Manaksia Coated Metals & Industries Limited (MANAKCOAT) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 and 9 Months FY '25 Results Conference Call of Manaksia Coated Metals and Industries Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Samiksha Ramteke from Kirin Advisors for the opening remarks. Thank you, and over to you, ma'am.

Thank you. On behalf of Kirin Advisors, I welcome you all to the conference call of Manaksia Coated Metals and Industries Limited. From management team, we have: Mr. Karan Agrawal, Whole-Time Director; Mr. Mahendra Bang, Chief Financial Officer; and Mr. Tushar Agrawal, Senior Vice President. Now I hand over the call to Mr. Karan Agrawal. Over to you, sir.

Good afternoon, esteemed ladies and gentlemen. I extend a warm welcome to all of you who have joined us today for Manaksia Coated Metals and Industries Limited's Earnings Call. We will discuss our financial and business performance for the third quarter and 9 months of financial year '25. Before we dive into the specifics, let me take a moment to provide a brief overview of our company and its business model. At Manaksia Coated Metals and Industries Limited, we take immense pride in being one of the leading manufacturers and exporter of coated steel products. Our portfolio -- our product portfolio primarily includes pre-painted galvanized steel and plain galvanized steel in both coil and sheet forms, catering to industries such as construction, automotive, appliances and general engineering. We operate with a strong commitment to quality, innovation and customer satisfaction. Our state-of-the-art manufacturing facility in Kutch, Gujarat plays a pivotal role in our operational efficiency. With proximity to major ports like Kandla and Mundra, we have a logistical advantage that enhances our ability to serve both domestic and international markets efficiently. With 2 manufacturing plants, 4 branch offices and 5 stockyards and service centers, our nationwide presence ensures seamless supply chain management and timely delivery of high-quality products. Now let me take you through our financial performance for the reported quarter and completed 9 months of the current year. Our Q3 FY '25 consolidated revenue grew by 17.68% quarter-on-quarter to INR 207.83 crores. Driven by strong demand and higher sales volume, PBT surged by 113.26% quarter-on-quarter to INR 6.71 crores reflecting improved operational efficiency and margin expansion, while net profit increased by 111.93% quarter-on-quarter to INR 5.01 crores, reinforcing our commitment to profitable growth. Our EBITDA rose by 22.25%, amounting to INR 17.25 crores with an EBITDA margin expansion of 103 basis points, now standing at 8.30%. Our EPS for Q3 FY '25 improved by 13.56% year-on-year to INR 0.67. For standalone Q3 FY '25, net profit witnessed a substantial surge reached -- reaching INR 5.08 crores, a remarkable increase of 109.12% from the previous quarter. The net profit margin also improved considerably, reaching to 2.44%. For 9 months ended FY '25, PBT rose by 72.29% year-on-year to INR 13.88 crores and net profit grew by 67.61% year-on-year to INR 10.35 crores, showcasing sustained financial strength. And EPS increased by 54.44% year-on-year to INR 1.39, highlighting consistent earnings growth. This quarter also marked significant production growth with production of galvanized steel rising by 10.34% year-on-year and pre-painted steel production increasing by 32.40% year-on-year. The strategic shift towards high-value prepainted steel continues to be a key growth driver with its revenue share increasing to 75.10% in Q3 of FY '25, which is up from 61.40% in Q3 of FY '24. This is further strengthening our top line and margin expansion. Exports remain a key growth pillar, and I'm happy to report that our Q3 export revenue increased by 87% year-on-year to INR 96.73 crores. The contribution of exports to total revenue has grown significantly, rising to 41% in Q3 of FY '25 from 25% in Q3 of FY '24. Our landmark export order of INR 200 crores, coupled with a strong INR 350 crore export order book underscores our growing global presence and credibility. To support our long-term growth, we have successfully secured INR 134.55 crores in fresh equity capital, which will be strategically deployed for capacity expansion, technology upgradation and debt reduction. Our ongoing Alu Zinc technology upgrade will further strengthen our product offerings, ensuring enhanced durability, corrosion resistance and competitiveness in the market. Additionally, in line with our commitment to sustainability and cost optimization, we are actively working on land acquisition for a captive solar power plant. This initiative will reduce our energy cost significantly and help in minimizing the carbon footprint from our production process. Looking ahead, we are well positioned to capitalize on emerging opportunities in the Coated Steel segment. We are in advanced stages of installation and upgradation of our Alu Zinc Coated Steel capacity line to 180,000 tonnes per annum. Groundwork for our Phase 2 expansion for enhancing the pre-painted steel capacity to 236,000 tonnes per annum has also started, and we are confident of achieving this milestone within FY '26. These capacity enhancements will further strengthen our ability to meet growing market demand, improve operational efficiency and drive long-term value creation. With a strong foundation in place, we remain committed to expanding our product offerings, enhancing quality and maintaining our leadership position in the industry. I would like to take this opportunity to express my sincere gratitude to our dedicated team, valued customers and esteemed shareholders for their unwavering support and trust in Manaksia Coated Metals and Industries Limited. We remain committed to driving operational excellence and long-term value creation. With this, I now invite questions from investors, and thank you very much for your time and continued support.

