Simplex Castings Limited (513472) Earnings Call Transcript & Summary

Superb, superb. And sir, when we talk about foundries as a sector and precision -- use Precision Engineering to manufacture that component, what is the technical difference? I would just let you know -- can you let me know about the difference between a foundry made casting and precision engineered as well?

No. I mean precision engineered, I can always talk about certain products that we make. They are also precision engineered. But when we talk about exotic metals, we are, at the moment, only limiting ourselves to gray iron and steel. Exotic metals would be various kinds of nickel alloys, which have very good properties of corrosion resistance and thermal resistance. We can move up that value chain, but it would need a lot of other areas like Precision machining also, Precision machining also, we have CNC machines. But when we go for 5 axis, 7 axis, then they are called more precise machines used in tool and die and those kind of -- turbine blade machining and those kind of things, which we don't have. But precision castings are what we are able to do. Precision machining, we are able to do, but not the full range.

Correct. So we are not utilizing the 7 or 9 axis or 12 axis, CNC machines?

We don't have at the moment because it was not required for our kind of products.

Perfect. But what if we move up the value chain there where we can supply to auto ancillary manufacturers?

There is enough expansion required in our kind of heavy kind of casting and heavy machining where more and more -- I mean, most of the MNCs when we are working, the tolerance level is the requirement happen. The requirement of the casting requirement of machining as itself is very precise.

[Foreign Language] The value chain, we are currently present [Foreign Language] better to expand you, correct?

Yes, that is also expanding. And yes, we are also wanting to go up the value chain by trying to get into more exotic materials also.

We'll take the next question from Mr. Srikanth Reddy.

Sir, I have a few questions. So company is -- with the help of consortium of other players, developing green hydrogen powered direct reduced iron plant project. So can you update on this? What is the status presently going on there?

The green hydrogen project was awarded to us. Again, we have had no other -- anything to add to it other than that, that the technical capability of Simplex Casting, it was a joint project of Ministry of Environmental and Nonrenewable Energy or Renewable Energy and Ministry of Steel. So we went and bid for an expression of interest. It was a consortium between us and IIT Bhilai. This was supposed to be a pilot plant to make steel DRI using only hydrogen, only hydrogen. Unfortunately, since we were the consortium leaders, the grant was INR 161 crores, and the grant was subject to GST. Because in the tender, unfortunately, they had mentioned that the level of grant and the level of asset that will be created, that it will be the same proportion. So what it was -- the GST -- influence on GST, why we were getting attracted, why we were getting caught in the GST net was basically that it was -- something was being delivered to the government. That was the IP and 50%, 60% of the asset. And since you are a -- Simplex Casting is a profit-making -- listed company, it was not exempted. So because of the GST, we had to close that. Otherwise, we had done everything and we had got that. So that project is closed now.

So which means that there is no commercial opportunity going forward, correct?

Yes. There is no commercial. I have not been able to explain it properly. Okay. Let me just try to tell you again. The total project was about INR 300 crores, about INR 160 crores was grant from the government. Unfortunately, in the tender, the one of the condition was in lieu of the grant, they need the IP in the same percentage and the asset also in the same percentage. Since it was not a free grant as the grant should mean, since they were demanding the -- they were wanting -- this was part of the tender or the expression of interest that they would have that right on IP. So the GST took a view, the GST council, they took a view that this is development against that money that you're getting. It is not a grant. And which was about INR 30 crores, INR 35 crores of GST -- additional GST, which neither the government, neither we had planned. So we had various meetings back and forth between the steel ministry and us, and they also took a view and we also took a view from various consultants. And we finally had to -- both of us, we came to a conclusion that there's no point unless until the tender needs to be scrapped and reissued. So that is when we bowed out of the tender and the tender was reissued. Unfortunately, when it was reissued, we didn't go for it because they had changed certain basic conditions. They had put a condition that you have to be a person who -- you have to be a company which is operating a DRI plant, which we were not. So the second tender, we didn't participate.

Sure. Understood, sir. One more question. So we have technology collaboration with foreign companies. What is the royalty structure we need to pay for them?

Fortunately, nothing is on royalty basis. It was on technical transfer. The technical collaborations were technical transfers, and they were -- they have been completed and it is over. So for the last so many years, we are not required to pay any royalty for any of the technical collaborations that we have done in the past.

Okay. And one more question. As in Vizag, ArcelorMittal is doing a huge CapEx. So what is the traction to our company in terms of order book inquiries from that location?

