Satia Industries Limited (539201) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. I'm Momita, moderator for the conference call. Welcome to Q1 FY '22 Results Conference Call of Satia Industries. We have with us today Mr. Chirag Satia, Executive Director; Mr. Rajinder Bhandari, Joint Managing Director; and Mr. Inderjeet Monga, CFO. [Operator Instructions] Please note that the conference is being recorded. I would now like to hand over the floor to the management of Satia Industries. Thank you, and over to you, sir.

Yes. Myself, Rajinder Bhandari. And first of all, thanks from the side of my colleagues and myself for your interest in joining Satia's earning call and your interest in the company. Before we start taking your questions, I shall apprise you a little about the Indian paper industry, which has been passing through very difficult turbulent times recently, due to COVID-19. Especially the writing and printing segment in which we are, because all the education institutions were closed for the -- for more than 1 year now. Now that the news of schools and other colleges and education institution opening is coming from different states and with government realizing the loss of studies, especially for rural population where smartphone Internet connectivity is a big issue, and also along with decreasing number of COVID cases, mills are now very, very hopeful that if present COVID conditions, they remain under control as it is now, both jump in demand and price of paper is definitely to come in the coming 1 or 2 months. But presently, traders and dealers who suffered good losses in the past period are now very cautious in their purchase decisions and no speculative or forward order bookings are coming from the market. Consequently, prices are just going up with a lot of resistance at the moment. And let's all be optimistic with some caution that demand for -- will come by September, October when printing season begins and new session preparation for next year will also begin our education sector. In Satia, we have a slightly better side because of our exposure to -- major exposure to textbook board segment. And we still have orders for almost more than 1 month in hand and new openings are coming in this month. And we may get other big major orders in the month of September. So we in Satia confident that we shall be able to maintain the present level of capacity utilization of over 125%, and our top line for existing capacity to a level of INR 800 crore plus/minus, for the old capacity [Foreign Language] and maintain good EBITDA and PAT margin as we have been maintaining in the past also. Beside our -- besides this, our new capacity plans are progressing well. All we have been informing the market earlier also because our pulp mill is already in line. Our 14-megawatt turbine is already operational, new rice-straw based is already running. ETP plant has already been upgraded. Wood plant partly has been expanded and partly it will come in production within 2, 3 months. And paper machine is ready to -- ready for mechanical trials by end September only. The only slight delays that has happened is because of the movement of paper-commissioning engineers from France due to certain COVID restrictions. But definitely, the management is confident that after completing mechanical trials in September and October, we should start coming up with the regular commercial production by the end of November and minimum 3- to 4-month production number for the new capacity, which could be anywhere around 15,000 tonnes plus, because this figure I'm giving on the conservative side, should add to the total existing capacity, which could be anywhere around 130,000 tonnes. So this will add another almost INR 100 crore plus/minus to the top line. Similarly for the cutlery segment, mechanical trials have already been done, and we are starting the commercial production by the end of this month or in the month of September. From this segment also some numbers will be added in the top line this year. So in all, if we look to the prospects of Satia's business, the coming year, and this year too, looks very promising. And in the next year with [Indiscernible] plans being operational in full swing, we see a future potential where we will be making over 100 -- 600 tonne paper per day, leading to a total turnover of almost 230,000 tonnes plus. And top line anywhere near INR 1,400 crores to INR 1,500 crores. Cutlery segment, again, booming with government declaration, recent declaration of ban on single-use plastic to be effective from 2022, and our entry into this segment at the right moment, which management definitely wants to expand in the coming years. So -- and with the -- with all this expansion, of over almost 100,000 tonnes per year, the biggest plus factor is that our peak debt will remain more or less below INR 400 crores despite our almost doubling our capacity. So we hope that all the stakeholders and investors in the company are going to reap the fruits of the hard work and sincere efforts of the company that has been -- all the team has been putting in, in recent time and in the past also. So with this, I'll thank you once again, all of you, and we are ready to take whatever questions you have. Yes.

