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

Ladies and gentlemen, good day, and welcome to MIDHANI's Q4 FY '24 Earnings Conference Call 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. Thank you, and over to you, sir.

Good afternoon, everyone. At the outset, I would like to thank the management for giving us an opportunity to host the call. From the management today, we have Dr. Sanjay Kumar Jha, Chairman and Managing Director; Mr. N. 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. Over to you, sir.

Good afternoon, all the investors, my colleagues sitting here, Director Finance, Director Production & Marketing, AGM Marketing, and Company Secretary, Mr. Paul. We are very happy to join for this conference call. And I would like to put some of the highlights, which we have -- already -- financial results are already available with you, so I'll not dwell into that, but I'll try to see some of the highlights since they've been very crucial for this company for FY '23-'24. First of all, you might have seen that we had almost -- our sales turnover has gone almost 23% increase is there from the previous year. I think this increase in a year-over-year basis is the highest for the MIDHANI. Earlier, this type of increase we have not seen. In addition, and that also in the year when we had a lot of turmoil in the global supply chain, which has really affected our supply of raw material, as far as the price is concerned. At the same time, your company also has seen a lot of change in the product portfolio, which is basically mainly the super alloys and there, we had almost a 2.5x growth in volume-wise production. And there, the requirement of this costly raw materials are there, which is totally dependent on the international supply chain. In addition to that, for this year, also, we have seen that our another -- our task was to how to reduce our inventory that is work in progress. So that is a drastic cut from the last year to this year. If you see the last year, it was almost in the tune of around INR 230 crores. And this year, we have brought it down to 75 -- around INR 75 crores. So that segment also, we had a lot of work, and it is also effected/impacted our P&L accounts and also that is reflected here in the terms of PAT and PBT and EBITDA. And in addition to that, this year -- but there are a lot of new things we have done. In fact, this year, our export has gone from almost to 3x from the previous year to this year in terms of the export, not taking into account the deemed export. Earlier, the company has also shown the deemed export component. So we have not taken the deemed export and total export from the overseas. It has increased from year-on-year basis to almost 3x. This is 1 highlight. And also, we have made a lot of inroads in the supply chain of international aerospace companies. So this is the one good sign. Not only aerospace, in fact, many of our materials are now -- has a place in the European market. Also, some of the things have gone to the Middle East also. And in the U.S. also, we have seen -- given some materials. So that has given MIDHANI a lot of space for its future growth and future business as far as the aerospace and defense material is concerned from the overseas market. And also some of the alloys we have made for the health care industry also. And another one is for oil and gas. So your company has made inroads in these sectors, and I'm seeing the impact will be seen in the future once we have -- we'll be increasing our volume coming from this area. And this year also, we have seen that almost 88 -- almost INR 78 crores worth of CapEx also we have spent. And many new facilities have been commissioned and something already going to be completed in the coming days. So with this type of our performance and all, I would like to thank all the investor and shareholders keeping faith on us. But I would like to tell you that probably your EBITDA and all will not be so attractive, but I think this is a -- I would say that basic, the turning point for your company, because the company has changed its position itself from a very protected market to the open market, and that is a good sign for that. And protected market when I say, if you see the space, our space order book today, it is hardly around 12% and our, in fact, turnover in last year '23-'24, space sales contribution is hardly in the tune of 15% or 20%. So with this type of environment, we are trying to find out the new areas where we can have our business in the future. So with this small introduction, it will be better -- good for me and I'm eager for -- to get the questions coming from the investors. Over to you.

[Operator Instructions] We'll go for the first question from the line of Mr. Amit Dixit from the ICICI Securities.

I'll maybe push in few of my questions till the queue assembles. So the first question is on -- if I look at the value of production during fourth quarter, then it has gone down compared to -- if I compare Y-o-Y. Now this is something unusual in case of MIDHANI. So could you explain what led to this decline?

