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

Good day, ladies and gentlemen, and a very warm welcome to the Q2 FY '22 Earnings Conference Call of Ratnamani Metals & Tubes Limited, hosted by Monarch Networth Capital. [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, Sahil.

Yes. Thank you, Ali. Good evening to all. On behalf of Monarch Networth Capital, we welcome you all for the Ratnamani Q2 FY 2022 earnings call. We are delighted to host the management of Ratnamani today. And from their side, we have their MD, Mr. Prakash Sanghvi, sir; and their CFO, Mr. Vimal Katta, sir. So without taking any more time, I will hand over the call to Prakash, sir, for their opening remarks. Thank you, and over to you, sir.

Yes. Good evening to all. Might we request you have gone through the second quarter results. It is a reasonably good compared to year-on-year, the figure you might have, but I'll just spell it out. It is about INR 717 crores total revenue, and profit is about INR 72 crores net after tax. And same way, the order enhanced with the company about INR 1,741 crores, total of carbon steel and stainless steel. And regularly, we book our year -- quarter-to-quarter as our budget is. And so far, so good, the booking is also reasonable because of oil prices going up. All the oil and gas industries are in expansion mode or new greenfield also going on in this HRL battery refinery. And internationally also, Aramco and now also are in Barmer and, time to time, directly or indirectly through the EPC or fabricator. We are getting orders in both stainless steel as well as carbon steel. And things are going reasonably good. There's no COVID almost in our country. It is over, you can say, but small cases are there. But of course, internationally, Russia, European countries are facing problems. So still the visit, our marketing teams are not able to greet on face-to-face. Of course on telephone, on meetings, they are doing well on this new product of our [indiscernible] despite that we are doing. But face-to-face, I think make a difference. So still, our people have not started any journey internally. We may plan for [indiscernible] by this month-end, [ no more ] end. Probably, we may plan. But looking to the safety of our people, we see the next year, this time, [indiscernible] and put our stores because we would like to present our new product that all [indiscernible] regions [indiscernible], or internationally or there also. So this is not all. And new yearly target range, we have told earlier also, it's about INR 3,000 crores plus minus INR 100 crores. But according to our marketing team, all these three businesses have been directly very confident INR 3,000 crores. So this second half, we need to do about INR 1,800 crores. And according to order in hand and some more live inquiries are with us, we are definitely complete. And EBITDA level is the same more or less 16% to 18%, plus minus 1%, same level. Of course, the raw material is on a higher side. But -- so we are looking at that same higher price. So our margins remain same at EBITDA level. So this is what all. Thank you very much.

[Operator Instructions] First question is from the line of [ Hiren Kumar Desai ], individual investor.

Sir, I would like to know what is the overall capacity utilization for our stainless steel and carbon steel, which are our main products?

See, it would with the quarter 2 products because we have a number of segments in stainless steel, which you already [indiscernible]. Remember, I think [indiscernible]. So somewhere it is that -- you can say up to 90% utilization taking place somewhere in the 80%. But more or less, in all segments, except our new plant [indiscernible] still some more trials, some raw materials, some tooling that all is going on. Otherwise, all existing old capacity, it is 80% to 90% we are utilizing right now. Only in power set ourselves some content [indiscernible] that is a little bit off. There is about, say, 50% to 60% [indiscernible]. Otherwise, in each segment, it's about 80% to 90%. And in carbon steel, of course, in this city gas new edition, we are booked until February and full utilization, say, of the machine, you can say. And in spite, we have a utilization of about 50% to 60%. Yes.

So one more question, sir. So the way we took up major capacity expansion in 2019, '20 like that, when do we have to do CapEx again, like not maintenance or...

No. There is one capacity for plan for stainless steel division further, and what we bought a plant from Germany that we are revamping the remodification of the plant. And that plant might be coming in next, you can say, 9 to 12 months. So that is about INR 100 crores. So that is pure CapEx for additional capacity of a special high-end application for aerospace especially and nuclear resistant surely. But that plant was running over here in Germany for nuclear application. So same plant we are putting with some modification.

Yes. But as you say, the capacity on the other -- I mean, our gas and oil and all of that application is running around 80%, 90%. So don't we need -- I mean, are we not seeing enough growth to, let's say...

