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

Ladies and gentlemen, good day, and welcome to Manaksia Coated Metals & Industries Limited Q1 FY '21 Earnings Conference Call. As a reminder, all participant lines should in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Sana Kapoor from [ Condi ] Advisors. Thank you, and over to you, Ms. Kapur.

Thank you, Andrew. Good afternoon, everyone, and welcome to Manaksia Coated Metals & Industries Limited Earnings Call to discuss Q1 FY '21 financial performance. Today, we are joined by Mr. Karan Agrawal, who live Director; Mr. Mahendra Bang, Chief Financial Officer; and Mr. Tushar Agrawal, Senior Vice President. We must remind you that the discussion on today's call may include certain forward-looking statements and must be, therefore, viewed in conjunction with the risks that the company faces. May I now request Mr. Karan Agrawal to take us through the company's business outlook and financial highlights, subsequent to which we will open the floor for Q&A. Thank you, and over to you, sir.

Thank you, Sana. Good afternoon, everyone, and a warm welcome to our Q1 FY 27 earnings call. I, Karan Agrawal, full time Director of the company. We surely thank all our analysts, investors and stakeholders to take [indiscernible] today. Today, we will take you through our financial and operational performance for the quarter ended 30th June 2026. Following my opening remarks, Tushar Agrawal will updates on our operational progress on strategic projects. After which, we will open the floor for questions. Our financial results, investor presentation and press release have already been uploaded on the company's website on the stock exchange. Q1 of FY '27 has been a strong quarter for us. And honestly, a rewarding 1 after the challenges of the second half of FY '26. Those of you who were on our last call will recall that Q3 saw a planned month-long plant shutdown for the [indiscernible] technology [indiscernible] and Q4 was hit by a sharp cost escalation from the Mideast conflict. Fuel, freight and everything related to petrochemicals moved up very quickly, and there was very little time to adjust prices. All of these were real headwinds. This quarter, the plant ran without any disruption, fuel supply was fully restored and the new [ Allusiine ] has settled into stable production. What's equally important, and we'll come back to this, is that all the new orders in Q1 were priced to fully cover the current cost environment with the margin buffer on top. That shift in pricing has moved a significant difference to our unit economics, and you'll see that in the numbers. Performance highlights for the quarter: revenue and realization. Consolidated revenue for the quarter was INR [ 263 ] crores, up 15% quarter-on-quarter and about 3.6% year-on-year. A more interesting number, though, is our price realization per tonne, which improved to INR 88597 per tonne from INR 79,180 per tonne in Q4 of FY '26 were 12% [indiscernible] higher, but partly mix, more prepainted and LG and partly better pricing on new orders. EBITDA and margins EBITDA came in at INR 29.08 crores, up 36% quarter-on-quarter with margins recovering 422 basis points to 11.06%. The number we are most pleased about is EBITDA per tonne, where at INR 10,400 per tonne is the highest we've ever recorded, better than last year's Q1. This tells us that when business is running normally and pricing is right, the unit economics are very healthy. Bottom line PBT was INR 18.93 crores, recovering 197% quarter-on-quarter. Profit after tax was INR 14.10 crores. up [ 163% ] quarter-on-quarter. Tax margin improved 301 basis points to 5.36%. And EPS grew [ 102% ] quarter-on-quarter to INR 1.31 per share. Cash profit, which is PAT plus depreciation, was INR 17.40 crores. up 115% quarter-on-quarter, which gives us comfort on the actual cash generation side. On finance costs, we brought that down 11.8% year-on-year to INR 6.86 crores, a good outcome given the higher asset base from our allies. The most notable point here is that all new orders placed during Q1 are priced to fully cover today's raw material and freight costs with a buffer margin building. This is not something we could do as quickly in Q4, given how suddenly the cost moved up. The fact that this is now in place is a reliable and predictable EBITDA guidance going into Q2 and the rest of the year. Operations and exports. On the production side, Alu-Zinc output was 27,941 tonnes for the quarter, which is 8% higher quarter-on-quarter. With the new line at 62% capacity utilization and ramping up steadily, retained production was 20,510 tonnes and ran at 95.4% utilization, essentially full capacity which is a strong demand signal. Total sales were 27,938 metric tons, with 74% contribution from prepainted steel and 26% contribution on value. Our exports were a standout, 65% of the total volume, which is 18,221 metric tons for the contribution from exports with export of prepainted steel growing at 25% year-on-year and export revenue growing 20% year-on-year. We also entered 4 new international markets during Q1 like via Brazil, Jamaica and Somalia, and this broadens our global base consider. I would like to now hand over the opening remarks to Mr. Tushar Agrawal, who will speak about our strategic projects and future outlook. Thank you very much.

