Satia Industries Limited (539201) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Satia Industries Limited Q1 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Ms. Runjhun Jain from EY. Thank you, and over to you, ma'am.

Thank you. Good afternoon, everyone. On behalf of Satia Industries Limited, I welcome all of you to the company's Q1 FY '24 Earnings Conference Call. I'm Runjhun Jain from EY [indiscernible] and we manage the Industrial Relations for Satia Industries Limited. We hope you would have got the chance to review the results with the relevant exchanges and on company's website as well. To discuss the company's business performance in the quarter gone by, we have with us Mr. R. K. Bhandari, Joint Managing Director; Mr. Chirag Satia, Executive Director; and Mr. Rachit Nagpal, Chief Financial Officer of the company. Before we proceed with the call, a disclaimer: Please do note that anything said on this call during the interaction and [indiscernible] will reflect the outlook towards the future, which should be constructed as a certain forward-looking statement, must be viewed in conjunction with the risk the company faces, and may not be updated from time to time. More details are provided in the end of the investor presentation and other filings that can be found on company's website www.satiagroup.com. Should you have any queries or need any further information at the end of this call, you can reach out to us on the email addresses mentioned in the company's [indiscernible]. With that, I would now like to hand over the call to Mr. Rachit Nagpal. Thank you, and over to you, sir.

Thank you, and a warm good afternoon to all. It's a pleasure to have you with us today as we share the highlights so far recently announced Q1 FY '24 financial results. We are pleased to share that we recorded robust revenue growth of 15% year-on-year to INR 4,812 million. Our deep-rooted partnerships with text book boards have not only contributed to this impressive figure, but also provided that enhanced revenue visibility and driving stability. In the noteworthy development, our gross margins experienced an upswing, climbing to 59.1% from the 47.7% reported in Q1 FY '23. This positive shift can be attributed to the substantial reduction in agro and wood pulp costs, particularly evident in the decline of these core pricing by 30% to 35% year-on-year. I'm pleased to share that our Q1 FY '24 EBITDA margins have reached an all-time high of 31%, an outstanding achievement despite the challenging external landscape. This marks the fourth consecutive quarter of margin enhancement. The driving forces behind this remarkable performance include our efficient cost management strategies and the advantages of economies of scale we have harnessed. Our Q1 FY '24 tax stood at INR 841 million, marking an impressive 178% year-on-year growth. Our order book continues to remain robust. We secured orders worth 12,000 metric tons during the quarter, part of which was fulfilled in Q1 with the balance to be completed in Q2 financial year '24. These orders provide us with strategic insulation against price fluctuations. Notably, we have secured new orders from prestigious clients such as NCERT and DAV committee further enriching our clientele. An update on our CapEx side, our wood pulping capacity is in partial readiness. However, due to the current cost of attainment of imported wood pulp, we are pacing our expansion plans accordingly. With our strong cash and [indiscernible] capabilities, we have made considerable strides in trimming our long-term debt. In addition to regular debt repayments, we proactively prepaid 347 million during Q1 financial year '24. Additionally, the board has declared an interim dividend of INR 1 per share. With the new education policy spotlighting a broader range of subjects, including cards, sports and vocational skills, we anticipate the paper industry growth trajectory to [indiscernible]. Our writing and printing paper segment is well positioned to tap into these opportunities. Despite industry-wide realization, challenges per kilogram, our unique locational advantages and vertically integrated model alongside our enduring relationship with [indiscernible] boards, fortify our confidence in the industry. Consequently, we anticipate a 200 basis point improvement in EBITDA margins during financial year '24 over financial year '23. Thank you for joining us, and we will now move to the question-answer session. Thank you.

Thank you very much. Ladies and gentlemen, we will now begin the Question-and-Answer Session. [Operator Instructions] The first question is from the line of [ Ankur Kumar ] from Alfa Capital. [Technical Difficulty]

Sir, my question is on our EBITDA margin. So margin has improved quite well this quarter. But on full year, we are saying like 200 basis points over last year, which is lower than the current Q1. So is there any one-off in this Q1 numbers?

