Shera Energy Limited (SHERA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '25 Conference Call of Shera Energy Limited, hosted by Kirin Advisors Private Limited. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Ms. Samiksha Ramteke from Kirin Advisors. Thank you, and over to you, ma'am.

Thank you. On behalf of Kirin Advisors, I welcome you all to the conference call of Shera Energy Limited. From the management team, we have Mr. Sheikh Naseem, Chairman and Managing Director; and Ms. Jyoti Goyal, Company Secretary, and Compliance Officer. Now I hand over the call to Ms. Jyoti Goyal. Over to you, ma'am.

Good afternoon, everyone. Thank you for joining us today to discuss Shera Energy Limited's financial performance for the first 9 months of the financial year 2024-'25. We are pleased to report strong financial results for the period. However, beyond the numbers, we are excited to share the insight into the progress and growth of Shera Energy's core business. We are pleased to report strong financial results, reflecting our steady growth and operational efficiency. Our consolidated total revenue increased to INR 909 crores, marking a year-on-year growth of 53.70% for 9 months FY '25, showcasing the market demand. EBITDA rose to INR 42.9 crores, reflecting a growth of 15.98%, highlighting our strong operational performance and efficient cost management while net profit increased by 37.85% to INR 15.6 crores, indicating our ability to translate higher revenue into improved profitability. EPS improved by 27.92%, rising from INR 4.19 to INR 5.26. On a stand-alone basis for 9 months FY '25, our revenue stood at INR 25.04 crores, up 14.44% year on year with EBITDA at INR 20.53 crores, and net profit growing by 20.53% to INR 6.82 crores. These results demonstrate our ability to strengthen our market position while maintaining financial discipline. Shera Energy operates as one of the leading manufacturers of nonoperational metal products, primarily copper and aluminum with a strong focus on winding wires and strips used in transformer motors and electrical panels. Over the years, we have successfully integrated our operations backward and forward, allowing us to provide a diverse range of value-added products. Our product portfolio includes paper-covered wires and enamel and fiber-covered wires, round and rectangular wires, wrenched wires catering to a wide range of industrial needs. Over the past few months, we have made significant strides in both our production capacity and market expansion by increasing our production capacity by 15%, now reaching 46,750 metric tons. We are well positioned to meet the growing demand in our market. Additionally, our global footprint continues to expand with the launch of Shera Zambia Limited in Central Africa, which will focus on serving the local and regional market with our high-quality winding oils and cables. The progress we have made in backward and forward integration through our subsidiaries, Rajputana Industries Limited and Shera Metal Private Limited also play a key role in enhancing our product offering and overall business growth. Looking ahead, we are focused on driving further growth through our strategic investment in capacity expansion, strengthening our global footprint, and enhancing operational efficiency. Thank you for your continued support. Now I would like to request for questions and answer round.

Thank you, ma'am. [Operator Instructions]. [Foreign language]. We've got our questions. The first one is from the line of Mahesh Seth, an individual investor.

My first question is, sir, can you provide insight into the key factors which are driving the Y-o-Y growth of 53.70% in consolidated revenue for the nine months?

[Foreign Language]

Can you also tell me how do you see the EBITDA margins evolving in the upcoming quarter?

[Foreign Language]

Are there any plans for listing of Shera Metal Private Limited?

It is premature to comment on that. [Foreign Language]

[Operator Instructions] The next question is from the line of Jairaj Jain, an Individual Investor.

My first question is do you foresee any potential risk or opportunity to maintain this level of revenue growth in the coming quarters?

[Foreign Language] I don't foresee any risks for the near future. [Foreign Language] I can foresee a very good and bright future for the company in four years to come.

[Foreign Language].

[Foreign Language] with technological background that we had and the technical expertise we had, we have surpassed all that room growth level competition. Now the company has become among the top 10 biggest manufacturers across India. [Foreign Language] Our quality, our reliability, our commitment to supply, our pricing is much better than those people. So that level of competition we have already passed. [Foreign Language]

The next question comes from the line of Riya Bansal, an individual investor.