Good afternoon, everyone. I'll be taking you through the strategic projects taken up by the company. The second color coating line, this is in advanced stages of erection and commissioning with Q2 FY '27 as our. It takes our total pretended capacity from 86,000 tonnes to 236,000 tonnes per annum, 174% increase. Given our existing line is at a near full capacity utilization, demand is already waiting for the capacity. This is the most significant near-term revenue catalyst for us. The 7-megawatt captive solar power plant, also targeted for Q2 FY '27. Once commissioned, it offset 50% to 55% of our grid power consumption at [indiscernible], a permanent structural reduction in energy cost per unit. It also reflects our commitment to greener manufacturing, which matters increasingly to our international customers. Salesforce CRM. Implementation is underway. This gives us centralized visibility of our customer base, inquiries, orders after sales across both domestic and export markets. As we grow in scale and geography, having this infrastructure in place is important for maintaining quality of service and customer relationships. I'd like to take you through the outlook. Looking ahead, there's quite a lot to be positive about. Q2 FY '27 is shaping up to be a particularly significant because of 2 major investments that we've been building for a while. And both of them are coming online in the same quarter. The second color coating line and the solar power plant. The color coating capacity addition directly translates to incremental revenue from a prepainted segment that already has waiting demand. The solar plant takes away a meaningful chunk of our energy cost on a permanent basis, both happening together as a genuine step-change in our operating profile. The Alu-Zinc ramp-up is another source of confidence at 62% utilization. There is substantial headroom to grow. As volumes build, the incremental revenue comes in at strong Alu-Zinc realization with very little additional fixed cost overhead. That's a favorable dynamic for margins. On exports, the trajectory is encouraging, 20% year-on-year revenue growth and a robust order book going into Q2. Meaning -- we see meaningful untapped potential of increasing our share of business with our existing long-term customers and addition of new customers in newer geographies. And underpinning all of this is the cost pass-through discipline we've established. With all new orders carrying full cost coverage and a margin buffer, we go into Q2 with confidence on EBITDA delivery, putting together capacity additions are using ramp-up, solar savings and export momentum. These are multiple independent drivers of earnings growth, and we're optimistic about where FY '27 takes us. I would like to now hand over to Karan for the closing remarks.

Thank you, Tushar. Before concluding, I would like to thank our Board of Directors for their guidance, our employees for their dedication, our customers for their continued trust and our investors for their unwavering confidence in the company. Q1 of FY '27 represents a strong beginning to the year. While the external environment continues to remain uncertain, we believe the company is better positioned than ever before to capitalize on emerging opportunities and deliver sustainable long-term value. With that, let me hand over to the moderator to open the floor for questions.

[Operator Instructions] The first question comes from the line of [ Jim Brat ] with [indiscernible] Securities.

Firstly, congratulations on achieving the highest EBITDA per tonne. Can you please explain let me know if the same as sustainable? And to what extent the same can increase once solar projects are complete?

Thank you for your question. Yes, and I'll [ step ] you congratulations. Thank you very much. The EBITDA per tonne that we have achieved in Q1 of FY '27 was basically on the lines of our ramp-up of Alu-Zinc capacity utilization and strong export delivery in terms of the overall tonnages and the higher price realization per tonne. I think that as and when we keep ramping up the capacity utilization of the Alu-Zinc line, is the addition of the second color coating line and the addition of the solar power plant; essentially all of this is going to contribute to strengthening of the EBITDA margin profile. And if everything goes down and we execute well, I think there is potential to strengthen the EBITDA margins even further.

Okay. Secondly, how are you planning to fund the announced CapEx? And also, project-wise, can you please let me know how much CapEx is done and how much is left?

