Technocraft Industries (India) Limited (TIIL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Technocraft Industries India Limited Q1 FY '25 Earnings Conference Call hosted by Systematix Institutional Equities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Darsha Hiwrale from Systematix Institutional Equities. Thank you, and over to you, ma'am.

Good afternoon, everyone. This is Darsha Hiwrale on behalf of Systematix Institutional Equities, I welcome you to the Q1 FY '25 Earnings Call of Technocraft Industries India Limited. We thank the management for giving us an opportunity to host the call. Today, we have with us the senior management of the company represented by Mr. Navneet Kumar Saraf, Director and CEO; Mr. Ashish Kumar Saraf, Director and CFO; and Mr. Anil Gadodia, Group CFO. We'll now hand over the call to the company management for the opening remarks. Over to you, sir.

Thank you. On behalf of the management team of Technocraft, I would like to extend a warm welcome to all our shareholders and investors who are joining us for this investor call today. Welcome. Overall, the first quarter June 2024 has been a good quarter for Technocraft. We have posted some growth in revenues over the previous quarter of June '23 as well as the preceding quarter of March 2024. Total income stands at INR 650 crores, and the profit after tax is just under INR 84 crores for the June quarter, which is slightly below the June quarter of 2023, but higher than the preceded quarter. I would now like to open up the call for Q&A, and let's move.

[Operator Instructions] The first question is from the line of Chetan Vora from Abakkus Asset Manager.

Sir, I wanted to [Technical Difficulty]...

You are not -- Mr. Chetan, please be louder please. Be louder, be louder, and please use the handset rather than any earphone.

Yes, sure, sir. Sir, I just wanted to ask what is driving the growth for this drum closure division, wherein this is a second consecutive quarter wherein we saw a growth of over 18%. And the margins are also in the range of 35%, 36%. So what we should be seeing how this division will unfold in terms of growth and profitability?

Sure. So the drum closure division is our oldest division, and we have market leadership. We are the second largest drum closure manufacturer in the world. And we are exporting to almost 75 countries across the world. So the demand for drum closures, although last year, we had a few quarters where the demand was muted because of the Ukrainian crisis, but we have seen a good pickup this quarter. And hence, we are seeing that both the revenue and profitability is high at par with what it was in the first quarter of last year. These kinds of margins of 35%, 36% are historically normal, the kind of margins that we made in this particular segment. So we are confident that we'll be able to sustain this.

In terms of margin, but what about the growth, sir?

So this is not a segment where we see very strong growth because largely the markets are saturated. The buyers are drum producers, and we are already supplying to most of the drum producers around the world. Growth is happening in China and in some other countries, but overall, I think this is going to be, growth will be in single digits, but the margins will sustain.

All right. So I just wanted to understand again, the 18% growth this quarter, even the preceding quarter, we had seen a growth of over 15%. So what is driving this growth on a full year basis? Should we consider that it will be a mid-single-digit growth?

Yes. So the reason for high growth over the last quarter is because, like I said, the previous 2 or 3 quarters were actually slow because of a slowdown in the European business predominantly on account of the Ukraine crisis. That still remains slow, but we have been able to increase business from other countries. So that's why the growth is stronger, but now the kind of volumes that we are doing in this quarter is representation of what we have historically done.

Correct. Right, sir. So, second thing on the scaffolding, the division was anyway seeing a good amount of growth. The profitability on the quarter economy is quite lumpy. So how should one see this division in the scaffolding?

On a quarter-on-quarter basis, it's actually difficult to compare the profitability because many of our foreign subsidiaries have different financial year reporting. So for example, our U.S. subsidiary, which is the largest distribution company, there, we have a Jan to December calendar year accounting versus April to March here. So when we consolidate, it's always one quarter backwards, which does create variations. And so therefore, quarter-on-quarter, the profitability can vary in a particular business. Although if you see the profitability this quarter compared to the, again, the first quarter of last year is lower. First quarter of last year was over 25%, and this quarter is about 16%. There has also been some challenges on account of higher cost of raw material, mainly aluminum, which has seen a strong increase in cost. So that also, to some extent, has played a part. But overall, I think the profitability cannot be compared and seen on quarter-on-quarter.

Right. So on a full year basis, how should one see this division to plan out? And especially, the capacities are also coming on stream by the end of this year. So for the full year for this year and next year, what's the outlook for this division in particular?

