Mold-Tek Technologies Limited (526263) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Mold-Tek Technologies Conference Call, hosted by Emkay Global Financial Services Limited. [Operator Instructions] Please note that this conference is being recorded. I will now hand the conference over to Mr. Abhishek Taparia from Emkay Global Financial Services Limited for opening remarks. Thank you, and over to you.

Good morning, everyone -- good afternoon, everyone. I would like to welcome Mr. Lakshmana Rao Janumahanti, Chairman and Managing Director, and thank him for this opportunity. I shall now hand over the call to him for the opening remarks. Over to you, sir.

Good afternoon, everybody. Thanks to Emkay Global. We're all here to discuss about the various developments at Mold-Tek Technologies. I first want to bring to your attention about our MOUs we signed with Interarch and Affordable Robotic & Automation. So Interarch, as you all know, is a leading PEB steel building manufacturing company in India with several units across India. And the MOU with Interarch, which we entered about a couple of months ago, enabled Mold-Tek to lead their products marketing in the United States, especially and also assist them in designing and drafting services here in India. More than Indian services, the most interesting development is working for U.S. construction industry. Through Interarch, we'll be procuring not only the designing and detailing services for -- which we have been doing for the last 2 decades, but we'll also be providing them the buildings manufactured by Interarch and supply to them for erection. Even for erection, we are planning to tie up with a couple of well-renowned erectors in the U.S.A. so that the builder gets the full gamut of services, right from designing, detailing, supply of the building from India in, I mean, pieces so that the steel building can be erected in the site. Then the finishing operations will be taken care by the builder to make the building like walls and windows and doors and other stuff. So this is the way buildings are erected in U.S.A. And our experience of last 20, 25 years help Interarch to get into the U.S. export market. So that way, Mold-Tek will gain not only the work for designing, detailing and sealing of the buildings, which are mandatory in U.S.A. and also commission on the sale of the building value in future. So already, we are discussing about 5, 6 buildings prospects. And together, we are participating in a trade show in November in United States on the same platform in the same booth, representing our collaboration and how it benefits the builders in U.S.A. So this will be the major step forward. But for these income streams to come in, it might take a couple of quarters, but the foundation has been well laid. Similar arrangement with Affordable Robotic & Automation, is also a listed company. We entered a couple of weeks ago. Under this, our MES division, which is well versed in robotic designing, layout designing, shop floor designing for automobile companies, will be able to take Affordable's way into United States and mainly Europe, where we have several clients for whom we have been working for more than 7, 8 years now. So Affordable will gain the advantage of marketing their services -- their products in U.S.A. and Europe. And Mold-Tek will gain the designing and detailing work of Affordable, both in abroad and even if they have excess work here in India. Currently, our standards and methods what we follow are in line with the U.S. and European market requirements. Hence, our assistance will also help Affordable to grow their business in those countries. So this also will give company, Mold-Tek, an opportunity to enhance its own business and also earn commission on the entire scope of the project, which can be sizable in numbers. So we hope these 2 initiatives will take our performance better during the coming quarters. And any other details you wish to know, we can go through question-and-answers mode. Over back to the operator.

[Operator Instructions] The first question comes from the line of Madhur Rathi from Counter Cyclical Investments.

Sir, I wanted to understand regarding our base CE, the civil engineering as well as the MES business. Sir, for quite a few quarters, sir, we haven't been able to grow our business as expected, and we are a much smaller part of the whole industry. So why haven't been able to grow? And sir, based on your commentary in the current quarter, it seems that things are turning around. So sir, can we see an improvement in our order booking going forward? This is my first question.