Because as you must be aware that the paper prices in the last month, June and July, they went down by almost 10% to 15% in certain varieties. And the prices in the next quarter and throughout the year will not remain in the same range as they were in the last year. Last year average was plus INR 90 per kg. So this year, it could be on the lower side. So definitely some compensation will be coming from the cost of production side, but definitely, it will be -- this quarter should be the peak EBITDA and there should be 4% to 5% drop minimum in the EBITDA margin in the coming months, yes.

Got it. And sir, how are things looking on the demand side and revenue side? So are we at peak utilization or what kind of revenue we can expect for this year?

Yes. Demand is not an issue. Only issue is that there was a pressure on prices for some time, especially in the -- from mid-June to mid-July, but then paper prices, especially writing and printing, they started looking up again. So now almost all the mills, they have again revised their prices from the lowest level, whatever anybody had. And now the demand is also good because once prices start moving up, people start their buying also. If prices go down, then people even stop buying their normal demand also. They'll buy what the least they need at the moment. Prices are -- we are running at our full capacity; capacity is no issue and the market is looking up.

Thank you. [Operator Instructions] The next question is from the line of Govindlal Gilada, an individual investor.

Yes, I want, in short, can you brief us how international scenario import, export and raw material pricing -- and prices of finished product in India, you told that they have again bottomed out. So, from peak, how much they are -- you told 10% to 15% in June, July. And others how much they have fallen, net-net from top, how much they have fallen and as of today, -how much from bottom again they have recovered? And going forward, how much you are seeing recovery again? So, these are my questions. Thank you.

Yes. The prices before sale prices from INR 90, they have fell anywhere between 10% to 15%. And depending upon the variety, they have gone down to any level of INR 70,000 to INR 75,000 a ton. But after that, the prices have again moved up by almost 5% in almost all the varieties. And there is likelihood of their further increasing once the textbook orders will start coming in the coming months, which would be to the tune of almost more than 3 lakh tons, which will be distributed among various [indiscernible] to be executed in the next 3 months. So that will further top-up the demand in the market also, local market also and the prices too will maybe going again to the positive side. Second, international paper prices earlier, they were anywhere in the range of $825 to $860 P&F and now almost all the mills -- Chinese mills, Indonesian mills, they have announced an increase of almost $25 to $30 in the month of August itself. So internationally also. prices are going up. Mills have announced their increase. And same is happening in India, both for A-grade mills and B-grade mills. As far as the raw material scenario is concerned, international wood pulp prices, they had gone down to the level of almost $470, $480 per ton, which has gone up to almost $530 to $550 now. So even they have increased. Same soft wood pulp had gone to almost $600. It is now in the range of almost $630 to $650 depending upon the quality to quality. And waste paper prices, they are down from their peak level to anywhere between SOP and all those rates to a level of $240-$250 per ton, C&F. So, the [indiscernible] prices in the indigenous agro basement, we saw prices are down a lot than the last year, almost by 25% to 30%. And chemicals, they are also down. And the rest of the things are more-or-less same. That's the overall scenario. Almost 10% downside should be minimum there in the casting itself because of the reduction in pricing.

So this second quarter, how demand scenario, we will be able to sell what we produced last year, what we have sold, we'll be able to sell the same quantity this year also? Or we'll produce more and inventory we will carry forward for next quarter in the...

As we explained in our -- that all the quarterly results also we had orders almost 15,000 to 20,000 tons in-hand when we started the quarter. So, in this quarter, we are likely to get orders from [indiscernible] textbook also. But the regular inflow of orders from open market is also there. So as far as whatever we'll be producing, we will be selling, there is no issue on that.

So net-net I want to understand that, because second quarter being a lean season of season, so season picks up from September, all that. So, what all we have sold in first quarter, whatever it is. So same we will produce and the same we will be able to sell, it makes the about...

Yes. We have produced almost 52,000 tons in the first quarter. We may be producing more and maybe we'll be selling a little more.

Even being off season, selling is not a concern for us.

Yes. No, no, issue.

Thank you. [Operator Instructions] The next question is from the line of [ Shree Gopal Agarwal ] from Aagman Advisors, Please go ahead.

