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

The next question comes from the line of Renjith Sivaram with Mahindra Mutual Fund.

Congrats on good growth. Just wanted to Sir, your sense on this last time you mentioned regarding this Aka development work. So what kind of opportunity will that provide for us as a company with Aka development?

Yes. With respect to Amka, there are some development orders from the agency, okay, which is now developing that is Ada. So we are -- because these are all new materials, okay? These grades have to be established. They have to be established to the forms and shapes whatever are going to be actually used in the program. So they have given some developmental orders. Only thing is we'll be -- production orders we'll be anticipating from them. So already, we have completed some of the work, some things are going on. These are all special titanium alloys of certain thicknesses where properties are very difficult. So they have given order. And once they are through with this, once we develop and supply these materials as per their specification, we expect bulk orders. So that is one. And that is the question, yes.

Okay. So what can be the likely size of this opportunity, if you can?

Pportunity, it all depends on the program and its approval. So once their program is approved, we'll be getting -- because it has been developed with our facilities, we expect the order to be given to us. So it depends on program time lines.

Okay. And sir, we get to hear a lot regarding nuclear and SMR and even there has been talk that you might also try to do something like a mold and salt kind of an alternative, which requires specialized ceramic tubing and all. that, what is the kind of opportunity we address?

Okay. There are different types of reactors and mold and salt is one of the types. But to mention to you with respect to the nuclear program, MIDHANI stands first in the supply of materials for all the nuclear power plant. And we supplied a number of things, including the one recently that prototype fast builder reactor, which has been -- which has undergone critical. We are expecting many more orders because that now it has attained criticality. We expect more orders. Not only that government push towards the 100 gigawatt of energy by 2047, that also is -- I mean, we are expecting many orders. Currently, we are executing some orders for steam generator tubes, and we continue to do because all their grades have been developed at BIDANI, and we expect all the nuclear power grades to come to us.

Okay. So this molten salt ceramic tube piping that also will come under our...

Yes, yes. Any metallic material that goes into the nuclear reactor, not the ceramic components that we will be making. And I mean what I say is if it is a tubular product, the raw material required for making the tubes, we will be supplying most likely NSE, if it is taking that we will be supplying the ingots that is the mother hollows it is called. So those mother hollows we'll be making here and we'll be giving or the ingots for making the tubing will be from us.

Okay. And just recently, there is news regarding RL JV. So any opportunity MIDHANI in that certify?

Okay. No, that's a very good initiative. And we only feel that as a lead supplier of strategic materials in this country, MIDHANI will have 100% opportunity for all materials. Whoever is making the materials, we expect the metallic material supply from MIDHANI. Certainly, we'll work out.

Okay. And sir, lastly, with this banking of metals, how much of our working capital can get released?

No, this is not -- there is no -- it is not in MIDHANI books. Actually, it is MIDHANI-operated customer-owned. So it doesn't come into our books at all.

Okay. So it is -- it won't impact our -- release our working capital.

It will not be impacting us at all. It is just we are storing bare material in our campus for melting.

Okay. And we have a huge inventory of this scrap titanium. So what is our plan to dispose this of and release those inventories and liquidate them? Any particular...

Yes. This is actually -- if you technically speak, this is not a scrap, it is a gold mine, okay? I should say that scrap is a gold mine. And because you need scrap for melting, okay? And scrap is a part of our process. So a certain amount of scrap is always used for melting of any material, unless it is for extreme cases like Ghanian and all where customers ask for 100% of virgin material. So unless it is -- we are sure that the scrap is not useful, we can sell. And since MIDHANI is making a large number of grades, so scraps of different types are available. So wherever we feel that a certain critical quantity is exceeded, we'll sell. Last year also, we sold so we reduced our scrap inventory by INR 75 crores. So we want to bring it down and keep it at an optimal level. So it is our decision to sell or keep it depending on the likely orders to get. Suppose we get -- we are likely to get some order where good amount of scrap is there, that is good for us so that we can just melt that and convert into raw material. You know the kind of interest that is there under National Critical Minerals mission. So raw materials are becoming difficult and scrap is the gold mine. So this is the policy. Where it is essential, we will sell. Otherwise, we'll try to use it in our production process. So we'll arrive at some kind of an optimal level that is minimum to be maintained for maybe one production cycle or something.

