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

Ladies and gentlemen, welcome to the Maharashtra Seamless Limited Q3 FY '25 Earnings Conference Call hosted by PhillipCapital (India) Private Limited. [Operator Instructions]. Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Vikash Singh from PhillipCapital Private Limited. Thank you, and over to you, sir.

Good afternoon, everyone. Welcome to the Maharashtra Seamless Q3 FY '25 results con call. From the management side, we have with us Mr. Kaushal Bengani, Deputy General Manager, Investor Relations and Finance. Without taking any time, I'll hand over to Kaushal for his opening remarks.

Good afternoon, and thank you for joining our earnings call. During Q3 FY '25, dispatches of seamless pipes improved meaningfully in addition to improvement in product mix. This was a continuation of the trend seen in Q2 FY '25 and had a direct impact on earnings, which revised as was communicated in the previous 2 earnings calls. Two key points responsible for our performance are the continuation of reversal in Q3 of the impact of inventory milestones taken in Q1 as loan orders have been executed and dispatches have improved in Q3. During the earnings call in July 2024, the reversal in margins in next 2 quarters was communicated with certainty as also was the fact that financial performance during Q1 was an outlier. Secondly, dispatches of seamless pipes improved by [ 16% ] on a quarter-on-quarter basis in addition to higher dispatches of value addition orders, which improved margin profile. I will briefly summarize key financial indicators. On reviewing our Q3 FY '25 performance versus Q2 FY '25. Revenue improved by 2% to INR 1,410 crores. EBITDA increased 21% to INR 280 crores. However, PAT declined to INR 190 crores from INR 224 crores and EPS declined to INR 14.19 from INR 16.73 per share, respectively. Despite marked improvement in operational performance, decline in PAT and EPS is only attributable to lower returns on our treasury. The impact appears to be more pronounced in Q3 because of outsized returns in Q2. On comparison of other income in 9 months FY '25 with 9 months FY '24, we have earned INR 157 crores against INR 97 crores, which is an increase in other income by 60%. Therefore, against an average of INR 32 crores per quarter in 9 months FY '24, we have earned an average of INR 52 crores per quarter in 9 months FY '25. Apart from the financial indicators, there are 5 key points which I would like to do draw attention to. The first is the credit rating. In December 2024, we have been upgraded by ICRA from AA to AA+. This has been the highest credit rating which the company has received in the last 10 years and sends a strong message to all stakeholders about our strengths and expertise. The second point is regarding our specialties, which is at INR 2,417 crores as on 31st December 2024. It is being judicially managed with engagement and inputs at highest levels. Thirdly, our order book remains in the range of INR 1,500 crores to INR 2,000 crores and is at INR 1,674 crores as on 20th January 2025. The fluctuation within the bank, INR 1,500 crores to INR 2,000 crores is primarily on account of timing mismatch rather than anything else. The order book remains good as demand environment is conducive for manufacturing industry and oil and gas sector. There is no slowdown. In line with the commitment made to shareholders 3 years ago, there are no ICDs to unrelated entities or corporate guarantee outstanding. We have come a long way from the time when this used to be the main cause of concern, and that has now been fully and completely resolved. Finally, I wish to reiterate that capital goods and infrastructure in general, and oil and gas specifically, continue to witness strong demand for medium term. This directly impacts the seamless pipes market. Demand for seamless pipes remains buoyant, driven by capital expenditure and spending in oil gas sector, as we've seen our order book being replenished and maintained at good levels. I would now request Vikash to kindly open for questions.

Operator?

[Operator Instructions] First question is from the line of Dhaval Shah from Girik Capital.

My question is regarding the volume guidance for FY -- for the current year and '26, can you please share what is the outlook? And what guidance would you like to give on the volume front?

On the seamless front, we have dispatched 323,000 tonnes in the 9 months ending December '24. The guidance that we can give right now is we will reach close to 430,000 to 435,000 tonnes for the entire year for the seamless pipes.

[Operator Instructions]. The next question is from the line of Shubham Kadhi from 3A Financial Services.

Am I audible?

Yes.

So I had a question regarding the impairment of investments in the subsidiaries. So it was to the extent of INR 800 crores. So right now, our capital employed in the rig business is around INR 650 crores. So do you plan to distribute the proceeds or sale to shareholders or what?