Thank you, sir. My question is regarding the margin outlook for FY '24. If you could just throw some light on that?

Margin outlook, EBITDA margin, as we explained earlier, from 31%, it's likely to come down. But throughout the year as we see today, unless anything abnormal happens on the upside or downside, we should be achieving an EBITDA of 25% plus/minus. And the top-line, if we look at the today's prices, it should be within the almost INR 1,700, INR 1,800 crores region. And bottom line again almost 12% plus/minus.

I thought you were about your order book and how do you see it closing by end of '24?

Yes. As I already said, we have already cleared the first quarter, was very good number. In second quarter, we have ordered almost for the full quarter to be executed in this quarter. And thereafter, we are likely to get good orders from 4, 5 export [indiscernible], which are already -- the prices have been quoted and 2 orders are expected in the month of August itself. And other orders will mature in September. So, this will be total to that 40,000 to 50,000 tons. So those orders will be executed in the coming 4 to 5 months. And those will be -- price will be better than what we get from the market on average basis. So, outlook for the coming months is very good as far Satia is concerned.

Thank you. [Operator Instructions] The next question is from the line of Depesh [ Sanjay P ] from [indiscernible] Finance.

I wanted to know what is the debt we have prepay [indiscernible].

Yes. At the moment, the total term loan is almost INR 310 crores. And by -- if we do not prepay any more amount, it should be in the range of INR 285 crores by the end of 31st March 2025.

Is this for the working capital?

Pardon.

For the working capital?

No. Working capital is hardly is 20%, INR 25 crore fund based and rest is no-funded-based, which is mostly bank guarantees given to the various tax boards. And that's all.

That's right. Okay. And what is the CapEx you are expecting to do this year?

Our CapEx is only for the fund -- this running year, total INR 150 crores which is to be capitalized - one is for the boiler, which is [indiscernible] based boiler, which will come up in the last quarter. And second is our hard wood pulping capacity, which we had put on slow pace because of the cheap prices of the imported wood pulp. So, these are the 2 major CapEx in the current year. Yes.

And they will be funded by existing loans or bonds?

Yes, yes. The -- So we have tie-ups with the UCO Bank and HDFC Bank for the same. Boiler has been financed by UCO and the hardwood pulping been financed by HDFC bank.

Perfect. I'm just asking that the term loan which is at INR 310 crores, will that be taking care of this expansion? Or there will be fresh loans which will be taken, fresh term loans will be taken?

No, as an as we prepay, we will also be simultaneously taking disbursements from the prior. So overall outstanding position at the end of the financial year will be roughly INR 290 crores to INR 300 crores.

Okay, okay. That's fair enough.

That INR 300 crores is the present outstanding term loan. Disbursement in the current year will be almost INR 40 crores to INR 45 crores and repayments will be INR 70 crores. So that's why I gave you that figure of almost INR 285 crores at the end of the financial.

Okay, Sir. Okay. And in the entire year what is the revenue [Technical Difficulty] what is the revenue of the entire year of eucalyptus [Technical Difficulty] and carbon credits?

Carbon credits now REC sale is almost -- the government has stopped that sale and carbon credit, you must be aware that REC is now not openly tradable. They have -- government has put a ban that those who are captively producing REC, so, they can use the credits to offset their any use of fossil-fuel -- and as far as the [ util eucalyptus ], it is approximately INR 10 crores.

Okay. What is the cost of power per unit because entire our captive power is done by assembly?

Yes, yes. It is almost INR 3.5 per unit.

3.5 per unit, okay. And as an industrial power, I mean, if we buy from outside?

That is INR 7 per unit from PSPCL.

Okay. A significant thing. Just wanted to know what is the depreciation policy because in Q4, we had a huge depreciation figure. And again, the depreciation has come down to INR 32 crores. So, I just wanted to know how -- overall how is it going to be over 3 years ?

Yes, last year, that was only a onetime adjustment that had been made. So that accounts for additional INR 80 crores in the last year. Now it is on [indiscernible] market with the 5% [indiscernible] it shall remain in the range of INR 30 crores to INR 35 crores.