Well, the announced CapEx that we have basically planned to do on account of a backward integration of cold rolling and capacity expansion of using by adding the second line. the total CapEx is currently estimated at INR 350 crores, which would be funded by a mix of internal accruals, debt and equity. The other question of yours was the effect that you've already concluded is about INR 140 crores, including the Alu-Zinc technology upgrade, the second color coating line and the solar power plant, which largely today is in CWIP and will be capitalized very soon during Q2.

Okay. Just to follow up on that. What level of debt does the company plan to raise to fund the CapEx? And what is the expected peak leverage?

Look, as you stand today, our debt-to-equity ratio is somewhere just a notch higher than 1. And basically, that means that the company's balance sheet is quite unleveraged and has the potential to accommodate more leverage to fund the CapEx. And I feel that the debt that could be required apart from the internal approvals and equity, should be somewhere on the lines of INR 100 crores, more or less. But this is again an estimate. We will need to wait and find out the exact numbers at the time of the project approaches. And even with that, we feel confident that our leverage should not exceed more than 1.25 in terms of debt-equity ratio.

[Operator Instructions] Next question comes from the line of [indiscernible] Stan Investments.

Sir, continuing to your participant questions in terms of the debt, so as of now, we have a debt of INR 115 crores, does that debt includes the CapEx that we have spent for second color coating line and the solar power?

Yes. Look, yes, the current debt is about INR 115 crores, which does include the term debt that we have availed for the CapEx. I hope I answered your question.

We have lost the line of the participant. [Operator Instructions] Next question comes from the line of Ashwini Agarwal with Casa Capital.

Yes. So volume in Q1 FY '27 were about 27,900 metric tons versus 29,000 tonnes approximately in Q1 FY '26, it's a marginal decline. So is this attributable to the Alu-Zinc line still ramping up or to a softer demand environment?

Yes, you are right, that the volume of Q1 FY '27 was around [ 37,900 ] metric tonnes, and which is a time a bit lower than the same quarter last fiscal. This is 100% attributable to the page of ramp-up of the Alu-Zinc line. As you would have seen in our investor deck, that we are actually having a very strong order book to actually execute. And we are running behind on those execution plans. So demand or ability to sell is not a concern for us at all. It is the state of gradual ramp-up, which will change, and we will be able to see the visible growth of energies quarter-on-quarter.

So is there like any specific bottlenecks which are coming in ramp-up? And also when -- by when do you expect the new Alu-Zinc plant to reach top term utilization?

The bottlenecks, I would not call the bottleneck, actually, they are the [ TD ] troubles, which any new line of this nature, which is a modern state-of-the-art highly automated line would naturally have in the early stages of positioning. And this is also something that we are facing, and it is very natural and expected to have this kind of in trouble in the first 3 to 4 months of commissioning. And really, there is no bottleneck in terms of any other reason to ramp up. It is a process that is happening. And every month, we are seeing an improvement, which is going to, I would say, probably another 3 months, one can expect the capacity to be upwards of anywhere between 75% to 78%, you would call a healthy capacity utilization, so 75% to 80% in that range.

Next question comes from the line of [indiscernible] with Investments.

Sorry, I was disconnected. So continuing the other questions in terms of the current CapEx that you are going to do in terms of the using a second line -- color coding of second line and the power project, solar power project, how much you've actually spend it and what sort of debt that will come on the book because of that?

As I mentioned, the total pet that we have done for the ales technology upgrade, the second color coating line and the solar power plant is totaling to about INR 140 crores. And quite a large portion of the capital, which included equity and that has already been, let's say, used or deployed, only a residual portion of debt which could be roughly in the range of between INR 15 crores to INR 20 crores would be remaining to be utilized or deployed. I think this would complete the entire deployment of these projects.

So is it trying to assume that current debt of 15 and existing debt of the current project will probably take a debt to INR 140-odd crores, right?

Well, I think we are also reducing the debt every month and every quarter because the repayments have also started. So the peak debt may not touch 140. I think potentially somewhere between 125 to 130 could be a ballpark number you can estimate.

And you also aided that to complete the entire CapEx allowance are additional debt that will be raised will be INR 100 crores, right?

That is something that we have not formed about. Today, we are still in the blueprint stages of the fresh CapEx plans that we want to execute in future. But the funding pattern on the mix of equity [ that an ] internal approvals are yet to be completely frozen. So it completely depends on what kind of earnings we are seeing in this fiscal, which is return on the contributions from internal accruals. And that would also determine whether the debt requirement to get components would be 100 -- below 100 or slightly over 100. So it was just an estimate number that I could share.

