Navkar Corporation Limited (NAVKARCORP) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Navkar Corporation Limited Q2 FY '22 Earnings Conference Call hosted by YES Securities. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Viral Shah from YES Securities. Thank you, and over to you, sir.

Thank you, Sameet. Good afternoon, everyone. I welcome all the participants to the 2Q and First Half FY '22 Results Conference Call of Navkar Corporation. We have with us Mr. Anish Maheshwari, CFO of the company. We will commence the call with the opening remarks from Mr. Anish Maheshwari to give an overview on the company's performance and which will be followed by a Q&A. Over to you, sir, for the opening remarks. Thank you.

Well, good afternoon. A very warm welcome to everybody on the call. Thanks to YES Securities for giving us an opportunity to share quarterly results. The figure of the results presented for quarter 2, I'd like to mention that the issue of the current quarter is almost in line with the [indiscernible]. The priority of the company is to improve the profitability, in line with the measured growth of business volumes in current [ state ] of the company. The elements of revenue of the company during the quarter are as follows. In case of ICD PFT, volume of import containers handled declined by 10.9% from 30,368 TEUs to 23,433 TEUs on a Q-o-Q basis. And from 18,422 TEUs on Y-o-Y basis, the same is up now by 43.3% year-on-year basis. And the volume of exports containers handled remained similar from the 19,767 TEUs to 19,613 TEUs on Q-o-Q basis. And from 30,862 deals on Y-o-Y basis, the same has increased by 51.9%. In case of CFS PFT, volume of import containers handled stand by 29,297 TEUs from 30,264 TEUs on a Q-o-Q basis, which is a decline by 3.5%. And from 21,119 on Y-on-Y basis, the same is now up by 33.7%. And volume of exports containers handled declined by 25.0% from 25,445 TEUs to 18,980 TEUs on Q-on-Q basis. And from 20,118 TEUs on Y-o-Y basis, the same is now down by 5.96%. Number of trains handled decreased by [ 12 ] in last quarter to 260 at CFS PFT and from 766 to 720 at ICD PFT, which is an overall decline by 9.1% on Q-o-Q basis. Comparing the same with Y-o-Y basis, the trains handled were 237 in CFS PFT and [ 400 ] in ICD, which is an overall increase by 52.02%. EXIM turnover declined by INR 163.01 crores to INR 146.43 crores on a Q-o-Q basis, means a decline of 10%. And this is a raise by 38.3% from like the same quarter last year of only INR 105.88 crores. Company is committed to the path of growth to extend the client base in EXIM as well as the domestic turnover. And the decline of TEU handling data was due to the Q2 rainy season, which is -- as well as a slight decline in the [indiscernible] quarters. In terms of revenue business, the quarter scaled quite to -- at a similar level as compared to the last one. There were challenges due to the COVID era, but the performance of the company was positive in term of maintaining good business volumes. I'll comment on the profit figures of the quarter 2 FY '21-'22. Operating profit of the current quarter stands at INR 71.9 crores in comparison to INR 73.26 crores in preceding [ quarter ], which shows a mild decline of 2.1%. EBITDA margin of current quarter stands at INR 47.19 crores in a comparison of INR 49.25 crores in preceding, which shows a small dip by 4.1%. The fall in EBITDA margin belongs to certain reasons. Small dip in [indiscernible] of INR 220.84 crores in last quarter to INR 215.29 crores current quarter. This was a small decline of 2.2% pertaining to the rainy season this quarter. The depreciation cost of the company increased by INR 18 lakhs to current quarter as compared to that in last quarter. The reason for the gain of the depreciation cost was because due to the capitalization of purchase in the last quarter as well as in the during the quarter. Profit before tax of current quarter at INR 18.85 crores in the comparison of INR 22.25 crores Q-o-Q basis and that of INR 9.6 crores in Y-o-Y basis. Profit after tax of company stands at INR 11.6 crores in comparison to INR 12.59 crores on a Q-o-Q basis and INR 6.5 crores on a Y-o-Y basis. The tax expenses declined from INR 9.6 crores to INR 7.2 crores on Q-o-Q basis, which includes change of account, lower cumulative tax revenue in current quarter due to low profitability in current quarter. Now I'm hoping to be -- give us some light on our new projects. [indiscernible] to be mentioned on where we do make idea of setting up ICT [ Modi ] with that. [ Modi ] [indiscernible] area having major business and entity in the industry like ceramic, [indiscernible] paper mills and volume also for the ceramic [ industry ] of India. So far as [ Modi ], we got a letter of intent from [ government of ] India. And also, we got 3 extra letters from the railway. I just wanted to add on here that [indiscernible] major business houses like [indiscernible] India will [indiscernible] where operate in India as well as [ energy ]. And major transportation activities are conducted through the traditional modes only. The idea of our company is a quite cost-effective way of transportation using the private freight terminal facility as an extension of India business network. The area is rich in terms of business, but there is a lot of scope and improvement of transportation of network. We plan to grab this opportunity and become very [indiscernible] in this area. The company has received a letter of intent on 26th of 2001 (sic) [ 2021 ], and we got the agency approval for the construction [indiscernible]. For this purpose, company has acquired land base at that same location. The management are completing the complete terms of LOI via the time line and make ICD operational by that time. The purpose of new entity is to have better connectivity and network to serve the customers better in the domestic market as well as for the agri business. And we just want it to be within our existing facilities. Like in Bombay, we have a similar facility as well as we have a [indiscernible] in Vapi. So we just wanted to be -- reach our area in term of domestic as well as export agri market. After all the points and analysis, I would like to say that the company's performance, the growth of revenue was almost at par with the client decline, and the same is having a corresponding impact on the profitability. Looking at this, company also stretching the operations and profitability in coming 2 quarters, beyond which the profitability will improve and profit will be there. Now we are open for the -- open the floor for the Q&A session.