So my first question is, how much of revenue growth is volume-driven versus price-driven?

[Foreign Language].

So my next question is how do you compare your performance to industry peers in terms of growth and profitability?

Madam, to be very frank, some industry peers say, not directly compared, in terms of listed companies, Shera Energy including its subsidiary, [Foreign Language] that is a merger of our all products, copper, aluminum, and brass. So we are the only one which are listed who are dealing in all these 3 metals. [Foreign Language] there are 2 major players like Precision and RR Wires [Foreign Language] I see we are better in margin and operation size. [Foreign Language]. They are doing roughly 3,000 to 4,000 tonnes per month. We are in the range of 500 to 600 tonnes a month for winding wire. [Foreign Language] we are new in the market. We are just 15, 20 years old in this line. But in totality, if I compare 15, 20 year growth story of ours, we have excelled all these industries prevailing in the market.

So my last question is are there any risks associated with raw material price volatility? And how do you mitigate them?

Your question is very good, madam. This risk is always there if we are not going into back-to-back buying of the metals. We have a hedging plan in the company. We do the proper hedging of our raw materials. So whatever is sold, first, we do the sales and then we do the buying. So we always cover our sales with a buying back to back. We never do the buying first and then sales. So that way, we are covered with the volatility in the metal prices.

[Operator Instructions] The next question comes from the line of Priya Gupta, an individual investor.

So my question is how do you plan to enhance your distribution network to reach new customers?

[Foreign language] This is an industrial product. So we reach to all new probable buyers. We present them with our quality. We present them with our samples. We present them with our pricing models and our financial scheme with them. So upon the approval from the purchaser, since we are not new in the market, all our major buyers understand that we are established player into the binding wire. So they know the company beforehand, we go for any presentation. So this is the way we present ourselves for adding up the new customer bank. So this is required only when we are not in position to fetch orders from our existing suppliers. But just to make you aware, more than 95% of our satisfied customers, we get a repeated order of our total volumes that we sell. Only 3% to 5% of remaining order, we add new customers every year. Am I clear to you?

Yes, sir.

So we are matching the increased demand of our existing customers. So we cater them the first. And then whatever new product is developed by that company, that is sold on a new marketing strategy in the market.

And my next question. What are the company's long-term target for revenue contribution from exports?

Madam, I'm not supposed to answer you in terms of figures. But I can give you last year, we did roughly INR 50-odd crores. And by December, we have already done roughly INR 75 crores. And moving ahead, I expect a substantial growth into our export business. And I expect the company in terms of total share of exports, looking to the size of the Indian market, the way the country is growing. I doubt that there will be a substantial increase into a percentage of exports. But if I compare only export to export, you will see a dramatic growth in next financial year as well as this financial year. Am I clear to you? You have to compare apple to apple. If you compare our previous year's export sales to this year's export sales, you will find a dramatic change. But if you compare our export sales versus domestic sales -- the margin of export sales will be very nominal. You got it. It will be less than 10%. Since the Indian market is doing very good, all our growth has come with a contribution mainly because of the domestic market and some contribution has come through the growth into domestic export sales as well.

The next question comes from the line of Swaraj Singhania, an individual investor.

My first question is what regulatory challenges do you face in the international market? And how do you navigate them?

Regulatory challenges. That you mean to say in terms of taxation?

Yes.

