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

Ladies and gentlemen, good day, and welcome to the Q4 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.

Yes. Thank you, Rutuja. Good evening to all. On behalf of Monarch Networth, we welcome you all for the Ratnamani Q4 FY 2021 Earnings Call. We are glad to host the management of Ratnamani today. And from their side, we have the MD, Mr. Prakash Sanghvi; and their CFO, Mr. Vamil Katta. So without taking much time, I'll hand over the call to Prakash for the opening remarks. Thank you, and over to you, sir.

Yes. Good evening to all. Of course, you might have results on hand plus as well as FY 2021. But I can read the figure for the entire year. This is INR 2,331.5 crore and net profit INR 278.3 crore. During the year, we have completed, of course, with the challenging time COVID-19 pandemic, but our team, really congratulations to my team, they -- even the difficult time, they performed really good compared to our expectation. We have completed both the CapEx plan in division as well as targeting low. Approximately, you can say about INR 290 crore we are supplied in the year, but spending that and in is about INR 190 crore, about 150,000 ton line pipe capacity. And in behind this ERW pipe, we have increased the capacity putting new finishing lines to about 60,000 tonnes of capacity increase. So these are the 3 new investment that we did in the U.S. and now we are running successfully products and also of course and pharmacies and going on. And in ], we also did good number of , but still some more price we have to do. And the number of approvals, we applicate at the new plant. So hopefully, this year, we will get from both the dividend, additional turnover. And then other on and that is on the about INR 1,498 crore total. And things are, of course, in first quarter of the new year also not good because as the pandemic and second wave was there. And now things are increasing slowly and gradually and numbers of cases are coming down and we hope simply improve much more. And we will start, of course, we also a single order of INR 82 crore. So like that things are improving year. And of course, you might have seen the improving the oil prices, so about $70. So this all hold projects are getting that. And they are renegotiating because gone off. So we had asking a new . Because some of the order last year, they make a on the order. So the last year, one of the bus was decent, and this is price was different. So we are asking some price increase, and that is negotiation is going on on some of the big order of industry. So we hope now with this new oil price and this good demand is coming from U.S., Europe and we all Middle East. So we are quite hopeful on the demand side for oil and gas in the country, pharma, PI, chemical, even in oil and gas also, we think things will improve in next quarter, definitely. And one more new thing that happened that if China had withdrawn the export benefits about 10% to 13% of different products opportunity for India to have put more in the European countries in the U.S. and country . And what we heard, they are thinking kind of our thinking on putting export tax they would like to use more for domestic using what that we have. So then again, we see a good opportunity for the Indian manufacturers because 13% of the and 10% that are putting new exporter. That become 23% is a big amount, and it really will improve slightly or enlargening. It will be definitely help always did good bookings. That is what we see. And I think in country also, things will improve. Of course, raw material is over years because of the prices have gone up in both as well as steel. But still that if they want, they have to consider the -- because again, . It's not only in India, that on up, which is internal on the pipe for raw material. And hopefully, wherever somewhere possible, we will also go need to in a price with the old order, what is us, something there , something we have to . So what our idea is to have more and more order booking is because the new facilities are there. So there actually we are looking for new new orders from other . Thank you.

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

Congrats on the good numbers. Sir, first question is that you talked about this 13% export risk weight in China, which is withdrawn. So was it there on the asset price as well?

Yes, it was, it was. All items, whether this was pipe, tube .

Okay. So now that if it is withdrawn, in that case, basically, in India as well as overseas market growth will get evented?

Yes. look, our competitiveness will increase, what I miss in the international markets.

Yes, yes, because I think there are some 2 or 3 big players well from the China.

And they are talking further 10%, they would like to exclude tax. We go on to you domestically less in their product. Steel and stainless steel. There is good export taking place from India to China with .

Okay. Okay. Yes, that was. So even if that 10%, I don't know whether that comes when it comes, but even if without tax...

It is on the top on this.

Okay. But with this 13% rebate itself going off from their export rebate. In that case also, I think, for us, opportunity in -- I think even in the distributor side that we had initially targeted there also will get a rebate, right?

Every year, because the cost will increase definitely to everyone, whether it be U.S., or Middle East or Europe. Or even India support some people are importing from China. So there also then be effective. And there another more one thing had happened. We put the BI quality control. So any manufacture outside the country versus our BIS registration and our product comes under that or in the side.

And when did this thing happen? Basically, when did this particular thing escalated?

It is already there. It is already there. So the imports are getting less and less drastically. Earlier, imports were coming in the low from China. But now you can say, last quarter of the year, it has reduced like anything. And we are...

From Q4, you think, from January '21.

