Maharashtra Seamless Limited (MAHSEAMLES.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Maharashtra Seamless Limited Q2 FY '24 Earnings Conference Call hosted by PhillipCapital (India) Pvt. Ltd. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vikash from PhillipCapital (India) Pvt. Ltd. Thank you, and over to you, sir.

Good evening, everyone. A warm welcome on Maharashtra Seamless 2Q FY '24 earnings call. From the management side, we have with us Mr. D.P. Jindal, Chairman; and Mr. Kaushal Bengani, Deputy General Manager, Investor Relations and Finance. Without taking any much time, I'll hand over the call to Kaushal for the opening remarks. Over to you, Kaushal.

Thank you, Vikash. Good afternoon, and thank you participants for joining our earnings call. Performance of Maharashtra Seamless continues to improve following our sustained efforts to improve operations. In Q2 FY '24, we have improved upon our margins and have achieved highest quarterly EBITDA, following strong execution of orders and better marketing initiatives. I will briefly summarize key financial indicators. In Q2 FY '24, our revenue increased by 25% from Q1 FY '24. EBITDA increased by 36%. PAT and EPS both increased by 19%. On comparison with corresponding quarter of last year, that is Q2 FY '23, our performance in Q2 FY '24 was also better. Against corresponding quarter of last year, our revenue increased by 9%, EBITDA increased by 34%, PAT and EPS both increased by 51%. This performance reiterates strength in our operations despite a troubled macroeconomic environment and inflationary pressures. Our ability to control cost remains unmatched as the same is achieved without compromising production and sales. Apart from financials, there are 5 key points which we would like to draw attention to. The first is the commencement of capital expenditure. We have commenced our plans of capital expenditure by acquisition of land for installation of finishing facilities at our Telangana unit. We are in the process of placing orders for relevant machinery and expect installation to be completed by August to November of 2024. The second point is regarding our debt position. We became 100% gross debt-free and currently have liquid investments of almost INR 1,300 crores. I take this opportunity to communicate yet again that the liquid investment will only be utilized for core operations and shareholder benefit. They shall not be utilized for any other activity. We have maintained this position for the past 2 years, and there has been no change in that. The third point is regarding our inclusion in Morgan Stanley Capital Invest India Domestic Small Cap Index. Apart from index rebalancing, we have received tremendous interest from foreign institutional investors who have increased their holding from 2.84% to 7.98% within a span of 6 months. Our shareholders will be positively surprised with this development. The fourth point is regarding our investor engagement, which has improved significantly, and we have represented the company in two investor conferences already this year, and we expect to participate in at least three more. The last point and the point which has the most significance to a lot of participants is the market demand going forward. Capital goods and infrastructure, in general, are displaying strong demand for the medium term. This directly impacts the seamless pipe market. In FY '25, ONGC is expected to spend between INR 3,000 crores to INR 3,500 crores on procurement of pipes. Oil India, which is another large customer, is also expected to spend between INR 600 crores to INR 800 crores. The seamless pipes market remains buoyant, driven by capital expenditure and spending in oil and gas sector. I would now like to take you through the presentation. The first few slides talk about our capacities and about the financial highlights, which I've already touched upon. Slide 8 talks about the operational and financial performance in the current quarter and corresponding quarters and half year. You will note that our performance has gone from strength to strength and we are enthused to communicate this to you. Regarding our EBITDA mix, our seamless pipes segment remains the largest contributor to overall EBITDA, contributing 87% of the total EBITDA of 300 -- out of the total EBITDA of INR 333 crores. The next slide talks about the ICDs and the equity and preference share investments. On the ICDs, we had committed some time ago that we will realize all of them by March 2024, and we are on track to do the same. ICDs have reduced from INR 78 crores in March '23 to INR 49 crores in September '23. Our liquid investments have increased by 25% from March '23 to September '23. This has been on account of better execution and tax advantage. We expect to have even higher liquid investments going forward after considering capital expenditure as well. Corporate guarantee reduction is on schedule. This corporate guarantee is expected to be fully satisfied by September 2024. There will be no cash outflow from Maharashtra Seamless on account of this legacy guarantee. The order book on Slide 15 stands at INR 1,459 crores. This appears to be a reduction from the earlier order book, which was communicated in July, which was INR 1,725 crores. I would like to clarify that orders of around INR 325 crores have been confirmed and are in pipeline. The reason why they have not been included is because the purchase order is awaited. On the sales and marketing update, we have been going from strength to strength, and we expect more orders for various products that we manufacture. And I would request the shareholders to kindly go through Slides 17 and 18, so that they have a better assessment of where the demand is originating from and how we are poised to take advantage of the same. The last slide talks about the shareholding structure, wherein we can see that promoters have increased stake from 67.8% to 67.86%. FII and DII holding has also increased significantly and list of marquee investors has also been given. I would now hand over to Vikash to open the floor for questions.

