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

Sir, when you have mentioned earlier also the adverse impact of the Chinese dumping, you were -- you have explained to us that it is particularly to certain specific product. Since the antidumping is there, but some products were left at that time or they were not in the basket. So how much do that products actually take the pie that are impacting? What are those specific product specification that are now being targeted by -- especially by the Chinese? And is that product only that is in significant demand or this anti-dumping duty [Foreign Language] -- that was my question.

The value addition products that we have developed after 2016 -- they are not covered by the original antidumping duty. Those products are namely cylinder pipes, sour service, subsea seamless pipes and drill pipes. These products were not manufactured in India in 2016 when the original antidumping duty was implemented. So that effect is there on the entire industry. In addition to that, the products on which antidumping duty was implemented, the prohibitive effect of the antidumping duty is no longer there. Therefore, the entire market is now open for Chinese dumping. And that is why we are seeing a decline in margins, mainly.

Sir, you mentioned about the formula to figure out what was the notional loss. So have you had the numbers handy with you? Just to get an understanding that we have -- we were looking at EBITDA per ton in the vicinity of INR 12,000 per ton to INR 15,000 per ton, if I'm not wrong. So does that hold good for the latter half of this financial year, even after eliminating the impact of the inventory losses?

For the second quarter, if there were no inventory losses, which are entirely notional, I would reiterate, then we would have made margins like we did in the first quarter of this financial year or maybe slightly higher than that because our realization has not declined and the tonnage that we've dispatched, that has also not declined. Even other expenses have been curtailed. So definitely, we would have done margins in the range of what was done in the first quarter of this financial year. The effect of this notional markdown will reverse when these products are dispatched in the next quarter. So there is a possibility that in the third quarter, margins will not decline so much if realizations hold.

And for the second half, since we have an order book which we will be executing over a period of 4 months from now, that will cover quarter -- I think entire quarter 3 and some portion of, I think, so quarter 4 also. So you can give us some understanding that this margin holds, this would be a -- at least for what we have done for first quarter. That is a reasonable estimate.

I cannot confirm. You want a confirmation, I cannot give you that confirmation.

No.

I will tell you, I cannot give you that confirmation because the notional effect of inventory markdown or inventory valuation increase, that I cannot figure out right now what the prices will be on 31st December. That accounting effect has to be considered. Otherwise, I can tell you that margins on an absolute basis have not worsened as much as is being reflected in the results. But having said that, there is also the effect of slowdown of capital expenditure in oil and gas sector and Chinese dumping.

Right, right, sir. Sir, on the premium threading business, although some work has been underway for developing and I think so some premiumization with the Japanese player, where are we, sir, in terms of concluding that part and then introducing the products?

They have issued a license certificate to our wholly owned subsidiary, Jindal Premium Connections Private Limited. So work is on track.

And what portion of the target market we will be able to access once all the formalities are done with?

We are working on this right now, and I don't want to disclose because this is also available to our competitors.

Not an issue, sir. Sir, lastly, sir, on the tonnage part, as you mentioned that our tonnage has remained in this -- I'm talking only for the seamless, just to be in particular, that it was 103,000 tons for both the quarters. And last year, sir, we had sales of 442,000 tons. So taking into account the current order booking and also you have some color on the bid pipeline also. Are we in a position to be closer to this 442,000 tons number for the year as a whole in terms of dispatches?

I think you should take the run rate that we've done in the first 2 quarters because it becomes increasingly difficult to sell products in an environment where the customer is not required to buy as much pipes as we want to sell because of a slowdown of expenditure in the oil and gas sector.

Right, sir. And lastly, sir, on this CCI part of the story, although all the updates have been -- whatever necessary updates were provided to the stock exchanges about CCI looking for some information for previous financial year. Any update on the same and for which financial year exactly the inquiry has been initiated?

There is no update in the sense that they came to our offices and they collected whatever data they wanted. And they have asked us for more data, which we have provided to them. That is all that I can tell you right now. But there is no effect of that on our regular business operations.

Right, sir. And my last one would be on the other income component part. So when -- as per the accounting standard part, we need to keep the entire treasury book mark-to-market. So sir, since your presentation is very elaborate, if we could also provide us with how much actual profits have been booked and how much is the notional part, where should investors get that number? And secondly, sir, we have also seen in some of the corporate, whether the accounting standard permits that -- the line item is routed through the other comprehensive income also. So if that could be the same from the audit part, then this number affecting the profitability to a greater extent would be eliminated. That was my understanding and suggestion, sir.

On the OCI part, we have checked with our auditors who have taken a view that if the instruments in which you have invested are not on a long-term basis. then you cannot classify it through OCI. You will have to route it through other income because a significant portion of the treasury is linked to the equity market, then we have decided not to do that because we may or may not want to capitalize on market fluctuation. Regarding the point that you made in relation to realized profit and unrealized profit -- that is not required to be disclosed. However, if you still want it, then it will not be appropriate to provide you only the realized and unrealized profit on the treasury part because there are also other components like rent and interest and provisions which are written back and other receipts. So unless I give you all of that, you will not be able to make a thorough assessment.

