Ratnamani Metals & Tubes Limited (520111) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 FY '21 Earnings Conference Call of Ratnamani Metals & Tubes Limited, hosted by Monarch Networth Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sahil Sanghvi from Monarch Networth Capital. Thank you, and over to you, sir.

Good evening to all. Thank you, Ritucha. On behalf of Monarch Networth Capital, we welcome you all for the Ratnamani Q2 FY '21 Earnings Call. We are glad to host the management of Ratnamani today. And from their side, we have their MD, Mr. Prakash Sanghvi sir; and then CFO, Mr. Vimal Katta sir. I'll hand over the call to the -- I'll hand over the call to Prakash sir for the opening remarks. Thank you, and over to you, sir.

Yes. Good evening to all. Quarter 2 of 2021 result, you might have got from the mail by Mr. Katta. But at the same time, I can just review the numbers. So as you see the second quarter total turnover is INR 577 crore, and net profit is INR 56.69 crore. Its turnover was also a little bit less from year-on-year. And profitability was also a little bit less from INR 76.46 crores to INR 56.69 crores. Order in hands, about INR 1,178 crores on 1st October '20 with INR 439 crore stainless steel and INR 739 crore carbon steel pipes. So altogether, it is at INR 1,178 crores order on hand. And recently, what we got this -- about INR 400 crores was ordered for oil and gas cross-country pipeline in city gas distribution, that includes this INR 1,178 crore, okay? And still, some more order visibility is there. We are L1 in some more big size of order, but decisions are yet to taken, so it will come any moment in November, December. We have extended the validity for required tenders. So some more orders will come. And in stainless steel also, small, small, all orders are keep coming. And there are number of inquiries what we are bidding on day-to-day basis. So all put together, good inquiry, what we are quoting. But the order materialized is taking longer time due to this corona still as well as little slow in oil and gas. So order decision taking little more longer time. Otherwise, there is a huge inquiry, direct inquiry, tender, all these things we have quoted a big amount. Out of that, we will definitely get our share, that is sure. And expansion side, we already got audited by APA for this LSAW line pipe, cross-country pipeline business, the new capacity of, say, about 150,000 tonne. And it -- we are through for the API license. So in a month, we are going to get the license and we'll start the product in the third quarter itself over there in LSAW carbon steel division. And in stainless steel, it is still a little bit late from this -- Danieli side, you can say our international supplier side, because of, again, corona, they are not so far visited over here. And unfortunately, their -- in their country, in Europe, the lockdown started for second wave. So it is still difficult to -- they will come. So what we may try to take local help, local Danieli help and execute this expansion of stainless steel hot extruded completed by this third quarter. Mostly by December, we'll take a trial production with today's condition. But we need international -- that -- our Italy supplier help, so we may take on, what you call, video conference something. But their presence is more valued over here to start the production. So it is still a little bit more time-taking. But internally, we are sure we may start some trial route by December. This is long pending expansion of hot extrusion stainless steel. And most probably, by fourth quarter, we do some trial production, a good quantity. Other thing -- everything is there. Raw material and everything is there. So this is what things -- of course, still, the corona in the country is there. Of course, cases is coming a little down. So we are hopeful things will improve further in third quarter and fourth quarter. But if you can see the Europe, again, in all these, countries are putting a 2-week, 4-week or 1-month lockdown. So we are worried whether it is not here in the country in this winter. So we are in dilemma what will happen. But we keep continue booking the order, production, everything is streamlined over here. So I don't see a major impact of corona now. This is what the -- and this Barmer Refinery steel, they are taking longer time to release the order. Otherwise, we have a very good hope. And we are L1 over there in big order, it's about INR 150 crores size in carbon steel LSAW pipe. At the same time, other small, small requirement for export, we are booking orders. And that's how the stainless steel division has INR 439 crore order as regularly, it was INR 300 crore, INR 350 crore order. So order booking increased in the stainless steel division. At the same time, this last 2 big orders we got, so INR 739 crores in carbon steel. So all put together, it's INR 1,178 crore order in hand. This is what we are. And long-term visibility is there, but short term because of this slowdown in the country as well as little -- low price in crude, that takes longer time to take decision for the oil and gas expansion or new greenfield refinery or something like that, somewhere people have hold the expansion, so the situation is like that. So thank you.

Shall we start with the question and answer, sir?

Yes.

[Operator Instructions] The first question is from the line of Ashutosh Tiwari from Equirus.

So firstly, like, you have mentioned about Barmer Refinery, there's some delay happening despite the fact that you are L1. Which are the other projects where -- from where you can receive some orders over the next 3 to 5 months?

