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

Yes.

Yes, sir.

Yes. So my question is, sir, we are sitting on a lot of cash, company has already decided that we will not diversify in other segments. So what do you see our future growth prospects in next 2 to 3 years? What is the management deciding about future course of action, sir?

We are conserving cash as of now and we are on the lookout for any inorganic opportunity that may arise, but that inorganic opportunity should be at a cost level at which we are comfortable. So we will not buy assets at full value. We will buy only distressed assets, because that makes the most sense for us in our industry, which is cyclical. In addition to that, we are focusing on treasury management and on improving our operations internally. Right now, that is the position that we can communicate.

So all that we can do now is hope for the demand to somehow increase and then only our revenue can increase. Is that correct, sir?

Yes.

Okay. And still the management is of the view that you do not want to increase the dividend or somehow distribute the cash to the shareholders?

We have quadrupled the dividend which is being paid out to the shareholders in the period from FY '22 to FY '24. And in FY '25, even with a lower profit, we maintained the quadrupled level of dividend which was paid out.

Sir, that is absolutely correct, but the only issue that I have is that since approximately 50% of our market cap is in cash or cash equivalent with the company. Now I'm also of the opinion that since you cannot increase the demand of the seamless pipes, to increase the value of the company I think you only have 2 or 3 options with you, sir. If in case you are not able to increase the demand, you have ample cash, you can also increase the dividend in the proportion of the cash that you are reserving with the company. We are not saying that you are not taking right decisions or something is in your hand and you are not doing that. But either -- if in case you have ample cash, you can distribute to the shareholders. So at least as a shareholder, we should also enjoy the efforts that you have put in the company and managed so much cash in such a right way, sir.

Okay.

Am I making sense, sir?

The interest of the equity shareholder does not necessarily have to align with the interest of the management in running an organization. So we focus on long-term value creation. And when you do make the point that 50% of our market cap is backed by cash on the books, you should also bear in mind that in this seamless pipe industry every one of our peers, without exception, have either been bankrupted or gone to bankruptcy courts. We are the only player in this industry who has consistently remained a market leader for the past 35 years. So our thought process would be different from that of our peers, and it has benefited us, which is why we remain aligned to the thought process which has benefited us.

Sir -- you are absolutely correct, sir. And kudos to the management that have accumulated so much cash and you have also dealt it in the right way. But there has to be a cap on the amount of money that you think you need to reserve, because they're saying that we...

There is no legal requirement that there has to be a cap. There is no...

Absolutely correct, sir.

There is no cap. And we want to follow those business principles which have ensured survival and prosperity of our organization rather than those business principles which appear good maybe in the short-term or medium-term, but which may not be so applicable in the longer-term. We are the oldest player in the industry, and we have remained a market leader. You may not like what I'm saying, but the point which I'm making are clear facts, which are easily verifiable.

Sir, I myself have been a shareholder in the company for last 4 to 5 years and I have followed the company, joined each and every call. It is not that you are misguiding us or what you're saying doesn't make sense to us. We are also one of the shareholders who are happy to see the growth, if not in terms of revenue, but the value of the company. But I'm sure you will understand as a shareholder we also look forward to...

Sorry to interrupt you, sir. Sir, may I request you to come in the queue for follow-up questions.

Sure, sure.

[Operator Instructions] The next question is from the line of [ Tanmay Roy ], an individual investor.

Yes. So right now what I could see that our current capacity is not fully utilized, as you know. I mean the demand is also not that high. So even if the Telangana plant comes into effect, so if the demand stays the same, is it fair to assume that it is going to impact our profitability in coming quarters?

Since the Union Budget is only a few days away, maybe I'll be able to address your query better after the budget because we are dependent on government expenditure for expansion and growth. So if government expenditure does not improve, then the market will not grow, which will directly impact us. So let us see what the budget puts out and accordingly you can decide.

Government expenditure can improve in other sectors, may not be necessary for oil and gas. So even if that stays the same –- even the expenditure, it doesn't –- if that goes up, then it will be same, right?

Because sustainable level of expenditure in oil and gas sector is there. But your question is in terms of growth. So for growth, we will require more expenditure in oil and gas sector.

Okay. Fine. The next one is, given that we have now that FTA in place with Europe and also which might get activated in next year, '27, so will that anyway affect or help our business to grow in European countries?

We are still reviewing that. Exports have seen some improvement in the previous quarter. Maybe in the next quarter's call, we'll be able to update you better on this FTA point.

Okay. Yes. So any guidance in terms of EBITDA per ton for next quarter or something for next year?

We do not give out guidance specifically, but the only thing that I can tell you from some experience is that we don't see margins to decline materially from here. I think it will remain in the range of INR 10,000 to INR 15,000 per ton.