Okay. And sir, industry is coming out with this EHR, which will be using scrap titanium to process titanium. So will that be an opportunity for us to liquidate some of our scrap titanium because we will use that.

No. What happened, MANI manufactures more than 20 types of titanium grades. It's not 1 or 2. If we need to melt there, you need more quantity actually. Here, for every engine program or aircraft program, there are different type of grades and each one is very small, small quantity. So like that only, we are maintaining actually. It is not a commercial only like grade 5 only we are manufacturing means that type of input possible and can be melted.

The next question comes from the line of Amitabastia with Southern Ventures LLP. I...

First of all, congrats for the... My question is to breakthrough which we achieved in metallurgy with single system for super alloy Sir, what are our plans and when we are developing this, do we intend to do the same for titanium also? And how super alloy market with respect to where this will be going to be used? Are we developing it for Ha wanted to understand the business prospect of this development and further development is possible into titanium is...

Yes. If you look at any aero engine needs a blade, okay? Every aero engine, it is having multiple stages and each stage, each disc will have blades to -- I mean, in the disc. So it doesn't matter whether we are doing for any of the engines, AMCO or existing fighter aircraft or any engine. And these blades are typically classified into 2 areas. One is a high-temperature area and other is a low temperature area. High temperature area, we use super alloys and low temperature area, we use titanium alloys. So -- and the grades also vary differently. There are multiple grades of materials in both titanium and super alloys. And MIDHANI has capability to make the single crystal feedstock, okay? So this is a very, very complex step and where the chemistry of the blade material has to be controlled in very, very tight ranges and with controlled impurities and gas content. And these things have very, very specialized elements like rhenium and rutanium, okay, so which will give the high-temperature properties. So those grades are -- MIDHANI has melted and already supplied. And probably if you remember in the last quarter or previous quarters, we have already told that we have made for the first time some of the very, very novel grades of these materials for fighter program. So we'll continue to work with our customers, and we'll see what kind of grades are demand in demand. And we are looking for such orders where both titanium and superalloy blade materials can be melted and supplied to our customers.

Okay. So just to rephrase my question with respect to the business potential, which program we are more aligned to, although we are capable to supply all kind of, but where we see a proper business possibility in the next 2 years...

Yes, it depends on the requirement end user capability exists. So we look forward. We are also looking for AA type of things. Once it is approved and it is at the design stage, we'll be ready to supply these materials.

Okay. And the second question with respect to titanium landscape. Are we buying titanium from Russia route or where we get our raw material of titanium from?

Yes. We import titanium from East European countries, our former Russian Federation. So countries from where we preferably do because -- the quality and the system is aligned for melting from those titanium sponges and master. So we import from those countries.

Okay. So we don't have any U.S. kind of U.S. risk in terms of if we source from Russia, then potentially U.S.A. can target. Is that a possibility also since we are not into this supply chain, is it poreically possible that U.S. can dictate where to buy titanium from because they have dictated for their supply chain like Boeing and others.

We are not having any issue with titanium sponge import as on today. We can import freely. We have not -- we don't have any supply chain constraints for importing from East to Europe. And we can see. I mean it is all depends on -- there are good titanium mills in U.S. also. But we don't have any issue currently with the import from the East Europe.

Okay. So one final question since we are developing so many things and too many developments are happening. From management, my question is that where we are focusing on like top 2, 3 things which are there in our mind because as an investor, we sometimes lose track of what actually is going to matter for us for the next 2 or 3 years. So if you can guide us that where MIDHANI is looking at for like metal bank is something which has recently come up. But this is the main agenda for the management to foresee.