Yes, it's not the decline, in fact, there is a correction. As I've mentioned that our -- earlier in the fourth quarter, we used to create a lot of work in progress at different built stage, and that used to be built up in our inventory and that -- in fact, you see that's why I've told that if you see the last year, last year, our inventory was seen in our balance sheet is almost in the tune of around INR 230 crores -- INR 228 crores and increased, not only that is increase. And this year, it is increased only INR 75 crores. So this is the type we wanted to -- and it was a lot of queries were from the investor also that why your inventories are going -- picking up? So if you see that we have tried to see that our inventory should come down. And this is the correction. That's what I said, this year is almost a correction, which we have done. And in fact, impact has not seen very high because we have done 23% growth in our turnover. And also, we have also reduced some of our like cost of the fuel has been reduced. Even though raw material costs has been very high, there is a surge in certain critical raw material, in spite of that, we have tried to make the balance. So I will say that all the corrections were started this year and that's why the result is like this. But we are sure that this action, which we have taken this year, is going to be given a good results in the coming years. So probably this year, we have to take that type of -- but it is healthy for the company because our money is not locked so much and -- so that we are able to have better cash flow.

Okay. That's very helpful, sir. The next question is on order book. So if you look at the order book also, I mean, if I compare it from Q4 onwards -- Q4 FY '23 onwards, then for the first time actually it has gone down compared to last quarter. Last quarter, it was INR 1,762 crores, this year it was INR 1,579 crores. So is it due to the pre-election lull that we didn't get orders? Or what is the outlook on order inflow for FY '25?

Order inflow indications are very good. In fact, today -- as on today, when I'm talking to you, we have INR 1,767 crores is our order book position. And also, we have the expected order book is almost in the tune of INR 1,150 crores. So order book is not the issue today. We have in -- that is lined up properly. So we'll be communicating to you as and when we are receiving orders, but it is in healthy condition.

So if I get it correctly, the order book position is INR 1,767 crores at the moment and apart from that the expected order inflow is INR 1,150 crores?

Correct, correct. True, true.

Okay. Okay. That's very -- so what would be then the guidance for revenue for this year, FY '23, -- revenue growth, I mean? If you can give a range...

Our target which we have set for this year is, of course, very high. But I'll not commit as on that. But we are expecting, definitely, the growth will be 20%, 25% revenue this year, again.

Okay. Sir, one thing that we have seen over the years that -- I mean, not over the years, over this quarter or in this year or last few quarters is the margins were declining progressively, but now we have seen a good increase in margin Q-o-Q. It is around 560 bps. So what has led to this increase? Is it the change in product mix or something else?

See, margin is mainly -- as I have told you that we have -- in last quarter, we have seen that our VoP should not be very high. We have tried to convert all our inventory into the -- working inventory into the sales. That was our first step, so that the raw material consumption has come down. And also the price also has cooled down in the quarter 4. Raw material prices have now reduced drastically. So that impact will be seen in this year because that benefit we'll get in this year. For the last year, there was so erratic up to Q1, Q2, Q3, it has really affected a lot in our performance as far as this profitability is concerned.

Sir, if you can provide a breakup between super alloys, titanium and specialty steel for revenue and order book, that would be great?

First of all, I would like to mention about the sales. Sales, we have done this year super alloys 20%. It is coming to around INR 217 crores, INR 218 crores. And titanium alloys, we have done 14%, which is coming to around INR 149 crores. We have also done the maraging steel, which is our prime product has been 34%. So there is a reduction. It was -- previous year, it was 47%. And that used to be very high in our entire performance. Super alloys was only 10% previous year. So this year, it has gone to 20%, even though our growth has been 23%. So you can make it -- make out that is almost -- it has crossed more than 120% and 130%. And also, we have the special steel that is coming to 24%. And others is around 8%. So this is the distribution of the sales in FY '23-'24. And you also asked about the order book?

Yes, sir.

See, the order book if you see today, we have defense almost 78% and space is only 12% and exports around 5% and balance Others coming to the 5%. This is order book, which I have told INR 1,767 crores. Am I clear?

Yes, sir. So what I see is that essentially the decreased share of titanium maybe because space component is low, so margins you expect to be in this bracket only, 20 to -- I mean, say it has improved to 19.8%. But going ahead, will it be like at this level only or we will see margins going back to the levels that we have seen earlier, above 25%?