No, no, there is a capacity, that I'm not talking about net new [indiscernible]. There's about a 20,000 tonne capacity, which are -- but because just we have started 4, 5 months before, so still some more trials, some tooling issue did that is going on. So I think with this third quarter, we will definitely go for mass production. And there is also we would like to utilize in the next 6 months, say, about 20% capacity over there. LSAW, we put about 120,000 tonne capacity. There, also, we got a good order of sales starting with about, say, 20,000 tonnes of some piling pipe. So there's also a machine in both of this. We did about INR 650 crore investment in last 2.5 years. Okay. So now both the capacity is available, we will give next year full fruit of it. And this year, of course, the 6 months, we'll get some 20% utilization in both. So we have capacity for next year before -- for the next year. And by that time, we will plan something more.

Okay. So for next 2 years, probably no large CapEx?

No, large CapEx, but planning is there. We may acquire something, see -- because today...

No, no, no. Small CapEx and the same.

[indiscernible] so if we can go for that one, then we may acquire something or then we may plan on steel. Definitely, it takes 2 years to come.

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

You did guide about this particular financial year where we are still confident of achieving INR 3,000-odd crores. I just wanted to understand now since oil prices and everything are rising, you said to be having a positive outlook. How should one look at next financial year since you have got the capacities built in place? And also, from next quarter, the [ lot ] exclusion capacity will be on stream. So how should one look at next financial year, sir?

You can say next -- see, if you can see the growth, definitely might be 15% to 20% because the capacity has been awarded in this particular year only. So definitely 15% to 20% year-on-year. Next 2 to 3 years, we will definitely go. And by that third year, we may take INR 5,000 crores because that much capacity we have installed in this last 2 years.

Was just trying to understand, sir, the demand robustness, which is out there and we also have the capacities in place. So -- hello?

Uh-huh.

So still you believe 15% to 20% growth? Or we should expect a little higher on the growth side?

It may be higher, but we will commit what we can generally see right now. But definitely, you see capacities that in this case were. So you should have the capacity and approval and all those things. So such all things are there. Now it is sometime a matter of some people are working with less margin, some people are working with these lower margins. So many things we could see. But I can definitely commit 15% to 20% year-on-year. And by third year, we may reach 4, 5 -- for 2022, INR 5,000 crores.

Okay. Okay. And sir, just if you could throw some light on this revenue plan, dive in. You said in the next 10 to 12 months, this plant will come up and it will require INR 100 crores CapEx. So this is an existing plant that we have bought or this is a new plant. I mean, some details would help and whether it will cater to exports or how would it be?

It is a very special niche product, you can say it's a mission 2 for aerospace and nuclear application of the plant that was running for nuclear application. We bought an entire plant from there. But we need to modify such equipment automatic -- automation, some electrical furniture item. So it will take some time, and we have to build new building and clients and all such things. So it requires total CapEx of INR 100 crores, and that will be completed by 9 to 12 months. And there, we get [indiscernible] for aerospace, some special product for nuclear application, all such and some, you can say, coil tubing.

Okay. And sir, how does -- I mean, the revenue potential should be 2, 2.5x. Generally, margin profile from -- for this kind of product profile, how should one look at that, sir?

Yes. Approximately, 2x definitely from this product, yes.

[Operator Instructions] The next question is from the line of Susmit Patodia from Motilal Oswal Asset Management.

Sir, just two questions. One is your capital work in progress has gone up in this half, while the plant would have got fully commissioned. So is there some other CapEx that we have undertaken?

Just now I talked about this...

So that is already acquired, is it?

That is acquired. It is coming. So it is working for the...

Okay, okay, okay. So it's already done.

Yes.

Okay. Okay. Got it. Got it. Great. And the second question, sir, is on employee expense. There is a sharp increase. So is this for the new plant mostly? Or has there been some special one-offs in this quarter? Hello?

Susmit, I would just request you to stay connected. It seems the management line is disconnected. Participants, you are requested to stay connected while we reconnect the management. We have the line for the management reconnected.

I'm sorry, it got disconnected.

No problem.