[Operator Instructions] Our first question comes from the line of [ Jayaraj Jain ], an individual investor.

Yes. Okay. So my question is how does the current INR 350 crores export order...

Sorry to interrupt Jayaraj, sir, you're sounding muffled if you're using speakerphone, may we request to use handset please?

Okay. Am I audible now?

Yes, sir.

Okay. So tell me how is the current INR 350 crores export order book compared to previous period? And what regions are driving the demand?

Yes, Mr. Jain, thank you for your question. Well, the export order book currently, which is INR 350 crores is on a higher side currently on account of the recent landmark export order that we bagged, which was a single order of INR 200 crores. This was done during Q3 of the financial year. And typically, we see a position where our export order book is full for a period of about 3 to 6 months in that range, where the value of export order book should be anywhere between INR 175 crores to INR 200 crores. But due to this large value export order in hand currently, our export order book is standing at INR 350 crores. Answering your question about what is driving the demand, well, I would say multiple factors today, on the export side, the European market is the main market that we are catering to in terms of our finished goods, which we are exporting. And we are seeing a revival in many pockets in Europe, where in Eastern Europe, we are seeing a big surge in demand due to the rebuilding activities in Ukraine. And for this, there are many, many buyers who are buying building materials such as galvanized and prepainted steel from Indian market and other supply markets, which consists of galvanized and prepainted steel products. Apart from that, there are pockets of growth happening in Eastern Europe, in Southern Europe in countries such as Spain and Italy, which is seeing robust industrial growth, where we are also having a big customer segment and consistent long-term customers in those countries, which are supporting our export business. So I think these are the main reasons where we are seeing a robust export demand.

Okay. So the next question I have is, could you provide an update on the Alu Zinc technology upgrade project and how will it enhance product offering?

Absolutely. So the Alu Zinc technology upgrade and the capacity expansion that we are doing will lead to about 35%, 36% of capacity enhancement for us, where upon completion, we will be able to produce about 180,000 tonnes per annum of Alu Zinc product. And currently, the project is in advanced stages of completion, and we are quite confident that this line will generate -- will start generating revenue in the first quarter of the coming fiscal. So by this, I mean any time in the next, let's say, 75 to 90 days is -- we are quite positive of achieving well within this time line. On the product side, Alu Zinc is definitely a much more superior product due to its superior corrosion resistance properties, better aesthetic properties and lower weight in terms of the coating mass, which is required to achieve a higher protection. Due to these reasons, the product is much superior for an end user. And for a producer, it is superior since it leads to a good extent of margin expansion.

I see. So the last question I have is what are the expected benefits of the captive solar power plant project in terms of cost savings and sustainability?