Right. So there is new capacity that is getting added in Aurangabad. That is going to -- we are going to see a material impact of that in the second half of this year. Right now, production has started, and it's slowly ramping up. And we will see in the next fiscal year, that is FY '26, we will see about INR 450 crore increase in revenue and about...

From next year onwards? From next year itself?

Yes, that will be for the full financial year of next year, FY '26. And we'll see a bottom line impact of about INR 80 crores. This year, in FY '25, we will see probably about a INR 60 crore increase in revenue on account of the Aurangabad facility and roughly about INR 10 crores to INR 15 crores increase in profitability. So not much this year. But we'll see maximum in next year. One should look at the profitability of this segment on a full year basis. So on a full year basis, we should be close to the kind of run rate that we have set and we have started with in the first quarter. But it will not be a steady same profitability every quarter.

Right. And when you say profitability, it is PBT or PAT, sir?

No, no, PAT is different. We are reporting, this is EBIT. So it's basically not PBT after depreciation, but before interest.

Got it. Got it, sir. And how much we would have incurred for this new plant, INR 450 crores revenue potential for which we will be getting the profitability?

How much is the investment? Is that your question?

Yes, yes, sir.

Yes, the total investment planned is about INR 350 crores, including working capital.

Okay. And on which the potential revenue will be INR 450 crores, yes?

Yes.

Right. And sir, as of this, the facility, which is going to come up in the second half, how should...

Sorry to interrupt, sir, the current participant has been disconnected. We will move on to the next question. It's from the line of Vikas Gupta from Liminal Capital.

I just want to confirm whether I am audible?

Yes.

Okay. So the first question is regarding the Technocraft form work, the aluminum division, I think the capacity is around 60,000 square meter per month. Is it right?

Yes.

So can you just tell me the potential revenue from this particular unit?

At 60,000 square meter per month, the total potential revenue is about INR 800 crores. Of this INR 800 crores, INR 450 crores is incremental, INR 350 crores is going to get transferred from the existing unit in Murbad to the Aurangabad unit.

Okay. And we are expecting this to come on stream from next year, FY '26?

Yes.

Okay. Sir, the second question is regarding the scaffolding division. We are experiencing some softness in demand from Europe. So what's the status of that? And what exactly do you look out for the anticipation of demand take up? Is it the construction activity or the order line, order books?

Yes. Softness in demand from Europe continues. The market is quite slow there, and that continues. And what was your second question?

I just want to understand the data points that you track for anticipating demand uptake? Is it like construction activity you track or any order book that you have?

Right. So no, we track our order book. As such, we have close contact with all the construction contractors in the various countries that we do business with. From the construction contractors, we are able to gauge information on upcoming capital projects in industrial and commercial and infrastructure activities. Based on that upcoming projects, we get anticipation of offtake of equipment demand. So that's how we track.

Okay. So my last question is regarding textile units. I think we had turnaround in Q4, but this quarter has been a little soft. So what is your outlook over this new division?

Yes. I'll answer that question. So in the first -- so the first quarter of this year, we have commissioned a new spinning unit in our existing location Amravati itself. Now that unit was to have a full production by end of May. But we got late in that because of getting the labor and all that took a little bit more time than we expected because of these elections and all that happening, we got a little disturbed. So that revenue of that second unit did not come into quarter 1, whereas the depreciation has all come into the quarter 1 but without any revenue. So that happened there. But now the unit is up and running almost at now we are about 80% capacity. So I think second quarter, we will recover from the quarter 1. And quarter 3 and quarter 4, we will have similar results like what we had last year in terms of EBITDA percentage. But in absolute values it will be more.

Okay. Okay. And sir, on the defense side, you are working on a few developments, right? So any update on that? Any new order or any new breakthrough?

Yes. So on the defense, that is still a division that is evolving. We are working on various new products, new technologies like missile launchers, the JT coolers and products like these largely for DRDO. They are under various stages of testing and approvals. We have received some orders as well, not very large. But I think this division is going to take some more time before it starts to become commercially visible in terms of ours.

Okay. And the use cases into missiles and other places, like can you just explain a few of the use cases?

Basically, we don't manufacture missile. There are a few items which are attached to the missile. The most common one, most interesting one is on the tip of the missile, when it goes with the supersonic speed, the heat gets increased. So in order to cool the tip, there is something called JT coolers. So we have manufactured around 50 pieces as a sample and gave to DRDO and all -- each and every piece has been duly approved well before they expected the time. So we are in dialogue with DRDO and the defense Department of the government so that they can place commercial orders. So let's hope we get in days to come.

Sir, should we move on to the next question?