[Operator Instructions] so our first question comes from Mr. Amish Shah from Antique Stockbroking Limited.

But sir, if you could just give us a sense of all the categories of papers that you work on? And what is the demand supply dynamics over there?

Pardon? Hello?

I believe you give a lot of paper or you supply a lot of paper to these quick service restaurant, QSR segment, so how many players are present in this market? And what is the requirement? What is the growth that you foresee in this segment going forward?

The paper industry, as we all know, in the current year, the total demand is anywhere around 21 million tonnes, out of which almost writing and printing, in the segment that we are, is almost 30%, which is almost 60 lakh tonnes. And in this segment, the major players at the moment is JK, TNPL, Century, West Coast, Chandra, and then if we see after the -- our expanded capacity in -- if we look solely at the writing and printing segment, we will be anywhere around sixth or seventh in the Indian market, in writing and printing paper -- and BILT. And -- so major players are ITC, TNPL, JK, APP, West Coast, Century and BILT. So these are the top one. And the present level where we stand, we have Satia, Trident, Kuantum, Naini, Bindals, Ruchira, Shreyans. So these are the major players who are based on the raw material which come into our category. And then wastepaper base, we have Khanna Paper Mills, we have Emami, we have Shah, we have N R, but they are into slightly different range of product line. So the second part, you said the demand, the demand of writing and printing segment is growing at almost 4% to 5% due to that reason only, we have been diversifying in the past, our total product profile where we are now focusing more on the photo copier segment, which is growing at almost 8% to 9%. And on paper cup stock, which now we get in the market, earlier we were getting plastic glasses and -- for cold drink and tea. Now we get paper cups. So that segment is growing exorbitantly at almost 15% plus. So these 2 segments are now the major focus of Satia, where we are going to expand. And in the new machine, besides these 2 segments, we will be focusing on high-end multicolor printing segment also because India is almost second in the world in the printing segment and many countries, African and many other countries, they are outsourcing their business of printing. We have almost 130,000 presses in India, which is I think biggest in the country. And in this segment, the growth is almost at 16%. So high-end multicolor printing, then cup stock paper and then copier paper, all growing by almost 16%, then 15%, and copier growing at 9%. And the textbook segment, we -- and the rest of the demand, that too is increasing and future outlook is very, very positive because of the new education policy of the government #1, where the government wants to bring more and more children, which are in crores -- number is in crores into the school, which are just haven't -- just -- did not enter the school so far and then bringing the dropout rate down also. And the thirdly, the change in the curriculum that government is going to make in the coming time, which will again lead to increase in the demand in this segment. And fourthly, we definitely have to keep in mind the per capita low paper consumption in India, which is just 15 kg. And a country like Brazil, if we don't compare ourselves with the U.S., where the consumption is over 211 kg per person. Even in Brazil, the consumption is 50 per person. The main reason behind this is the low literacy rate in India, which is 75%. And Brazil is having 94%. China per capita consumption is 75 kg, and their literacy rate is 97%. So this new education policy is mainly focusing on literacy in India and with improvement in literacy and with GDP growing at a good number and with standard of living of people increasing, we think in India for another 10 years, the demand prospects are very, very good for the segment in which we are.

The next question from Mr. Amish Shah, he's an Individual Investor.

Congratulation on good set of numbers. Can you just explain about the industry scenario, import, export and growth rate for next 2 to 3 years for paper industry?