Yes, the Barmer Refinery is a bigger one. We already become L1 also over there. So we have already extended validity to release the order. But they are taking little longer time already you know because of COVID or because of some other reason. But most probably in this particular month, October only -- sorry, November only, we will make that order, what we are checking down the level. And other small, small orders what we are getting in stainless steel, in carbon steel, all small, small orders. But big ticket size is this and something in a cross-country pipeline for our spiral and ERW.

Okay. And for LSAW segment any project where probably we can get good orders? There was no previous manufacturer coming up...

No. LSAW, now -- one good thing, we have already put audited by API and they have recommended the license. Now by month, we are going to get the license. Of course, we have already started searching the inquiries and being after them and telling about our new plant presentation and all those things. We already started in local as well as international markets. So something or other gets materialized by month or 2. Because it's a new plant, we should get the customer over here and get them and -- also them to the new facility, and things will start in LSAW line pipe.

Okay. Any other projects, big projects where probably we are currently bidding or where probably we can expect some orders placing...

We already bidded some -- this -- for cross-country pipeline. So they might be materialized in January or February something like that, already bidded.

Yes. Okay. Okay. And on SS side, any big projects?

SS side, all these small, small orders are keep coming from export as well as local. And total order booking in SS is INR 439 crore, so it keeps coming, not much big. Big will come from this refinery only. But right now, they're doing underground pipeline first. And then the second NPO for above the -- on the ground. So it will take time. It will -- yes.

And there was this project of -- in Mozambique of LNG, anything happening over there?

Nothing has come so far actually, yes.

Okay. So this SS, stainless plant, will probably get commissioned maybe this quarter end or maybe Q4? So -- and we are targeting that the distributors basically the Europe will get...

Mostly, starting with the distribution, of course, you're right with the -- in the domestic market as well as international market. And that also we are -- because we are always delay in last 3, 4 quarters. So we are not telling much about right now. First, we'll produce a good trial production in this January, February, and then we'll start because people need commitment also and price, also based on the nickel, so we are still not -- of course, we will -- internally, we are ready. We can sell from January, February onward.

So next year, what kind of volume we can expect from that plant, at your stainless?

Say, initially, to start, you can say 30% to 40% from that new -- this hot extrusion place for the domestic as well as export, but capacity utilized between 30% to 40% because I said new thing, so many, grade, size, diameter we will develop first internally, and one by one we will put into the market.

30%, 40% would be equivalent to almost almost 6,000 tonnes in the market...

So with that, our target is there. Once it streamlines everything, we'll definitely do that 5,000 tonnes to 6,000 tonnes, no doubt about it.

And lastly, on the domestic front, because this -- all these clauses by government in terms of neighboring country suppliers and all, are you seeing some collections on that side also that -- probably there is collection happening or it will take more time?

Almost good.

See, Ashutosh, once the products start, then it will be there, the local manufacturers because up to INR 200 crores will...

Even up to INR 200 crores, yes...

It has to be from the Indian players. But simultaneously, some adverse impact in overseas market will also be there because all the majority of the companies are -- countries are promoting same policy [Foreign Language] buy from the local. So once the CapEx cycle starts in the country and PSU starts the projects, then that will be a big positive for the Indian manufacturers.

But Middle East, there is no manufacturers for this stainless steel, seamless hot extruded pipe or tubular manufacture. So Middle East market is always there. African market is always there. Only things will support. Europe is still open for us. It is only -- they have put antidumping on Chinese. Rather, Europe we are regularly -- we got good order from Europe only. And we have a good distri -- one good distributor, and we keep our stock also over there.

Okay. And on the CapEx side, we did almost INR 92 crores in the first half. So full year, how much we will do? And next year, any guidance, which could be employed?

Maybe around -- see, if the entire CapEx happens, so it should be nearer to the INR 200 crore figure roughly for the entire year.

Okay. And next year?

Next year, not planned. Too early to plan because, first, we like to consolidate whatever we have done.

Yes, we have to put in the market both -- from both LSAW as well as extruded. Our more important priority will be this only, whatever we put this -- in last 2 years, INR 600 crore, now you can start selling in the market the material.

So CapEx will be very low next, over next 2, 3 years also?

Of course, if some opportunity will come, like NCLT, like direct deal or something in pipe only and very cheap buy, then, of course, we may think for other locations not for the current, present location, other location only, yes.

And on ERW side, also we are spending small...

Yes, that will be also available capacity from January onwards. It is just finishing line we are putting. Yes, so almost construction is -- by this month end, we will complete and then machine also keep coming. So by December, they will erect everything. Also, we hopefully start trial in January first, second week.