Yes, yes, please go ahead.

The next question is from the line of [ Pratik Phalke ] from SEPL Group.

So I have 3 questions and I will ask it one by one. The first one is regarding this scaffold segment. So in the previous quarter, it was mentioned that there was this waiting certain European certifications, which would enable us to access a larger market for complete scaffolding systems. So could you please provide an update on this development?

Yes, that certification is still awaited. We are under very advanced stages actually of getting it. And we are probably about a month away, maybe even lesser in getting that certification. It's called the B certification from an agency in Poland. So yes, that's -- we hope to be able to get that by the end of September.

By the end of September, okay. Sir, the second question is regarding the aluminum formwork segment. So there is a lot of competition like domestic also and Chinese players also. So I just wanted to know what is the company's current market share in the aluminum formwork segment? And if you can provide any view on the order book.

Yes, there is a lot of competition in the domestic segment, but we are able to compete and mainly because the demand is also quite strong. So in spite of competition, there is strong demand and strong growth in demand, not just in India but worldwide. Currently, our capacity is constrained, and hence, we are not even able to export this. 100% of our capacity is consumed in servicing demand in India. We did about INR 300 crores of sales of this aluminum formwork in FY '24. We are currently sitting on order book of almost INR 2,000 crores of this particular segment -- sorry, INR 200 crores of this particular segment. So that is roughly 80% of last year's sale. And so therefore, the demand outlook is quite good.

And any idea on the market share, if you hold?

Our market share is evolving. I think our market share right now will be about 10% -- around 10% in this particular segment in India, and this is something that is evolving.

Okay. The third question is regarding the defense segment. So I just like you already gave a clarification regarding the orders. I just wanted to know how does the defense segments align with the company's existing verticals like scaffolding and textiles?

It is engineering oriented. The company's 3 engineering businesses are there like drum closures, scaffolding and engineering services. The defense business actually aligns well with that. It is based on mechanical, electrical engineering, technology development, fabrication in scaffolding. We do a lot of fabrication. So the skill sets that the group possesses, similar kinds of skill sets required in the defense business. So that's how it aligns.

The next question is from the line of Riya Mehta from Equitas Investments.

Congratulation on a good set of numbers. So my first question is in regards to the volume numbers. So basically, for formwork, we're seeing a little decline. So what would be the reasons for that?

In formwork, mainly it was the steel formwork for the infrastructure, which declined. The aluminum formwork actually grew, so -- over FY '23. So steel formwork declined because of lackluster offtake and execution in the Infra segment mainly leading up to the buildup to the elections. What we saw was while we were sitting on order book of almost 2,000 tonnes. But the sites were not ready to execute because of paucity of funds and other challenges. So that was the main problem last year with the steel formwork business.

So currently, what outlook are you thinking for the steel formwork business?

It is better than last year. So last year -- in fact, the second half of last year was particularly bad, it has picked up, and it is -- the total volume is currently better than what it was in FY '24, but not yet at the same level as what we saw in FY '23.

Got it. Got it. So around this quarter, we had...

Overall, this will not have a material impact because the steel formwork is a smaller portion of our total formwork business. So the increase in volume that we are seeing in the aluminum formwork will far outweigh the reduction in volume in this.

Got it. Got it. Also with the decrease in the steel prices, do you think there will be a scope of further increase in margins for the drum closure segment?

No, I think the margins are currently what they are, and it will remain steady at this. If there is, that will be good, but I don't foresee a significant increase because from the 35%, 36% that we are at right now.

Okay. Got it. And could you elaborate more on the opportunities of MAK-1 and how are they shaping for you?

So MAK-1, like I said earlier, the demand is very strong. We are sitting on 6 to 7 months of order book right now. That's why we are doing the capacity increase with the Aurangabad plant, backward integration with our own aluminum extrusion plant. We are also planning to start exports of MAK-1 from the fiscal year onwards. Some export orders have already been received from the North American market, which are being serviced. South America is being looked at. Saudi Arabia is another market that we are looking at very closely for MAK-1. So MAK-1 is definitely a business that over the next 3 years, there is very strong growth potential.

Got it. And in terms of scaffolding, since 50% is export for us, have you seen any impact of the freight rate? And do we foresee it to reverse -- the trend to reverse going forward?

Yes. We have seen an impact of the freight rate. The freight rates have actually increased quite substantially. But for the -- that doesn't affect our margins, we are able to pass on the freight rate to the end customers because it's not just for us, it's for everybody. Even from China, the freight rates have increased substantially.