Earlier, India was -- in the last 4, 5 years, there were a lot of problems because of dumping of both writing and printing paper and copier paper in the Indian market. But presently, the -- ever since the anti-dumping duty came on copier paper in 2018, that -- copier paper demand started going up, the price is going up -- they started going up and the growth, too, has gone up substantially, number one. And that antidumping duty is already under review since 19 May 2021 and is likely to be decided by, I think, this yearend only, and it's likely to continue. And second positive development that has come from government policies is the change in the certificate of origin policy, whereas per custom notifications of August 2020, for taking preferential duty or 0 rate, which is from Asian countries. There, the importer has to give a lot of information on the origin criteria, accumulation, cumulation and to see [Foreign Language] So all those restrictions has put an end on the frequent dumping in the other segment of the writing/printing segment in India. So that has been discussed. Thirdly, in coated paper segment, earlier we were getting a lot of cheap coated paper from China, which has again gone down because China is -- has now become net importer because of the import ban on wastepaper. They do not have that spare capacity to dump cheap paper anywhere outside. So presently, [Foreign Language] that has gone on the negative side, rather we are on the positive side of exports earlier, almost 3.5 million tonnes was being imported against our export of 2 million tonnes. So this year, I think the number may reverse. And logistic issue, again, is the second factor, though the Indonesian paper is still cheap, but the logistic cost is preventing that to be -- preventing that to impact Indian market because of these imports. So consumers really can't depend upon them for their timely supply. So that is hampering the imports again. And that trend is likely to continue maybe for another 6 months to 1 year. Yes.

The next question from Yasmin Shah from Antique Stockbroking Limited.

Sir, I have a question regarding your cutlery business. What is the market size, what you're targeting, and your distribution? How are you going to set it up? And what is the -- next 3, 4 years, what could be the number that we can expect from this business?

Actually, cutlery segment is very -- the single-use plastic ban that has come, the market size is very big. So we are using -- almost world over, 380 million tonne plastic per year is used. India plastic consumption is almost 11 kg per capita, with 15 million tonne consumption per year. Out of this, almost 50% is single-use plastic. So based this year, that we will be doing will be almost 56 lakh tonne of plastic. So the market is very big, almost over, people say anywhere around INR 80,000 crores, some people say. But the upper industry is looking at this is [Foreign Language] by 2025, we should be able to achieve or replace 25% of this share by paper products. So our plan in this is to enter through 2 routes. One is the paper cup stock, which we have already entered. As we explained earlier, we are into this segment for the last 2 years. We are increasing our share of paper cup stock in our total production every year. And with the new machine coming, it could be anywhere around 20% to 25% of the total production. So that is one segment where we are planning to replace single-use cold drink or teacups that we have been using in the past. And second is the molded cutlery segment. So our -- present, we have installed 2 machines with a capacity of almost 2,000 tonnes plus every year, which will commence production from September itself. And once we start the commercial production and results are good. The third machine has already been added that too will come before December. If we find -- because this is a new business for us, so we will add the third machine also. So once we have all the 3 machines operating, we should... [Technical Difficulty]

Please go ahead, sir.

Yasmin, you are listening to me, please? Hello?

Sir, she's gone back to the queue.

Okay. I think let her come only then I continue.

Sure, sir. In that case, we'll take the next question, sir?

Yes, I think that's better.

The next question is from [ Mr. Harish Shiath ], he's an individual investor.

Congratulations for the good set of numbers. And all the best for the future CapEx in the pipeline, and it will be good for the company as well as for the investors. I have just only one question. I was annualizing your surrounding pattern. I have not yet invested in your company, and I'm looking forward to investing into your company. I was just looking through your shareholding pattern -- in the public category, I see that a lot of concentration by the body corporate who are holding nearly 40% of your market -- or shareholders. And out of that, one entity is holding nearly 15% of the shares in your company. So can you analyze any particular reason for this type of concentrated holding. If you have any logic.

Yes, yes. We had our public issue first that came -- was in 1987. And during that time, because company awareness whatever it was, it was there, we were listed on Ludhiana Stock Exchange and I think only Ludhiana at that time, we went to Delhi Stock Exchange afterwards. So the investment that -- at that time was done by some local people only, the farmers who were associated with the family. And they did that investment during that time. So those are the people who are in close association, well known to the promoters and who have confidence and faith in their sincerity and their honesty, who have associated over a period of time, and they are the major stakeholder. Yes.

