Certainly margins will improve because we are going on a higher base of operations, and we are trying to hit the numbers as we have projected and as you have mentioned, yes.

Okay. And sir, any rough idea about the gross margin on the building products level? And what is -- so I assume that agriculture is around 30%, which is finished goods to raw material cost, raw material is 80%. What is that ratio in the building products?

Building products offers higher margin. You will see generally companies who are totally dedicated towards building products have EBITDA margins in excess of 15%, 16% -- at times 18%, 19%, depending on company to company. So building products...

I'm asking for gross margin, which is a raw material to finished goods ratio.

Raw material, the value addition will be 30%, 35% in case of building products.

Okay. Got it. And sir, on institutional side, you are saying that we'll wait and watch, and based on the cash flow cycle, we'll take a call. So let's say, our assessment is that probably it's not a very favorable environment to do a lot of business on the institution side. So is this capacity partially or fully fungible to get utilized in some other segments?

So we have agriculture segment, which also uses polyethylene pipe, which is primarily required for EPC, that is the building institutional side. So it is not the entire capacity, fairly large capacity, we are able to consume towards our agriculture work. So I mean, certainly, there is some business which will keep going in terms of industrial suppliers as well. So we'll try to optimize our capacity utilization.

And sir, last question on agriculture side. I think we have done a very decent growth on the agriculture side, 13% volume growth. So can you give us some sense whether this volume growth has come largely from the newer market? Or it is spread cross all the market, or the mature market has contributed more? Some color to that?

So in percentage terms, certainly new markets offer higher percentage in terms of growth from last quarter-to-quarter growth. But in terms of total volume, even the mature [indiscernible], and we are seeing a good demand because raw material prices have come down as compared to they were in past about 1 year, 1.5 years back. So at these prices, pipes are much more affordable.

[Operator Instructions] There are no further questions. Now I hand over the floor to the management for closing comments.

So I would like to thank all people who have come and attended this earnings call. We look forward to your sustained patronage and your good wishes. Thank you so much.

Thank you, members of the management. Ladies and gentlemen, on behalf of Ventura Securities, that concludes this conference. Thank you for joining us, and you may all disconnect your lines now.