Our capacity in ERW will go to 1.2 lakh tonnes post that?

Yes, it will. Yes, it will go from 70,000 tonnes to 1.2 lakh tonnes. And there visibility is there. It is purely for city gas distribution. And even today also, we had booked until May, June for city gas. This -- our present capacity is already booked up to May, June. So that side, basically, order booking will remain pretty strong.

The next question is from the line of Kaushal Shah from Dhanki Securities.

Yes. Sir, you mentioned about the likely utilization for the SS plant in the next year, how do you see the -- on the carbon side, carbon steel side because there, again, we're putting up a large facility. So what is the utilization likely? And how do you see the utilization from the new plant in the next year?

See, for first, immediate next year, it might be 25% to 30% we are going to utilize LSAW, and it depend more on the kilometers of the line pipe. If it is some international -- we are bidding some international projects also for line side, some over here, but that is a product mix of spiral or LSAW. So because today, spiral is also -- the capacity is available. So first, we will -- it depends on the thickness and diameter, what capacity we can utilize. But our internal target is about 25% to 30%, this new capacity which we will utilize from 120,000 tonne.

Sure. Sir, on the EBITDA margin, there has been some disappointment in this quarter. So if you can just kind of give your thoughts more about guidance.

See, basically, it is because of the change in product mix. So mainly process price in carbon steel, that is LSAW, dispatches have been on the lower side. And dispatches in helical SAW have been on the higher side. So mainly, it is because of that. But as we have been telling that broader range of 16% to 18% for the entire year is what one should be looking at. Quarter-on-quarter, we may see EBITDA moving up significantly, maybe 18%, 20% range also, if dispatches of only process pipes are there or project pipes are there in a particular quarter. So those sort of situations may be there. It may come down to even less than 13%, 14% if major part of dispatches is from the line pipes. So a lot depends on the product mix and the delivery schedule as per the requirement of the customers.

Okay. And sir, one final thing on the working capital side, any particular thoughts where we see the overall days? There has been some rise in inventory.

See, inventories have rather come down, see, because inventories move in tandem with the outstanding order book position. So -- but on average, in our case, roughly 4 months of inventories will always be there because we cover our raw material on back-to-back basis. And we need to carry a lot of inventories, then inventories are also linked to the nature of order. So if carbon steel pipes are with inside and outside both the coating, then inventories of bare pipes -- then in fact coated pipes, then pipes waiting for -- means fully coated pipes. Those sort of inventories will be there. Similarly, in case of exports, particularly of carbon steel pipe, one needs to wait for the ship load to be available, so then your inventory levels move up. So a lot of things are there. But on average, roughly 4 months of inventories will be there.

[Operator Instructions] The next question is from the line of Saket Kapoor from Kapoor & Company.

Sir, firstly, for the CapEx from the PSU side, sir, as you have elaborated about Barmer Refinery's orders being delayed. And we also read today that 1/3 of the CapEx have only happened and a lot is left to be spent. Sir, where is the -- what is your pillar and the ground regarding the CapEx from the PSU front because they are also running short of cash. So how are things going to shape up, sir, going forward? How is the environment shaping up?

See, this current financial year, things will be a little slow because of the -- one thing is COVID impact. Ongoing projects, those are also delayed. So nobody is in a hurry to place the order for the next phase of the project, the next leg of the project. So those sort of things are there. Hopefully, next financial year should be more promising because a lot of things are now settling down, and we are seeing now green shoots are visible in the economy also. So from fourth quarter onwards, we should be seeing some good improvement in the demand side also and project implementation side also. So this is our expectation. Let us wait for some time how the things move in third quarter, particularly on the demand side. September -- October collections of GST have been good. So if this momentum is maintained, then PSUs will also start expediting their CapEx plans. So some time will be taken, yes.

Right, sir. And sir, if we split the order book, as you have given, between the carbon steel and the stainless part, if we put it industry-wide, the majority would be skewed towards the refinery segment on the -- or the fertilizer...

Majority will be -- in case of carbon steel, it is -- almost, you can say [Foreign Language] 90% will be for cross-country pipelines and city gas distribution, okay, almost 80% to 85%, one can say. And remaining will be refineries and petchem. Then in case of stainless steel, it is, again, more than 50% will be refineries and petchem, remaining 50% will have...

Power, fertilizer and...

Power and fertilizer and other things, yes.

Right, sir. And sir, we are also seeing this raw material prices moving up, although you have already explained that we do back-to-back closure of raw materials. Sir, how -- what factors are actually playing up for this firming up of raw material prices? And what indications are we getting of this firmness in the raw material?