Yes. I understand it's not several quarters. Only last 2 quarters have been bad for the company, Q3 and Q4. Even in Q2, the company made a very handsome profit of INR 12.76 crores EBITDA and PBT of INR 10.8 crores. So till Q2, it was all fine. Since the election campaigning and elections started in the U.S., the majority of the projects were on hold till Jan, Feb and even in the month of -- from month of March, we started seeing the flow of work improving. But for the projects to complete and start invoicing, it will generally take 2, 3 months. So from the Q1 onwards, we hope things will turn around, if not in a -- as good as last year Q1, but it will certainly be better than the Q3 and Q4 of -- or at least the Q4 of the '24-'25. So that is mainly because order book started improving from Feb, March. And now currently, it is around $3.5 million, which was -- went down to $1.7 million, $1.8 million 2 quarters ago in the civil, which is our main domain. So the reconstruction activity started picking up. But still, there is some confusion about the tariffs and the imports of buildings and erection of buildings. So some, I mean, disturbance is still there. But in civil, we see the traction picking up in this Q1. And coming to our other line of area, which is BIW, that is body-in-white robotic line designing, shop floor designing. The majority of the reason for the slow growth in that area is new models of automobiles have slowed down in the number of varieties because there was a lot of activity a couple of years ago for last 2 years, wherein EV models were introduced rapidly. But now they are stabilizing on that. And any changes coming, only minor cosmetic changes are happening. So nobody is taking up a complete revamp of the designing. That's why the designing kind of assignments in BIW robotics has come down, which has impacted our MES revenues. Going forward, we also taken these 2 steps of signing these MOUs because we'll be a part of the building revenues. We can get from the building value rather than just providing the designing and detailing services, which hardly constitute 3% to 4% of the overall building cost. So Interarch that way, we will gain our expertise in U.S.A., both in terms of design, detailing and stamping, which is a very important aspect for any building to be erected in U.S.A. So that way, they gain, and we also gain some commission on the -- comfortable commission on the overall building cost rather than just doing the designing work. Same thing with Affordable Robotics, who are into BIW robotics in India. They supply to Mahindra & Mahindra and a couple of major automobile companies in India, but they have not yet proved themselves in Europe and U.S.A. So our association will enable them to bring their robots and automation equipment and erect in Europe and U.S.A. And that way, it will be a good synergy between both our companies.

Got it. And sir, if I look at on a conservative basis, sir, what is the revenue growth we can expect? And what is the -- like conservative basis, what is the margin we can expect for FY '26 considering better utilization of our employee and personnel?

Yes. We hope that we'll be definitely in the black in this year. No cotton white drop into red like what it happened in the Q4. Hopefully, it should start improving in Q1, but pick up pace from Q2 onwards. And we hope at least we will achieve the overall profitability, which we did in '24-'25, that is '24-'25, we achieved INR 16 crores overall profit -- PBT, that is our profit before tax and INR 12 crores PAT. So we are currently aiming to get back to that level. And if things go well in terms of acquisition, which we are still in the process of negotiating with a couple of companies in structural designing space, things can be still better. But we are hoping that we should be able to get back to the figure of '24-'25.

Got it. And sir, this would be on a conservative basis, right?

See, as I see today, from a negative situation in Q4, aiming at achieving the '24-'25 is currently our, I would say, realistic number. But however, when we talk over the end of the Q1 or Q2, there will be more clarity.

Got it. Sir, just a final question from my end. Sir, based on the -- sir, we have increased our employee strength quite a lot. Like INR 105 crores is the employee expenses currently. So, sir, what is the revenue potential that we can generate from this current base? And what is the employee addition that we can expect in this year and next year?

Yes. Currently, we have downsized our MES to some extent during last couple of quarters. Now we have stopped any more reduction. Current employee strength continued to be close to 1,000, 1,069 -- 1,169, which has tapered a little bit over the last 1 year, not much, maybe around 40, 50 people overall reduction. But this year, in civil, we are seeing the traction picking up. Mechanically is yet to, but a lot of new areas, in SPM area, we are now trying to gain entry and the -- because BIW seems to be still stagnant. So once SPM starts picking up and we prove our metal and special purpose machines line of activity, then MES also should start picking up from Q2 onwards.

Okay. Good. And sir, what would be the revenue potential for these employees currently, if you can employ them at 70%, 80% utilization levels?

Yes, if all the 1,100 out of which maybe at least 950 -- 900 to 1,000 people may be productive employees in the engineering space, the revenue potential for this entire capacity is more than $25 million to $30 million, but filling that capacity consistently is the challenge. That is where we are trying through these MOUs better revenue options. So our capacity of 1,000 people is more than $30 million in a -- at a fully utilization model. But currently, the utilization is hovering periodically. Especially last 6 months, the utilization rate has fallen to almost 55%, 60%. So it should be at least 75%, 80% levels so that the company performance would be much, much better because ours is sunk cost concept. All the costs -- if you look at majority of the cost is almost 70% is in employee benefit expenses. So whatever utilization we get from them, that will add to the revenue and to the bottom line immediately. So from current level of, let's say, 4 million per quarter, last year, it was -- last quarter, it was a little less than 3.55 million. So from there, whatever growth comes up, we will go to the bottom line. So we are currently just below the breakeven in the last quarter. Probably in Q1, we'll cross breakeven and show some positive result. And from Q3 onwards, we should be able to shoot up reasonably well. As the revenue adds up, it will go to the -- improve the bottom line.

Got you. Sir, coming to your comment, sir, why are we facing this issue of -- in the civil segment where we are a smaller player than what would be the overall market size? So sir, is it because we aren't able to acquire the structural acquisition currently? Or is it because of general slowdown where construction activity has stopped in U.S. due to elections and post -- as it improves, we can expect improvement. Is this understanding correct?