Yes. For -- yes. And our and ]. And we are quite monitoring also and time to time informed to the to the custom officers also. Because some more up . They do an imports, so we notice this is what coming. So that...

And on these products that come from China, like tubes and all, there is some custom duty as well in India, right, on that already?

Yes, there is a custom duty. There is a custom duty. 10%.

That means that if the prices go by 13% or that there is a custom duty also so I think net-net, 15% kind of increase in...

15%, it will be 15% higher.

That is a for us basically. Okay. So that is one good thing, okay. Secondly, so last time we had mentioned that some of the customers basically were delaying the -- this tender finalization because steel prices have gone up sharply, and they're probably waiting for it to fall, but there's no fall per se. So are you seeing that those customers or contractor are now started placing orders or they are still different?

You can even only we got after that a big order of one single by INR 92 crore. And another one, when we INR 82 crore. So now they are taking this as an uplift started. Because some the we are the work as to , there's no way to go. Up to somewhere well the project time is 26 months or something like that, 24 months, where they still want to wait for 3, 4 months, 6 months, if there something will go down or something. Or whatever they require, say, 20% of the required material, they will buy right now and further 80% going back. Because everybody wants otherwise, they are loosing from there.

Okay. And then lastly, on this asset seamless side. Now that the plant is ready in commission. We said that there's still some parsing on this exclusion part of it. So in this year, what kind of extra earnings you expect from this new plant in 2023 -- '22, sorry.

Yes, INR 150 crores to INR 200 crore.

Sorry?

Because I'd say, INR 150 crore to INR 200 crores extra turnover.

Okay. And also does the combine basically, the customers have to come and do the and all or some of that already started?

Not everywhere. Somewhere, we take a somewhat because customer to customers, their different policies are there. So people like, yes, we are already doing we were importing and get coding and so our registration or approval is there. But we want to show them to the top of 1 technology is that for more for delivery, quality terms of you that we want to do, whether we would like to have get together for all VIP customers to show that this is . but because of this . We will wait and we'll see in normal December if everything is some good .

And then lastly, if I may, we have seen very good ramp-up in the carbon steel order book, okay? But asset order book, obviously, has remained stable. But do you -- I mean, are we seeing a trend, let's say, that even in the order booking in that area, I would also go up for next maybe 4 to 6 months of the -- some project that we have in pipeline?

Yes, definitely. See right now, the program is number of we have driven, but the is taking time. So -- but this forward staging of, then things will improve more and more and more. Because last 2 months they were working from home and some extent where we get close to people. But overall small order, we are regulary getting and that . So anytime INR 300 crore to INR 400 crore order is there.

The next question is from the line of Kunal Shah from Carnelian Capital.

Sir, basically, I you did mention in the opening remarks, what is the total capacity that is going to be since you've commissioned few parts. So to capacity in both the segments, if you could reiterate, please?

Can we sell you capacity. See about additional capacity will be increase in ...

Sorry, sir.

150,000 tonne in line pipe, we are capacity in . And in side, we have increased about 30,000 tonnes capacity. And in carbon steel, we have further increased 50,000 tonnes from the existing capacity. So all put together in carbon steel say about it 50,000 tonnes. So all put together on carbon steel, say about 50,000 tonnes, all put together , all put together. And in stainless steel, we are ready with a new capacity, 30,000.

Okay. Okay. Okay. And sir, the second question is, what do we intend? I mean, how do we plan to use the cash, net cash that we have on our balance sheet? And also, the second question was that we took a Board approval for INR 500 crore debenture range, so it is a normal resolution? Or how should we look at these 2 things, sir?

See, I'll answer. Prakash may not be. See, basically, this NCD resolution is enabling because as per the existing guideline, any incremental borrowing for large corporate is large entities or , we are recurring to approach the bond market. So it is an enabling regulation in company requires to go for any cash borrowing for to fund it growth, so then we may not wait for the approval. Okay. So it is an enabling regulation. There are no plans right now, immediate plans to raise any funds. And about the cash, which company is doing, companies, as the business grows, working capital requirements will keep on increasing because something continues to follow the practice of between the back-to-back basis. So some portion of it will go towards funding the increased working capital requirements. And remaining will be there with the company to take advantage of any opportunity, which may be there. Because, see, this year, we are targeting INR 3,000 crores plus of top line. So anyway, I think at retirements are bound going to go up. And if everything goes according to our expectations, then perhaps, we should be ready with our next phase of growth in the next few years' time. So we need to start working on that also in current financial year because it takes time before the capacity can be available. So those things, but will require certain cash out. So these funds will be used. And anyway, something we'll always be there as a buffer.