If I understand your question correctly, from where you are importing your raw materials, am I correct?

No, sir. My question is not on that. My question is that since we have been developing many metals and all -- so as an investor, my question is that where we are focusing on in terms of whether we are targeting titadium growth or growth will come from this metal bank or some other super alloys where we are focusing on. So if you can categorize for us that this is the area where we are focused on for growth in the next 2, 3 years.

Now actually, there is a lot of programs are coming out from the Ministry of Defense for like AMC and many other engine programs. There are a lot of things are there. All those programs now country is expecting the material will be made within the country. So now first, they see that MIDHANI is the one who can manufacture immediately Suproalloi and titanium with the involvement of airworthiness agency. So presently, MIDHANI concentrating on all those materials means Suproalloy and titanium only to manufacture, develop and supply to this program. Then maybe subsequently, we'll take up OEMs and whoever people are coming for them also we will be supplying.

The next question comes from the line of Abhishek Jain with Cris PMS.

Sir, my question is on export side. So just wanted to understand how much the contribution of the export currently? And what kind of the demand and the order book you are looking in export business? If you can provide next 2 to 3 years vision from the export, what's your plan?

Okay. With respect to exports, around 10% of our total turnover, we wanted to export. Current year sales is INR 33 crores till now, and we have an open order book of about INR 25 crores. And certainly, we'll be making more exports than last year. That is our perception. We plan to export about 10% of total turnover.

And how much incremental revenue we can get from this S400 defense business?

S400 is only testing. If GE puts us order because we are also having testing thing, if they give order, definitely, it will be more. We are in talks with multiple people. And very conservatively, I'm putting 10%.

10%. And for the next 3 to 4 years, what's your target for export...

Yes, we can increase at least 15% to 20% on 10%, yes, that INR 100 crores -- INR 100 crores, INR 120 crores. It will be increasing at least at the rate of 10% to 15% in the coming 3 to 4 years.

Got it, sir. And on the RM mix, what was the mix for the virgin versus scrap materials in the fourth quarter versus the last quarter? And do you have any plan for the dedicated scrap processing or recycling plant to improve the cost efficiency...

See, the percentage of scrap versus virgin raw material depends on the grade and customer. For some of the customers like human space flight and some very, very critical engine parts, we are not allowed -- I mean, we are supposed to supply with virgin material, okay? So their scrap addition is not possible as per customer requirement. If customer specification says that scrap can be used, we are ready to melt with 100% scrap. But rarely in aerospace and the kind of customers we service, we are allowed to use more than 50%. So 50% to 60% is the normal percentage of scrap that can be done. So accordingly, pricing will be done. With respect to scrap, yes, whatever materials we produce and whatever scrap is generated, we'll be segregating, cleaning and keeping it. Sometimes we melt and keep it also so that identity and all will be preserved. So we have a very good scrap management policy. We have a very good method by which we can segregate and identify and keep it with all the tagging. So this is the policy that we have been following up.

So do you have a scrap recycling plant are you looking for that?

No, scrap recycling plant, we are not looking, but there are some idea on recovery of some metals from scrap, which we are working with some academic institutes like NFTDC. But it is -- I mean, not to that commercial level. The amount of scrap generated is high because we produce a lot of materials. We have to see how it is -- whether it is really worth converting from scrap to metal, how economics work, we have to see. But otherwise, we are having some MOU with NFTDC, to extract the pure elements from scrap.

Got it, sir. And sir, in last con call, you had mentioned that around INR 8,000 crores worth of tataium alloys, superalloys and the steels are still imported. So just wanted to understand what are the best barriers to replacing these imports? Is it price or quality certification, capacity or customer qualification? I just wanted to understand what is your plan to leverage this opportunity and your market share?

