Mishra Dhatu Nigam Limited (MIDHANI) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 FY '23 Results Conference Call of MIDHANI Limited hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Dixit from ICICI Securities Limited. Thank you, and over to you, sir.

Yes. Yousaf. Good afternoon, everyone, and thanks for joining the call today. At the outset, I would like to thank the management for giving us an opportunity to host this call. From the management, we have Dr. Sanjay Kumar Jha, CMD, Mr. M. Gowri Sankara Rao, Director Finance; and Mr. T Muthukumar, Director, P&M. Without much ado, I would invite Dr. Jha for opening remarks, post which we will open the floor for an interactive Q&A session. Over to you, sir.

Thank you, and I extend a hearty welcome to all the stakeholders, shareholders for this important conference call after our annual results. There -- all in fact, this year has been a very unique year for MIDHANI. Unique in the sense that even though we have got the sales of INR 871 crores, but we had some area that PAT has come slightly lower compared to the previous year. But in addition to that, this was -- I will come to that in our discussion afterwards. There are a lot of challenges we have faced this year, that cost of power has gone up extensively, cost of our fuel also has gone up extensively, almost 1.5x compared to previous year. At the same time, the raw material cost also have seen a quite big surge in the raw material consumption, cost of the raw material, not consumption, the cost has gone up. So considering all 3 adversities also, if you see our EBITDA is almost maintained to that similar level as we have got from the previous year. The reason behind that, a lot of -- if you see our power -- specific power consumption has come down. And also our specific fuel consumption also has come down. So it has compensated that cost because of this. But in that -- in addition to that, the raw material cost has also given a lot of impact -- and in that, our outsourcing that whatever used to do outsourcing has come down. The 2 major developments in this year that our Rohtak facility, which was already, I was interacting with you earlier, started working, and we have got this year in just 1 quarter. In fact, it has worked in the first -- last quarter only. In the last quarter of Q4, we have got the sales of INR 32 crores from Rohtak. And our Wide Plate Mill, the project, which was commissioned almost in a couple of months back, there also we have got -- it has stabilized now in this year, and we could be able to get almost sales of around INR 219 crores from that Wide Plate Mill. In addition to that, the saving which I'm talking today on the outsourcing has come because of the operation of our Wide Plate Mill. During this period, a lot of other facilities like 8 tonnes vacuum induction melting also got commissioned. Just now we have crossed 100 [ degrees ] also from that equipment, and this equipment has given in the first year itself, just initial month itself, we have got output of alloy called Hastelloy C276. That business, we have -- could capture only because of that VIM, the vacuum induction melting 8 tonnes. And using our Wide Plate Mill, we have done a very good substitution of the import that is of the Hastelloy C276 plates and seats -- and those achievements are very good with strong foundation for the company. And we are expecting now that this business is going to grow further in a big way because as of now, the entire quantity of -- in the value of around INR 250 crores to INR 300 crores requirement is getting imported in the country. So our idea is that to capture that market as much as possible in the coming [ years of ] that mill. In addition to that, this mill also has a lot of new developments. We are able to do -- develop the Armour steel, which we used to get from the outside earlier, the Armour steel case, we are making ourselves and we are doing the armouring of our vehicles, which has been done in our Rohtak facility. We have also done a lot of export area. There is a tremendous progress in the sense that many new alloys we have developed and we have supplied to the overseas customers, and there's a lot of good indication for this year based on that, that we are expected to get the good amount of orders coming from export market also. In addition to that, this year has seen a highest ever order booking from the aerospace. We have crossed INR 130 crores aerospace order, we have got the highest in the history of MIDHANI. At the same time, superalloys category, we have booked almost INR 138 crores order we have booked in the superalloy also. Titanium, of course, we are doing earlier also, but this year also titanium has got a good order booking. And direct export, which used to get -- earlier used to take the deemed export also into our account. So this year, we are focused on the direct export, which we have got almost an order booking of INR 35 crores in the last year for