I see it will not be -- see, if you see EBITDA to sales ratio, it may not be exceeding -- this year, we have got around 21%. So it will be maybe crossing coming to touching to 25% max. I don't see that it will go to 30, 35, in that range, which we have seen earlier. So it is going to that, but definitely, there will be a plus side because if you see the fourth quarter, fourth quarter has given indications already. So we will try to maintain that level as far as the profitability is concerned. And in addition to that, PBT and PAT because of our -- if you see earlier, our finance cost and all is very high last year. So even as compared to FY '22-'23, almost INR 8 crores is extra amount we have paid only for the finance cost. So those things I'm saying that there will be control on that side, reduction will be there. So overall, the performance will be better once we are going for this year, '24-'25.

And sir, we also know that we are increasing our capacity for titanium-based alloys, but the order book doesn't suggest that we would be -- we are getting a great deal of orders for titanium alloys. So how does it match? Are you targeting this more for exports or are you targeting this for maybe the development that would come particularly in case of aerospace?

You have rightly pointed out. In fact, many titanium order is coming from the export source, we are not taking because of our constraint on the capacity and -- not only capacity, raw material also is one factor. So we are trying to see that how this can -- the gap can be filled up. But today in our order book, we have almost INR 350 crores of orders from titanium alloys only. But that is a very high volume. In fact, INR 350 crores if we are able to complete this much order, that itself will be a big achievement for the company. That INR 350 crores is a quite -- it's almost -- it will loads our entire facility for titanium is concerned. So order book position for titanium is very, very good I will say. I think this is our highest figure we have got for titanium order book and expectations are good from the international market. And some of the order is already lined up, which I have shown that INR 1,150 crores we are going to get the order, there also will have some percentage of titanium coming, again, adding to our requirements. So it will be -- titanium has a very good potential this year.

Sir, you highlighted in your prepared remarks that we have made inroad in the supply chain of international aerospace companies. So is it possible to further explain this particular thing, where we have made inroads and what kind of -- where we are and when can we start supplying the other material?

What I'll tell you, in our -- this customer, normally, we are not getting -- giving the details about where we are there today. But just to give you some idea that where we have started working, some example I'll give you, probably [indiscernible]. Like you see the aerospace, something like Aero Engine manufacturers in India -- in abroad, like India, we are -- also we have started. See, like one example, the Kaveri Dry Engine. So Kaveri Dry Engine is the one area where MIDHANI material has been used for all the components. And now this engine has to be utilized for making certain number of strategic equipments. So we are hopeful that, that will get materialized and we'll get a good amount of orders coming from there. Second part is the Kaveri Engine itself, now Kaveri Engine also [indiscernible] has taken further step. So from there also, the already 5 engine equivalent material we are suppliers. So we are expecting that if those things are getting qualified, there also I'm going to get the material. Our AMCA program, which is running in the country for -- there also, we are going to develop the material for 110-kilonewton engine. It is for our domestic program. In addition to that Shakti engine, which is coming for that requirement coming from the HAL, there also we are supplying some materials. So there are various programs where already we are giving the materials for our domestic program. So considering that our expertise now also we have done a lot of work we are doing for the Indians that's coming from the outside, like our aircraft, which is a Russian-origin aircraft. Now they are also we are trying to see how we can Indianize certain materials for that segment also. So we are working for that also that how we can give the aeroengine materials for our domestic, that aircraft which has been supplied from the Russian origin. And for overseas market, if you take about this, like GE Healthcare already we have supplied. Now we are qualify or material for their product also. Pratt & Whitney also we are discussing. So there are many avenues. I can -- all details we cannot give you at this juncture, but it is a regular one. And I will give you the break up where we have supplied, but it is -- that information is not in the business interest of the company. Because when we work with them, we have some sort of a nondisclosure agreement and that way, international company they operate. So this was only I can share with you. But I will say we are moving in the right direction. And many things, first, we have done so far, either the certification, then the grades which are very difficult to make those things already we have made, qualified, they have tested, they are using now and we'll be getting good inflows there. Only thing is that how much we can adjust with our capacity. Capacity constraints are there in certain areas, so that buildup we are doing now, regularly.