Got it. Also in scaffolding last year, we're seeing some slowdown in U.S. and Europe. So how are things right now?

So in U.S., there is no slowdown as of now. We are seeing quite steady demand growth coming from there. Europe, like I said, continues to be slow.

The next question is from the line of Jay Jain from Astute Investments.

The first question is with so many moving parts in your business, so many lines of businesses, can you leave us with some kind of guidance for this year and the next year?

With so many moving parts? Your question was with so many different divisions in the business?

Yes, yes, that's right.

What is the guidance?

New capacities coming up also.

Right. So there are 4 divisions in the business, 4 segments which are clearly communicated. And the new capacities are coming up in 2 of the divisions in the formwork division, where the new capacity is coming up in Aurangabad. And in textiles, the new capacity has already come up already done in Amravati. Other than that, there is no new capacity that's coming up or come up. And as far as guidance is concerned, we generally don't give forward-looking guidance. We are -- I think the -- what we have communicated in terms of increase in the scaffolding business on account of the new capacities, those will come. So as I mentioned earlier, FY '26, we will see about INR 450 crore increase in top line. We'll see about INR 60 crores this year on account of the Aurangabad plant. So that will happen in the scaffolding division. And yes, I think that's where it is.

What about the textile division? What can we expect from there?

So this year, we will be adding about close to INR 120 crores, INR 130 crores, or maybe even INR 150 crores of revenue top line in the yarn division because of the new capacity addition. We got short of the INR 200 crore target because the first quarter, the plant could not get commissioned on time because of some unavailability of labor at the right time. That's as far as yarn is concerned, EBITDA level, we expect it to be similar to the EBITDA percentage of last year, which was about close to 10% order. For the fabric division, we are expecting to make a positive EBITDA for sure. This year, our target is to reach about 8% of EBITDA from a negative EBITDA of last year. And in the garment division, we are expecting also an EBITDA level of about 15% with a top line of about INR 110 crores, INR 120 crores by end of this financial year. And in fabric, we are expecting about a top line of about close to INR 170 crores, INR 180 crores by end of this financial year.

Okay. My next question is that with this -- I'm assuming that this is the last buyback of the company, what -- how would you be rewarding the shareholders and so on?

Well, we have not -- there are various options. Dividend is obviously an option that is there. So I think it's premature right now to comment on that. Historically, we've been doing a lot of buybacks. This is our fourth buyback that's coming. And probably, as you rightly said, this may be the last buyback because buyback is no longer tax friendly. So we'll see, but we'll definitely continue rewarding shareholders like we have always done in the past.

The next question is from the line of Sandeep Rawat sic [ Pradeep Rawat ] from Yogya Capital.

Am I audible?

Yes.

This is Pradeep Rawat from Yogya Capital. So my first question is regarding our textile division. So we are winding up operations from our Bombay unit. So how much value can we realize from the sale of assets there? And when can we expect the proceeds to flow into cash flow?

So Sandeep ji, the Bombay unit we shut down operations last year in October, which was the spinning operation. And those assets have already been contracted for sale. I mean we already entered into a contract with a party. And they are being lifted now every month. He is lifting some machines and paying for it. Totally, we have sold this asset for about INR 24-odd crores, which is much higher than the written down value of the asset. And out of that, we've received -- we have completed almost 50% of the transaction, which has resulted -- which has been added into the cash flow. I think in the next 2, 3 months, the balance also will get completed.

Okay. So don't we have the land in the Bombay unit or it is leased?

No, no, no. Land is our own asset, that's owned by us. It was only the machinery that we have sold. So the building and the land are still part of our asset.

Okay. So it is being utilized right now? Or are we looking to sell it?

No, we are looking to rent it.

Okay. And what would be the value of the asset?

So the land value over there is close to between INR 80 crores to INR 100 crores. It's about 45 acres of land. And it's easily INR 2 crores per acre value over there. We are on the highway. It's right on the highway. The highway also is getting widened. So the value is only going to go up actually.

Okay. Understood. And your comments regarding the textile division, the revenue that you are expecting in margins. So I missed that part earlier in the call. Can you repeat that part also?