There is no challenge in terms of taxation because whatever you are exporting, the government is not charging any VAT or any GST on that. So there is no challenge in terms of export on that. But whatever you are importing against your import, it's duty-free. So again, there is no price impact on your exports. So that way, I don't find any challenge. Rather, the government is giving an incentive of roughly 1% or 1.5% around on your export, whatever you do in terms of -- they have that scheme. So I don't find any challenge or any problem with the Indian government in terms of doing exports. The challenge comes against the Chinese player. where the Chinese government is giving them incentive or rebate of 13% on their exports. That is an incentive. They get an additional 13% of their cost of production. So that's a big, big amount to counter the Chinese part. But in our case, since China is a very big importer of copper, they don't produce copper themselves. They don't have the mines. They don't have a major processing plant into copper. So the cost of production of copper of China is substantially higher than cost of production of copper in India. So there, we get an edge over China to come back with this 13%. And recently, the Cre of the Americans the Chinese government is forced to withdraw the 13% incentive on all exports of copper and aluminum products. So that's a very good incentive on our industry. And that is where I can foresee a very good market coming up for our company in near future. If that remains intact, then Indian pricing will be cheaper than the Chinese pricing.

And the next question is what are Shera Energy's key strategic priorities for the next 3 to 5 years?

Can you please repeat, sir?

Sure. What are Shera Energy's key strategic priorities for the next 3 to 5 years?

This is very difficult to answer because our priorities change as the market changes. But right now, our topmost priority is the investment that we have made in our subsidiaries. We have to make them run smoothly in next financial year. We are adding up new product lines for nickel-based alloys that I have already updated to you people that those production capacities will be starting off by the end of March. And after that, the trial production and all that will go. So I plan the challenge will be to stabilize those products and market them for the next financial year. This is going to be our first target that we have to achieve. Then next year, since the Shera Energy stand-alone production facility is operating at very substantial high volumes in terms of percentage. So I intend to do some investment to add some machineries into Shera Energy as well in the next FY or maybe next to next year.

And are there any plans to introduce more high-margin value-added products?

That we are already doing, sir. That's the reason we are putting up those investments into our subsidiaries, Shera Metal and Rajputana Industries, where we are going to produce a product which has better margins and that will drive the company's EBITDA lines on a better scale for the next FY '25, '26.

The next question comes from the line of Sonia Sehgal, an individual investor.

I wanted to ask you about the Zambia facility. Like what exactly do you plan to do over there? And the supply would only be to the local market or there will be export from there too?

Madam, we are planning -- we went to Zambia for exploration of mines and acquire the mine and do the mining process. So that work is going on for copper and the second product is gold. Now I foresee one more potential in that market is to manufacture local products like transformers or electrical cables, conductors. So these are basically totally imported from China. Majorly, the country is dependent for imports from China. So here, I see a good potential for our company to export from India or rather start producing them there itself into Zambia. So company is focusing and discussing, it's a very preliminary stage. I cannot declare the figures and all that as of now. But this opportunity of business is also coming up. It is not yet finalized as per our agenda, but we are considering this. We are examining all the details on that. But besides that, copper processing, we are going to start very soon. And I expect in next FY, you will see good growth into our supply of copper from Zambia.

So that will help you in the reduction of your raw material cost which can lead to margin expansion.

This is going to reduce our purchase price. For the first financial year '25, '26, we expect to do that business to the tune that it replaces roughly 20% to 25% of our requirements and then next year to touch around 40% to 50% of our requirements. So that is going to substantially add in reducing our purchase cost and improving our EBITDA margins.

The next question comes from the line of Ananya Swaminathan from Csquare.

Are there any geographies the company is looking to expand into?

Can you please clarify what is your intent of that question? I'm not understanding what you want to -- can you please repeat?

How do you differentiate your products in highly competitive global market?

Competition. You are asking about the competition in the global market? Definitely, madam. Metal is a very mature line and it's a very old line. We always have a competition, but you have to be good enough to compete in the market in terms of quality and then the pricing. So competition is always there.

And what demand trends are you seeing in export markets?

What demand?

Are you seeing in key export markets?