Basically, there is normal increase related to increments to employees. Second thing is it also includes provision towards director commission. So because of the increase in profitability, that commission provision has moved up significantly. So you can take a normal increase in employee remuneration. It should be close to 8 to 10 [indiscernible] for the year, and the remaining will be commissioned provision.

Okay. Is there a change in the percentage of commission this year for the Directors?

Well, no, same, same.

No. Okay, the same.

First quarter because turnover and profits, both were lower. [indiscernible] on the lower. So that is the reason on comparing both. You will see a jump. Otherwise, for the entire year, if you look at the figures, it should move in accordance with the profit only.

Correct, correct. Okay. Got it. Got it. And sir, my third question is what is the order book now?

The order book as on 1st October was close to 1,741. As on date also, after accounting for whatever has been received, whatever has been discussed, we should be in that range only. Those updated figures should be available maybe by tomorrow, yes.

Got it. Got it. And sir, what is the net cash balance? I'm assuming that your INR 100 crores are already paid for, right?

See, we will be net-net basis. This should be closer to INR 230 crores sort of thing as on date.

Okay. Got it.

The gross will be closer to INR 400 crores. See, in our case, what happens is our order book provision increases. So you will see our...

Yes, yes. Your cash also. Correct.

But I think also because we book our raw material on a back-to-back basis. And that you might be noticing our 6 monthly reported figure also here. Ultimately, it will get converted into cash once dispatches start happening.

Got it. And so my last question is, is there any part of the order book that you are slow in executing or that you're not executing because of bad pricing? Or is there any order -- slow-moving order book?

No, no. [indiscernible] Only thing is in our case, order dispatch -- final order dispatch is dependent on inspection clearances by the customer and also on the making of financial arrangement by the customers. So that is the reason in spite of having a target of INR 3,000 crores plus. We always say plus/minus INR 100 crores might be there in case, at the last moment, any customer is not in a position to arrange for the financial instruments or third-party inspectors don't clear because of any reason. Then that margin, we try to keep.

The next question is from the line of Anirudh Shetty from Solidarity Investment Managers.

So my question was on the instrumentation tube business that we're looking to set up. Given that it's so specialized, how would the EBITDA margins compare to the company level guidance of 16% to 18% that we're giving? Would it be higher than that?

It is higher, but I cannot spell out the figure because it's a segment. One of the segment outstanding is what really a niche product. It is a reasonable, very good margin it is.

Okay. Okay. That's clear, sir. And sir, you gave a time line of 9 to 12 months that are plant-ready. How much time would be required to get the customer and product approvals after that?

No, no. It's a regular customer, something that we are not needing for their expectation, that's what we are putting. And so the regular customer and some more, we will add definitely from Internet, yes.

So basically, once the plant is ready, we shouldn't take a lot of time to ramp it up?

It is a regular product we're producing. But right now, such requirements, we are not fulfilling any existing. So we are putting some special equipment, some special testing equipment for special [indiscernible].

[Operator Instructions] The next question is from the line of Sahil Sanghvi from Monarch Networth Capital.

Yes. Sir, on the instrumentation tube project, this is a special type of stainless steel pipe or this is carbon steel only?

It is pure stainless steel [indiscernible] into higher grade, some special specifications by the aerospace industry or this, you can say, maybe and for nuclear.

Okay. Okay. And sir, you -- if -- correct me if I got this wrong, you said the asset turnover will be 2:1, is it?

Yes. Yes.

Okay. Okay. So we can expect some revenues in FY '23 sir, once it is commissioned in the second half?

So see, if it's in line. So some portion, you can say last 2 quarters, we might be utilizing that product because still some things will come from special testing equipment. So that steel, we have to order and there is a delivery of, say, 9 months, 10 months, something like that.

Okay, okay. And secondly, sir, how is the movement on the raw material pricing? Are we still looking at higher prices? Are the prices still increasing? Or that phase is now over?

No, no. Still on -- because internationally, also, it's gone by the international market nowadays. So they are also tight. And all of sudden after this corona, the demand came like anything. So the people are booked, even our raw materials are booked by probably or something like that. We need not see any downturn. Still, people are on higher [indiscernible]. That they may say 5%, 10%, may increase steel. And that all depends on this committed nickel, poly, all such commodities.