In Tedesara, two things that we are wanting to do. One is increase the power sector business, which we were not doing much. And suddenly, we are flushed with orders from the power sector, from BHL, L&T and the likes of them. And good, as Mr. Avinash pointed out, look, about INR 100-odd crores of business is expected from them -- from there. And second area, again, in the fabrication side, he said that we are going in the CapEx on the fabrication side is for fabricated locomotive bogies, where again, we are expecting almost a turnover of INR 60 crores, INR 70 crores.

No, sir, my question is relating to steel sector. The CapEx is doing by ArcelorMittal in Vizag. Yes. So how is the traction we are getting in that customer?

If you look at us, traditional market is steel and railways. So steel sector, consistently when we are saying that we will move up the value chain is that INR 300 crores, INR 300 crores of this year's revenue, we will try to replace because of the opportunities in the steel sector. We would go -- we would choose to be a little choosy and take better orders that we will remain at -- that will be the same. This INR 300 crores will be fed by that sector and that is there is easily being seen in the order book as of now and also in the pipeline. So that will be steady. Not only ArcelorMittal, ArcelorMittal is expanding in 3 areas, two in Odisha, one in Andhra. So a lot of capital goods, again, that is what we are known for in this sector. Simplex being old -- 60-year-old company, I mean, they can do anything and everything. They've done complete plants for equipment. We need not worry. We can just go to Simplex. Credentials also for almost everything in steel sector, we are there. We have done that in the past, so credentials are also there. So that area is for the next 4 years, 5 years, booming. Railways till 2019 was 40%, 50%. We are trying to bring it back to 40%. Because steel sector after 4 years, 5 years, there would be always a cycle, and that is how we have seen in the past that having these 2 majors, steel and railways always keeps -- it is kind of hedging your bets. You can keep doing a consistent growth, consistent turnover. So that is the strategy of Simplex Casting that keep these 2 there. Defense, railways, defense and shipbuilding keep adding, add new products, start small, but be a dependable supplier and grow from there. Meanwhile, utilize the facilities, the infrastructure that you have, which is all paid for and make joint ventures, SPVs or take -- buy companies with technology because then you can launch your own product instead of doing castings and machining for others.

Okay. And one more question. So there is CapEx doing by aluminum players. So how is the traction, whether we are catering to that segment or present or going forward, we may plan to that?

In aluminum?

Yes. In aluminum, there is many players doing a CapEx. So whether we are able to provide capital goods equipment to them?

Sir, actually, it is my mistake when I talk about steel, that is not the right way to do it. I should talk of metallurgical sector. Traditionally, also, whatever we now -- we have been talking for such a long time, we've been talking about steel, but it is basically a ferrous, nonferrous metallurgical sector. We have been always very big. I mean, BALCO Vedanta, the group, whether it's Hindustan Zinc, Vedanta again or whether it is Nalco or Aditya Birla. All these people have been traditionally buying all their equipment because equipments are similar for both the metallurgical industries. So yes, at the moment also, if you look at my order book, yes, 20% of the steel, steel, steel what we talk about is steel not metallurgical, 20% is from nonferrous.

We'll take the next question from Mr. [indiscernible].

Sir, two questions. First is the capacity that we are increasing in, I guess, you just mentioned was in fabrication side. That is currently standing at 15,000 tonnes. So what is the capacity that we're adding in this?

Sir, we would be in a position to do about 1,500 tonnes a month about what the plan is that capacity is 1,500 tonnes a month. That is about 18,000 tonnes. So that is -- but at the moment, what we are doing is about -- without this capacity expansion, we are doing about 6,000 tonnes. From 6,000 tonnes, we want to break it at least 6,000 or 7,000, 8,000 tonnes more.

Okay. Understood. And in foundry, are we adding something, sir?

Foundry is more of debottlenecking. That is the plan, sir, because we are not wanting to put too much of CapEx at one point of time. So we have a specific reason for the fabrication unit that we are looking at those 2 things. One is the power sector and the fabricated bogies. We just did the CapEx, an earlier CapEx of INR 15-odd crores for the railway casted bogies. We would be doing some debottlenecking, adding INR 4 crores, INR 5 crores machine for a little -- again, a CNC machine and debottlenecking by conveyors and cranes and those kind of stuff. But nothing -- not at the moment. We want to earn some money, be stable. We have just come out of -- last year was the first year. This is the second year where we are doing better. So we are not trying to overdo things. We are doing things one at a time. And definitely, if required, we would -- after we are stable and better off with the accruals from internal accruals, we can always go for a totally machine molding plant in our foundry. But that is not on the card, nothing at the moment, just on the drawing board stage.