[Operator Instructions] The first question is from the line of Rishikesh Oza from RoboCapital.

Am I audible?

Yes.

Yes, sir. You are.

Okay. So sir, your EBITDA margins have dropped this quarter. If you could indicate why they have dropped?

So basically, if you see our top line [ vectors ], our EBITDA margins are in similar lines. My top line was last quarter, we have a top line of INR 215 crores versus -- INR 221 crores versus this quarter, we have INR 215 crores. So there is a slight dip on the sales as well as the profit.

Okay. Okay. So volumes also have dipped slightly, okay? I think -- but revenues are fairly stable quarter-on-quarter, as I see it. So is this because of higher realization?

Yes. Definitely.

Okay. So are these realizations sustainable going ahead? Because I think last 2, 3 quarters, we have seen a higher realization level.

Yes. Absolutely. Because at Vapi, [indiscernible] in the comparative orders. And Vapi realization is not comparatively higher than the Bombay business orders. So if you see in my commentary also, we are having a better growth in comparison to Vapi. So that is the reason our Vapi -- realizations over at Vapi are higher than comparative to Bombay.

Okay. So given these realizations are sustainable as Vapi grows, our revenue should also grow, right?

Yes. Definitely.

Okay. Okay, sir. So what EBITDA margin guidance would you maintain for the next second half and for FY '23?

So in the past 3 or 4 quarters, we've seen that our EBITDA margin will improve. And now we are having average of around 22% to 23%. And our first target, which I have already given in the last quarter also, and now also, we just wanted to give you a highlight on that, our first target to achieve EBITDA margin of 25%. It is now in range of 22% to 23%.

Okay. So how soon could that happen? And why?

So basically, there may be a bigger figure for the business operations, first thing, the deals which we are profiting. Secondly, now we are public with the establishment of the domestic market also, where we put our trains and the other efficiencies. Now I think we -- in a couple of quarters, we are having growth back. That will be segmented in the same numbers. Like in the past 3 or 4 quarters, we see our domestic numbers are growing higher. So once -- that will determine what the -- now we are having around INR 61 crores, INR 62 crores of asset value, which will be ending up to INR 70 crores, then our costs will be at par. That is our target. So because fixed costs will remain same, the business operations will be [indiscernible]. So with that, that will be a figure for us for improving our EBITDA margin.

So you're saying a couple of quarters it will take for you to reach a 25% kind of range, correct?

Yes. Yes.

Okay. And that should continue in FY '23?

Yes.

Okay. Also, sir, our tax rates are very high. So if you could indicate what -- going ahead, what tax rates do you foresee?

Tax rates will remain same, sir.