order opening from that side. And good indications are there. Some of the highlights from the export I would like to mention to the investors. We have supplied alloy called [ alloy 208 ring ] to the U.S.A. and that firm is applying to the SpaceX for their launch vehicle. So this was a very small amount of order, but it has gone for the evaluation. Once it is successfully evaluated, they are going to place the order for these rings from our company. We have also received the 3 different orders coming from Pratt & Whitney, which is the already -- Poland of their brands -- already we have got the order and we are expecting the other places also Pratt & Whitney will place the order. Canada requirements for other countries requirements also. And we are expecting that MIDHANI will be approved as a supplier of Pratt & Whitney in the future, and the audit is expected in the month of -- next month. I'm also happy to inform you that we have also got the order from the Israel -- Rafael of the Israel. And there, we are already supplying maraging steel for their application. And subsequently, the GE HealthCare also has approved us for a special alloy, which is being used in the health care system that is 909, and MIDHANI is going to be one of their approved supplier in the future. And initial orders already we have received, and we are going to execute that. So like that, in the oil and gas, also a very leading -- a big company of the U.S., they have also come and they have given the trial order to us, and I am sure that one of it is getting approved, we'll be regular supplier. [indiscernible] Rolls-Royce also has audited MIDHANI, and also we are going to get the initial requirement from Rolls-Royce, they have received the order, and we are going to execute for their requirements. So like that, the many -- we are -- our people are supplying to Sweden, Turkey and Germany for the different type of requirements. So export is the one thing I'll say this year, the 2023, has been -- '22-'23 has been an excellent year for MIDHANI. In entering in the domain of the export area in a big way because we are the multiple customers, many customers, and that's also in the high-end customers, basically coming from the aerospace and health care, those things are as high-end premium markets we are trying to capture. In addition to that, the many other international program for our domestic projects also is going on, which includes: already we have executed for the advanced multi combat -- medium combat vehicles for our aircraft for our [ MCAP ] program. Also, MIDHANI is getting supply material for Kaveri derivative engines, which is going for making the unmanned air combat vehicles. And many other like, of course, LCA is already we are in touch with that. And now currently, we are trying to see that how we can analyze the materials using for our Sukhoi aircraft engine. And Adour already, we have done earlier -- as I earlier also said about titanium alloys. Now superalloys also we have made the blades -- turbine blades for [ fitting ] in the Adour engine. And this year, our Arc Skull Melting Furnace also is almost commissioned and now we are making a special alloys used for that in the biomedical applications. So it is under trial now. Once it is approved, that material, that will be another very good opportunity for us to enter in the new horizon of the business. And my new project 10-tonne vacuum arc remelting, VAR, new plant of titanium is coming up, and we are almost going to commission very shortly that plant also. So the project is also getting completed. So in this -- total activities is full of activities for us. And we have to -- we are eagerly waiting that how we can get certain other requirements. One of the major products in the bullet proof jackets, this is the new development, which I think the investors would also see that we have made a bullet proof jacket, special one for Air Force, is called Garuda, and that is the first time developed in the country, having very unique features, productional level of BIS Level 6 and IJ4. And also, we have made our product acceptable to Air Force and we are going to supply shortly this month also, we are going to supply in the next month, we are going to complete the orders. So this will be one of the unique developments by your company. And that has been our -- I think the first time in the country, and we are the only today. So we are -- we'll be trying to see that how the product can be used for other arc process also. And there are many other developments, which I would like to answer as we go for the questions and all. So I'll try to close here. If you have -- and on financial and OpEx and all, once the questions are there, I have Director of Finance with me. Operational efficiency and all, we have Director of Production is here. So he will try to answer all those areas. Thank you.

[Operator Instructions] Our first question is from the line of Manan Poladia from MKP Securities.