Okay. Okay. I understand. But I went to your -- the old shareholding pattern also, and when I see in the March [ 2017 ], none of these entities are available there in the shareholding pattern. They have recently acquired the shares.

No, no. Actually, the people could be more or less same, maybe the hands changed and they form corporate body. So maybe that could be the scene. But the people are the same. Yes.

Any of these big entities, like 16% holding in company -- into your company, are they related to the promoters or anything of that sort.

No, no, no. They are not related to the promoters. They are [Indiscernible], but they are not related. Yes.

Okay. Okay. And just going back to -- when did you got listed on the BSE Stock Exchange?

BSE in September 2015 and NSE in July 2019.

Okay. Okay. Any QAP or anything you did in last 3 years? Any issue of further shares?

No, no. Not yet.

The next question from Mr. Himanshu Binani from Antique Stock Broking Limited.

So sir, basically, I wanted to understand on the CapEx plan. So what has been the CapEx we have spent till now? And what is the overall CapEx number, can you please comment on that query.

Our CapEx was for almost -- initially it was INR 400 crores. But due to a substantial increase in steel price and certain delays due to corona that same has gone up by almost 50 to -- INR 50 crore plus/minus only. So at the moment, if we look at the total numbers, we have already utilized the total term loan. And the total expenditure on the CapEx has been INR 450 crore and INR 250 crores is the term loan and rest has been done from the internal accruals. So we have -- in that, you already know that we have put up a new paper machine with the capacity to make 300 tonne per day. We are upgrading our wood pulp mill from 120 tonne to almost 300 tonnes. We are increasing our agro-based production from 200 to 240, 250 tonnes per day. And similarly, we have put up a new 14-megawatt turbine and a new rice-based boiler, then upgraded our soda recovery plant to meet the expanded production of black liquor and then ETP upgradation. So all this has been done at this cost of almost INR 500 crores, which will give us additional number of anywhere around INR 700 crores in the top line. Yes.

Right, sir. And sir, secondly, on this capacity addition, I just wanted to understand that how are you placed on the RM procurement basically on the pulp side? So are we backward integrated? Or are we procuring from the market? How are we facing to that?

If we make 600 tonne paper per day, so normally, the pulp-to-paper ratio is 0.8 or 0.85. That means I need almost 500 tonne pulp per day. So my existing capacity is 200 tonne agro and 120 tonne of good pulp. So I am presently making 320 tonnes. So as I told just now, we are upgrading 200 tonne agro-based pulp to 250 tonnes and wood pulp from 120 to 300 tonnes. So our backward integration for pulp will be for almost 550 tonnes, which is more than the required capacity for -- required capacity for pulp required for making 600 tonne plus paper. But simultaneously, we are [Indiscernible] pulp capacity also. That keeping in view, if we have any issues at some point of time during the year, [Foreign Language], then we can always fall back upon that capacity of wastepaper. Or if at some time, the paper -- wastepaper prices too down, and that is more economical. So we have that kind of flexibility in the use of raw material so that it doesn't hamper our production number throughout the year at any stage time and we are make -- to make optimum use of the pulp cost availability for the mill. So that is the strategy of the management. So we have -- we are almost 150 to 200 tonne plus in that total pulp in capacity. Yes. Similarly, for soda recovery, we have already upgraded it to meet the higher black liquor production and higher soda recovery, caustic soda recovery will be there. And for turbine...

[Foreign Language]

[Foreign Language] and we are increasing it to 250 tonne.

Okay. Okay. Okay, sir. And sir, one more question from my end. So sir, how are we placed in the power generation? So how much of the power we are generating is absolutely used and the balance power, are we selling that to the [ stale grid ], How are you using that?

No, actually when cogen was encouraged by the government, way back 15 years, in the paper industry and sugar-based industry. At that time, state government had promised to take whatever extra power we had for distribution and at a good price also. But once the states became power surplus, they backed out of this. So presently, we are making almost 20 to 21 megawatts of power -- hello?