Okay. But after the antidumping duty, which has been put some days back, then we could see that HRC prices were going up, I mean, slightly, not too much...

No antidumping duty has been put. It is because only it was in...

No, but an extension.

Sorry?

That extension which they have considered...

Extension...

Of 12%. 12%, 12.5%, something like that.

That is a safeguard duty on steel.

Correct. Correct.

But that is not applicable on our industry.

No, that's what I'm saying. After that, that HRC price started going up. Will it affect anything on to our industry so that prices can go up?

Okay. Our order book is supported by back-to-back booking of raw materials. So if raw material prices will increase, then the same will be passed on to the customer. And for orders which were in place prior to the implementation of safeguard duty, we had already covered those orders with raw material.

Okay. And right now, our oil and gas order book is around INR 400 crores, right, which generally gives high EBITDA per ton?

Yes, 33%. So 33% of INR 1,302 crores is around INR 400 crores.

And that excludes the anticipated drill pipe order, correct?

Yes.

And maybe next quarter I'll ask for that now after the budget.

The next question is from the line of [ Yogesh Mittal ], an individual investor.

I have a question regarding as we are hearing and seeing the reports like the shale gas and the oil, and the peak oil output has just passed and now more means more drilling is required to get the same amount of oil and gas. Sir, can you please throw some light on your acquisition about the United Seamless Tubulaar that was done some time back? And how are you getting the feelers in the market? Or do you see that CapEx is coming by large global conglomerates in this space?

Regarding United Seamless Tubulaar, what is it that you would like to know?

Sir, I would like to understand the means -- like we acquired it on some basis. Is the thesis playing out? Are we getting some traction in North American or the European market where we wanted to compete with the other large players?

I am confused. We never said that we want to compete in European and North American markets from our mill in United Seamless Tubulaar. That mill is working very well. We acquired it for INR 477 crores, and we invested an additional INR 73 crores to reactivate the mill. So against a total capital expenditure of INR 550 crores, that mill generates between INR 100 crores to INR 200 crores of EBITDA every year depending on the margin profile. In addition to that, there were accumulated losses and unabsorbed depreciation in excess of INR 1,500 crores in United Seamless Tubulaar Private Limited. Subsequent to merger of that company with Maharashtra Seamless, we were able to set off the profits of Maharashtra Seamless with the unabsorbed depreciation and accumulated losses of United Seamless Tubulaar, thereby saving tax of around INR 375 crores. So the entire project was paid back in maybe 2 years. So yes, the thesis did play out, and that is the position today.

Sure, sir. And sir, regarding the investment by large companies in -- who are the users for our pipes, though we are mainly focused with ONGC and some other players, are we getting some traction with other large consumers in terms of the seamless pipe for new drillings in oil and gas space?

We have been able to replenish our order book without compromising on the tonnage that we have dispatched. So in the second quarter, we dispatched 1,03,000 tons of pipe. In the third quarter, we dispatched 1,01,000 tons of pipe. And in spite of a challenging economic environment in which government expenditure was also muted, we have managed to replenish the order book.

Yes, sir. Sir, if I can ask something more. Sir, in last 4 years, we have seen there have been frequent changes for the CFO, Chief Financial Officer, in the company. Is company taking some steps that there will be more consistency going forward?

The changes in the CFO was on account of various factors which were unique to each CFO. So right now, Mr. Arup Mandal is the CFO, and he's been with us for about 1.5 years. But in addition to the CFO point, I would also like to mention that I have been with the organization for 14 years. So I think that should give you some comfort.

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

Just one question on our premium connection side. Can you just tell me what is the current market size for that premium connection in India? And what kind of market share we are looking to acquire on that segment?

Premium connections would be between 50,000 to 1 lakh tons per annum depending on the amount of capital expenditure that takes place. Right now, this product is being supplied by Jindal Saw and through imports. So we will have to take some of their shares in order to compete in this environment.

Noted. And my second question pertains to we -- 6 months back, we heard a lot of news about ONGC needs to drill almost 500 wells and accumulated demand expansion for these wells could be 100 kt in tonnage terms. So just wanted to understand, is there any progress on those stated 500 wells at all? Or if you have any idea that what's happening there, it would be relevant to know.

There is regular requirement of seamless pipe. However, we would have preferred if there was maybe a 5% or 10% increase because then it gives us more assurance on pricing and on replenishment. So despite a challenging economic environment in which government expenditure was low, we have managed to replenish our order book without compromising on the tonnage that we have dispatched on quarter-on-quarter basis. I think in the budget we should expect some improvement in government expenditure, and then that will have a multiplier effect on the rest of the economy.

Noted. That's all from my side.

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to management for closing comments.

Thank you, shareholders, for participating, and thank you, Vikash, for organizing the call.

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

Thank you.