There is a huge demand globally. There is endless demand, if I speak in terms of things. The U.S. market, if it goes good with India, if they are not going to put some tariff or this like they did with Chinese. So if that is going to happen, then a very big potential of market is going -- a sizable market is going to come to India. And beyond that, is still in spite of those countries, Middle East is a very big buyer of our product. Then African countries are a very big buyer of our products. So competition is also there. Competition is from China or from South America, like Brazil and all that. But you have to stand into the market. You have to work as per your pocket size. If your pocket size is big, you work big. If you work as per your working capital cash flows and your -- what is easy available fund. Whenever you are exporting, your money is blocking for some period. You are being paid when the goods reach there. So that much cash flow the company should have, that much reserves we should have to deploy. So there is a big calculation that we do, whether we put our money into the domestic market and whether we put our money into export market. If I put all money into export, the growth in the company will not come. No doubt profit will be there. But if I talk in terms of percentage, it will be there. But if I talk in terms of absolute figures, it will vanish as compared to what we do now. So it all depends on the available cash flows in the company and available facilities, liquidity in the company. Growth and opportunity is no problem in our line.

The next question comes from the line of Priya Jain from Green Capital.

So I just wanted to understand that is there any update on the utilization rate for the expanded capacity?

Madam, that data I cannot give you as of now. We have not tabulated that data, but we will be doing it shortly, and we will make it on a quarter basis. But on a range, I can give you a rough idea. We are utilizing roughly 85% to 80% of our total installed capacity as of now. We have 3 different products. So capacity utilization is different for all 3 different products. Some products, we are even attaining 90% and some products, we are doing 76% to 80%. But if you put it together as a whole, it will come in the range of 80% to 85%.

So any further plan to expand it to 90%, 95% or 100% hopefully?

Definitely, you will see this happening into next quarter. Next quarter is going to -- we are going to enhance our sales, and I expect the utilization will be better than what we did for these 9 months.

So any plans to leverage backward-forward integration to improve margins further?

Definitely, madam. That's the reason we are investing into Zambia. And there we are going to get our raw materials at a cheaper prices than what we are getting now. So this is going -- market is not going to give you additional prices on your sales. You have to compete and you have to be at par with your existing competitors. So there is no scope of growth of EBITDA margins. Scope of EBITDA margin in terms of percentage growth is only in your purchasing. So the best way is to start making your own raw materials, start putting money to reduce your purchase price. And that's the reason the company has ventured into the African area, and I expect this will take a good turn for the company for next FY '25, '26.

Sir, if you have signed any deal in Zambia?

Negotiations and work are going on. I have not yet signed anything. Whatever and whenever I sign it, it will be intimated to all the investors through the exchange first. But dialogues and negotiations are in progress and nothing yet has moved concrete, but very soon, it is going to happen. So at the right time, I will intimate all my investors and all my probable bankers for this through the proper channel that the company will make a proper declaration.

Sir, have you identified any mines there?

Many, not only one, many.

That's so good to hear, sir. Also, I have one more question. Any quotation you would be happy to quote like any order book, especially in the international market?

Our industry runs in a different manner, madam. We never have big order books because the metal price is changing on a day-to-day basis. So no one is going to book order for coming 4 months on a fixed price. They book us at quantities. That is not an order book. They book us with quantities that in the next 4 months, they are going to buy 400 tonnes, 500 tonnes. But the order will come on every 3 to 4 days, every week, the orders will come depending on the price they have closed with us. You got it. So order size is never big in our industry. It's normally -- it starts from 25 tonnes, next one goes to 100 to 200 tonnes. So the order book is not very big as a single order, no. This industry works on a scattered order at a differential price. Every customer does not give order on the same price. You got it. It's a commodity, madam. No one is buying things on one day at a flat price. It's a scattered thing. It just operates like the money moves into exchanges like you see the Sensex, you see the Nifty, how it is changing. So metal price also keeps changing like that. So no one is going to buy anything at a spot price for their requirement for the coming 6 months. Everyone is buying what they need tomorrow, what they need day after tomorrow.

Fair enough, sir. Also, when we can expect the operation in Zambia?

Madam, I told you next FY, you will find the operations happening very soon.

And what about the CapEx, sir?