Correct. Sir, my second question is with regards to our historical steel and precisely power plants where we are focusing. So as you just said, ArcelorMittal is also coming up with a few -- with one plant. And there are a few more companies who are also putting up a large CapEx in this specific sector. So how well are we positioned to capitalize this opportunity?

Other means even the second rung players like Shyam Metalics and Rungta, everybody is expanding, sir. And yes, I mean, it is always that anybody has to come to Bhilai. In Bhilai, apart from us, there are only very few bigger players. So anything to do -- anything that is happening in ferrous or nonferrous industry, equipment have to be coming out of our city only. And that used to be then it's still the same. So definitely, Simplex being a bigger name, we will -- we are looking at all those pies, sir.

Understood. Okay. And sir, just to understand one thing. In this large CapEx cycle of India, since, of course, we are trying to more than double our revenues from INR 200 crores to INR 500 crores in the next 2 years, but the CapEx looks a bit larger if we see from the India perspective. So what is something that you can expect over the coming years? Because where we are today positioned in the heavy engineering part, it's not something that everybody can do it as your PPT also mentioned. So just wanted your views on this. What is something that is out of this presentation that is being shared?

There are a lot of plans, a lot of plans. Let me be very honest and a lot of opportunities and the situation at the place where I am and where Simplex is at. So there are a lot of opportunities. Every day, things are happening and every day, things are coming to us also. Our focus is very simple at the moment this year and next year, keep focusing on what we have committed. Look at opportunities, analyze the opportunities, be ready for the next phase. But at the moment, my customers or the company needs deliveries, execution of the orders that we have in hand and financials, what we have said that these are the projections we need to achieve that, sir. So yes, there are a lot of lucrative things that are coming our way in the position that we are, but we are having -- that those things are all only on the back burner at the moment, something on the drawing board kind of a thing, nothing as concrete. We are not looking at those kind of things other than keeping them in mind.

Understood. And this current order book of...

And let me just say. I'm very, very clear, sir. I'm very clear that we need to focus on what we have, make a good name, whether it's defense sector, with the shipbuilding, whether it is execution with our present customers. And then once we are a little more stronger, that is the time when we can talk a little bigger. And there are things which we will talk, but not -- this is not the right moment.

Understood, sir. Sir, last question is on the order book front. Currently, it's nearly about at INR 150-odd crores run rate. What is the pipeline right now looking like? And if we can order -- we can expect some few more orders in this specific quarter or something?

Specific quarter, yes, there are some orders which are in pipeline that will come through in this specific quarter. And -- we should be maintaining, sir, everywhere, I'm not looking at too much of an order book because every order book has liquidated damages. If you delay it more than a particular time, then you -- and some are almost to -- most are limited to 5%, but some go up to 10% also. So we are trying to keep the order book to same level, about INR 100 crores, INR 150 crores, where we have sufficient time and we are able to execute it. So we are very confident that this order book INR 100, 150, we will be able to maintain, sir.

We'll take a follow-up question from Mr. Praneet, which will be the last question for the call.

So just wanted to get a little more clarity on you mentioned that there could be some other facility that will be acquiring or putting up. So what would be the range of investment we'll be looking to invest in that?

Those are -- those will -- I mean, what we have thought and what we are looking at is something that can be financed through our own accruals. We are not looking at any CapEx -- further CapEx. That is what we have already discussed with you. So the range of investment is all limited to our accruals only.

Got it, sir. So we'll not be expanding our borrowings by too much, even though this facility comes in?

Yes, sir.

Got it. Sir, you also mentioned that the opportunities are there and you want them first to build up strong. So right now, we understand that the next 3, 4 years, we want to build up railways and mostly power fabrication. Is there any further scope to see beyond the next 2 years, like or let's say, in 4 to 5 years?

No, no. Currently, we are also exploring EPC projects also, sir. So these are the 3 areas that we are exploring.

Sir, EPC projects would be through Simplex itself? Or would it be through another company?

No, it will be only -- I have only one company, only one interest and everything will be in Simplex Casting only.

Sir, but I think in the past, we also had some other entity where it was doing EPC and carved it out, if I'm not wrong.