The next question is from the line of Vikash from PhillipCapital.

Congratulation on good set of numbers. Sir, my first question pertains to the visibility of order books. Like you said in your initial remarks that now people have started to award the order. So in next 6 to 7 months or for that matter, 1 year, what kind of order book pipeline for the order bookings you are expecting kind of the to come in your way in access as well as CS segment?

[Audio Gap] quite hopeful, we will definitely book from what new capacity also as well as additional capacities because of one more good reason, which is the 2 good reasons. One is oil price is going up. It is now, it is $20, $22. So with this that we started the investment, like the then recently we got some other some so like that Saudi Aramco has a huge investment, ADNOC, everybody there also using different the plan. And we have some we quoted. But it takes a little more time because of the service situation, but now things are improving in this corridor. So postally, if everything goes well, then we might have any kind of INR 1,500 crore to INR 2,000 crores of the booking anytime.

Okay, sir. Okay. And sir, sir, 1 more question regarding this order booking. So what we have seen in the -- that we usually do the bidding and nowadays, yours have to wait for a longer period of time before the order has been awarded. In between the steel prices has been rising pretty sharply. So are we bidding with the clause, where the -- any -- before awarding any increase in space should be covered or on an anticipation, we are doing some back-to-back booking in order to protect our margin, if you could explain that part of it?

Yes. No, mostly, it is all the auction. Okay. So first, we have to quote a particular price. So we definitely see and could . And then because the reverse option fixed rate after months or 2 or something like that. So we always take some buffer and then we go down from that. Okay. While we were take care the current merchant size and we did see on raw material. And based on that, we will make it down and we become . So once we become , then we will be sure we were going to get the order. So we book a back to back order, raw material. So more or less, we are not getting any some time, of course, we are late by 10, 15 days and in between the price has gone up, then that it is taken . But sometime we are gaining also. .

So if I understand this correctly, then most of our order booking or the bid books would have kind of a margins have already been locked in. And this sharp increase in sales prices might not have any meaningful impact on our profitability going forward, is that a fair assumption?

Yes, it is a correct assumption.

Understood , sir. And sir, just 1 last question, if I may, on. In terms of our -- basically in terms of our approval, so by and when do you think that we would be able to manage all the approvals for both as well as mill? And then would the full potential could be unleashed from both of these CapEx, so any time line which you have in mind?

We have already started production, and we have some order book so the it is needed because we were doing to earlier as , I think at that time, we were importing them overall and doing the pricing. Now we have our own measure in the year. So more or less, it is there. But it is a stake of our facility, you would like to call out and so then we will be a quick delivery in the quality, being at less lesser testing equipment. So we would like to increase them on getting more on us. That's what we are going to do. And somewhere, of course, it is a new line. It is a audited by them. This, we are doing just after this so it is over a second wave. And once people starting traveling in that many . But , we already did this a were off-line .

Okay, sir. Okay. Sir, when -- like you said, the Chinese material are now becoming expensive. So is it possible that for us also the to export market is now a more feasible option? And at least for -- unless we get an approval for these products, we can say the general merchandise in the export market and utilize our mill to full extent?

Yes, you are right that we are going to start now. But for that, we have to travel actually for the first time. Because so far, the company is importing from China. Of course, we have exported, in fact, 1 or 2 in China also. But now there is big change because 13% what they are reduced. And then 10% they're going to put an export tax. So if their domestic market is also high. We may at some chances, but this is all we have to impact and have a of the market and try one of the order or something.

Okay. So is that opportunity would only come if China inforces another 10% import duty? Or is it already there?

So it is already there for for some good niche products. The ordinary product, they might be having good capacity, but some new products still that are importing, we are still that importing. So there we may get a chance. And in to.

[Operator Instructions] The next question is from the line of individual investor?

I'm from Unrated Capital Limited Kolkata. Sir, you likely said the present import, export ratio in India and China. But is there any chance this after this crisis, we overcome maybe after 6 months or 1 year and the import, export ratio will change? And if it is changed and how it will impact the business?

It depends because we as a raw material for everyone as we can, whether it is China, whether India. So far 65% is the cost of the raw material. So remaining, they all depend on how you manage your business with the labor charges, electricity and other. So you want to there now in. We were doing good exit from here to all right from Japan, Korea, Middle East, Europe, USA. So we are competing them. But we are now -- our percentage will increase, our export will increase. Because there is a good demand, of course, in our country, see it will come. But the demand is coming more from the U.S., Europe as well as Middle East side, quite big quantity we have quoted right now, but of course, we knew it could be 2 to 3 months' time, 4-month time to materializing order. Because oil prices are also supporting ago. Only a is, say, $30 to $40 or something like that. And now this year, it is $65 to $75. So the things are improving in their areas also.