See, raw material trend in steel, it is going up month by month, say, INR 1,000 to INR 2,000 per tonne because of Atmanirbhar Bharat and lot many restriction on import. So it is definitely local are increasing the price, this JSW, this Lakshmi Mittal, whole Essar and Tata Steel, of course. Because it depends on internationally, this iron ore price also getting firm up, so they increase. The main reason they say the iron ore increase took place. In stainless steel also, it depend on nickel-moly. These are the 2 main elements. And these are the commodity stock trading every day in LME. So a little bit fluctuate over there, say, it's moved from $13,500 to $15,000, the LME nickel. So based on that, say, about INR 10,000 to INR 12,000 in the last 3 months, it took increase. So you can say 4%, 5%, anyone can absorb. And our policy is almost -- even we keep some stock at standard sites otherwise, we book on back-to-back basis. So not much affected. Even our all carbon steel orders, what we got recently, that we have booked, the moment we become L1, and we started negotiated with the parties, vendor, supplier, and we booked at our budgeted price. So not much impact. And anything now we are quoting with the current market price.

Right, sir. Sir, out of this capital work in progress of INR 452 crores, how much would be capitalized by March '21?

Almost everything. Because see, LSAW, we have already completed, only remaining INR 50 crores for the circ seam bigger diameter, that also we will complete by this December, January. Then this side, extrusion also will be completed by December, January. So by March '21, everything, all the capacity -- nothing will be work in progress, everything in the books, installed and start production.

I think it will translate in third quarter.

Yes. Something in third quarter and the maximum in fourth quarter.

Maximum in fourth quarter. And for the LSAW new capacity, sir, what is the total cost of project, sir, which will get commissioned?

See, put together this LSAW and circ seam that have 150,000 tonne capacity, it's about INR 240 crore you can say, including land and everything.

Season greetings for everybody.

Next question is from the line of Ashutosh Tiwari from Equirus.

So on this water side, is there any happening or there also delays are there, just wanted to know?

Water also, it is delayed. But something for next year what we were having last week, the meeting internally, how we have to utilize the capacity something in the water also because now the capacity is more available with the LSAW. So how we can utilize something for spiral in the water. And some tenders are there, but that is for the next year actually. It will be materialized by March -- February, March only.

You mean to say the orders will come by March or you'll get by March?

No. So tenders will be something December, January. Then they will take -- because it goes to EPC and the EPC will take decision, so it will be February, March.

Okay. So next year something will come from in terms of water, I believe?

Yes, water will be there, yes.

And water will mainly be helical SAW only?

Helical SAW only.

And circumferential sequence in the...

Sometimes. But in helical SAW, for water, we have a price range up to 140 inch diameter. So everything goes to helical SAW.

And we were also thinking about shifting the plant to eastern side. Anything happening over there or...

Yes, it is still in the [Foreign Language] our decision. But because of this COVID, it had been delayed because we have some good machinery available with us, the plant we put in Nagoa, the entire plant is available. And we have 2 spiral mill is running very well with offline welding. We have good capacities here. So anything we would like to put in somewhere in out or east. So that we will -- once it will be -- this COVID is over, we will start again looking this side, and something in that area what new is coming. So linked with the project complete and something you get to start the production also, something like that.

Okay. And there was this pipeline from, I think, Kandla to Numaligarh or in that Eastern side, any orders come from that side, that is your segment?

Yes, there is Eastern Grid, the tenders already started on what we call reverse auction, Eastern Grid. The Eastern Grid companies side that -- pipeline? But from where to where? Downstate. When it will be over, the order for Eastern? Not Numaligarh Refinery, but other your long pipeline, cross-country pipeline, Numaligarh? And you said, the eastern corridor, the entire pipeline. So still, you need -- have to come something, second phase. So the first phase is already awarded, and we got into that only. Okay. So that is -- what's the name of the pipeline? IGGM (sic) [ IGGL ], okay. See, the IGGM (sic) [ IGGL ] first phase, they have already over and that's only we have got in last month, that INR 400 crore worth order, okay? Now second phase will come after 6 months, it is Indradhanush Gas Grid Limited or something like that, yes. There is a tender on Numaligarh Refinery, that we are bidding now, yes.

Yes. Okay. I got it. And on this chemical and fertilizer side, I mean, in that industry, probably -- because that's going well. On that side, some orders are coming from SS pipe...