So my question is basically, from what I see in your gross loss, approximately 2 years ago, was about INR 400-odd crores, 430-odd crores and you've been doing a revenue [indiscernible] basis for the last 3 years of INR 800 crores roughly. So that will -- in fact of maybe 2x. What I want to understand is that you put in about INR 600 crores of CapEx in the last 2 years, right, in the 2 new factories that you put up. What I wanted to understand was what is the potential, in fact, from these 2 factories?

Yes. In fact, you have put a very right question that why your products are not increasing. That is I think your question in...

Yes, sir.

Okay. In fact, earlier also, I told this, projects, whatever we have commissioned, and we have -- there's a lot of technological challenges we have to resolve. So if you see our one enhancement, I'll talk about one of our major investments that is around INR 500 crores plus at Wide Plate Mill. So Wide Plate Mill was made to -- designed earlier to use only a specific product. So their turnover was -- spectrum was very less. But we have to modify the equipment to -- for the commercial application. And those things require some time. So I think this year, I'll say it is a year for development in the products, development of products using this facility. You will see the impact output of that in the next coming years -- months and years.

Okay. But sir, my question also was that what was the expected impact -- in fact, basically, like, are you expecting 2x sort of number on this 1, 1.5x, is that a number that you can quantify?

Number quantification, I cannot tell you at this stage, but we are -- market potential is very good. Many of our products have gone further -- we have given for qualification. We are expecting the results. If the results are coming all right, definitely, it is going to increase, as you said, 1.5x will go for 2.2x also.

Okay. Understood, sir. So is there anything that you are guiding on a consolidated basis for the company in terms of the next 2, 3 years, like in terms of sales or PAT growth.

See, at this stage that values, figures and all I cannot say. Definitely, our target is in line with the requirement of the respected line of the ministry where you might have seen the Ministry of Defense also is going to increase the production almost 1.5x total production in the next 2 to 3 years. So MIDHANI is also allying with that.

Okay. So -- and on the operating profit margin basis, you would say 30% is a good number to go with?

Operating profit margin, I don't think it will be maintained at that level because once you are going in the products, which were highly competitive in nature in the market, that much margin may not be there, but we'll try to see that how we can -- as I have told in the beginning, only the fluctuation in the raw material cost is a big issue today. We are expecting that this is very important. Geopolitical situations are not very favorable...

I completely understand, sir. With the Russia-Ukraine war as well, is there a 5% range that you would guide, 500 bps, if you were giving basically [indiscernible], then Garuda and what would you guide?

[Technical Difficulty].

Sorry?

What -- I could not follow -- you said...

My question is, if we have to guide it, the operating margin lies within the....

Within a 5%.

Sir, within a 5% range, if you had to guide OPM, then what would you guide, sir.

I have not -- you are telling now it is 30%, it will become 25%. You're still confusing.

I'm asking if you had to guide with a 5% range for margin of error, then what would be your guidance? That is my question, sir.

That's why I said, 25% to 30%.

The next question is from the line of Nikunj Mehta from Wealth Guardian.

Good afternoon. So I'm looking at the numbers for the last 5 years. And we've put in a lot of capital, top line has been flat. Profit has gone from INR 180 crores to about INR 217 crores, but at the same time, our inventory has gone up from INR 500 crores to [ INR 1,225 crores ]. That has kind of resulted in us being INR 100 crores or INR 90-odd crores of cash that we had in 2019. Today, we had about very close to about INR 500 crores of debt. And capital employed has expanded, but top line is still not crossing about INR 900 crores also, it used to be about INR 700 crores then. So on the P&L side, whatever developments that you spoke about in your opening remarks that is encouraging. But this inventory, do you consider this as an issue? And what are you planning to do as a team to correct this issue and a year or 2 down the line? Where do you see this balance sheet skewed up towards the working capital intensity? How do you plan to solve this working capital issues?

Yes. In fact, you have rightly mentioned about that inventory issue. We are also very serious in that. And you might have seen that this year, in spite of raw material costs going up, then also we have maintained the inventory on the tune of hardly there was a very less increase compared to the previous year. Earlier it was increasing at a very high rate. This year we have controlled. I'll ask Director of Finance to add further on this issue.

