Maharashtra Seamless Limited (500265) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Maharashtra Seamless Limited Q1 FY '27 Earnings Conference Call hosted by ICICI Securities 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 ICICI Securities Limited. Thank you, and over to you, sir.

Good morning, everyone. Welcome to Maharashtra Seamless Q1 FY '27 Conference Call. A warm welcome to all [indiscernible]

Sorry to interrupt you, Vikash. Your voice is breaking.

Is this better?

Yes. This is quite better.

Yes. So from the management, we have with us Mr. Kaushal Bengani, Deputy General Manager, Investor Relations and Finance. Without taking any much time, I hand it over to Kaushal for his opening remarks.

Thank you, Vikash. Good morning, shareholders, and thank you for joining our earnings call. At the outset, I would like to inform that one of our independent directors unfortunately passed away a few days ago. Mr. Ashok Bhandari was a man with a stellar reputation and his contributions are immensely appreciated by the company. And the company believes that he would have contributed much more. But due to the sudden and sad demise, we are no longer able to benefit from his knowledge and experience. Just wanted to place that on record before commencing this call. The results for the first quarter of FY '27 have been good. And in this quarter, we have dispatched 96,000 tonnes of seamless pipes. Dispatches in this quarter were impacted by disruption in gas supply in April. Otherwise, we would have been able to dispatch around 105,000 or 110,000, which is the usual run rate. However, despite lower production, margins were not impacted. The encouraging sign in the current environment is that our order book has improved materially from when it was last reported. The order book currently is at INR 1,709 crores, which is an improvement by 31% from when it was last reported. After many quarters, I'm pleased to inform that 42% of the total order book are orders from the oil sector and 20% of the total order book are export orders primarily to the U.S. and Canada. These 2 segments specifically are higher-margin segments, and we should see the benefits of this order book in the coming quarter. On the treasury front, there is an improvement in other income on a quarterly basis with an amount of INR 175 crores. The previous year average per quarter was around INR 97 crores per quarter. And this improvement in other income is primarily driven by the improvement in the equity markets, which has been recently seen. On reviewing our Q1 FY '27 performance versus Q4 FY '26, revenue improved by 3% to INR 1,266 crores. EBITDA declined by 23% to INR 184 crores on account of lower production. However, PAT improved by 150% to INR 271 crores on account of better other income. EPS in this quarter was INR 20 per share. A point to note here would be that the immediate performance in the first quarter is not so reflective of the way we'll perform in the next quarter or the quarter after that because the revival in the order book and the kind of orders that we've been able to accumulate in the past few months has pleasantly surprised us. Due to the lower expenditure in the oil and gas sector in the previous few years, we were waiting for a revival, and we believe that the revival is just around the corner as is indicated by the data which is coming in. I would now request Vikash to kindly open for questions.

[Operator Instructions] We have our first question from line of Saket Kapoor from Kapoor & Co.

Hope I'm audible.

Yes.

Thank you for hosting -- Vikash for hosting the call today and thanks to the management. It is after a gap, and we hope for the continuity of call, and I hope all good at your end also. Firstly, Kaushal Ji, if you could just dwell further on the optimism on your opening remarks in terms of how is likelihood the EBITDA margin trajectory or the EBITDA per tonne going to shape up on the basis of the closing order book. And also the -- since you have [Foreign Language] articulate that this mix is also skewed better. So if you could just give us some more color, sir, that would suffice.

On Slide 15, the order book is detailed. In that slide, I've mentioned that INR 714 crores worth of orders are from ONGC and Oil India, which is the oil sector, which is generally a higher-margin segment. In addition to that, 20% of the total order book is from the export segment, which is again a higher-margin segment. Further, these special orders of INR 100 crores of cylinder pipes, which has also been mentioned is also there. These -- all of these dispatches are likely to take place in the second quarter with a little amount being spilled over on to the third quarter. So the point which I was making was that almost 63%, 64% of the total order book comprises higher-margin orders, which is a pleasant surprise for everyone because this has not been the case in the past few years.