Yes. People import, I mean, this is whatever data is shared is from EIM data that is available in open source, okay? So there are imports. Basically, imports are coming because -- there may be some technology transfers and the customer -- end customer may be compelled to buy material from the approved sources. So that is how materials may be entering Indian market, okay? So almost all these grades, whatever I mentioned that INR 8,000 crores are in the portfolio of MIDHANI and MIDHANI is capable of making all these materials with the resources available. So -- but sometimes the customers may not be coming to us because they are supposed to -- their approval because this is an aerospace company and all. So we are looking for this certification only for that purpose. Once we have these certifications from premium or top-tier aerospace companies, instead of importing, our domestic importers can come to MIDHANI and take the material. So that is the whole idea. So the idea of getting the certificate, whatever I told NACA certification, what we got or whatever we are currently making NAS 40 that certification of our teams is basically to get the approvals from those NACA certification or S400 certifications for other aerospace manufacturers so that we can ask for domestic suppliers to give orders for MIDHANI, procure material from us directly rather than import.

Great insight, sir. My last question is on that margin. If we see that before FY '24, you see a margin of around in the range of 24% to 26%. In last couple of years, we have seen some decline in the margin. So just wanted to understand when can we start to secure 25% to 28% kind of the margin again because that -- as you said that mix has started to improve from here on, especially on the titanium side, you have increased your production also. So just wanted to understand what are the key constraints right now? And when can we expect a margin of around 22% to 25%...

See, it all depends on the margins depend on our order book, okay? Margins depend on what kind of material we are selling in a quarter. MIDHANI books high-strength steels, that's strategic steels, super alloys and titanium alloys. Basically, we are having 3 product categories. And margins vary depending on the kind of category we are currently operating. So for example, the margins in super alloys may be a little higher or titanum alloys may be a little higher. So when we are executing in one particular quarter or a financial year, margins may be looking higher. So when we are executing steels, it may be a little lower, but we have to do all the orders. So this margin varies from time to time. But at the same time, in this particular quarter, Q1 of '26, '27, we had issues with both raw material hike because of the Middle East crisis and LPG crisis. So there will be some differences. But barring these things, that percentages depend on the product mix that we are manufacturing in the particular quarter.

Got it. Is there any impact of the increase in the freight cost if you import most of the raw materials. So are you able to pass the freight cost to the anchors?

Freight cost. No, no, we are booking in fixed terms. Sometimes, okay, occasionally, it happens that freight cost was high, but these things being fixed contract prices, we cannot expect -- I mean, customer to pay, okay? But sometimes we are forced to absorb. But overall, okay, we have to see.

The next question comes from the line of [ Ajinkya Jadhav ] with Chris Portfolio.

So if we look at our previous order book, it was more tilted towards the space sector and currently more on the defense sector. So I wanted to know like of the INR 2,300 order book currently that we have, how much of that is nomination based? Like what has been the trend of the nomination-based orders as a total order book?

I think to answer your question, we are not getting anything on nomination, okay? Earlier, it used to be the trend. Now everything is competition only. We are getting in competition mode only.

Okay. So that's the reason like the margins, the early participant asked like used to be about 25% and now it will be around 20% going ahead.

Yes, it could be, yes.

20% margin in Q1 is just because of these 2 reasons which I have discussed. But otherwise, even despite the hit from the raw materials at INR 14 crores and the LPG at around INR 5 crores, also we -- in absolute terms, the EBITDA has increased. The percentage with respect to the sales is slightly dropped and it is at 20% EBITDA level as against 23%, which are expected, which are very nominal, and we are sure that we'll be covering that in Q2 and Q3.

Okay. Got it. Yes. The other question is related to the fact that earlier we were occupied with the domestic orders from the strategic sectors from the government. And do we have the appetite and ambition to serve the global OEMs as we got for the GE. So are we taking any strong steps in that direction? Like how much time it will take for us to serve the global OEMs like Rolls-Royce, Boeing, Airbus?