Yes. Okay. Okay. So sir, then there is a bit of issues in booking the contracts so that our customers were not ready to book at higher prices. Are we seeing that trend changing now?

Yes, they have to see. Suppose some EPC is not booking because they might have booked at the different price level, and the price level has gone down or gone up by, say, 30%, 40%. So it is very, very [ blood-taking ] for them. So they are taking their small orders they are giving. But now, for them, there is a time limit also. So now they are coming. We book in last month. You can say a reasonable good order from EPC only, they were holding. That is all [indiscernible] not in carbon steel. Carbon steel, still people are not releasing much in water pipe, you can say, because the increase took place in large order.

Okay. Okay. Okay. So we will see the realization going higher, sir, right, in next couple of quarters?

Yes, next couple quarter onwards. Yes. So far, it is old booking, and we have also old purchase, our raw materials. But slowly, gradually, every month, now we are booking new book with the new price. So that is at a higher price, whatever price increase in raw materials that we are putting into it, and we are booking regularly.

Okay, okay. And sir, the hot exchanging plant, are we able to replace some of the imports that we are coming -- I mean, that we were able to when we commission the vortex fees in our strategy, all that. We will be able to produce steel NPS pipes using the vortex solution, and we might be able to replace some imports. So is that phenomenon playing out? Or do you still need some time before we fully ramp up until then?

We need little some more time. It's a matter of 2 to 3 months maximum. But we are already producing. We are already a [indiscernible] order also from that plant also. But month-on-month, we are increasing the utilization of the plant. And all the grades on the side, what we are doing that we are doing some tooling issues that we are making our outside view. So initially, 6 months, we'll be there, offsetting to put everything in order. But we are booking order for that -- from that price also. [indiscernible] seamless sites for domestic [indiscernible]. And of course, it is just some purely an import substitute. Nobody is manifesting in the country even today, except Ratnamani.

The next question is from the line of [ Fiden Kumadisai ], an individual investor.

Sir, in the last couple of con calls, you mentioned that China was removing export incentives and things like that. So on the sort of competitive intensity side, is it -- are things good in the sense that...

Of course, it is a little bit reduced from there and, one, they put Indian government and put this quality control order. So any mill supplier from China, they have to have a raw material approved by BI specification. So, so far, we have no BI fellow who have gone to China because of the pandemic in last 2 years. So no mill has been approved by them. So now, the -- at the customer level, they need to have a BI certification on raw material what they're used. And second, one more thing is putting harvest to the Chinese exporter in a month or two. We are getting them quality order for stainless pipe also. So each mill has to be approved by BIs from India, and then only they can export to India. Something like that. So of course, these two could help to us and something more we are doing at a stainless pipe manufacturer in the country. There is a good capacity in the country, and we have filed an anti-duty against the Chinese because they are dumping over here. So in the long run, definitely, we'll get the benefit. And of course, China, themselves, because there is a big power crises over there, they're also reducing the -- from all these, some of the unit in steel rather more. So they're also a little slow in export in whatever store and what other things are there, they are doing. But now, they are also increasing the price as the world has increase the price [indiscernible].

Okay. And is this helping us in the export market also like less Chinese competition or something?

Export market, there is anti-dumping in entire Europe against Chinese, 75% anti-dumping duties there. There is -- in U.S. also, there's duties there. So as it is going to circumvent, suppose people like India, they import from China and then they put their marketing and then it goes to [indiscernible]. So they also, as they're manufacturing, but tactically, they don't [indiscernible]. So something that is sold there, but that's also, again, from European Union, the checking is so tight. Again, they are putting all of who are the Indian exporter that are importing to China and exporting to U.S. without doing much value addition in the country. So the further tightening take place on European side also going in it further.

Okay. That sounds good. Okay...

Yes. It is all plus point to the Indian manufacturers, yes.

The next question is from the line of [indiscernible] from B&K Securities.

I just have one question. Whether the demand from the water projects has picked up or is it still muted?