No. In civil, there is -- it's a fragmented market. We, I would say, are one of the leading players on the top 2 or 3. Proteus is another company which is of our size. And other -- there are 4, 5 players, who are about 500 to 700, 800 people strong. So that way, in civil, we have one of the largest capacities in India. But as you correctly said, your second guess is correct, during the elections and soon after the elections uncertainty, civil building construction has taken a very slow pace in U.S.A. That has directly impacted our revenues and workflow. Actually, if you look at our write-offs and bad debts, which used to be 3, 4 years ago to the tune of $200,000 to $300,000 have come down to some $20,000 to $25,000. That is a check for your quality standards. So our quality has been well accepted, and we have been considered as one of the most preferred retailer in U.S.A. Second reason, what you said is also correct that our delay in acquisition of structural designing company is also not given the kind of growth we anticipated. So now we are closely talking to a New Jersey-based company, but I can't comment until some positive things happen.

Got it. Sir, I wanted to understand, sir, there's a company called PDS, where they -- so what I understand from the structural design aspect of our operations is these are very regional companies. So a company in Florida would work in only in Florida, a company in New York would work only in that area. So, sir, have we thought of the PDS model where we -- rather than acquiring these companies, we tie up with independent consultants and give them a share of profit to grow our business. Sir, is that a possibility or we would require 100% ownership of the end company to grow our business?

No. Working for again as a part-time will lead to Indian rates and lesser margins. So it is always better -- as you correctly said, structural designing is a regional activity. Somebody in Florida generally works for majority of the company -- 90% of their work from -- only from Florida, maybe 10% from other parts. Similarly, somebody in New Jersey will be working for construction companies in New Jersey, New York area and maybe 10%, 20% from outside. So acquiring at least 4, 5, 6 companies in different regions give us the overall national coverage. So that was our plan of activation. And it also -- first one is the most difficult to acquire because once we have a structural designing company and Americans working in that, and able to showcase that we are running the show here with Indian support and able to meet deadlines and able to give better quality at low price, there will be, as you said, some partners may join and willing to work with us or we can make more and more acquisitions and the team, which is a structural designing engineering team, will be able to impress upon the new acquires to be positively respond to our proposals. So first acquisition is the most difficult one, and we are looking for people with somewhat similar mindset and commitment. And once that happens, using them and the front end, we will be able to make regional acquisitions at least 1 or 2 a year to ramp up our structural designing business.

[Operator Instructions] The next question comes from the line of Aastha from Pkeday Advisors.

Sir, my first question is that, how many orders do we have in hand right now? Like can I get a bifurcation also that with Interarch, we have these many orders, that's our order book size and with Affordable, that's our order book size?

Our order book size on the civil engineering, designing and drafting, which is our internal order book is now close to 3.5 million as on 1st June. So it has fallen down to almost 2 million about 6 months ago -- 8, 9 months ago. Now currently, it started picking up in the last 3, 4 -- 3 months, I can say, and it's now currently is 3.5 million. With Interarch, we have at least 5, 6 builders we are discussing as a total overall scenario. But still, we are yet to make a first sale. It's hardly 2 months ago we started proposing ourselves as a provider of the buildings, but I'm glad that there are quite a few RFQs. At least 6, 7 buildings we are discussing with the clients. And there is also some confusion about the tariffs. Is it a tariff on steel or is it a steel building? And how much is that is still they are not able to make out. But initial, our offers have been found to be very attractive to American builders because there's a considerable reduction in the labor component in fabrication works, which gives them an advantage, even if there is a marginal tariffs. So this tariff confusion is also something which delayed the takeoff in that field. But I'm sure some clarity will come in a month or 2, and things will start rolling.

Understood, sir. Sir, since this 5, 6 builders -- we are already in talk with 5, 6 builders, what would be the project size? I mean for individual builder, what would be the project size? Would it be -- maybe in just an Indian currency, would it be INR 1 crore or for a bigger project, would it be INR 5 crores? So then our margins would be improving, right, if it's a bigger project?

No, no, no. No building will be less than at least $500,000. That is about INR 4 crores, even if it's a medium-sized shed or pre-engineered metal building. I think building -- minimum average, you should take it somewhere around $0.5 million. And it can be $2 million, $3 million also depending upon the size of the building. So we have a few buildings which are in the region of $400,000 to $500,000, a couple of them and a couple of them more than that, close to $1 million, which are under the RFQ stage. But due to this confusion in the tariffs, the builders are not able to push forward. But a couple of them has indicated that our pricing is very competitive, and they wish to go forward once they have some clarity on the tariffs.

