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

Okay, okay. Same thing with stainless steel also because of increase in nickel and there is antidumping -- this CVD put on this one Indonesian mill, Tsingshan is there. The government had put about 22% CVD on that. So -- and one reason is that. So there is a monopoly of stainless HR coil is with Jindal Stainless only. And second thing, of course, the COVID effect is there. And even nickel had increased from $12,000 to $18,000. So all this put together, there is a sharp increase in stainless steel HR, CR coil as well as stainless steel round bar also. The -- 4-month back, 5-month back stainless steel -- normal stainless steel price was, say, about INR 140,000 per tonne. So it had gone up to INR 180,000 per tonne. Say about INR 40,000 increase took place in stainless steel round bar as well as stainless steel in the last 4 to 5 months. Because of international price had gone up for the scrap, for the nickel, chrome, moly all such thing. And there is antidumping duty on this Chromeni, one company over here in Mundra. It is a Chinese company with Indian partner. There is a CVD what they have put about 22% preliminary. Then final duty was 18%, but fortunately in last -- this -- 1st of February, there is a budget. In that budget, they have reduced the duty in HR coils or CR coil. At the same time, they -- this antidumping duty, the CVD what they have put, they have canceled that duty next 6 months. Because all of sudden, the price increase took place about 20% to 30% in stainless steel as well as carbon steel. So this all MSME and other EPCs gone to the government, stating this is too much. And our all projects, we have took at an old price. So in this budget, they understood very well and they canceled all this antidumping duty or CVD or safeguard duty, all such things till September 2022. And they have reduced the duty also from 12.5% to 7.5%. So this will help. And they have zero duty on scrap. Earlier it was at 2.5% for stainless steel and carbon steel.

Right. Okay. And for the new capacity -- new line which is coming for SS as well as for LSAW, whether we are started taking orders for those? Or it is too completely appraisal side from the plant sites?

No, no. Now we are starting to quote because now we are taking trial and successfully, we are getting one-by-one site through. So now we are going to quote. And by March end, definitely, we can book something. So we can execute in April, May or something like that. So all commercial products can definitely start from April onwards. But with that, we will take a lot of approval also, somewhere customer to customers, somewhere third-party inspection agency, somewhere the EPC, somewhere the -- all such approval also we will take. And at the same time, all standard products we are going to manufacture also.

The next question is from the line of Dewang Sanghavi from ICICIdirect.

Sir, my question is regarding the opportunities in the SS segment on the healthcare division, especially the API. How is that panning out?

Healthcare division, you can say...

API.

API?

API.

API -- all you can say -- yes, yes, API. It's drug manufacturing. There is a good visibility into that because the government had, I think, 3 industrial parks with discharge facility to stop import from the China. They are going to put in a big industrial park. So there, definitely there is a huge amount of requirement of stainless steel, welded and seamless tube and pipe, both. So it will start, I think, 4, 5 companies, companies like Aurobindo, Divi's, they are continuously buying. They're expanding in Hyderabad, in Vizag, in such area. But with this 3 industrial parks, I think we may get a better segment from that particular area.

Right, sir. So that means you have good growing business going forward.

Yes.

And secondly, this Indonesia CVD which has been revoked recently in the budge, I think Q3's order book was affected because of this CVD. Now that CVD is revoked, so we will get again traction in the SSRW segment? Is that a right understanding?

Yes. There is 2 reasons of any raw material price increase. One is, of course, there is a monopoly of Jindal for last 4, 5 months. And other one is the sharp increase took place in nickel, chrome, moly as well as scrap, ferrous scrap. So the prices had gone up. But with this import allow from any country, even including China, I think some places will be definite they are on the Jindal as well as we may import also. So that will help us and that will help -- ultimate help to our customer because we were quoting very high price considering today's raw material prices. Now I think the prices will definitely settle in next 2 to 3 weeks from international markets as well as domestic. So definitely that much benefit we will pass on to the customer and order flow will increase.

So because of the positive impact from lower prices that will aid in getting better orders because of these prices will be going down?

Yes, definitely. Definitely.

Right, sir. And in terms of the SS capacity utilization for FY '22, are we targeting 30%? Is that a good understanding?

Yes. With new -- expanded capacity, of course, it's at 30%.

Yes, yes. That is additional 20,000 tonnes.

Yes.

Perfect.

Yes. 20% to 30%, depend on diameter and thickness because tonnage is governed by the diameter and thickness.

Right, sir. And you're targeting INR 3,000 crores top line next year. Is that a good understanding?

More than that.

More than that. Okay, sir. Good. Right, sir. And sir, the debt repayment we have because we have good cash flow this year and next year. So what is the debt repayment plan for our company?

Pardon?

The debt repayment schedule.