No, no, no. It's a reverse. It's not that. We disbanded our project division because at that point, we were -- see, when I talk about EPC division of Simplex Casting, it operates in a very small box. We do projects only in the metallurgical sector or power sector. We are not interested in making railway bridges or we are not looking at highways or nothing, no bridges, nothing. I mean anything that gives load to the company to Simplex Casting, that is of our interest. Anything which doesn't give load to our units is not of our interest. This has been our policy. That's why when I talked about -- I talked about sinter plant blast furnaces, I talked about rolling mills. That is what we were doing earlier also. That is the policy of Simplex. So steel plants when they were down, so that is the time the last order we did was in 2016. It was supply and making a complete for something for Rourkela Steel plant. And that was also in Simplex Casting. And 2016 to 2020 was a very bad time for steel industry. So we disbanded the EPC division so that the overheads are not there. And any point of time, we have those credentials in Simplex Casting only. So any EPC project that we will be doing, it has to be using those credentials of Simplex Castings and it will come in Simplex Castings only as in the past.

Got it. So at our peak, what kind of EPC revenues are we doing?

Sir, about INR 100-odd crores in a year. A normal EPC project in our case, usually takes about 3 to 4 years to complete it.

And like usually, let's say, if we were to get -- what are the order sizes we'll be looking at in EPC?

At the moment, because of limitations from our bankers and the bank guarantee limits, we are looking at order sizes of INR 100 crores, INR 150-odd crores.

Which would be executed about 4 years?

No. In these cases, it is about 2 years.

Okay, sir. And these margins, how are they different from, let's say, our existing business? I understand it will be very different.

Anything less than -- because of the kind of things that are associated with the EPC project, that is again that I am making the box smaller, anything less than 15% to 20%, we are not interested. So those are -- so these are -- that is why my box is very small.

Got it. So just trying to understand because these steel plants have thousands of crores of CapEx. So do they carve out a specific part to give it to us? Like is it -- how does it work? Because most of these times, you have consultants who are just running the entire show. So just trying to understand that.

There would be many, many packages that they make. We would quote only for the packages, which give us some at least 30%, 40% load to our factories. And those are in line with whatever we know and that is how we will quote. For example, a new -- about INR 6,000-odd crores is getting spent in Bhilai Steel plant. They are going ahead with the new universal rail and structural mill. So it will go to -- the main package has gone to -- will go to either SMS or Danieli. From SMS or Danieli, we will get the equipment. That is not part of the EPC. But there will be certain enabling works, which will come out in smaller packages designed by the consultant. It could be a reheating furnace, it could be a part of the rolling mill, it could be a stack, it could be any of those things. So that is where we would come in.

Understood, sir. So basically, whatever after getting -- it will be a subcontracting type of business for most of these bigger players?

Yes, not a subcontractor. Subcontracting, I'm only doing with SMS and Danieli for the equipment part. But for the packages, it will be an EPC package directly ordered by customer on us.

Understood, sir. Got it. So these EPCs -- but do we expect -- is there any possibility of expanding beyond that INR 150 crores limit? Because I understand that bankers are limiting it. So would we look for a further fundraise to fund this kind of thing because you...

I don't need a fund raise for that. I need bank guarantee limits, but we are okay with this. I do not want to dilute everything. I would want to have some kind of an EPC kind of a thing limited to about a revenue of what we were doing, the same revenue, about INR 100-odd crores a year.

Got it, sir. And this is most likely to probably materialize in the next 2 to 3 years or it will be a little later?

Maybe sooner, sir. I am working on 3 fronts. One is the railway business, what we talked about. One is increasing the power business. And number three is some portion of EPC business.

Got it, sir. So initially, when we guided our INR 500 crores target, sir, was the EPC business included in it? Or it was just one.

Normally, no. At the moment also for the target, it's not included. And we have not been talking about it because my box is very small. I'm too choosy, too finicky about what we should be getting.

Got it, sir. And in terms of, sir, just trying to understand the business in working capital, so what are the payments like in this business?

In EPC?

Yes, sir.

Again, performance bank guarantee, first 5% is for PBG, you don't get anything. Next 10% against advance, you give a BG, they will give you 10% advance. And then based on billing, we have to make a billing schedule and submit to them. So design engineering, you finish, you start getting for each and every design, I mean, every drawing that you submit, you start getting a percentage of it. Balance last, they normally keep about 10%, which is against preliminary commissioning and final acceptance.

So let's say, if this were to come in the mix, sir, would working capital be a little stretched because it looks like execution, then invoice raising, right?

No, sir. It's spread over like INR 100-odd crores spread over 2 years is like INR 50 crores. I mean I'm talking one project INR 100 crores, INR 150 crores, say about INR 150 crores to INR 75 crores in a year. That's INR 7 crores, INR 7.5 crores of site activity, design activity and some amount of manufacturing activity, 40%, 50% from our workshop.