We take the next question from the line of Madhur Rathi from Counter Cyclical Investments.

Sir, I wanted to understand regarding this JV with Interarch. Sir, so what would be the commission that they will get on the overall revenue? And sir, would we have to provide our services at a lower cost to these players because of being present in India or -- yes, on that thing?

No. The pricing of our services will remain as what we charge to U.S. clients for -- not only for designing and detailing, but also stamping and even supervising of the project during the erection. So we will be certainly getting a decent amount of revenues for the work what we rendered. Apart from that, we are eligible for 5% of commission -- up to 5% of commission on the building cost itself, whatever the export value of Interarch. So that way, if we start getting the buildings, it will be a sizable contribution for us.

Got it. Sir, there's another player called Pennar Industries, who does PEB exports to U.S. Sir, so how -- sir, so what we understand is they do everything in-house. Sir, so how is Mold-Tek's and Interarch's JV or MOU positioning different from what Pennar would approach a client to? And how likely are we able to get orders from this going forward?

So as far as my knowledge goes, Pennar does exports, but Pennar also need a front-ending structural designing firm or a stamping PE, which I don't know whether they have or not. I can't comment on that. But we have a PE on our employment and also firms which work with us in PE stamping, which we have been doing for the last almost 10 years. So that is a very critical input for the builders in U.S.A. without which they can't buy and erect buildings. So I'm not fully aware of Pennar's model. But our relation with Interarch will enable us to give the overall designing, detailing, stamping and the building supply. What they need is to provide the foundation, erect the building and close the building with glass or shutters or prefab products. So that way, the building construction will be very fast and economical. Our pricing shows there is a massive cost difference between what is fabricated within U.S. and supplied from India or from -- even from other Asian countries.

Got it. Sir, in our civil engineering side, sir, is there a possibility of us providing these services to European customers or any other market where margins are good? Or we are currently focused only on the U.S. market?

Our civil buildings are focused only on U.S. market, whereas our MES services are predominantly in Europe that -- because major automobile companies manufactured in Europe are related with us for the last 7, 8 years. Our business model is mostly for European MES services, that is automobile. One or two accounts we opened in U.S.A., including Tesla. So hopefully, Tesla, Tier 1 suppliers, we are dealing with. So in U.S.A. also, we have automobile clients -- clients for automobile services. Whereas in civil, it is predominantly U.S.A.

Sir, just final question from me. Sir, what percentage of our revenue did come from the structural design or the member design aspect in FY '25? And what is expected in this current year?

It's somewhere hovering around $600,000 to $700,000, that's about INR 5 crores for last year and even this year also, it is somewhere around that. Because as I said, the last 6 months, the activity is not taken off in U.S.A. But still, we are maintaining structural design somewhere around $500,000 to $600,000, maybe more than that, $600,000 to $700,000.

Got it. Sir, if I look at Mold-Tek Technologies from a medium term or like maybe 2 to 3 years, sir, what we are -- sir, so what I read is that there is going to be a reglobalization where a lot of companies are either going to set up their warehouses or do some kind of industrial construction in United States to either get benefits from type or some other diversification strategy. Sir, so over the next 2 to 3 years, can we expect, sir, to double our revenue just based on how the market is growing, how MOUs we have signed and the capabilities that we are planning on. So, sir, is that a fair assumption?

Yes, we should be in 3, 4 years, able to double our sales with all these MOUs and the new lines of activity we are entering in because -- including structural design acquisition. If these things happen, I'm sure it's a -- fairly a good assumption.

And sir, on the structural design aspect, sir, can we expect the acquisition to get closed by FY '26 end?

See, actually, we have been trying for the last 1, 1.5 years on these acquisitions, but we are not finding the correct partners. Most of them are retiring engineers, who want to leave the business and go, but that's not what we are looking for. We want at least a couple of -- or one of the partner to stay with us for 3 to 5 years. And that is where we are not able to clinch the deals. But now we are in a position to talk to one client, one proposal in New Jersey area who are willing to work with us for 3 years. We are trying to ask for 5 years, and that negotiation has just started. If something happens, we'll certainly be informing the exchanges.

[Operator Instructions] As there are no further questions, I will now hand the conference over to the management for their closing comments. Sir, please go ahead.

Yes. I take this opportunity to thank all the investors and analysts who have been -- who have attended the call today, and also take the opportunity to thank Emkay Global for providing the opportunity to connect with our investors. Thank you very much. Have a good day.

Thank you. On behalf of Emkay Global Financial Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.