No, no. There is no requirement. Yes.

Okay. The repayment schedule, sir. You have term loans that were drawn from banks.

No, we have not drawn, and it will not be required.

I mean, it is not required at all. So we don't have any debt at all?

No, no. Right now, based on current inputs, we may not go for further withdrawal of the term loan. Yes.

Yes. That's great. And just the last bookkeeping number. In terms of the CapEx for Q3 and 9 months cumulatively, what we incur, and the sustaining CapEx for FY '22 because I think we don't have any new CapEx so far?

See, total CapEx in 9 months would be closer to -- means on this new, we have incurred closer to INR 500 crores sort of thing. Okay? Yes, yes. So in this 9 months, if we look at, say, it will be hardly INR 100-odd crores because anyway INR 380 crores something was there in CWIP. And right now, it is closer to INR 475 crores lying in CWIP. Something might have been capitalized also. So in totality, I can say roughly INR 500 crores we already invested in the new CapEx. Yes. Remaining, we will be completing now.

Yes, that's new basically. And the sustenance in maintenance CapEx for next year?

Next year, it's too early to commit. Right now, team is working on the next growth plan and maybe in the next 2, 3, months' time, it should be ready with their plans. And then the Board will be taking a call.

[Operator Instructions] The next question is from the line of Vikash Singh from PhillipCapital.

Sir, I just want to understand, like you said that new asset capacity, initially, you would be selling in the distribution channel. So how do we look at the profitability or the margins, sir? So is this not made to order? So would it be significantly lower? Or it doesn't matter much in terms of margins in that segment?

See, overall margin of the company remains between 16% to 18% EBITDA level. Of course, it goes on segment to segment, product to product. Company have standard products, company have a niche product also. So we can say starting -- to start with this new expanded capacity, it is little lower, but company will have lot many other products. So that can substitute. So overall margin, 16% to 18% will be there.

Initially, in case of stock and sale products margin, of course, is going to be lower than what we are used in case of made-to-order products. Because anyway, if there is no full finishing, then anyway, value addition is going to be lower. But it is going to be a mix between hot extrusion as is -- condition product and cold-finished product also going forward. So initially, of course, margins will be lower in case of newer hot extrusion facility.

Sir, wanted to just follow up on this. So once we have ramped up to our desire level, let's say, 2 years down the line, how would be the mix in the -- how do you see the mix in terms of this distributed general product versus the made-to-order products? And would this entire general products segment would have a higher margin, what we are seeing right now because these are more specialized products in a new category?

[Foreign Language] See, here what -- there is 2 products. One is standard product for distributor or standard stock and sale pipes. Other one is not many new thing what we are going to add, even lot many input substitutes we are going to add over here, even exploration, even defense, even for nuclear certain things. So, see, it is a total product mix in 20,000 tonnes. So something of it will go for a standard product to a distributor and something special what we are going to develop, and that goes to a make-to-order. So it -- average, it will remain same.

Okay. So as such it would be same as what we are making right now?

Right.

Okay. And sir, my second question pertains to our bid book. So what is our good book in terms of CS segment and just wanted to understand what percentage of this bid book had got entangled in terms of price readjustments because of the higher steel prices?

See, our orders are on firm price basis, okay? Hello?

Okay. Yes, sir. Yes, sir.

Yes, yes. Our orders are on price basis only, and there is no price adjustment.

And sir, what would be the bid book in terms of total bid book right now?

Pardon?

Bid book.

What's our bid book right now?

INR 1,000-plus crores.

Bid book will be -- maybe around INR 1,200 crores, INR 1,500 crores.

Okay, sir. Sir, just one last question in terms of, again, SS segment competitive intensities. With Jindal coming in right now, the market is -- was also a little bit weaker. How do you see that this new orders, which we are getting in, like, we have ordered a small INR 150 crore kind of the order since Q3. How do you see the margins there? Would it still be on a range-bound manner? Or we are basically now chasing more from the volume point of view giving up margin? So what would be the -- our strategy there?

See, where ever we have strong margins, we'll continue to remain in the existing range. Where competition is more, market will determine the margins. We basically -- you cannot remain isolated from whatever is happening in the market. So that is the thing. But we are confident with our product range and the type of products we are targeting, we should be in a position to have our own market carved out, notwithstanding the competition and everything.

Okay, sir. And sir, lastly, our net cash balance right now?

See, it will be more than INR 500 crores. Net -- you are asking for...

Net of -- net cash basis.

Net will be roughly INR 350 crores.

Your next question is from the line of Sahil Sanghvi from Monarch Networth Capital.

So sir, the bid book that you said about INR 1,200 crore to INR 1,300 crore, could you give me the split on CS and SS?