[Operator Instructions] The first question is from the line of Pratiksha from Aequitas Investment.

My first question is on the EBITDA per tonne that we have for the seamless division this quarter. So just wanted to understand what led to the rise in EBITDA for this quarter? Was this -- is this range of EBITDA sustainable going forward?

EBITDA per tonne this quarter was INR 27,495. This was on account of strong execution of our order book. The oil sector contributed significantly to this. Going forward, we expect margins to remain good as the seamless pipe market is buoyant and we are well poised.

So can we assume this to be sustainable range?

We can only say that margins are expected to remain good because market demand is quite good.

Okay. Also if you could tell us the execution that we did from USTPL plant in this quarter?

We provide -- USTPL was amalgamated with Maharashtra Seamless and it is part of Maharashtra Seamless, so we do not provide that separately.

Okay. All right. You've mentioned about the order from IOCL that is supposed to be executed, big order from IOCL. If you could elaborate on that and whether the complete order is a part of the order book that we have right now?

So I'll just touch upon the previous point. Dispatches have increased by 20% from previous quarter. Just to complete the point that our quarter-on-quarter performance has improved. Regarding the IOCL order, which we have mentioned, there were 2 orders which we received in September of '23 from Oil India and IOCL. Both were in the range of INR 100 crores to INR 125 crores. And we expect to fully complete both of these orders within current quarter, which is quarter 3.

Okay. And if you could elaborate about the pipeline for both seamless and ERW for the H2?

There are orders of around INR 325 crores, which are in pipeline, which we have received, but it has not been included in the order book because issuance of purchase order is pending. So they are from the dealer segment, export segment and upstream segment.

Dealer, export and?

Upstream.

Okay. And just last question. Going forward, so this time the order book mix is -- the share of export has gone up. Do we expect this trend to continue going ahead as well?

The share of exports has not gone up because exports and other segments have been consolidated when this order book was prepared. So since we had a significant execution of ONGC and Oil India orders, it appears that the other segment has gone up, but that has remained more or less constant. Only strong execution has taken place on ONGC and Oil India front.

The next question is from the line of Saket Kapoor from Kapoor Company.

Sir, so in continuation, [Foreign Language], do we expect this execution phase to remain the same for H2 also?

Yes, we will continue this way, and we would like to improve further.

Okay. Lastly, sir, when we were working with our volume numbers for the year as a whole, we were guided minimum 5% growth. So we are maintaining that 5% sales growth for the entire -- for FY '24 also?

Yes, we maintain that 5%.

Okay. So just to put the math into work, sir, this last year, the volumes were evenly placed between 216 and 215, between H1 and H2. But this year, because of the production loss in quarter 1, we did H1 at 195. So to meet our 5% volume growth guidance, if we do the calculation, it has to be around 130 to 135 for the remaining 2 quarters. Is that understanding for the dispatches correct? I'm talking particularly for the seamless segment only.

On the seamless front, we took -- it will not be appropriate to split both segments. However, seamless and ERW combined, we will achieve 5% growth.

Okay. And Kaushal ji, you mentioned about this -- the activation of the new finishing line at Narketpally in the month of August to November, I think so, if I heard you correctly. So there is a delay of 4 to 5 months. Can you explain the reason for the same and capital work in progress, [Foreign Language]. So when exactly are we going to make the payment for the same?