And in terms of the working capital, what is your current working capital cycle? And once your CRM comes into operation, how do we see the working capital improvement in the working capital cycle?

Well, as far as our working capital goes, today, our working capital cycle is slightly long because we are having to deal with a lot of inventory in various stages of raw material pipeline, raw material, WIP increased goods in the shop floor, plus some other working capital elements of [ better ]. All in all, I think the looking at the cycle is coming to about 75 days after considering the creditors the tenor that we get for creditors. But after the implementation of a cold rolling credit, it will give us the quiet flexibility to reduce the inventory rate and close late -- close to half because today, we are having to procure a lot of price hundreds of [ FCs ] and stocking for various customized orders from export customers and domestic customers. [indiscernible] the cold rolling mill is commission, we will be able to buy a much lesser number of SKUs and have the flexibility of running it ourselves at the time of execution, thereby bringing down the total inventory drastically and shortly, we're compressing the working capital cycle to probably single-digit numbers in terms of number of days. It will be a very drastic reduction in [indiscernible] cycle.

Next question comes from the line of Dipesh with Mania Finance.

Yes, the company is expanding aggressively its capacity, like 2 to 3x across segments. What gives you this confidence that the demand will keep pace, especially in the export market, where 80% of our order book is concentrated?

Well, I think the -- that statement that you [indiscernible] that our order book where it is to do this is the confidence that the demand will be sustaniable. Today for us to have an order book of upwards of INR 400 crore is something of an exceptional -- I would call it a exceptional situation where we are enjoying continued orders from our long-term customers, and our pipelines are quite full, and we are running behind on execution. And the fact that gives us confidence is that we are potentially one of the smallest supply chain partners to these long-term customers of ours, we are export customers or even the [indiscernible] customer, and there is a lot of headroom to grow in terms of the share of business that we can gain from these customers. And I think overall, beyond this the fact that we are currently operating in a segment that is 100% directly proportionate to the growth of the economy, which is infrastructure, building material, spending by the middle class in home appliances, automotive, new homes, new warehouses, new airports, [indiscernible], bullet trains. So the consumption and demand for steel is slated to grow for sure, and I don't think anybody can doubt this fact. And for us, we are probably one of the smaller players in the industry and have a lot of headroom to grow and contribute to this demand environment both domestically and for export.

Right. What is your order book right now? And what is the timeline for these order books to be executed?

If I'm not wrong, our order book currently should be there around INR 450 crores plus or minus, plus or minus INR 20 crores, INR 25 crores, in that range. And I think the time line that we will take to execute this is potentially about 4.5 to 5 months.

So for the next 2 quarters, you are having full order book. So how is the order intake going forward, like, especially for FY '27 and '28?

I did not understand your question. When you mean the order intake?

Order intake, as in how many orders do you expect in the next 2 quarters? Because right now, you're having full -- for the 2 quarters, you're having full orders. I'm saying that for -- how much more orders are you expecting for execution and for performance of FY '27, especially?

So Dipesh, I think what we need to understand is that we get our orders for our revenues from most of our long-term customers and these orders are repetitive in nature, where our customers make quarterly orders on us, which are for export or for -- from domestic [indiscernible]. So they are not like stand-alone orders based on a project that is onetime. So I think there is good visibility in terms of the demand for casting that our customers have given us. both from the European side and the Indian market side. And we feel quite confident that we should be in a position to have an order book of anywhere between 3 to 5 months on a continuous basis going forward as well. This is the kind of visibility and demand visibility that we have received from our customers. And also, we have MOUs signed with our customers to kind of give us an indication of the annual listing or the annual offtake that we will be doing. So we are quite confident of having this kind of order book continuously going forward for the rest of the year anywhere between INR 350 crores to INR 450 crores.

That's a great visibility. Now with the strip from galvanized to Alu-Zinc, what is a sustainable EBITDA upside? And is this driven by pricing power or cost efficiency?

The answer is both, actually, the incremental EBITDA from galvanized steel would be anywhere in the range of INR 1,000 to INR 3,000 per tonne, depending on the demand environment, cost environment, all of these things. But it is for sure that it will be contributed by both the savings and cost of production of Alu-Zinc as well as the premiumness of the product, the Alu-Zinc product, which commands a higher price in the market.