Yes. Mr. Mehta, you rightly said that inventory has gone up, but this is -- mainly 2 reasons are there. One, we are establishing new facilities, like WPM has started, Rohtak facility has come, and we have started we make them. Because of new facilities and our production value also is going up, production of items is going up. So if you see -- but compared to Q3, Q2, now the inventory is coming down, which we are planning this year, it will come down further add new business -- because of our production time lines, some quantities are there, which we are going to reduce in this current year, '23-'24. And as far as the inventory -- raw material inventory has come down, or WLP because in production process, the inventory has gone up. But compared to Q3, Q4 has come down. We will reduce further. Our aim is to reduce further and make the end product [ mention good ], and discuss to our customers that we are planning in '23-'24. '23-'24, our target is to reduce the inventory.

Any quantification, if you can give, how much the reduction could be in number of days or in absolute rupees crores?

The absolute number of base means it depends on our range of production. If we produce more value items, inventory value increase. See, MIDHANI will produce low alloys steel to very high alloy, that means high-end steel also is there. And we produce more high-end steel to a requirement of our customer. The inventory value usually more. When we supply to the commercial grade from low alloy steel, it will be less, like when we supply to the railway. Now present condition is, we are completing the supply spending with ISRO, VSSC and the HSFC, there some suppliers are there for which orders were received in 2019. With that orders, we are closing this year, definitely, this inventory will come down by -- slowly, maybe INR 100 crores, INR 120 crores like that it will come down this year.

Interesting. That's helpful. Just one question more on the -- this is my second question. The second question is, sir, that -- within the inventory we had this number of scrap that was building up. If you could guide on that also, what steps are we taking to reduce that, sir?

As I told you that when we are producing VSSC, HSFC products, where we have high margins, these products normally, rejections also will be there. So definitely, scrap inventory also will go up. Once now VSSC has given a dispensation to MIDHANI, that 80% of the scrap outside can use in their product. Once they use, definitely the scrap quantity also will come down. If you see the scrap value also has gone up because recent days, all raw material prices have gone up, normally, we value scrap only to the extent of the content of the -- in the product, whatever is the material content is there, like moly, nickel or other products or whatever is it, to that extent only we will take with 90% recovery rate. So but the prices have gone up last year, '22-'23, that's why the scrap value also appearing more. But this year we are going to use the scrap. So it will come down.

[Operator Instructions] Next question is from the line of Anuj Kapil from Taurus Mutual Fund.

Sir, I just wanted to know that how much amount we are expecting from government spending on indigenous defense orders over the period of, like say, next 3 to 4 years?

Government spending today, last year, if you see almost around INR 1,00,000 crores, they are given to the CapEx for antennas industry. And this year also, you can say that, it will be on the -- growth will be not less than 10% to 20%. So I see that antennas requirement of the materials or the equipments are going to increase in the future more and more. And not only MIDHANI, many other industries, they will get benefit because of this.

Okay. And sir, my second question, you are focusing on the export as well. So how much percentage you are seeking, like, it will be increased by end of FY '24 in export segment?

We are targeting 10% of our sales on the export, 10%.

There will be increment increase in the 10% sales -- in the sales by 10%.

Sales, whatever we do, on that 10%. So last year, if you will, our export was not so high, it was low only, it's almost cost around INR 35 crores.

'21-'22, basically.

But '21-'22, it was almost 10%. So we -- this year also we are targeting that we should go to the level of 10%. So it will be around INR 100 crores.

[Operator Instructions] Next question is from the line of Viraj Mithani from Jupiter Financial.

Sir, I would like to understand with all these new initiatives coming on stream, what would be our like top line growth and the bottom line growth would be? Any -- some ballpark figure or some guidance on that.

Top line, almost you say around 20% growth is expected.

That is from the next coming year onwards, you're talking about...

Yes. Coming year onwards.

And the margins would be at the same level or would it be lesser than the last year?