Might be INR 400 crore or INR 500 crore in SS, INR 400 crore or something. And INR 1,000 crore, INR 1,100 crores in carbon steel.

Okay. Okay. So can you also give some more clarity on these SS bid book that you have, like from which particular refinery? Or is it domestic or exports or which region?

See, it is all mix. There is an export requirement also. There is a local, oil and gas side, power side, all mix. And we don't keep such all segment wise also with us. And we don't...

Size will be very -- because of the increased competition, right now, giving very fine details will be...

I understand. I understand.

Yes, yes.

I understand. I don't need those details. My question was...

See, majority of the PSU requirement are available on Google.

Okay. Okay.

Domestic projects are available on Google. Yes.

Right. Right. Right. Okay, fine. And secondly, so you said we have a net cash of about INR 350 crores. So would we be doing any kind of debt prepayments? Or we will follow the schedule that we have for our term loans and ECG?

That call we will make in -- we are working on various options. We will take an appropriate call regarding that thing also. We are in discussion with our bankers. Yes.

Even we are working with some of the things also, some backward or...

[Foreign Language] Those things we'll be discussing with our bankers. Yes.

Okay. Okay. And thirdly, my last question was, you said that you will be also discussing on what will be the next program on the growth front. So I understand nothing is fixed right now. But could you give us an idea on what particular things are you looking at as in any specifics on that? Or what are the options that you have?

No, no. Lot many things we are evaluating. There's nothing yet finalized. So we cannot say anything. And right now, it is not the time to reveal all such thing. But we are working seriously.

The next question is from the line of Manoj Bahety from Carnelian Capital.

Sir, a couple of questions from me. First one is after the recent budget announcements on the CapEx side, across all the segment sectors, how do you see the opportunity size for your segments transforming? And also in that line, I understand that you have just completed INR 500 crores of CapEx and there will be -- so my question is whether the capacity utilization guidance, it remains same what you gave during earlier quarter? So will there be any change in there? Because this is first of the time this kind of huge CapEx announcement has been announced in the budget.

Of course, for us, I think in budget, it is -- this all line pipe or cross-country pipeline for CGD, that is there. And even LNG plant at the coast, such all things. So again, same thing. This cross-country pipeline, CGD and gas pipeline, all such things is there and there are going to put more number of pipeline -- cross-country pipeline. That is there. And of course, in infrastructure, it is not much from our side. Of course, all the state government also coming with their budget. And there might be a good amount of water pipeline requirement that is still to come. And other side, regular business coming from power, from chemical, fertilizer, auto industry all such is regular business. Especially, they have announced more on this cross-country pipeline and all the GAIL, IOCL, HPCL what they say and what are the refinery and petrochemical plants will come into country. So that's sufficient for us. And this is the domestic market, whereas at the same time, there's international market also. All same. Yes.

Sir, actually, my question was, like, despite of that, you're still -- in terms of capacity ramp-up and utilization, still you are giving the same kind of ramp-up, which you have given during earlier quarters. So just I wanted to understand, will -- is there a scope of a faster capacity utilization going forward in line of the announcement which has happened day before yesterday?

See, basically in case of carbon steel, it is possible to ramp up the capacity utilization based on the opportunities because no -- not much challenges are there. Manufacturing is not so complex. But in case of hot extrusion, it is a time-consuming job. So hot extrude, all the sizes and all the grades. So there, one cannot reduce the time. Maybe improvement of 5%, 10% maybe there based on the market opportunities. One may take up the trial runs earlier than the planned ones. So instead of 30%, maybe if opportunities are very good, it may increase to 35%, 40%. But it cannot go to 60%. Impossible. Impossible. Hot extrusion is a very complex manufacturing process.

Got it. And sir, so in light of that, are we running in any of our segments, CRW, carbon steel, or any of the segments, are we running the risk of sufficient capacity not there for meeting the upcoming demand?

See, right now, you can say, more or less, we have the capacities planned in such a way we can make best out of the available opportunity. At any given time, one may feel capacities are falling short of the requirements. But for short term, one cannot plan long-term investment. Right now, perhaps my marketing team may feel not enough ERW capacities are there. But that demand may not last for a very long time. So whatever was required, we have actively increased capacity by 100%, from 70,000 tonnes to 140,000 tonnes by investing in post-fabrication facilities, finishing facility. So those sort of steps we have been taken, and this will continue. But massive capacity shortfall is not there in any of the segments.

Got it. And sir, one last question which I have. In line of, like, reduction in custom duties, antidumping duties, is there any risk on the raw material, which we are holding because new raw material, which will come, will be at a reduced duty because I understand that one thing is there in contract, your LME prices and prices are linked to LME prices. But custom duty and antidumping duty reduction also will it be taken care?