Right. And my last question is about LPG. Now since LPG is a key input for galvanization process. Is the company facing any supply issues due to the Hormuz closure or lower -- I mean, the government policies? If yes, the company -- is the company exploring any alternatives or substitutes for LPG?

Well, I think in the past 2 decades of our operations, we never put any problems with respect to supplies of fuel, whether it is liquid fuel or gas fields like LPG or propane, which is what we are using currently. But in this particular time of the Iran war and closure of Hormuz of us, there was definitely a patch where there was bigger disruption in terms of fuel availability because I think none of the CO2 oil marketing companies or private traders also to forecast something like this and the whole country was basically saw a supply time shock in terms of the availability of LPG and propane, we do were affected by this supply disruption. But I think the good news was that we had enough buffer stock to ensure that the plants ran nonstop, and we also could diversify our buying strategy from only PSU companies to both private and PSU. Although we had to bear a cost for it, but we could maintain nonstop operations of our plant. And going forward, I think we are definitely planning to derisk by adding a pipeline by the [ paid ] distributor in Gujarat for natural gas, which we are in the process of signing the agreement for the pipeline in the related infrastructure for supply of patent.

But in this quarter, it face any pressure, how much of the cost increase was seen, if you can quantify it? And also with the renewal of the war, do you see any converged cost pressures in this quarter or the next, especially in this quarter?

I think in my view the cost impact on fuel was quite visible, not only for us but for any kind of end user who is using liquid that you see for their processes, where I think the prices for LPG shot up from INR 60 to low up to INR 200 a kilo. And this is the kind of spike that had an impact on EBITDA margins during Q4, one of the contributors. But today's situation is that the prices have cooled down drastically. Like I mentioned, the price from INR 60 has gone up to INR 200 has now come down to INR 80, more or less. So we are just about 25% higher than the prewar levels. And I think the public sector OMCs and the peers in the oil and gas industry did a good job in diversifying their buying strategies of gases. They were completely import dependent. And now India is buying that from various sources like U.S.A., Canada, Australia, Venezuela, Russia, sometimes on and off, et cetera, which was earlier not present and we were heavily dependent on the few countries in the Middle East. Secondly, I think the government of India's intervention during this stage where they heavily propagated the switch from LPG to natural gas has also helped to reduce the dependency on LPG -- imported LPG. And a lot of domestic end users, industry end users, commercial end users have shifted to piped natural gas, which has also led to price cooling down of imported LPG and increase in availability. So I think today, irrespective of the board be intense or, let's say, not intense in terms of the state of fuel availability, we have a good visibility and [ comfort ] from the suppliers that there is no problem, and there is ample availability of stock with prices in favor of the buyer.

[Operator Instructions] Next question from the line of Mohit Shinhan Family Office.

Sir, I just want to ask one question regarding -- according to fix the major decisions in saying in coming quarters you take?

Can you please elaborate more on that question? I founded difficult to understand. I'm sorry, your question was which decisions we need to take regarding operations?

And which made decisions in its coming quarters, you will take regarding operations?

Well, I think our business is quite predictable and repetitive mode. We don't have to deal with a lot of exigencies or a lot of varied decision-making. It is about usual buying, selling, optimizing costs, building and efficiency, ramping up capacity utilization, trying to sell the value-added and premium products to select potential. These are the subjects that we keep working on and our decision-making and day-to-day tasks are all around the subject. And I don't know it's you wanted to ask this question? Or was there something else in your mind?

Sir, please give me some guidance on the EBITDA margin.

The EBITDA margin, as you must have already seen in our results and our press release, we have achieved a INR [ 10,400] per tonne. And we've been quite optimistic that these margins are sustainable and also can be grown by bringing in the capacity that we are [indiscernible] Q3, which is the second [indiscernible] line and the sale of our own. So we are quite optimistic that these EBITDA margins are available and also tuned for further growth.

[Operator Instructions] The next question comes from the line of [ Nishita Santelisa with Sapir ] Capital.

So I wanted to understand, so in the previous call, you've mentioned that utilization of around 80% to 85% in the Alu-Zinc capacity, we can have a revenue of INR 2,500 crores to INR 2,700 crores. So how fast can we ramp up that?