This is an old point. You can refer to our earlier earnings calls for further clarity. We've spoken about this at length. But it's not relevant right now.

Okay. And any revenue guidance that you can give for FY '26.

In FY '26, we are expecting the finishing line facility that we are installing at Telangana to be commissioned. Once that happens, then we can see growth in revenue. But that is only after December 2025.

Is it possible to quantify any number right now?

Our tonnage and revenue in current financial year and as is disclosed can be used as benchmark for what we can do in the next financial year.

Next question is from the line of Dhaval Shah from Girik Capital.

Am I audible?

Yes, we can hear you.

Yes, so what is the -- you mentioned about the guidance for the ERW for the current year. So in ERW, we've done around 64,000 tonnes.

For seamless, I have said 430,000 to 435,000 tonnes. That is the conservative guidance we want to give for the year. For ERW, I think we'll end up close to 90,000 tonnes.

90,000. Okay. And how does the ramp-up happen once the 100,000 tonne factory facility starts in December '25.

Ramp-up will start from January '26, because once it is commissioned in December '25, then we will immediately be able to utilize the inactive production capacity that we have right now.

Yes. So as to the utilization out of 100,000 tonne, so in '26, if the orders are at hand, how much can we utilize out of 100,000 tonne -- additional 100,000 tonne?

I think reasonably speaking, since it will be immediately after commissioning, you can model 15,000 tonnes. For the quarter, of December -- or sorry, of March '26.

Okay. March '26. Understood 15,000 for the 1 quarter. Okay. And for the...

[indiscernible].

Q4 '26. Yes. And out of -- for the entire year, so can the ramp-up happen for the complete -- so how would the ramp-up be like then around 50,000, 60,000?

Already told you 15,000.

Yes. So that should be the run rate you are saying for the first year of operation.

As of now, yes. But we will update you closer to December '25.

Okay. And the margins should be better in the new facility?

Since production will increase, then generally operational margin will improve, but then it is also a function of what the raw materials prices and what the sales utilization are. But if everything remains constant and only production increases, then yes, margin improves.

Interesting. And last question, now, we have been hearing about this U.S. being want to improve -- increase the production. So what would be the indicators and the parameters we should be seeing out where the actual activity happens and we get -- we start getting orders.

If there is more drilling activity in U.S. and Canada, then it will benefit all oil and gas sector players. The indicator that you can track because apart from that indicator, I don't think there is another definitive indicator available. There is a website called aogr.com, American Oil and Gas Reporter. On that website, you were able to track weekly rig counts. That is a good indicator to assess what is happening on the link front in the oil and gas sector.

Got it. Got it. Interesting. And just one more. On this treasury front, so INR 2,400 crores was as of January. And now -- so are we shifting money from equity to debt funds? Have you done anything of that sort of given the sharp correction what we have seen in the markets?

We have a strategy in place and we are working according to that strategy, which we don't want to disclose in public. Bear in mind that whilst the strategy is not being disclosed. The intent is very clear that we want to make money for shareholders and for the company. And there is a team in place, which is looking for this. It's a dedicated team. And as I said earlier, during the opening statement, incident of INR 32 crores per quarter, which was the performance in the comparable period of last financial year. We have done INR 52 per quarter -- INR 52 crores for the quarter.

Yes. So yes, I just wanted to understand what -- yes. So that INR 90 crores has come to INR 1 crore. So what is the sharp swing in this other...

INR 32 crores have also gone up to INR 52 crores. If you add up the other income in FY '24 -- 9 months FY '24, then you will get a figure of INR 97 crores for 9 months, which is INR 32 crores per quarter. And if you add up the other income for 9 months in FY '25, then you will get INR 157 crores. INR 32 crores per quarter. Instead of doing a quarter-on-quarter comparison, I think if you do a longer period comparison, you will come to the realization that we have done better than what we have done last year on this. It is only that in 1 quarter, we've done exceptionally well. And in the next quarter, we have not done well. Hence, the comparison is not appropriate was it a sharp dip.

So this INR 90 crore would mean your incremental increase in your NAV, investments NAV? Is it that INR 90 crore, it means that -- so how do you arrive at the INR 90 crores of the INR 1.86 crore.

Fair valuation of the investments which have been undertaken.