No, no, no. See, in our case, nothing is linked to LME prices. All contracts are on fixed prices. So any increase in raw material is to our account. Any decrease in raw material is also with us, okay? So -- and that is the reason if you analyze our results for last several quarters, you will see our gross margins have remained range bound because we cover our raw material on back to back basis. Based on the average product mix, it has hovered around 65% plus or minus 3%, 4% here and there, okay? Means, raw material as a percentage of sales has remained in that range. And that will continue. Only thing is, right now, we are not carrying any inventory, which is for stock and sale. Going forward for hot extrusions, some inventories will be there. At that time, we need to be more cautious, more particular about ensuring no adverse impact of commodity price is there, which may significantly impact the profitability. Because at that time, some exposure to raw material prices will be there. Not right now.

The next question is from the line of Saket Kapoor from Kapoor & Company.

[Foreign Language] Sir, firstly, sir, from the fine prints of the budget, [Foreign Language] as Ratnamani Metals and the sector which we are operating, how are we taking the key highlights of things which are benefiting our sector and the company in which we focus, sir? What kind of traction can you summarize, sir, out of it?

See, especially not more for our type of industry. It is more on infrastructure, agriculture, textile and such. But of course they have said in between, there's a cross-country pipeline for oil and gas, city gas distribution that will continue, and they will have some new lines for that. So there, company will get benefit, number one. Number two, they have reduced the import duty on steel, that's about 5%, from 12.5% to 7.5%. So there's a very competitive market for our raw material. And I think that's all. Otherwise, same thing will go -- continue. And infrastructure, something somewhere we will get. Otherwise, it's normal for us the budget is. Yes.

Sir, on the CVD revocation on the stainless steel part, sir -- stainless steel counterpart. That is also going to lay off...

Yes. That is also -- earlier it was -- for the last 6 months, there is a monopoly from Jindal stainless and there is an import curbing by this 22% of CVD on Chromeni, the import from Indonesia, Tsingshan. So that is a good relief and availability of raw material at a reasonable competitive price might restart now. And we can import from any of the countries including China. That will help us a lot.

Okay, sir. That means...[Foreign Language] sir?

That'll help us a lot.

Sir, what about -- what is the duty differential, sir? I missed your numerical figure.

Earlier duty was 12.5% for steel, not stainless steel what I mean to say. Now it become 7.5%. So 5% of direct duty benefit, and they have reduced 2.5% duty on scrap, whatever stainless steel or carbon steel people were importing the scrap, it was 2.5% duty. That they've reduced. So one side, import duty they've reduced. Other side, scrap duty, they've 0. And this antidumping, they've removed. So all side, there is easy availability of raw material, number one, in stainless steel. Otherwise, there is a monopoly situation. There is a long delivery they are going to quote. The local producer only stainless steel, Jindal Stainless, like that. So these are the good things what had happened in budget.

Right. And the countervailing duty was 12.5%, that was reduced to 0, [Foreign Language] that was revoked?

No, no. That was, in our case, it was 7.5% only. In steel, it was 12.5%, steel. In stainless steel, it was starting 7.5% only.

Okay, sir. And now, sir, coming to this, IOC coming up with a big refinery -- joint venture with its subsidiary, CPCL. Sir, this INR 39,000 crore project as they have envisaged...

Yes, they've just announced -- of course, CPCL had just announced INR 39,000 crore was investment, but just announced, means, anything will start from after 6 to 9 months.

Right, sir. So [Foreign Language] opportunity amount can be for the -- for us...

Yes, yes. In refinery and petrochemicals, there is about 10% of their CapEx is all types of tubes and pipes in stainless steel, carbon steel, alloy steel, all such type of. So it's a good chance for next 2 years for us.

Sir, our diversification for seamless, sir. Sir, do we -- should -- our product profile that we can move for -- from this segment to the seamless segment also? Or that is a different ball game altogether, sir?

No. We were looking earlier once the UMW was available in MCLT, and we have bidded also. Of course, this is the one segment we are lacking in our portfolio that is carbon steel seamless pipe. But we are looking still, something is available at our reasonable cost, then. Otherwise, let's see. Because new investments we are not going to do on such particular segment. But if anything available at a reasonable quote or some synergies might be there, then we may think.

As this was the last question for today, I would now like to hand the conference over to Mr. Sahil Sanghvi for closing comments.

Yes. Thank you, Vimal sir and Prakash sir for patiently answering all the questions very elaborately. On behalf of Monarch Networth, we also thank all the participants for joining the call. Prakash sir, do you want to give any closing comments?

No, all I have said. Yes. Things will improve, and we're seeing a good visibility in all the segments.

Sure, sir. Sure. Thank you, sir.

Thank you. Thank you.

Thank you. On behalf of Monarch Networth Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.

Yes, thank you. Thank you, very much.