Yes, sir. Please continue.

Yes. Presently, we are making 20 to 21-megawatt power per day because we are making 400 tonne paper per day and power requirement is almost 1,200 units per tonne of paper. So that means we need 480,000 units per day, means 20-megawatt power. So we are 100% self-reliant, but definitely, we are buying some power from the -- because we have a 15-megawatt connection with load sanction from the state government board also in case of emergencies. So we buy some power, 2%, 3% just to meet the minimum bill that we have to pay to the government. Otherwise, we are self-reliant. And we have surplus power. So that is why we are going into the paper cutlery segment. Because we have cheap power there at a rate of almost INR 2 to INR 3 a unit against electricity board rate of INR 8 a unit. And we have surplus pulp also. So we have a lot of synergy in that segment vis-a-vis our competitors in this segment. Yes.

Right. And sir, do we actually procure the bagasse also for the...

Yes. bagasse is not -- because there are not a lot many sugar mills in Punjab, so we depend mainly in agro sector on 80% to 90% on wheat straw and 10% to 15%, [Foreign Language]. So we do not use bagasse, almost we use 0%, only in -- whenever there is any major deficit in wheat straw procurement because of certain bad times in Rajasthan [Foreign Language] then we use bagasse. Yes. But we can use bagasse.

So our next question comes from Mr. Pranav Modi from Antique Stock Broking Limited.

Sir, I have a couple of questions in terms of paper price fluctuation. And as I understand, now we sell around 50% of our paper production capacity to state boards. So is there any long-term supply contracts with state boards? And how do we deal with the paper price fluctuation? In case if it goes up, then can we take the advantage of it immediately, maybe in next quarter or something? Can you just highlight on that?

Yes. We -- normally, our contract with the state text board is minimum for 1 year. So whatever -- whenever tender is done, if prices at that time -- prevailing prices are on the higher side and if market goes down, then we stand to gain. And if prevailing prices are on the lower side because you get that tender only on -- near about somewhere prevailing prices only. So if prevailing prices are low and the market goes steeply up, then we stand to lose also on that. But that happens very rarely. Because if we look at the last 10-year price numbers, they have been almost continuously increasing, maybe 5% to 10% every year. So [Foreign Language] because presently, prices are on the lower side, like we got the recent order of Maharashtra. So the price quoted there was almost 6, 7 months back. So we had that advantage of executing that order on much higher price as compared to the prices prevailing in the open market. Same happened in certain other textbook boards, which -- and this has come as a support to us even in the last year and this year, too. And the present tenders that are likely to be decided, there also, we are trying our best [Foreign Language] what best price realization we can get. But that definitely price slightly lower, slightly higher, that gives you a good backup for a consistency in demand and continuity of production, where other players who are not into this business, they struggle for business, that is the major advantage. And second thing what -- and secondly, I would -- Yes. Second advantage is when we make textbook board paper, the grammage is on the higher side. They take 70 or 80 GSM paper, all our different segments, power segment, pulping segment and then soda recovery segment, and the paper machine segment, their capacity utilization is to the fullest. So that reduces the fixed cost per tonne of paper, number one, and gives -- reduces variable cost also due to efficiency in the consumption of the inputs also. So that is the second major advantage. Yes, please. Second question.

Yes. So the second question is -- comes like that, what has been our average paper prices for FY '21? What is it going on currently? And how do you see it going forward for FY '22, FY '23?

Average price realization for '21 was anywhere around, I would say 50 -- about INR 50,000 a tonne for financial year 2021. Yes. And for this quarter, there has been increase of almost INR 3,500 tonne plus. So we are anywhere near INR 53,000 to INR 54,000 a tonne. And we hope that for this quarter also, this number should remain more or less stable. And if market demand spurts, looking to the opening of the educational institutions, the market prices as mills foresee, they could go up to almost INR 60,000 a tonne. As it happened in the -- in April -- March, April last, when there was news of corona being on the lowest side, so then prices have jumped almost by 20%, 30% in a period of 10, 15 days only. As I explained in my opening remarks, now people are being cautious, even despite opening of schools and colleges, they are being cautious in their purchases. But once everybody is confident that this is likely to stay and schools will remain open and corona is under control, that demand spurt will come and prices will jump to INR 60,000 a tonne, that is how we'll see in the last 2 quarters. Yes.