The next question is from the line of [ Manav Mehta ] from [indiscernible].

With regards to the cash with the company, I understand company has been holding a significant amount of cash around INR 3,000 crores. And earlier as well, you had explained you plan to hold the cash for some acquisition. I just want to understand the perspective of the management, whereas we have been holding cash for a while now for some future acquisition which might play out or which may not. Instead of that, why is the company not investing in some renewable projects, whereas it can generate some recurring revenues in solar or wind where we already have a vertical -- small vertical. Why don't we invest some good chunk of amount in that vertical?

We already have 59.5 megawatt of renewable energy capacity, out of which 1 wind and 2 solar plants are in Maharashtra and 2 solar plants are in Rajasthan.

Yes, I do understand. But we can scale it up as well, right, where we can generate recurring revenues. I mean we are earning a good chunk of profit from that as well around INR 20 crores, [ INR 27 crores ] per year?

We earn EBITDA of approximately INR 60 crores from that every year.

And my question was why is the management not focusing over there?

We looked at the economics and unless there is some form of incentive available at the time of putting the project, it is not giving us meaningful returns.

What kind of incentive?

To that effect, we've petitioned the government in Telangana that we want to scale up our operations in Telangana, and therefore, we are desirous of putting a solar power plant, but open access permission has not yet been granted over there. That is the only renewable energy project, which we are looking at right now.

Okay. Yes. And on the CapEx front, I'm assuming since you mentioned we are facing some headwinds from Chinese dumping. Are we going to reduce it going ahead?

Let us finish what we've started, let that project end and then we'll update you.

Next question is from the line of Vinay Nadkarni from Hathway Investments.

Just a follow-up on the inventory notional markdown. You have been on record saying that for every order that you get, you do a back-to-back arrangement for the raw material, so it gets blocked and should not therefore -- so what was the need for this notional markdown? Any -- is this a one-off thing? Or is it audit requirement? Or was it a old...

It is an accounting requirement. I'll tell you what I mean. Suppose I sell pipes for INR 500. And when I get an order for INR 500, I will buy raw material. And I have bought the raw material for INR 300 at that point in time. Then -- the order remains unexecuted because I still have some time for delivery of that order. And in the interim period, if there is a quarterly closure and the price of raw material has fallen from INR 300 to INR 250, then the inventory that I hold for which I paid INR 300, I will have to mark it down to INR 250. Therefore, the notional loss of INR 50 will be will be booked on the quarter end. In the next quarter, when the order of INR 500, which I have taken for which inventory has been purchased at INR 300 and was subsequently marked down to INR 250, that order is dispatched, then the profit I will earn on that order, assuming no conversion cost would be INR 250. So a loss of INR 50 in the first quarter, which is entirely notional and a profit of INR 250 in the next quarter.

INR 50 profit in the next quarter is also notional. It is actually INR 200 net-net.

Actually INR 200 only. Correct. So on a per order basis, I have not lost any money. But due to the accounting adjustment, the effect is reflected in the financials [Technical Difficulty] … says that at the end of any reporting period, you have to value stock. So stock is valued at lower of cost or net realizable value. At the end of the quarter, with the example that I've just taken, the net realizable value of the stock of INR 300 was INR 250. Hence, the [Technical Difficulty]...

Yes. So this will happen the reverse way when the raw material prices start going up. So yes, I understand that. Okay. Just one more broader question. As I can see, I mean, the company is honestly very well managed. So it's heartening to see all the parameters checked out. But since your overdependence on 2 major customers, which is oil and gas and those 2 of ONGC and Oil and one single product, which is seamless pipe, you get rogered because of the momentum. Is there any plan to address this issue, maybe diversify, maybe do something? Is there any thought process on that? And don't take me wrong. You may -- it is your call ultimately.

Sir, we don't want to diversify. We have been market leaders for the past 35 years. We want to retain that position. If you look at the history of the seamless pipe industry in India, all of our peers without exception, have either been bankrupted or they have approached bankruptcy courts. We are the only company which has not done any of this, and we have been cash rich at all times. It is not something which has happened through luck or sheer coincidence, but due to certain principles of management, which are followed, which we want to stick to. Now these principles of management may not align with the interest of the equity shareholder on a short-term basis. But in the longer term, the benefits are available for everyone.

Absolutely. I take that point. I think this was also discussed last time, and you had mentioned the same thing. So the only threat from Chinese dumping, I don't know how long it will last. But it does drain out your -- all the efforts that you are making in running this more so well.

[Operator Instructions] The next question is from the line of [ Krishna Kumar ] from retail investor.

My question is related to the margins. And what would be the sustainable margin? I presume that since you have taken notional losses, that should be coming back in the coming quarters. But what should be the sustainable margin we should be looking at in this kind of depressed scenarios?