The next question is from the line of Pritesh Chheda from Lucky Investment.

Yes. Sir, just a broader question, we could understand your capacity expansion in stainless steel, which is a lot import substitute, but when it came to carbon steel expansion, what exactly did you see in terms of evolving demand scenario? Because this industry has largely been flat for the last 6, 7 years. So we have been in a certain volume range or competitor has been in a certain volume range, global markets have been in a certain volume range. So what exactly are you seeing incrementally for you to be investing and expanding carbon steel? And my second question within that is, what would be so far the business side globally for carbon steel, if you could for hundred million tonnes revenue? And when you're mentioning China rebate and benefiting other countries. So what is the extent of export that China used to do?

See first question is, first of all, there is a big domestic visibility what we are seeing in the line side because a country as in with oil and their transmission by the a new number of pipeline, the , IOCL, they have already planned. But because of this last year all-time has gone in this COVID and still people are not sure of how this third wave or something like that. So I see the of this last 1.5 years, you can say, still improve definitely very requirement in the country with the city activation orders have been given to all domestic EPC contractor, and they have to buy a pipe. And even in ERW, we have booked up to up to December. In so there is a working it in domestic market and partnering more or less with the domestic market, this is LNG line is coming, a number of LNG lines is coming. Because we have onto about 70% of LNG complete requirements on the different countries. So we definitely -- and we have replaced this with our old capacity was about 40,000 tonnes of LSW, that is a very old . So it is that we would like to add some more. Once we are putting new capacity, we had to add with the size and grade and shipment or requirements. So it is a new capacity that 30,000 tonnes, 150,000 tonnes, with additional of line pipe. we are not doing a line pipe, and some people specifically asking for longer business to a pipe. So that is the reason we have added. And w, we see a lot of visibility up to prices 8 years because of this particular satiation. And we are quite busy in that running with 100% capacity that we are . So we have to put new capacity or not. So it is a very reasonable capacity in a core category of pipe. Now there is one single, it is , all such in charger. Your second question, of course, was China. Definitely . China is focused is in the domestic market.

How much they must be exporting, sir? And what would be the global market size for the carbon steel pipes? Is it 10 million tonnes or more?

It is too big a market. People have a one company have about 4 million, 5 million tonnes capacity in . Even in-country also 2 million in capacity. So it is a huge market. It is not some of which a 10 million tonnes or something like that, that are just currently I'm talking. So huge market and number of countries are requires on 1 product from here to Ethiopia. We have given EPC in Middle East, and they are laying the pipeline over there. So mispriced number of -- and our very limited capacity in all 4, 5 manufacturers in the country. In 550,000 tonnes of total capacity of pipe.

550,000?

50,000 tonnes, yes, 550,000 tonnes in all 4 categories. .

Sir, 700,000 -- 700,000 to 800,000 is done by the largest guy in terms of volume. You'll do about 2.5 -- 200,000 to 250,000 like so 1 million so INR or going to be 1 million so -- between you and .

[Audio Gap]

Okay. Okay. Okay.

Export from China. The data is available still maybe around may be in the range of 50 million to 60 million tonnes per year of exports. But in , roughly between 50 million to 60 million tonnes per year of export.

That is a full steel export, right?

So the entire range.

Within that, our -- that is sir full steel export, what would be pipe export in that?

That figure will not be available about this.

No problem. No problem. My second question is, sir, on the stainless steel utilization side. And so we've added this 30,000. When do you think you would be using this capacity fully? And what should be the volumes for the next 2 years, that is '22 and '23?

See the first year '22, you can say we will definitely go up to 3,000 to 4,000 tonnes because in your first year, there are a lot of approval, a lot of internal trials, number of . But next year onwards, it definitely go with 30%, 40% equity in spite what we can pay 30,000 tonnes. It is more depending on the diameter and shipment, what we are producing. Sometime it may 20,000 tonnes sometime, it's my 35,000 tonnes. But it is always average what we are talking.

Okay. And sir, in CS, you never mentioned about what's happening in the water side because all the , if I remember, were more -- we were seeing opportunities in water. So what's happening there?

See water is totally not moving because all state government is in the COVID as possible from their end to saves the life and that the facility was not. So their entire focus on COVID since last year. So far not much for the . But the things will include the project well but maybe can still Prime Minister totally depending. It is just announced but nothing had happened on that one. So once this will improve a normal situation of the country and the COVID, definitely, the more good number of requirements on all the spacing to get.