The CapEx, I'm not supposed to answer you on this because there are many things hidden into it. The company is working to reduce its CapEx requirement there. I'm in dialogue with the existing plant, which are already established by some other players. But let it happen, let it materialize. And once it happens, the company will be working with them on a lease basis. So that is my first area where I'm focusing too much to reduce my CapEx requirement that I should also be careful in investing in a foreign land with a big investment. So I'll move in a slow phase. So the requirement of money for getting the machineries and land and plant building that I'm trying to cut short, I'm trying to put more money into the working capital. So this is the idea behind, and that's the reason I'm in dialogue with many people around. So I hope things will materialize soon, and it will be intimated to the exchange.

The next question comes from the line of Jignesh Vaidya from Jiva.

To understand the preferential allotment that we have done in November, it was only for Zambia operations? For the sales?

No. The preferential allotment was for raising our stake into our subsidiary, one. And second, for raising our working capital requirement. And a small portion was supposed to go to Zambia for our working capital requirement into Zambian operations. Not the whole money was going into Zambia, a small portion of that.

Right. And to understand more on the Zambia operations that you plan to have, any past experiences of any other players because this is African continent is known to be -- there may be some delays or some other challenges that we may face. So do we anticipate any challenges so that there can be a delay of 6 to 12 months to start the operations or everything is on a steady-state basis on a very fast track mode?

Sir, not to be proud of, but I have experience of over 30 years into this line. I am taking my full time in studying everything. I know my pocket size. I know my investment size. And I know the place where I'm working and what are the potentials there. So I don't want to interact with someone who -- where I will be in position where I'll be losing something. I'm studying the market thoroughly. I'm meeting people a lot. I'm meeting with the government people. I'm meeting with the agencies. And I'm in a constant dialogue. Every month, I travel to Zambia. Every month, I'm there for 10 to 15 days. So this homework is going on. And based on the experience that I have got in last 12 months, now I am confident that things are going to materialize soon. I have made good connections and contacts with many people working there. First, I study their weaknesses, I study what shortcomings they are having, then I hit their point. And based on that, the people are coming to -- they are ready to make some JVs, looking to the experience that I have, looking to the market that I have. So this type of negotiations are -- I'm making with roughly 15, 20 people, out of which 2 of them I expect to be finalized very soon. And soon, I'm going to intimate to the exchange how I'm going to invest and how I'm going to do the business into Zambian region.

So sir, mostly since it would be lease basis, so we would not require any further fundraising going ahead, right?

You see the copper is a huge capital-required product. First year, I will be doing with the capacity that I can handle with my present money that I have raised for this business. After my good experience and after I run the business for 6, 7 months, or 8 months and after I get all my payments on time, I don't find challenges in getting the raw material, I don't have any problems with the government agencies working there, the labor working there. Once everything stabilizes, it will be a good run for the company, then I'm going to take a good amount of equity and good amount of investment either through the bank or from raising the fund through public sharing. So the company will be going aggressive after my good experience for 6, 7 months of start of operations. So I'm not committing any big thing happening in '25, '26. This is going to be the experimental phase. But the way I have learned with my experience of 12 months there, I can foresee a substantial decline into our cost of purchase. And whatever things are coming up on paper, let it happen physically. Once it starts happening physically, when I get the confidence, money will not be a problem to invest there.

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Ms. Sheikh Naseem. Thank you, and over to you, ma'am.

Thank you, everyone, for joining the conference call of Shera Energy Limited. If you have any queries, you can write to us at [email protected]. Once again, thank you for joining the conference call. Thank you. Thank you, ma'am. Thank you, sir.

Thank you, everyone, for your valuable questions. It was a pleasure answering your points. Hopefully, I have made you a satisfied answer. And even if you have further queries, you may please come up with everything. I'm here to answer all your queries. Thank you for being a part of the company. Thank you.

Thank you, ladies and gentlemen. On behalf of Kirin Advisors Private Limited, that concludes this conference. You may now disconnect your lines.