Yes, we are -- see the certification process by those OEMs, which you have mentioned, it is a time-taking process, okay? We have been working with them multiple times, these people come and visit the plant. They will audit our facilities, they'll audit our records and they suggest some modifications. And we are working with them to get orders for exports. So certainly, we'll be sharing news once we get orders with global OEMs.

So like how much time maybe say, 3, 4 years to...

That we should get -- before that. Maybe a year or so, we should be able to get some approvals from exports. We are in the process. So we are positive.

Okay. And the last question is regarding the aluminum plant. So earlier, we said that we have shelved the plan for the aluminum plant, which was with the JV, some more than INR 1,000 crore CapEx. So is that still alive or like we have completely shut that plant?

No. That particular proposal has been recommended to be closed by both MIDHANI and NALCO boards. And now it is in the process of closing because certain approvals are required from ministry. Our plant will not be coming up. So formal approval needs to be taken so that we can share that news, but we are not going ahead with that.

In the today's con call, we mentioned about rolling out the first aluminum all like.

I got it. Okay. So I just wanted to clarify. See, there are 2 things. The plant that we were supposed to put at Nellore under the Utkrisha Aluminum Basthingam Limited, that is what I told it is going to be closed. But what I told is MIDHANI is having a white plate mill, okay? And country white plates are being imported. If you look at the aluminum plates of 2,000 series or 7,000 series, which are used by the aircraft program or launch vehicle program by ISRO, they are all imported. So there is a demand that we should indigenize because now you are seeing the supply chain constraints. So one of the idea is why not use our white plate mill for rolling. So there are facilities for casting the ingots within the country. There are companies which are making directly chilled cast billet. So those billets were supplied to us. And using our facilities, using our white plate mill, we have forged and rolled in that mill to give rolled products. So this is an alternate method. It is not that we are going to melt roll and do -- that is an elaborate plant at Nalore. We are only trying to do convert the material, convert the cast ingot into a plate, which can be subsequently used by people. So this is what we have done, and that is what I was mentioning about the first commercial order for rolling of aluminum.

Got it. The final question from my end is that we have -- we are seeing a huge push from the government for the aerospace sector indigenization, even the Indigo asking the engine manufacturers to put up their MRO shop in India. So particularly for you, what will be the, you can say, the incentive or the push given from the government to, you can say, the indigenize the materials, if you can explain?

See MIDHANI, as you know, is capable of making any of the super alloy and titanium and as well as steel. There are certain steel parts also in aircraft engine. So all 3 materials, all 3 grades of materials or groups of materials can be made in MIDHANI, point number one. Second thing is we are -- I mean, as you told that a lot of push is there for indigenization. As an offset policy, companies will be forced to buy from India because they have to source materials from India now. So MIDHANI is in the front -- I mean, we are in the queue in the first place. So we will be getting orders. Inevitably, they have to come to us because we are the leading aerospace manufacturer supplies. So it is only a matter of the -- from concept to reality. So we are ready to take up orders. We are ready. Our capacities are available. And we are also looking as eagerly as you, and we are also looking for orders to execute.

Got it. So does that mean the private players in India, which are operating in the aerospace sector and supplying to government, maybe the MOD or the aerospace. So will they be forced to buy a certain proportion from MAM, which is currently imported?

No, we do not know. But definitely, we are looking for very good customers, very good volumes at very good price, and we hope we will be able to get a part of the -- significant part of the cake that we are envisaging.

As there are no further questions from the participants, I would now like to hand the conference over to the management for closing comments.

So thank you. I think we had multiple question and answers, and we are only happy to share the data with you, barring certain supply chain disruptions with respect to LPG and raw materials, we think the situation will stabilize in the coming quarter, and we'll be coming back to normalcy with respect to that. And we'll continue to grow in good numbers, and we'll be very happy to take new orders. And as I shared in my introductory thing, we are going for a good number of certifications also. All these things should help us a very healthy execution of orders, and we are also looking for increasing our order book. So probably when we meet during next quarter, I think we'll have very good information. And thank you very much for this opportunity.

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

Thank you.