Sir, just to get some bit on the -- color on the number part. When we look at our Q1 number with the type of outages because of the gas issues and I think the labor was also a factor, we did an EBITDA per tonne of -- in our guided range of INR 15,600. And now taking into account the mix, the export, the high value-added segment, what should be the likelihood of the EBITDA per tonne for the coming quarter with the confirmed order book in execution now? If you could just give us some more color? And how is volume likely to shape up for the year or for the ensuing 2, 3 quarters, if you could give us some more color, sir?

Specifically on the number, I would not like to comment because it varies on the kind of products that we dispatch in a particular quarter. But what I can say with reasonable confidence is that margin should be maintained, if not improved in the coming quarters. On the dispatch front, dispatches in the first quarter were impacted due to disruption in gas supplies in our Telangana plant in the month of April. That has been resolved, and we should see dispatches in current quarter of around 105,000, 110,000, which would mean that a yearly average of around 410,000 to 430,000 would be reasonably possible. 410,000 tonnes to 430,000 tonnes would be reasonably possible.

Okay, sir. Sir, we did 420,000 or 419,000 rather for FY '26. So that number may inch up to the 430,000 bracket?

Yes.

Sir, just in continuation to that, and what is the update on the finishing line for the southern unit and whether we will garner any benefit of the same for the current year?

On the finishing line, we have placed orders of INR 107 crores and made payments of INR 89 crores. We are still waiting for the finishing line to be completed. But maybe next quarter, I'll be in a better position to give you a specific update.

Okay. So can you explain to us, sir, is it the geopolitical setup or the long-time delivery of machineries that have resulted because these are inordinate delays in our commissioning of finishing line. And I can't correct it if I may have -- if you could just explain to us.

In the past 1.5 years, we were not pushing this aggressively because the market was not so buoyant. But the revival in the order book in the current situation will push the company to complete the finishing line sooner rather than later.

Okay, sir. And sir, in continuation to the same, can you give some more color on the bid pipeline now? And also how is the tendering process currently looking both from the state -- I mean our oil PSUs and also from the export market, which you have just mentioned that have revived and the contribution would be higher, I think, so for the ensuing year and then some more points.

I would refrain from commenting on the bid pipeline, but I will give you some data points, which will probably give you a better sense. In financial year 2023, exports were 25% of total dispatches. In financial year '24, exports were less than 5% of total dispatches. In financial year '25, exports were again less than 5% of total dispatches. In financial year '26, exports were less than 10% of total dispatches. And in the first quarter of FY '27, exports were around 22% of total dispatches. I think you should be able to make a reasonable assessment on how things are positioned for the future.

Okay, sir. And sir, since we do not have the closing order book for the March '26 closing order book, can you give some color or the exact number of what the order book was in the month of May or March? Any number which you have, which is comparable to this INR 1,700 crore number?

The number which I was referring to earlier was INR 1,303 crores, which was the number which was reported in the call for Q3. The number for Q4 would be around INR 1,300 crores only. So not much change.

Okay. And that is a very significant aspect on a quarterly basis, which you have just explained to us also. Sir, I would also like to have a word on the update on the scheme. I think so some -- if you could just like to mention about what are we exactly planning to do? I think some revision is also there, which was expected to be submitted. I'm referring to the 3 companies or the 3 portfolios for Maharashtra Seamless. If you could just explain to the shareholders what exactly it is, what are the rationale and the thought process behind it?

There is no update. The scheme has been withdrawn.

Okay. Okay. Okay, sir. Lastly, sir, on the change in inventory, so that is also attributed to the lower dispatches only and that will get corrected in the ensuing quarter. There's nothing more to read into it.

Correct.

Okay. And last point on the Premium Connections, sir. When we look at your presentation slide -- give me a second, Slide #10, we have seen that for the June quarter, under the Jindal Premium Connections, the ICD value has moved up from the closing balance of INR 10 crores to INR 14 crores. So firstly, with respect to the Premium Connections part, where are we in terms of -- on the JV, which we expected or some collaboration? And what does this minor increment in the ICD signify?

The joint venture agreement with JFE was done through our wholly owned subsidiary, Jindal Premium Connections Private Limited. And we have commenced operations on manufacturing of premium connections, and we have successfully dispatched a few orders. The increase in ICD exposure to our wholly owned subsidiary is because the wholly owned subsidiary has started manufacturing and it requires a few equipments and initial funds to start and improve production levels. The capacity of this plant is around 8,000 to 10,000 tonnes per year. It is a value addition product. And we have mentioned in our earlier calls that the company is focusing on developing and improving its basket of value-addition products and premium connections is one of those products which we wanted to develop, and we have successfully done that. We also have orders of premium connections and the mill for premium connections is booked till April of next year.