On the benefits of the captive solar power plant, sir, it is obviously very clear that today, the cost of solar power plant -- solar power is way lower than conventional grid power. So just to give you an example, on the grid power that we are purchasing, it is costing us anywhere between INR 9 to INR 10 per unit, depending on peak, nonpeak hours, whereas the cost of the solar power depending on the investment being done can range anywhere between INR 2 to INR 3 a unit. So the saving is drastic and leads to a direct and immediate impact on the bottom line of the company. And this is obviously apart from many other benefits, which are on account of, let's say, reduced carbon footprint and being eligible for a greener product, a more cleaner process and things like that. And of course, yes, the company would be eligible to enjoy the government incentive of accelerated depreciation as well.

[Operator Instructions] The next question comes from the line of [ Abhishek Sharma from JY Capital. ]

Sir my first question is what percentage of your exports cater to the European market? And are there plans to expand into new international markets?

Sure. Well, the European market consists a very high percentage of our exports, which is currently at upwards of 90%. And yes, we do have ambitions to grow our presence in other continents for export. We are aggressively looking at the Americas, which is -- which consists of the North and South American regions for exporting our Alu Zinc product in the near future because there is a great amount of demand for Alu Zinc and prepainted Alu Zinc in those regions. And we feel that it would be the next right move for us to expand our presence in the global market.

Okay. So my next question is, can you elaborate on the product mix strategy, especially with the rising share of prepainted steel?

Sure. So for the immediate future, let's say, our share of prepainted product versus the unpainted product would be anywhere in the range of between 75% to 80% of the total production. This is obviously because the higher value addition we do, which is by doing color coating or by producing prepainted, the margins or the value addition is higher as compared to the interim product, which is galvanized or bare Alu Zinc in the near future. In Phase 2 of our expansion strategy, we are adding a second color coating line, which will enhance our prepainted capacity in line or higher than the Alu Zinc capacity. When that situation comes sometime during the later part of FY '26, at that point of time, definitely, one can expect a situation where all of our production and sales is happening only from the prepainted steel product.

Next question comes from the line of [ Priya Jain ] from Green Capital.

Sir, excited to hear about the solar power plant project. Could you provide an update on the expected commencing time line and key milestones [ achieved ] so far?

Sure. So the solar power plant, we have been -- it has been on the drawing board stage for some time. But now there is some amount of clarity on the government policy, which was undergoing some changes from the Gujarat government side for captive solar power plant installations. Now that the policy is clear, we are now actively doing our due diligence on the identified land parcels that we have already identified with -- in consultation with our EPC partners. Along with that, negotiations and comparisons of various proposals of EPC installers are in process. In terms of completion, like I have mentioned in my opening remarks, FY '26 will definitely see this project being commissioned. But I mean, I can say sometime during Q2 of FY '26 is a reasonable expectation.

Also sir, could you share more details about the export contracts mentioned, especially who are the counterparties involved? And what agreements have been finalized by Manaksia?

I'm sorry, what was the last line you asked?

Basically, if you can name who are the counter parties involved and what has -- what agreements have been finalized by Manaksia?

Well, ma'am, actually, due to obvious reasons of confidentiality and protection of our own business interest, I would not be able to disclose the name of the party that we have contracted with. However, I can disclose that this is an arrangement that is going to last a period of 12 months within which we have to complete the entire order. And it is with our existing long-term customers in Europe to whom we are supplying galvanized and prepainted steel products. And after continuous relationship with them for over 5 years, we have reached a point where they have shown their confidence and strength in the relationship to bless the relationship with such a large value order. Most of the order, let's say, 80% of the order consists of supply of prepainted steel products and about 20% of it consists of supplying of galvanized steel products. All of it is going to the European market to our existing customer with whom we have signed the order.

Sir, is it FOB or how is it?

Typically, most of our exports, I would say 9 out of 10 orders are on a CFR or a CIF basis where the exporter, which is us, we take care of the FOB cost, the ocean freight up to the discharge port in the European market.

Sir like galvanized do you mean or Alu Zinc?

Sorry?

Sir, you mean galvanized, right? Or else Alu Zinc.

I'm sorry, I'm not able to hear you clearly.

Sir, is it like galvanized do you mean or Alu Zinc?