See, I think still water project are not declared in the country much. Of course, all this with the state government. Some of the requirements are there, but they are not buying a lot of raw material brands. It has grown almost double in the last 9 months. So what was it, a little slow. Why don't you talk about the water project.

Water project, still very, very slow. And we think current increase in price again. It seems that people are reluctant to buy it.

The next question is from the line of Dewang Sanghavi from ICICI Securities.

And congrats on a good set of numbers.

Thank you.

Yes, sir, the German plant, what we are talking about, what would be the nameplate capacity for that, sir? The Germany plant, what we are...

The capacity is well limited because it's all small diameter too, right, from you can say 4-millimeter to maximum, you can save 16-millimeter. So in -- I mean it is very less within [indiscernible] 16 million.

Okay. So it will be like a high-value product profile?

Yes. High-value added product, you can say like niche product, you can say.

Right, sir. And have you approached the client base in terms of aerospace and materials?

We have already taken an approval, and we have some approval. But still, we need to put some additional facility for testing where there's a more testing requirement in the aerospace and maybe -- and all such. So these all are going with this project. So it will take about 9 to 12 months to the complete project because we are -- a year, we are constructing to share also because the Diwali will start [indiscernible] all these machineries, we are renting some new machines also will buy balancing. So it became, again, state-of-art plant.

[Operator Instructions] The next question is from the line of Sahil Sanghvi from Monarch Networth Capital.

I would just like to understand what kind of utilization rates do you look to target in the excess exclusion in the new plant and the LSAW plant for the next year, FY '23?

See, it is very difficult to say because so many segments, so many grades are into it. So average, you can say, very difficult to say, INR 100 or something like that in [indiscernible] number of grades, some moly-based grade. So there is a big difference in [indiscernible] it's about INR 150 per kilo this time. So average level, you can say INR 500 to INR 600 per kilo in this set, but this is very rough figure you can say, because the grade range, so right from, you can say, INR 300, INR 400 per kilo to INR 4,000 per kilo. So in what quarter, what you are selling, not exactly known today. Okay.

Okay. Yes. My question was more on the utilization, the utilization of the new plant in this position.

Yes. We are more focused on our utilization of our capacity. Of course, whatever capacity, we would like to utilize. And there is a good demand picking up, even in some of the good order may realize in this third quarter also.

Okay. Sir, can you tell us some of the revenues from where you're getting orders for stainless steel pipe, some of the...

Our major material, you can say, go to oil and gas. In that refinery, petrochemical, then LNG plant or such LNG stations on [indiscernible] order. And then chemical, pharma, all such segments are there. Huge power is also there in some [indiscernible] with this all DHL unit.

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

Sir, I have two, three questions. First one, like if we see the current elevated steel prices, are you seeing some execution delays from the customer side considering the current steel prices? That is my question number one. I will come back for follow-up questions here.

Yes. So nowhere our supplier had gone back or renegotiation or something like that. Everybody is supplying on time, and we are also executing on time, more or less, no more delay, neither a customer is -- of course, at our end, inspection took longer -- some time longer time because there is all material. It goes from majority oil and gas. There's 100% weakness of the -- some of the tests. So that is a regular thing. But nowhere, our supply has gone back. If you know, we cannot oversupply or to increase supply or something like that, because it's -- our quarter is fixed-price contract. And there also in the fixed-price contract, we open an old LNG [indiscernible]. And then somewhere we have given you add-ons also because, in today's time, they also feel they take advantage, and we give. And we also get from customers some special grade advantage here.

But sir, in current elevated steel price scenario, is customer willing to commit for a fixed-price contract right now or he may be delaying his decision to some extent?

Yes, in some EPC are dealing -- if they have a push on in their delivery, of course, they would -- because it is very unfortunate for them because they planned for a year back, they have quoted for a year backwards, 6 months back, and they took time in engineering and then they are going for purchasing. So there is definitely difficulty because the prices have gone so high compared to their estimation. Okay. So they took on a piecemeal material, whatever they require for the next 3 months, that much only they buy. They are not going at it and full order or something like that, some of the EPC. But somewhere, we are getting, regulating all this EPC, whether it's just all over or whether there is [indiscernible] on such.