Okay. [Technical Difficulty] What are the growth drivers? I mean we understand that 50% of our revenues come from the textbooks and from government, I mean, the agencies. So, I mean, how is it - how is the start the other growth? Are we seeing any growth in that also?

Overall, growth in the demand is there already in the writing, printing segment. As far as we are concerned, we feel that we may be doing almost 5% to 10% more volume in this year. And in the coming year, the management is making certain plans to further expand capacity by almost 100 tons per day.

What is the current capacity utilization?

It is almost 90%. Because PM4 is having the capacity of almost 300 tons on certain basis days of paper that we produce. So, it has been making almost 200 tons on an average basis in the last year. So, there is a lot of potential on that PM4. So, this year, that's why I said we may be saving almost 10% plus/minus growth in that volume of production side. It depends on the prices.

How much capacity increase will happen; I mean in terms of tonnage?

Presently -- in the present utilization is 575 tons per day, and we intend to achieve it to almost 600 tons plus per day.

600 tons?

Per day.

Per day.

Yes. So, this should come to anywhere around 220,000 tons.

And so is there any tonnage capacity increase you're planning with this CapEx.?

Not this year. We may go in for -- first we need to get the clearance. Once we get those, then we may go in for, as I said earlier, by another 100-ton expansion in the capacity. [Technical Difficulty] Which may mature in the financial year '24-'25.

Okay. And you expect the return on equity to remain at 30% or around the 25% region?

Well, as Nagpal mentioned about slightly there will be a fall in EBITDA margin. So that will be slightly on the lower side by 300 to 400 basis points.

Okay. No, I'm talking about the return on equity.

Yes. So, 3% to 4%, it will decrease.

Okay. But in the [Technical Difficulty].

It's will remain in the range of 30% plus only.

Okay. 30% plus only.

Yes.

Okay. Sir, since you are planning so much of expansion, are we looking at infusing money into the business through preferential as our promoter holding also is around 50%, 52%? Are we looking at that in the future?

Yes, not at the moment, but anything could happen.

Okay. Great talking to you, sir, all the very best. And if there's any questions, I will definitely come into the line. Thank you.

The next question is from the line Prashant Rishi from Cascade Capital.

Hi. Sir, you mentioned that right now, the wood pulping you're going slow because international hardwood prices and softwood prices are down. And so as and when they go up, it will become far more viable to have in-house wood pulping. So, I just wanted to know at what level of price approximately do you think an in-house wood pulping capacity would become viable?

If hardwood pulp crosses $600 or $650 rather, $650 it comes up par with the cost of the indigenous hardwood pulping inside the mill. So presently, there is a gap of INR 8,000 to INR 10,000 per ton. If we produce hardwood pulp inside -- pulp is costlier by almost INR 8,000 to INR 12,000 per ton. So that's why we produce whatever minimum is required to keep the operations efficient and the rest we buy imported hardwood pulp and use that just to reduce on the cost.

Okay. And tomorrow, let's say in 6 months or a year, if hardwood pulp prices want to shoot up, how long will it take for us to get the wood pulping capacity up and running?

That 50% project is already online; we have already done the digester displacement system that we have explained in our previous calls, that is already operational, and it is already giving economy in whatever pulping we are doing in-house, our hardwood piping. It will take the 3 to 4 months, which will -- we are doing simultaneously. We will complete this project maximum within 3 months, next 3 months. So, we are not going to wait for the hardwood pulp price to go up. That is already ongoing. The only thing that we have done is we have slowed down that pace.

Yes. Okay. And one last question, sir, you mentioned waste paper prices. You mentioned a bunch of, lot of prices, hardwood pulp, softwood. I just [indiscernible] waste paper prices. What were the current base paper prices and how much have they fallen?

We paper prices, they have come down. If we talk in rupee terms, they have come down by almost INR 10. Now they are SOPs almost $250. This was earlier in the range of $325 to $350. So similarly, Indian-based paper, it has come down from INR 30-plus to almost INR 22 to INR 23 per kg. So, waste paper prices have come down by almost 25% -- 20% to 25% depending on different rates.