Well, actually, there were some delays in procurement of the land there. So now the land is finalized and orders for the machineries are already placed, so we expect everything will be completed within 2024. We'll start production before December.

Okay. Sir, land purchase, what would be the value accrued to the land purchase?

About INR 13 crores or so.

And sir, as our previous participant, madam was mentioning about the sustainable EBITDA per tonne and Kaushal ji mentioned that it is going to be good. So if we take into account the current -- texture of the current order book and the EBITDA margins that we have done for Q1, do we have the same nature profile in the order book mix that we are going to execute going ahead, because as we do back-to-back raw material arrangement, so we can outline how the profile would look like, because I think so from Q1 to -- on a sequential quarter basis, it is up from sub-23,000 to 27,500. So we would like to just understand the key reasons and what I have said just.

So the picture up to now, the order books are at a good price and raw material price is also, we are looking with the margins. So our order books are there. So we would like to maintain the same. Yes.

Okay. Correct. And sir, one more CapEx about this Nagothane of INR 350 crores. Where are we in terms of this CapEx money? What are the key parameters for this CapEx? Again, we will look for new land? Or is this only the placing of orders for the machinery, this INR 350 crores?

So in Nagothane, we don't need a new land. I will say, in year 2024, we'll be completing all the expansion plan other than this INR 350 crore. This INR 350 crore will be delayed because till now we have not taken much of action here.

On the INR 350 crores expenditure.

On the INR 350 crore expenditure. Balance all others will be completed within 2024.

Calendar year 2024.

Right sir. And sir, lastly, on the premium thread part, I think so earlier also, Jindal [Foreign Language].

That already, we are discussing and some trials in the factor is going on. So as soon as trials are completed, then we will enter into a joint venture.

[Foreign Language]?

Yes.

Okay. And lastly, sir, on the tax advantage parts post the merger, the carryforward losses have been subsumed with the profits done for the first half?

Yes, all that is consumed in this quarter -- last quarter.

Okay, sir. We hope for the -- how the promoters plan to utilize the cash going ahead, since now our CapEx also is -- we'll be making the major CapEx only down the line sometime ahead in the next year, how will be cash utilized, and what would be the dividend distribution policy? We hope that the promoters come up with -- the Board comes up rather with a detailed coded dividend distribution policy. That would be a good idea. And also on your outlook on the buyback of shares, as the valuation looks attractive, provided the numbers that have been given -- being done this year.

[Operator Instructions] The next question is from the line of Vignesh Iyer from Sequent Investment.

Sir, congratulation on a good set of numbers. Sir, coming back to what you said during the commentary part of it, you said ONGC is expected to spend around INR 3,000 crores to INR 3,500 crores and IOC around INR 500 crores, INR 600 crores. So what is the expected win rate for us considering our market share is around 50% plus?

Certainly, we'll be taking more than 30% -- 50% of the business.

Right. And what would be the execution time line for this?

So this expenditure is for FY '25. So execution will also be in that period.

Okay. Right. Sir, so we have utilized all of our carryforward losses. So what would be our steady-state tax rate from here on every quarter, if you could let me know the number?

It will be 25%.

The next question is from the line of [ Udit Sehgal ], an individual investor.

Seamless SS, we don't seem to be doing any volume growth, whereas some volume growth is coming in ERW. So I wanted to know what is the scope further for further growth? Will it come from the ERW or the SS until our new finishing line comes up?

In the quarters ending June '23 and September '23, we have dispatched as much as we had dispatched previous financial -- in the previous corresponding period. The reason why we did not show tonnage growth in this 6-month period was because of preventive maintenance taken in one of our plants. However, we have shown EBITDA growth. Going forward, once this finishing line is installed by November of 2024, we will start to display significant tonnage growth as existing capacity of 1 lakh tonnes, which is currently inactive, will become activated.

Secondly, sir, I wanted to know, Mr. Jindal just clarified that there is a delay in the Nagothane project. What exactly is the project? What do we mean by hot mill upgrade?