In our case, once that order is received, then it is executed fully. So commissioned goes from the customer side and our side. We'll be clear, not spending the movement in [indiscernible], yes.

Okay. And you cover your raw material pricing as soon as you get the form also order...

Yes, immediately.

Sir, second question is, since you mentioned in the -- one of the questions that, this year, you will be targeting INR 3,000 plus kind of revenue and your -- the incremental CapEx can take you to around INR 4,500 kind of top line. So once you cross the INR 3,000 crore kind of revenue, will you be planning for a next big CapEx because generally it will take 1.5, 2 years for that new CapEx to come in, inspections to get over. So just wanted to get your perspective, like when we can see announcement of next big CapEx from your side?

In a year, definitely, you will get some good news for our next planning because any plan -- any greenfield projects that we are putting, it will take definitely 18 to 24 months. And whatever will go, we'll go for best. So -- for best, it is taking time. It is not China or something like that, we bought the machines. So in next 6 months to maximum 12 months, we get the news. Definitely, we have to plan for next.

Right, right, right. And sir, last question is your CapEx on the asset side, like once you reach INR 4,500 crores top line, your high value-added mix, especially asset side, will be much higher. So will it be correct to say that our margins will structurally move upward as we keep on moving to the higher value-added products?

Yes. Our -- always our focus is stainless steel. And definitely, our net expense and net money will be assets only. And according to that, we definitely say it will be definitely on our side, but it is too difficult to say right now because it all depends -- now it's becoming international market. Whatever thing happening in Europe is immediate secondary effect over here, the increase or decrease in our raw material. It is -- they very much go on by the international prices and situation, but we see a good demand because the oil prices go on everything in the oil and gas industry, more or less. So I may be surprised if our country also put extra refining capacity or something like that. But a private fellow, we just met a senior guy of Naira, old [ SR ]. They are going to go for a good big investment in the petrochemical because they didn't have a petrochemical. They have a 20 million tonne capacity, whereas they have a plan up to 60 million tonne capacity. And with this oil price, they may go very fast in an expansion. Yes.

So sir, this should push our margin is structurally high. So still we are giving guidance like existing margins. So I understand that cyclically, 1 or 2 quarters, it can be lower. But structurally, it should improve, right?

See, at our end, our number of product mix is there. So we cannot say entirely this tendency to go. So there is a commercial also in there also in water segment, oil and gas segment, the city gas segment, all the segments are there. So I'd say 16% to 18% plus minus 1%. So you will be surprised, it made 19% also. And it may be seen also, so the range of the gap is too wide. But as right now, I cannot commit anything because once the results are there, we definitely will come to this.

Basically, in our case, we are trying to have a balance between top line and bottom line products. So we have to ensure one thing, keep top line growth and bottom line also is productive, written by [indiscernible]. So technically -- and we have added capacities not only in [indiscernible]. Here, also added the carbon steel by way of [indiscernible] where margin is still not the equivalent to what we are guiding in some of the steel. And that is the reason we are saying even on a higher top line basis also, as also returns in percentage terms should continue to remain in this range.

[Operator Instructions] I have no further questions. I now hand the conference over to Mr. Sahil Sanghvi for closing comments.

Yes. Thank you, Ali. So this is all the time the management for patiently answering all the questions. And on behalf of Monarch Networth, I would also like to thank all the participants. Prakash, would you like to give any closing comments?

No, that's it. What we said that things are looking good. The visibilities are there for oil and gas. They are really good requirement locally as well as internationally, you can say. And of course, a little bit issue with the raw material, of course, but we -- our policy remain same. We'll look back to that on when you feel you get the orders same day you have to book. There's no any leakage over there in that policy, at the same time, in exchange. Also, we have a robust policy over there also, hedge every project. I think it would be unhedged. So we are safe, you can say. And our focus is on [indiscernible], how fast we can get more and more utilization of our new capacity in commercial well as [indiscernible] that focus there. And we plan for expansion that it will take out in a proper way. We have to do something for the next level. Yes. Thank you.

Thank you very much.

Thank you.

Ladies and gentlemen, on behalf of Monarch Networth Capital, that concludes this conference call for today. Thank you for joining us, and you may now disconnect your lines.