Okay. And the last question comes on my broader utilization level. So is it possible for most of the paper companies to work around to 120%, 130% of utilization levels? Or how is it?

Yes. Actually, our capacity utilization is calculated at 60 GSM basis, that 100 -- 5,000 [Foreign Language] that is the average GSM of 60 grams that we calculate, which is normal average GSM for the whole year. So since we are into 50% of our business is with the textbook board, whereas I earlier spend, the GSM is 70 or 80. So our average GSM goes up by 5%, 10%, 15%. So that is one reason. And secondly, since we have been modernizing and we have been trying to increase the speed of the machine in trying to increase the drying capacity of the paper machine, so by virtue of that, another 4%, 5%, we have been able to overutilize. So that is the reason for our higher capacity utilization. Yes.

Okay. Great. And sir, just last question. You've mentioned that we were earlier involved in the yarn trading business also. So -- and even your results which you have posted recently, that also says that there was some line item of this yarn trading business. So are we doing that? Or what...

No, no. We are not doing that anymore, sir.

Okay. Sir, so how long you used to do this business earlier?

Actually, the family business earlier, their promoters are 2 brothers. One is having his own spinning mill in Muktsar only. And we -- because the family was earlier in cotton ginning business. So earlier, we were doing some cotton trading also and some yarn trading also. But for the last, I think, 2 years, yes, we are not doing any -- we do not have any exposure on that side.

And we don't plan to do that business...

No, yes. Yes. No, no, no. Not at all.

The next question from Mr. Amish Shah, he is an individual investor.

Sir, can you please advise about the improvement in net profit margin for FY '23 because of this capacity expansion over the current net profit margin?

Actually, in financial year '23, we think that we -- against our present production level, which we hope to achieve over 130,000 tonnes, we should -- our total production for paper should be near 235,000 tonnes in financial year '23. And cutlery -- and with the cutlery numbers adding, almost INR 50 crore plus, the total sales that we are projecting is INR 1,500 crores plus. So at a price of almost INR 60,000 per tonne plus. So we hope that PBT should be INR 200 crore plus, EBITDA INR 350 crore plus, with EBITDA margin of almost 23% to 24%, and PAT should be anywhere around INR 160 crores to INR 170 crores. Yes. So that is the number that we are looking forward to in financial year '23. Yes.

Okay. And one more question. Because of this capacity expansion, are we seeing any benefit in raw material purchases because of the higher raw material procurement?

Yes. Raw material purchases, we are trying to focus and develop the maximum dependence on the local area. As we are placed in the wood -- wheat straw build, we are already buying the raw material of wheat straw cheaper from any paper mill in Punjab by almost INR 500 a tonne, which means a lot. Because we buy almost 500 tonnes daily. So that gives you advantage of INR 7 crores to INR 10 crore every year, number one. And for wood based, yes, we are now promoting agroforestry in our area. Though we have done our own forestry of 550 acres. So we are now encouraging farmers to go in for eucalyptus plantation, do agroforestry and promising to buy that wood from them, and that too we are focusing on the local area. So that is -- these are the plans for the coming years for our raw material. Yes.

Ladies and gentlemen, that was the last question for this call. I would now like to hand over the floor to the management for closing comments.

Yes. Thank you. Thank you very much. Thank you for your interest. Yes, thank you, bye.

Thank you, sir. Ladies and gentlemen, with this, we conclude our conference call for today. Thank you for your participation and for using Door Sabha's conference call service. You may all disconnect your lines now. Thank you, and have a good day, everyone.