No. The current order that we have signed, like I said, of this INR 200 crore value is having an option to supply galvanized or Alu Zinc. Whenever we have successfully converted our line -- upgraded our line to Alu Zinc, we can switch the production to Alu Zinc and continue supplying under the order with the underlying Alu Zinc product.

So what is most profitable or value-wise better?

I mean Alu Zinc is definitely a more profitable product for a producer. And we are quite sure that when we are able to switch to Alu Zinc technology from our side after the upgradation is complete, we will be able to see the benefits and the dividends from this upgrade. The nature of Alu Zinc is such that aluminum consists 55% of the coating mass, whereas in galvanized, it is 100% zinc. And in Alu Zinc, it is 55% aluminum and 43.5% zinc. So naturally, the cost of aluminum is much lower than the cost of zinc, which helps reduce the raw material cost and gives the benefit of low-cost production to the producer.

Next question comes from the line of Ankur Parekh from Bajaj Holdings.

See, I am an investor in personal capacity and that is where I am coming from. I just wanted to understand that with such a huge fundraise that you have done, what is the expected ROE, ROCE that you will be generating over a period of 2, 3 years? Is there any kind of extraordinary revenue generation that you are expecting because of this capital development and all? Just if you can throw some highlights on that, please.

Current fundraise that we have done is basically going to help us in 3 ways. One is obviously completion of our projects that are under commissioning, which is the Alu Zinc project. Second is the solar power plant project. Another way that the fundraise is going to help us is to reduce our debt and reduce our finance cost in the company. And of course, it is going to help with additional working capital that is required to utilize the enhanced capacity that we have installed. So, this fundraise is quite critical to elevating our overall profitability, which will automatically result in a much higher or uplifted return on capital or even the return on equity. As and when we are able to get capacity utilization at a reasonable level, which is higher than 75%, 80%, I think the benefit in terms of the bottom line will be quite significant. When I say quite significant, we are expecting a very handsome enhancement in the bottom line due to the cost saving of the raw material and the enhanced realization per ton of the finished product. Definitely, we will be seeing much, much better ROCE and ROE numbers. To give you exact projections, I would seek some more time and probably we can get back to you through our IR [ arm. ]

The next question comes from the line of Pooja Gupta, an individual investor.

Yes. My question is, how is the company positioned to leverage the rising demand for coated metals in construction, automotive and other industries?

The company is basically in the market to sell its products to these end users, which is building material and construction industry to your appliance industry, which consists of industrial and home appliances and also to a part of the automotive industry, which consists of bus body building. With our investments in increasing the capacity, we are very well positioned to capture the enhanced demand that the country is going to see on account of the GDP growth and government initiatives; and also hopefully, the reduction in the benchmark interest rates, which is all going to help increasing demand of all these items. We are very well positioned to capture the opportunity.

Okay, sir. My next question is, could you provide insight on the pricing trends and raw material costs affecting the coated steel industry?

The pricing trend as such for steel products is -- has been, let's say, from flattish to negative in that range. This is because of obviously oversupply in China, overcapacity in China and also due to a reduction of raw material costs such as iron ore and coal and coking coal. I feel that given this current situation of volatility and wars going on in the Middle East and Russia, Ukraine, also due to some protectionist measures being envisaged by the Trump administration, the prices of steel and other similar commodities should be stable, and we do not expect any major jump or a hike in the price of steel for the foreseeable couple of quarters.

Next question comes from [ Mahesh Seth ], an individual investor.

So my first question is that how does the current INR 350 crores export order book compares to various periods earlier?

I think I've answered this question to the first caller, but I'll still say it once again. Typically, we see an export order book of between 1 to 2 quarters in hand. So our export order book typically is anywhere in the range of INR 175 crores to INR 200 crores in hand and in most periods of time. But due to this landmark export order that we have bagged of a very large value, currently, our export order book is at INR 350 crores.

Okay. And can you also tell me that what regions are driving this demand?