Margin, this market is very dynamic today. Specifically, our major input cost is coming from the raw material, then the fuel and power. These 3 contents, if the prices are stable, then we have no issues. But what happens that initially, if you take order, when the prices are low and individual prices goes up, we have no scope of getting that composition for the customer. So it is -- it may create some problem in the future. We have tried to, as I told in opening market itself, we try to offset this increase by doing certain operational efficiency. But there also, you have certain limitations. So we could manage through this year to make our EBITDA level same, but then it has to be seen in the future, how to. And then you know that the finance cost also has gone up because of high interest rates. The lending rate is very high. So those things are affecting the -- definitely on the pressure is there on the profitability. Otherwise efficiency and all that, definitely we are going to improve.

And sir, my second question is like, I have been following this company since 2019. I fail to understand being such a unique company we are not able to grow compared to our peers. Like, probably we should be the best growing company. What is it? Is it the business model, lack of initiatives by the management, what is it that is [ rendering ] the growth? If you can throw some light on that?

Yes, you have seen the growth is mainly -- see, we have a certain level of limitations on the base of our capacity. So now only, as I told in the opening remarks, this capacity, whatever we have invested the money, it has come to the operational now. So you'll certainly see the impact of those things in the coming years. So definitely, when a company is investing some CapEx, you will find that investment is there, but the output is not there. It will take time because of the defense items on whatever we produce. It takes time to get qualified. A lot of analysis, very [indiscernible] even if I -- as I said in the export market also, when I'm sending a product to them, they will check for their requirement -- applications, and they see that how it is performing. Then only they will approve you. So that further business can be seen afterwards. So I expect that now these things are -- we have resolved many things that is going to give the output on the coming years.

[Operator Instructions] Next question is from the line of Shirom Kapur from Prabhudas Lilladher.

Would you be -- a simple question. Could you give us the segmental split of revenue between your segments of defense, space, energy and the rest. And similarly, could you upscale the order inflow for FY '23?

Yes. In fact, for space, we have given almost 40% gone to space. Then followed by defense has gone to 24%. And TSU includes, in fact, TSU also mainly in defense only, but there is around 21%. And other part is around 6% is balance both for the energy and [indiscernible].

So that being defense, actually, if we look at it is about 45%.

Yes, yes.

Okay. So that's 40% for space, 45% for defense and 6% for energy. I think that doesn't add up. Are we missing something that as up to 90, 91-odd percent on.

And 5% export, I have told the 5% export is there.

Sorry. Right, of course, and then exports. And could you give the same...

All amount we have put in the railways is very near, maybe coming to harden -- this time -- this year, also, we have started supplying excess. We have supplied 400 excess, we have supplied to railway for their new coaches are coming, Vande Bharat type of projects are there for ICF supplies.

Okay. Understood. And would you be able to give the similar mix for...

Segment is also going to pick up in the future.

Okay. And would you be able to give the same mix for order inflows as you usually do in your annual report?

Order value. The order booking last year was 900-plus.

No. I mean the order inflow by segment, defense space, energy, if you could give that split for FY'23.

Order [ inflow is there ].

Yes.

Order inflow, also we have, I'll just see my exact figure, I will tell you -- we have -- defense has gone up -- almost we have 40% coming from the defense now order booking is there -- order position. Space is coming down. Space has become almost around 30%. And aero, we are talking around also is the 10%, but aero is we can say the defense only. So like then we have the energy, Armour.

No, Armour is going up.

Armour going up. So if I combine Armour, with Navy, that defense almost well, I can say, I can say 60%, we have 60%, 70% we have the defense.

Okay. So about 60% from defense, 30% from space.

Of course, also, we have almost around 10%, not -- 10% will be there. Around 10% to 12% export also booking is there. Railway also, we have the booking of around 2% to 3%. So like that order distribution is there. As you now -- changing that -- total order of volume map is changing now. And you see this can also coming in a different way in the future also.

Defense is increasing. Defense is going up.