Okay. Sir, can you give some more color on what would be its contribution? I think so it is being clubbed under share of profit in associate and joint venture. That is where its profitability would appear when we will execute the orders?

No. It is a wholly owned subsidiary. So there would be a line-wise consolidation.

Okay, sir. So for this first quarter, there is no contribution as of now for...

There is contribution of Jindal Premium Connections.

Can you share...

It is a wholly owned subsidiary. So the financial performance of the wholly owned subsidiary will be consolidated with that of the stand-alone entity.

Sir, when I look at the stand-alone number, it is INR 1,091 crores sales from operations and consolidated also is the same number. So where we will find this number, sir?

You will not find it separately. It is consolidated.

In the stand-alone only? Can you quantify for us?

The consolidated financials, the subsidiary is consolidated with the stand-alone financials. The financials of the subsidiary is consolidated with the stand-alone financials.

Yes, sir. So that will not appear in the revenue -- it will not flow through the P&L in the revenue and then the PBT. I just wanted to understand how...

It will. For subsidiaries, line-wise consolidation is undertaken. So sales of stand-alone will see an addition of the sales of the subsidiary as well. And so on for every line item. This is applicable on all subsidiaries.

Correct. Correct. So this INR 1,091 crores is having the Jindal Premium Connections embedded in it?

Yes.

Okay. Can you quantify, sir, what have been the contribution in the value-added aspect, if some more color would have been given? And what should be the annual contribution there?

I have already spoken enough about it. As I said, it is a market of 8,000 to 10,000 tonnes. So overall, it will not make a material difference, but it will lead to a situation where decline in profitability is limited on account of value addition products. That's why all companies want to develop value-addition products because they are small in the capacity and high in profitability.

Correct, sir. And lastly, sir, as investors have been requesting for the cash utilization. So since the scheme has been withdrawn and now, I think the first thought process would be [ late ]. So what should investors be looking now for the cash utilization? And any more color or what should be the near-term time line that we should be waiting to hear from the promoters and the Board on the utilization and the new effective scheme, if any? Any thought process you would like to share now?

There is no update. Whatever I said earlier remains as of now.

I join the queue and my best wishes to the entire team and my condolence on the demise of Bhandari Ji, sir. A real gem from Kolkata.

[Operator Instructions] We have a next question from the line of [ Ankur Sawariya ], an individual investor.

My question -- first question is any clarity on, sir, why did not we have a con call last quarter, sir? Any particular reason?

I'm not sure how that is relevant to the financial performance or the growth prospects of the company. It was not done, it was not done. It is like me asking why have you not participated in all of our earlier calls.

Point taken, sir. Not an issue. It is good that now the commentary from the management after a long time is very positive on the order book. My question is after this Samudra Manthan Yojana by the government, do you think that will also contribute in our order book in the near future?

I was not able to hear you very well. Can you please repeat?

Sure. Sir, the government has announced the Samudra Manthan Yojana under which they want to explore oil in deep sea. So will this also positively affect our company? Will we -- will we be a part of it?

On the face of the announcement, it should positively impact the company because we are an oil and gas sector supplier. Any development in the oil and gas sector prospects will benefit all oil and gas sector participants. The advantage that we have in particular is that we have the maximum size range, the maximum basket of value-added products and the maximum capacity to supply to the oil and gas sector in India. As and when there is an improvement in expenditure, we will see a direct benefit to Maharashtra Seamless.

Sir, what is our capacity utilization as of now, sir? Any idea -- any color on that?

Capacity utilization is around 70%, 75%. We have an active capacity of 550,000 tonnes, and we manufacture and dispatch anywhere between 410,000 to 430,000 tonnes per year for the Seamless segment.

Right, sir. And now we have seen that you have given a capital allocation and it is approximately same for last 3, 4 years. Now once you're saying that you are going to go ahead with the capital allocation from now on. So do you foresee a good demand coming in the sector after a long time, sir?