So overall, INR 10 crores, INR 20 crores of working capital in terms of net of product and this thing, we'll be running it. We will be running the EPC business.

That's my experience, sir. That's my experience. It always it is -- you might need it occasionally to -- for this INR 10 crores, INR 15 crores. Otherwise, projects are self-financing.

Understood, sir. And in the defense business, we had like -- I understand you already mentioned that we started. So to what capacity because I think this has been -- this was cohorting for the last 1, 1.5 years, if I'm not wrong, the Gun Carriage Factory, if I'm -- so I am just trying to understand...

We have been constantly for the last so many years in defense business. During one of those things when we had initially talked, we were the only private sector company making turrets for T72 tanks. It's not that it is something very new to us. And if I go a little back in Simplex Group, you would remember one of the trucks that Army was using was called Shaktiman. So 1955 to almost till Shaktiman was in production, the chassis was coming from Simplex, Simplex Group, not Simplex Castings because this was carved out later in 1970. So we have been on and off various missile testing ranges, all the test benches, Chandipur, Balasore, everything has been from Simplex and that too from Simplex Castings. So whether it is Tarasingi, Balasore, Chandipur, all the missile firing gun testing, those beds were made at Simplex Castings. And we have done that. We have been always in touch with defense, including as recent as about 3 years back, we developed a product and give to HVF Medak called the fifth -- the road wheel that is used for Sarath, their personnel carrier, armored personnel carrier. So it is not that we have not been in defense, we have been in defense. Now this 10%, 15% is a new push based on what has been happening in the market with the defense exports going up. These ordnance factories are looking at our kind of manufacturers who have flexible machine shop so that they are able to do those specialized machining also using our flexible machine. So that is our target. We are -- yes, it is value-wise, it's not looking big at the moment. But what our focus is to concentrate on only one first, make them happy and then use that leverage to use -- to go to the other ordnance factories. So that is the plan.

Got it, sir. Sir, one just clarification, sir, when the Simplex Group, this includes Simplex Infrastructure and all of that. Like could you explain what do you mean?

Simplex infrastructure has never been a part of the Simplex Group. It is owned by Mundhras. They are based out of Kolkata.

And when you mean Simplex Group, this casting was carved out. What was -- what do you mean by that?

Simplex originally was named as the first company was in 1941 in Jabalpur. It was named Simplex Engineering and Foundry Works by my great grandfather. So 1960 -- '58, actually, we moved to Bhilai when Bhilai Steel Plant was coming up. In 1970, it was decided that Simplex Engineering and Foundry, that foundry will never happen in Simplex Engineering and foundry works. It will become Simplex Castings. So Simplex Engineering and Foundry Works without a foundry still exists and is privately held by my cousins. And in 2003, it was decided by my Chairman at that point of time, who was my grandfather that Simplex Engineering and Simplex Castings will be 2 separate entities. One is a listed company, which we became listed in '92. And Simplex Engineering would be held by my cousins in the name of Simplex Engineering and Foundry Works. And even they -- even us are located only in and around of Bhilai, nowhere else we have. We have offices all over. We have offices in Delhi, Mumbai, Kolkata, everywhere, but manufacturing units are located in Bhilai for them also, for us also.

So what -- so is there a product difference, sir? Is it a similar product lines?

Praneet, I'm so sorry. Due to time constraints, we'll have to put an end to this call. Any further questions, we can surely take on e-mail or offline, if that is okay with you. Thank you, participants for joining the Q1 earnings con call for Simplex Castings Limited. Passing on to Ketan ji for closing remarks for the call. Over to you, sir.

Absolutely. So thank you, everybody, for attending the con call today and giving us an opportunity to tell you about what we are doing and what is happening at Simplex. And to conclude, Q1 this FY '27 has been a very strong start in our year and showing us a revenue of almost 35% year-on-year, PAT growing at 45%, as Mr. Avinash mentioned. Going forward, again, to what we have summarized what we have been talking about, we are looking at disciplined execution, profitable growth, higher-margin products, stronger cash flows and diversification across railways, power, what we have been talking. I would also like to extend an open invitation to all our investors and stakeholders that you are absolutely welcome to visit our manufacturing facilities, and we would be happy to have you here and to explain what we are doing. Please people who are interested in visiting may please contact Merlin, our Merlin Capital Advisors or our Investor Relations people. And thank you once again, and we look forward to updating you on our progress in coming quarters also. Thank you, everybody. Thank you so much.

Thank you so much. With that, we will now conclude the call.