In the past, we used to make margins of INR 7,000 per ton, INR 8,000 per ton, then margins shot up to INR 30,000 per ton. I think that the larger band is between INR 7,000 per ton to INR 30,000 per ton and a more reasonable band is INR 8,000 per ton to INR 15,000 per ton. I don't believe on a medium-term basis, margins can be sustained at elevated levels because something or the other happens in the crude oil industry, which affects the margins of all players.

Okay. So what will be the percentage EBITDA margin would be like 15% or something or...

It cannot be measured. I would urge you to go through the transcripts of the earlier calls. It is very difficult to forecast margins because we sit on an order book of 3 months to 3.5 months. Therefore, for me to forecast margins for the quarter after the 3-month quarter is not possible. Other pipe companies, which you may encounter have order books of 7 months, 8 months, 9 months or of a longer duration. And therefore, it is easier for them to forecast. But for us, that is not the case.

The next question is from the line of Saket Kapoor from Kapoor & Co.

Sir, when we -- as you mentioned about the dumping from the Chinese counterparts. So specifically, if we look at oil exploration in the country, they are mainly carried out at a major part is from ONGC and Oil India only. So with respect to the specific products, they are -- then ONGC and Oil India are buying from these Chinese players itself with reference to the product of subsea pipes and the drill pipes? Or there is no demand that is -- how is that math working since I think so some embargo is there for them only to purchase from the Indian players only?

This happens through the dealer route. So Chinese manufacturers sell to a dealer, the dealer then participates in the tender and sells to the eventual customer.

Okay. Okay. So then they are able to bifurcate that part of the story also where I think some INR 250 crores something worth of orders need to be only routed through the Indian players. So that goes with the dealer part, okay?

And sir, on the project award, I put out a new point on Slide 17 of the presentation. It says that project awards have declined 27% year-on-year and 13% in quarter 2 FY '26. It further says that although tender announcements have reached record highs, actual awarding remains delayed. We are also facing that situation and our peer group is also facing that situation.

Okay. So I was coming to this point only, sir, then how should we look at the bid pipeline? The time it is taking to mature and the orders being finally -- AOP being hand over is getting elongated. But do we rely on the bid pipeline in terms of making the assessment of how the order tendering will be going ahead since it's now became an elongated process?

In order to run a mill, if direct tenders are not being received, then we have to sell more to the dealer segment where margins are lower. Because the furnace in which billets are heated, that furnace is operating at all times. So we have to ensure that the mill keeps running.

Okay. So we are running at optimum level. [Technical Difficulty]

Yes, sir. The dispatches have not fallen. However, margins have been impacted. [Technical Difficulty] And -- in a situation where order book visibility is reduced, we are unable to bid aggressively because we have the constraint to operate our mill. And hence, we want to capture whatever order is available.

Okay, sir. That answers the part of the demand issue. And we have to see how the second half plays out and the budgeting aspect for the state PSU in terms of the final tendering process. So that will only give us an understanding how our order book shapes up going ahead . And for the -- in the presentation, sir, when you mentioned about the liquid investment part, if you could also quantify to us since in the annual report, we have seen that a large portion of it is in the liquid funds -- so if you can give the breakup of mutual fund or give a note on pertaining to what is subject to the market wagering means the stock prices moving up and down and how much is pertaining towards the liquid funds where there is negligible chances of any downward mark-to-market. That would suffice a lot, I think. So [ INR 2584 ] is what the number is for the mutual fund. So further granular details in terms of liquid funds and the funds exposed to equity linked, that would be very helpful. That's the only suggestion, sir. And all the best to the team, sir. And we hope that we hear much more on the capital allocation policy, the [Technical Difficulty] part that these are [Technical Difficulty].

The next question is from the line of Vikash Singh from ICICI Securities.

Just a little bit clarification. When you said that your project has already been delayed, does it also account the new [ 100 kt ] facility because of want of a order book? And secondly, usually, November onwards is the time when ONGC and other oil and gas companies starts giving us the tenders for bidding. So these 2 things, if you could clarify, it would be helpful.

On the Telangana project, the reason why I said that it was delayed was because it was supposed to be concluded by December 2025. However, in the previous call or the call before that, I had guided that it would be concluded by March 2026. And that is why I said that it has been delayed, not because of want of orders, but because of some additional time taken by one of our vendors in delivering essential machinery. On the other point, which was ordering by PSUs, we are hopeful that ordering inflow will happen in the second quarter. But till that happens, we don't want to give a guidance that it will happen. But generally, in the past, we have seen that in any financial year, the second half of the financial year is better than the first half of that financial year, irrespective of the market condition.

Ladies and gentlemen, that was the last question for today. We have reached to the end of the question-and-answer session. I now would like to hand over the conference to Mr. Vikash Singh. Thank you.

Yes. Thank you, operator. On behalf of ICICI Securities, I would like to thank the management for giving us the opportunity to host them. Now I hand it over to Kaushal for his closing remarks. Over to you, sir.

Thank you, shareholders, for participating on a holiday, and thank you to Vikash and Madam moderator for working on a holiday. Thank you.

Thank you. On behalf of Maharashtra Seamless and ICICI Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.