Okay. And even these are -- so like you mentioned, otherwise, prices have moved up like international paper prices and hardwood pulp prices. I mean after dropping quite a bit, they are now stabilizing and moving up slightly. So, is that the case with waste paper prices also?

Waste paper is more or less stable now at these prices at the moment.

Okay. All right. One last request, sir. Just please release your annual report as soon as it's possible for you people, so that we can get.

Definitively, thank you.

The next question is from the line of [indiscernible] and from NVS Brokerage.

Thank you for the opportunity. I just wanted to understand, as now the agro pulp and the wood pulp cost has been reduced. So -- and the cost of chemical also has been reduced. So, which are the reasons which will drive the price of the chemical agro pulp and wood pulp, and what kind of impact can we see after the reduction?

The first one the cost will be down by almost more than 10%. And what else you ask, please?

I'm asking which are the reason which will drive the price of the chemical and agro pulp and wood pulp? And what kind of impact can we see after this kind of reduction?

Yes. I told you it has come down by almost 10%. If whatever costs we had in the last quarter, in the first quarter of this year, the cost for the next quarter will be down by variable costs, would be down by almost 10%.

Okay, sir. Also, can you please share some light on what sort of volumes you are expecting to do this year, given the second quarter?

Yes, last year, we did almost 209,000 tons. So, this year, anywhere between the 5% to 10% increase we are expecting in the volume this year. It will be on the plus side, definitely. That's what we are trying our best.

Thank you. The next question is from the line of [ Ashish Sinhal ], individual investor, Please go ahead.

Firstly, congratulations for the wonderful set of numbers. Like I have a couple of queries. The first is regarding this order book, which you mentioned. So, like you mentioned in tons, could you please convert this in rupee with how much it will be? The current order book and how much will be booked in Q2 and Q3?

I think if you multiply this with 85,000 tons, which would be almost the average price, we have some high-priced orders from the different sectors and in the range of INR 100 crores plus.

Okay. And sir, as far as the order books, the orders which are expected in the near future, so like how much will be the total value?

Total value depends upon the allocation that we get. We are expecting total orders to the tune of almost a minimum 30,000 tons. So, if we [indiscernible] almost INR 300 crores.

Okay, sir.

Including GST, yes.

Thank you. The next question is from the line of [ Ramana Reddy ], an individual investor, Please go ahead. [Technical Difficulty]

My question is, I think we are doing [indiscernible] products and what percent of smaller products you are currently doing in respect of your revenues? And what is the growth of these you're looking particular result? And the second question, please, especially this quarter, we have seen the margin is a bit high. What exactly the drivers of these margins?

Firstly, I'll answer your second question. The margins they came because of the lower cost in the raw material #1. And lower prices of fuel and packaging side and store and repair. So, all these, they contributed to the almost 5% addition to the EBITDA to our last quarter of almost 25%, 26%. So, on account of these 4, 5 heads, we were able to increase our EBITDA by almost 5%, that was done. And as far as the moulded product category is concerned, you know in India, the implementation by the government itself has gone on the slower side. Lot many plastic products they are coming in the segment and it looks like there is not much control on their selling in the market, which has affected adversely the moulded product and their price has gone down. So, we had in-house presently 5 machines out of which 2 machines of [indiscernible], they are stuck up because of the problem in the [indiscernible] company itself, which are at almost 2 ton each. And the other 3 machines, out of those 3 business machines semiautomatic, we are making almost 1-ton moulded cutleries presently. But definitely, management hasn't stopped the -- their focus on this segment, that progress is not significant and not use.

[Operator Instructions] The next question is from the line of [Anil Kumar ], an individual investor, Please go ahead.

My question has already been answered. Thank you so much.

Thank you. [Operator Instructions] Ladies and gentlemen, as there are no further questions, I would now like to hand the conference back to the management for their closing comments.

Thank you. Thank you, everyone, for the interest in the company, and we hope to come up to your expectation in the coming period. Thank you.

Thank you very much. On behalf of Satia Industries Limited, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.