So around 40% of tax rates that we have been maintaining, so that what will be same? Effective tax rate is what I'm saying.

Yes. I don't think it will maintain. It will be -- it may sometimes be 42%. It may be going down by 35%.

Okay. Okay. And last question from my side, sir. Sir, when will this new CapEx come in? And what is the potential for this?

So basically, whenever we are proposing and we got the LOI, so what we did in last quarter, we took some loans from the [indiscernible]. Like we retained somewhat around INR 120-odd crores loan, out of which, I mean, we repaid the existing debt of around INR 106 crores for our existing dividend pay next year. So we are having advanced easening of around INR 5 crores per month for the next 12 months. So we got a [indiscernible] for around INR 60 crores to INR 70 crores. So similar time, we are not taking any kind of a further [indiscernible] for growth. With that money, with that cash flow, we'll be using our cash flow to making new ICDs. That is our idea. So no financing tie-up between our existing and new projects, and we have around a 40 [indiscernible] there. So it will take around a year's time. So by the time our opening for manufacturing main ICD has already started, so with that easening of existing debt, we'll using our cash flows to make that ICD. That is our current idea. So -- and if it will require any kind of further tax or further new [indiscernible], it may take another 1 year's time.

Okay. So 1 year, sir, to put that CapEx for investing, right?

Yes. So what we did, we just let some financial [indiscernible] with a tenure of 7 years loan for existing and other lines. With that existing loan, we can repay the 12 months' EMI in advance.

Okay. Got it. Got it. And what will be the capacity for the CapEx that you are going to incur?

CapEx range of INR 2 lakhs to use per year.

[Operator Instructions] The next question is from the line of [indiscernible], individual investor.

Sir, congrats on a good result. You mentioned that you'd be applying for MAT credit from this year onwards. Any progress or indications regarding that?

Your volume is not audible.

Okay. You have mentioned in the past that you'd be applying MAT credit from this year onwards. Any progress in this regard?

So we will decide on that on quarter 4 because we'll have to reevaluate the profitability. Then after, we will go to the bank based on the future estimations. So we were talking earlier that we'll be taking MAT credit from this year. But the situation of COVID, we just avoid to take that kind of spend for this year. Once we'll get in -- at par in the next couple of quarters, then that -- we'll take a decision over that period.

If you're not taking MAT into -- if you go for the tax norms that you issued at some of the conference calls earlier, which you reviewed the tax, so you'll be reevaluating tax in Q4, whether to go from tax or to go for the new tax norm kind of thing?

It is not properly audible, I'm sorry.

Okay. Is it clear now? Okay. So you have mentioned in the past like even you go [indiscernible] the new tax norm, which is like without any exemptions kind of thing in the past, so that precision will be taken only by Q4 or how -- when it would be?

So it will be applicable for the entire year. If I decide in Q2, but it will be for the entire year.

[Operator Instructions] The next question is from the line of Viral Shah.

Sir, a couple of questions from my end. One, in terms of our practices, where we are expanding the footprint across the verticals, sir, could you elaborate more on a [indiscernible] going forward, how you would like to capitalize market both on the agri and domestic front? And what is the [ WCC ] and cost saving, which is expected from the -- what we have? That is the first question from my end.

So we realized we're already levered here. If I think so, my new facility at Mundra will be taking from day 1 to 1.5 years. Meanwhile, what we are going to do, we are just making sure that our team will be hitting over there on a regular basis. So we are taking [ participants ] like [ Narenda Modi ] there in Mundra, [indiscernible] and [indiscernible] further north because we have a significant customer in Mumbai, which is down there in the south. And then we have an ICD first set up in north. And then again, we are making another ICD over there in [indiscernible]. So we have the cross-selling business order from 3 or entire entities for the domestic purpose. And then also, wherever we have [indiscernible] ICD from there to generate those movements and from the [indiscernible] Mundra [indiscernible] moving. So this is our overall idea. And further, we are moving towards north where we have seen -- like I will give you an example. So we have a decision with our marketing team. So from the North Rajasthan side, the raw material for making of tiles and other coming from there to [indiscernible] and further districts. And at the same time, [indiscernible] is moving from the [indiscernible] side. So that's kind of a business we are taking at a cost. This is just an example. So from there, if I'm telling you, from this month onwards, the specific task after we got the NOI, from next month onwards, our ICD obviously will start further for the construction side. It will take, I think, 18 months of time. Till the time we are evaluating that, we're kind of cross-selling capabilities we have for all 3 entities. So once we'll get in that core idea, and we have already researched on that, so today, we are at a position, [indiscernible] will be similar as our ICD market, and we can invest in 2 or 3 years. That is our core idea because [indiscernible] is also having a rethink like to use volume in equity or per month -- per year. So plus the domestic market has a huge volume market share. So it will be -- we are only making a 2 lakh steel volume capability hardly. And the second thing, with the question at the time of IMC meeting, you were also asking the -- operators were asking the same questions. How will we -- you will be having establishment over there with the [indiscernible] PFT? And what do you have [indiscernible] view when we will become a first-mover advantage? Absolutely. But it will -- if we have to individualize that, the whole operations, how much of the whole operations will be shifted through rail? So we were having a fair idea of around 30% growth of any [indiscernible] through rail because the cost efficiency advancing near 130- to 150-kilometer area will be a huge potential over there.