Okay. So your investment fair valuation compared to the September quarter, December quarter is an increase of INR 1.86 crore. This is what it means.

Yes.

Next question is from the line of Muhammad Farooq Umer from [ Pearl ] Capital.

Congratulations to a good set of numbers. With the India's seamless pipe demand currently at 900,000 tonnes annually, the Maharashtra Seamless holding over 50% market share. Where do you see the annual demand growing over the next 3 years? And at what CAGR. Additionally, we believe the government has implemented efficient mechanism to protect domestic seamless pipe manufacturers from antidumping practices by Chinese players, especially in the light of U.S. imposing tariffs on Chinese products.

All the market size of 900,000 tonnes per annum, we expect the market to grow by 4%, I think, per year. And if that is the average rate of growth, because what happens is during periods of good orders, a lot of capacity come into place because orders are received. And then generally, there is a dip or it's a cyclical industry. So year-on-year, the market doesn't definitely grow. And average rate of growth would be around 4% for the industry. This has been driven by the improvement of capital expenditure in the oil and gas sector and we expect this rate of growth to be sustainable. We are also activating the production capacity, which is inactive right now. This is -- this segment and one of our peers has also announced expansion in the capacity. On the issue of domestic industry being protected from Chinese companies, the level of protection that should be there is currently not in place. And we are petitioning the documents to assist in protecting domestic industry from restricted trade practices, which are being engaged in. That has also had a negative impact on margins-wise, INR 20,000 per tonne would appear to be good margins, but that's not the full potential of the industry. Once suitable measures are in place, then we can expect to see even higher margins, but that will only happen once these measures are in place.

Okay. So second question is with the cash reserve approximately INR 2,400 crores, and only INR 800 crores allocated for CapEx, what are the plans for the remaining INR 1,600 crores. Specifically, are there any consideration to reward the shareholders through initiatives such as shares buyback or higher dividends? Additionally, despite the company's strong profitability and cash generation, the stock continues to trade relatively at a lower PE. What steps are being considered to address this valuation gap and enhance the shareholder value?

On the point of utilization of the treasury, the first response would be the dividend. We have quadrupled the amount of dividend that we paid in FY '22 to FY '24. In that 3-year period, we have quadrupled the amount of dividend that we've paid. Secondly, we've announced a capital expenditure of INR 852 crores which we have commenced. And thirdly, the plant and machinery that we are using, we want to ensure that in future, if we have to buy new plant and machinery or if we find an inorganic opportunity, then we have sufficient cash to address this requirement. That is why we are conserving cash. Regarding the fluctuations in the equity market, I think we've done a lot in the past 2.5 years to enhance shareholder value. In September quarter of 2021, we were at INR 2,000 crores market cap. Currently, we are at INR 8,000 crores market cap. And our market share has gone up to INR 14,700 crores approximately. We are working with an intention of enhancing value for all stakeholders, and we have done good things within the company. So that, that is achieved. We continue to walk that journey.

Next question is from the line of Rishi Solanki from [ GreenCo ] Securities.

Am I audible?

Yes.

My question would be, can we see the premium thread segment product becoming a part of a manufacturing capability in the next 3 months as we had anticipated -- as you had said in the previous con call. And where are we in the agreement with Tenaris? And my second question would be, solar, what about the solar plant approval in Telangana, do we -- where are we with the negotiations with the government? Because it's been almost a year since you had those discussions with the government of Telangana?

On the premium connection, we are not in discussions with Tenaris. We are in discussions with another foreign player, those discussions are continuing. I cannot talk about it much, but we are in constant touch with them. And we expect to conclude shortly. Regarding the solar power plant, we have written to the government, we followed up. Unfortunately, we have not received approval. None of the industry players in Telangana everything approved. We continue to follow-up.

Any plans of setting up a solar plant, if not in Telangana and some other states?

As of now, we've only announced Telangana, we can look at more solar plants in Maharashtra for captive consumption, but it is dependent on a couple of factors which we are working on. Should clarity be received, then we will let you know, if an assessment of that project is required.

Next question is from the line of [ Gardy ] from [ Value ] Investment.

Sir, my question was that out of the 900,000 tonnes of seamless pipes demand. Currently, how much is being imported in India?

Anywhere between 10% to 20% is being imported into India. It depends at the -- figure varies throughout the year.