Okay. So lastly, some total, you see the carbon steel industry, some total volumes and for us also moving significantly higher over the next 3 years versus the last 5, 6 years, where it was absolutely flat in terms of volumes for us and the industry as a whole?

See really with this high in the steel and other things, all the metal is. But still where the demand is coming from very high. Europe, Middle East, see after 1 year because everybody is under , what we feel the way we are quoting right now inquiry. So things will definitely increase. We improved over there. Of course in our country also announce the second wave is over and everything is in the country.

How much is a big interest higher than what it was a year back? If you were quoting for 1 project or 2 projects or 5 projects or, let's say, let's say, 100,000 tonnes, how much bids are you putting now for 3x, 2x projects, 3x?

We are putting right now, the 2x to 2.5x right now. So there are more facilities with materialize .

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

Sir, firstly, sir, how is this steep increase in steel prices going to affect the dynamics for the steel pipe industry? Sir the way the prices have moved up and international prices being still higher than what the domestic prices are and the steel manufacturers have taken another round of hike from the beginning of this month. How is this rise going to dampen the -- since it is going to increase the cost of project for everybody? What could be its negative impact on the demand side, sir?

This is what you have seen last 1 year, it is a low order booking, you can say. Because people are taking decision because all these EPC might have a good order but are not able to fund. Because first 6 months, they took in engineering, and then they are done for months in some of the . So by that time, the size has gone up so slowly gradually we have whatever emergency requirements, that's what they are deciding. They are seeing spending, hoping the prices go down or something like that. Or they see some . But ultimately, they have to complete the project, it is somewhere it is 20,000 tonnes or 30,000. They are waiting. And we don't see there is any of decreasing in the next 2 to 3 months or 4 months. Because it is a net China was the export of . It is an importer. Even our country, India is exporting a huge quantity of pipe to them. Like that demand in U.S. increase like anything what people are talking over there. So, but we are not any order, anything we are our value is very less for 7 days or 10 days or something like that. If anything goes increase, we also send an increase price or something like that. So we also making it ourselves are taking and our people of marketing there completely work on international agenda domestic type of steel and .

And sir, how has this duty reversion that happened in the last budget for the stainless steel help people like us?

It is 2.5% from 10%, it had gone to 7.5% so not much. But of course, we are not imposing much anything. We are all on domestic some of the special grades and that we need to import. Otherwise, then buying from .

Right. All right. And sir what will be the sort of incremental depreciation going forward for the next financial year, since a large portion of the CapEx is ? What would be the impact of that?

Roughly INR 30 crores.

INR 30 crore annually.

Yes.

Right. And sir, now coming to the refinery part of the story. As has already informed that lot of stock has been done, but on the ground, things have not changed at all, have not been to that extent. What is the ground selling for the refinery CapEx that can happen going forward? What is the talk of the bid pipeline looking like that?

See, number of expansion are their plan, but investing is because of sold. But now because one reason more, the oil price has gone up about $70 or so. So they will restart. Only in or countries, the problem was the second wave. You can say Karnatika, Gujrat. So things are because . but now things are improving in also. So think we improve -- and I already , we are disputing regularly in person as not many other will also come up. Even naira, that is old , they are also having a good expansion plant because of this , but now things will come definitely. And in export side also, there is huge investment from Saudi Aramco, Qatar, IOC and this is that we are getting with the requirement also somewhere we are quoted also.

And sir Out of the total revenue for this year and if for the order book breakup also what portion will be contributed to the export market?

About 20% to 22%.

Last year was even better than what we did in 19 and 20 to INR 560 crore from of experts. So I didn't get you said 26%, 25% turnover has usually been coming from excess. , we like to see it maintain or other increase.

And there any investments you are going for the renewable energy segment, sir, either in the solar part?

Yes. Solar, the policy is not cover yet from our Gujrat government, there we are having plan of INR 50 crores because our power cost is too high. So we would like to reduce, but the policy is still not clear, once it becomes clear, we definitely go for investment of say INR 50 crore to INR 60 crore.

Yes. And lastly, sir, the distribution part is, as per the outlay from the government side, the district, which are going to be covered, how much is the total demand of ERW pipes? And how much has been bid as of now, sir? Since they have increased the number of districts also, what is the outlook based?

So there we've seen rather good visibility in the ERW . And that the reason, we have increased the capacity over there putting 1 more finishing line, . So if I keep coming although the contractors are billing to them and they are getting and they are buying from us. And if you look good requirements what we see. And we see this will go on if the country hopefully get in the next 10 years. Then whole business will also go with them in the next 7 to 8 years continuously. And this is in plus 3 years.

Right. And what is the top line sir you told, I missed the part for FY 22, we can expect for this year?