This is also something that I answered to the first caller. The reasons for drive in this demand is because we are seeing a significant amount of growth in certain pockets of Europe, where we are seeing in the Eastern European side, good growth happening due to the rebuilding activities in Ukraine and a good GDP growth in certain Eastern European markets, along with a very stable and growing market for industrial goods in Southern European countries like Spain and Italy, where we have long-term customers.

Okay. Got it. And can you also tell me just what are the expected benefits of the captive solar power plant project in terms of cost saving and sustainability?

Captive solar power plant project has a direct impact on the cost savings since the solar power is much, much more cost efficient in terms of the generation cost is 0. But the CapEx that is done for the solar power plant results in a cost per unit of anywhere between INR 2 to INR 3 per unit, including the transmission cost. This is at least 1/3 of the grid power cost. So it is having a direct and immediate impact on the bottom line of the company. And in terms of sustainability, it is definitely a much cleaner and a much greener form of energy, renewable energy. And it helps in us being eligible to move our product to green steel and lowering our carbon footprint on the product, which is going to help our export customers.

Okay. Got it. And can you also provide an update on Alu Zinc technology upgrade project? And how will it enhance the product offering?

The Alu Zinc project, like I mentioned before, is in advanced stages of completion, and we are quite confident of achieving commissioning and the start of revenue generation from this project from Q1 of FY '26. And the product offering will also become superior since Alu Zinc as a product inherently is a much more superior product in terms of corrosion resistance, aesthetics and in terms of performance on account of the dust prevention and other climatic effects on the steel substrate. So it is going to benefit us because we will be able to cater to high value-added industries like pre-engineered building and sandwich panel segment, which are widely using product today.

[Operator Instructions] The next question comes from Priya Jain from Green Capital.

I have a follow-up question [ with me. ] How will solar plant commissioning happening, phase-wise or just wanted to like understand [ each of ] our ownership of these models?

Again, your voice was not very clear. But from whatever I understood, ma'am, I think you're asking what is the kind of ownership model that we are going to have on the solar power plant, is it?

Yes, sir.

Right. So for this, the company will be acquiring land and we'll be doing the CapEx using a mix of debt and equity and we'll be owning the entire asset, and that will be the model that we will be having. Only thing your O&M part will be given -- will be outsourced to professional contractors who take care of the O&M part.

Okay. So have we finalized the land parcel?

Like I mentioned in my remarks, the land, multiple parcels of land has been identified. The process of due diligence is currently on where we will identify the right land parcel, which is most suitable in terms of the yield and in terms of the cost and will be finalized very shortly.

But if you can say, how much time it will take to install and...

One can fairly estimate the completion of this project by Q2 of FY '26.

Okay. Fair enough, sir. It will supply to grid, right?

Absolutely. In any captive solar power plant, the supply has to be made to grid and the company or whoever is the consumer needs to purchase that power from the grid itself.

The next question comes from the line of [ Swaraj Singhania ], an individual investor.

My first question is, how do you plan to mitigate the raw material price volatility while ensuring stable margins?

Well, thank you for the question. Our raw material is basically procured largely on a back-to-back model, where we are booking our orders from export customers and OEM customers, and then proceeding with booking the raw materials required against the order bookings that we have made. So in essence, we -- by the nature of our business model, which is largely back-to-back, we are always protecting our margins by following this model. There is a certain exposure to a spot market, which could be, let's say, 20%, 25% of the business volume. But this gets protected since the exposure time is not too large between the buy and the sell. It is -- it happens within the same month. So the volatility that we are exposed to is not more than, let's say, a month or 1.5 month max. And largely, 75% to 80% of our business is back to back.

Swaraj sir, you have any further questions?

No, sir. That's it from my side.

[Operator Instructions] As there are no further questions, I would now like to hand the conference over to Ms. Samiksha Ramteke for closing comments.

Thank you, everyone, for joining the conference call of Manaksia Coated Metals and Industries Limited. If you have any queries, you can write us at a [email protected]. Once again, thank you for joining the conference call. Thank you, sir.

Thank you all.

Thank you. On behalf of Kirin Advisors, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.