Sir, [indiscernible]. Just one last thing, if I may. Sir, we had our -- recently and in the past as well, where we were supposed to make up for Q1 numbers in last year. So -- and there were some surprises as well. So what has been the learning and what has been the strategy from our end so that we don't repeat the same mistakes?

So we recognize there's some argument to it. In past, repeating was the biggest issue for the entire CFS industry, and this was the lever we have in our minds. So now what we are -- wherever we are making this kind of ICT or volumes for the facilites like Vapi, once we have seen that there is a potential of addressing as well as -- in the domestic market, we're capturing out there also. So now the same thing, which we are slightly prepared for the [indiscernible] ICD because we are -- we learned a lot from the difficult kind of a thing. So now we have an ABC kind of a plan within our mind, and it will be because it will be deployed in a healthy [indiscernible] domestic market, I think, if there will be a problem, then what we will have is a good reaction with that. So all things we are having in our mind, and it will be giving us a better opportunity in that market. And the positive thing with us, if you today ask me in this situation also, our Vapi LGD is doing very well. I can say that. So this is all because of the past learnings.

Operator, do we have some questions as well? Or...

[Operator Instructions] The next question is from the line of Rishikesh Oza from RoboCapital.

If I heard you correct, you are seeing a move in operation in Q3 year should December Vapi?

I think your voice is cracking. Can you repeat?

So I just wanted to tell you, in 18 months, we'll be in a position to start operations. After that -- and you have started operations at Vapi in 2017 was the first year. In just 4 years, we were in a multiple [indiscernible] with Vapi. So we are having a high hope for [ Director Modi ] because our assessment of [ Modi ] loans since last 2 years, 2, 2.5 years probably. So with that said, from day 1 to 18 months will be taken for the construction. And then after 2 years, means from today to next 2 years, we'll be able to change Vapi offices where we are today.

[Operator Instructions] Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to Mr. Viral Shah for closing comments.

Yes. Thank you, everyone, for participating in the call. I especially thank the management of Navkar Corporation, Mr. Anish Maheshwari for giving us an opportunity to host the call. Thank you, everyone. Thank you, sir. Sir, anything to talk or some closing comments on your end, sir?

Thank you so much, Viral, and thanks from the company side. I just wanted to give you one highlight over there. Like June quarter, we were having a tough -- total loan was INR 479 crores versus on September, it was INR 575 crores. With the cash element, it will move up to INR 99 crores. Likewise, it will go by -- our cash flow [indiscernible] [ 70% ], we were having an unutilized [ CC ] of INR 22 crores, INR 23 crores. So almost INR 99 crores, INR 100 crores we have cash in the company. And with that, we are making further opportunistic with our construction with -- over there in Vapi as well as ICD. So first thing that I wanted to repeat over here. So we have enough cash because we're making -- we have an ICD over there. And secondly, the reason which we did in the past for next 12 months is also available with us. So from here on out, if we require INR 4 crores to INR 5 crores per month from our cash flow, we'll be utilizing our debt and with the cash component on our book, which will be suffice for Nhava construction. That is what I would to say over here.

Thank you. Thank you so much. Thank you, operator. You may end the call. Thank you.

Thank you. On behalf of YES Securities, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.