Yes. For SS pipe, small, small orders coming, INR 3 crore, INR 5 crore, INR 10 crore, something like that for fertilizer. Even for power, also keep coming BHEL here; then you can say pharma industry, this API industries like Divi's, something new in country in Vizag, they are putting big investment.

Divi's?

Divi, Divi or something like that. And we are quite regular supplying them the stainless steel seamless and welded pipes, supplying regularly. Now all -- see, now there is one big thing start in country, this API drugs. We were depend on China. Because of this border issue and this and that, government decided -- Central Government had to put 3 API drugs hub -- parks, industrial parks in the country, one is in Gujarat, Zhagadia; other one is in Telangana; and other one is in North or East somewhere. So the Central Government is pumping INR 1,000 crore for acquiring the land and this and that. And then local GIDC or MIDC, they take of that industrial park with the dischargeability. So most important over here in this chemical industry that you have to have a good discharge for pollution to undergo, a common discharge. So nobody have a problem and things will move. So we feel in the next 2 to 3 years, a number of companies will come from the Indian entrepreneurs or some may come from outsider also in this particular segment.

So like you say that, say, yes, our refinery, almost 7% to 8% of CapEx is for pipes. Any color on how, let's say, for a chemical plant, what could be the pipe orders and all?

Pardon? Pardon, Ashutosh.

Sir, like you say that in case of a refinery, around 7% to 8% of the CapEx is towards pipes and all, do we have something like that for chemical or fertilizer plant as well? Or it is not that big for fertilizer...

No, no, no. In case of chemical and fertilizer -- this chemical plant, it will not be that significant. It will be around 4% -- 3% to 4%.

Yes. But this API drugs, there the entire stainless steel only they use. So their quantum might be more bigger for API drugs, like maybe we are regularly, every month -- there is there. They are putting something in visakhapatnam. So there the quantum will be definitely more. And other thing is LNG. LNG is also entire stainless steel because of this gases with 190-degree temperature minus cryogenic application, yes.

Cyrogenic.

Okay. Sir, one other thing is that in case of these nuclear power plants, I think we were -- we had got earlier big orders. So is there any progress happening over there also in case of nuclear power plant or that business is not moving very well?

No. So far, we got some orders through, you can say, fabricators for nuclear industries only. But in near future, definitely, something will more come for piping, primary piping, instrumentation tube. That, they take a little later because equipment. So heat exchange, that tube orders, we got it. And the piping and instrumentation tube will come later. The plant is already -- site is already running in Haryana for one site. Like that, the 8 projects will come, 8 -- in the next 7 to 8 years.

Okay. Okay. Okay. So there, maybe we can get some orders in the future?

Yes, definitely. Yes, yes, yes.

So going ahead probably API is one new opportunity, which can become a decent type of income...

Yes. So that what we look. And definitely, there the entire quantum will be stainless steel pipes and other things there equipment.

Could you come again, sorry?

[Foreign Language] For API, their maximum quantum from stainless steel division only.

Okay. So that probably could be a decent price for the future?

Yes. So this is a new segment, you can say. Earlier, pharma was there, but not much. But in API, there is a huge line -- pipeline is required of stainless steel related from 0.5 inch to 10 inch, 12 inch.

Okay. And sir, one more kind of futuristic, but this hydrogen energy generation and all that, that being used as fuel. I think there are some plants coming up in Middle East as well. So on that, hydrogen as fuel.

So hydrogen, hydrocarbon, what we call it...

It is generated from hydrocarbon, which is what hydrogen energy generated. In some cases, it's also from seawater that has generated hydrogen energy.

No. That's still too costly that energy actually, still too long way to go, still -- before it this all here, battery operated, some car may come in the country or other. In our country, it's very difficult for charging. Again, it might be coming in a small, small country, like European country or Middle East or somewhere like that. But why Middle East? There is a huge petrol reserve available. I don't think anything comes like that. And this water, hydrogen is very, very long, long way, and the cost is too high for that.

Okay. But they're putting some plant actually there. They already have some plants over there.

We have not heard much about it.

The next question is from the line of Sahil Sanghvi from Monarch Network Capital.

Sir, my first question is, what is our current outstanding LSAW order book?

See, I have given the figure, it is total. Carbon steel division, we have a INR 739 crore order on hand. And in stainless steel, we have INR 439 crore order in hand.

No, sir. So my...

So totally INR 1,178 crores order with the company for the stainless steel as well as carbon steel, all put together.

Right, sir. I was specifically asking on the project piping order, which are the higher-margin LSAW pipe. So do we have...

Might be, it might be INR 100-plus crores something. Because here, we are expecting some more orders to come in this particular month only, say about INR 150 crores to INR 200 crores worth or more.