Yes, sir. So in the yarn division with the second unit, which has started this year, so we expect to add to the top line of about INR 110 crores, INR 120 crores or maybe up to INR 150 crores also, if we can catch up on the lost time. On the top line, we'll add to the revenue. The EBITDA percent, we expect in the yarn business to continue as it was last year, which is about 10%. And in fabric, we expect to do a top line this year of about INR 170 crores or INR 280 crores. And we are targeting an EBITDA of about 8% this year because the global market has not been very conducive. In apparel, we aim to do about INR 110 crores -- INR 100 crores to INR 120 crores -- in between INR 100 crores to INR 120 crores of top line. And there, we expect to earn about close to 14% to 15% of EBITDA.

And all this is incremental, right?

No. This is what I told you is the absolute -- I mean, the total.

The yarn is incremental.

The yarn was only the incremental figure. So totally in yarn, we will -- we expect to do a top line of about INR 350 crores.

Okay. Okay. Understood. And my next question is regarding our scaffolding business. So what I understand is that we have order books. So do we bid for these orders? Or is it kind of recurring in nature?

No, we did book these orders. The order book that I gave you was for the aluminum formwork business. These orders come from developers. So some are recurring, some are new projects, but this is -- these are largely capital projects for new building construction. So we are bidding for these orders.

Yes. And what would be the like time period between bid and order like order awarding?

It varies. On an average, I think the total sales cycle may be about a month or so.

Okay. And last question. You said that we witnessed slowdown related to election in steel formworks. So why didn't we witnessed it in aluminum formwork?

Because steel formwork business is largely government funded. It's for infrastructure business. The steel formwork is supplied for all the infra projects like bridges, highways, tunnels, metros, et cetera. Whereas the aluminum formwork is for private building construction.

The next question is from the line of Chetan Vora from Abakkus Asset Manager.

Sir, the line got disconnected. I wanted to ask on the investment of scaffolding the investment of INR 350 crores, the potential revenue will be INR 450 crores or more than that?

INR 450 crores is the potential new revenue. The total revenue is INR 800 crores. But like I said, of the INR 800 crores, INR 350 crores is what is already getting transferred from the existing facility.

All right.

So the increase in revenue on account of that INR 350 crores CapEx is INR 450 crores.

All right. And adjusting for the revenue which is going to come from the new facility for this year in the second half of the next year and for the next year, for the full year, INR 450 crores, facts of that, what would we like to like this revenue for the scaffolding?

It will be about 20%.

20% growth?

20% of revenue. So INR 450 crore incremental revenue will give an EBIT of about INR 90 crores.

That's why I was asking on the revenue front that existing for this, what revenue should -- one should see on the scaffolding just on a like-for-like with organic growth rate because this is for the capacity. For example, this year, March '24, we ended the year with INR 1,030 crores. And this year, we are seeing the growth of what and for the next year what?

Right, right. So the organic growth for the scaffolding and formwork segment will also be there to be about 15% over FY '24. So we should see a 15% increase in revenue on account of organic growth.

15% revenue growth and over and above the revenue of INR 60 crores, which is going to come in the second half and for the next also 15% revenue growth and our revenue of INR 450 crores, right?

Correct. Correct.

And on the engineering, you had mentioned in the last con call that we have added manpower, quite a bit manpower. So what's the outlook on the engineering front, sir?

In the Engineering Services business?

Yes, yes.

That is also seeing good growth. We achieved revenue of close to INR 200 crores in FY '24. And FY '25, we should be about 20% more. We are seeing 20%, 25% growth in that particular business. So we should be growing at that level at least for the next 3 years for sure.

Okay. Great, sir. And sir, lastly, you had come on the television and you have mentioned that for FY '25, you are seeing a profitability of INR 350 crores plus and for the FY '26, INR 500 crores plus. This is at the what level in the profitability when you had mentioned on the television?

This is PBT level. We are talking PBT, profit before tax. So profit before tax, INR 500 crore level that we expect to touch FY '26 would be at PBT level.

PBT level, right?

Yes.

The next question is from the line of Namish Gupta from Namish Gupta and Company.

Sir, is my voice audible to you?

Yes.

Okay. [Foreign Language] March '21 to March '22 [Foreign Language] revenue around INR 1,300 crores to INR 1,900 crores [Foreign Language] March '22, March '23, March '24, it is kind of a flattish revenue [Foreign Language] INR 1,900 crores [Foreign Language] INR 2,200 crores [Foreign Language] March '22, INR 274 crores [Foreign Language] March '24 INR 279 crores [Foreign Language] March '25 or March '26 [Foreign Language]

Sir, you are referring to the PBT numbers?

Sir, I am referring PAT numbers, profit after tax. March '22 [Foreign Language] INR 274 crores, March '23 INR 278 crores, and March '24, INR 279 crores, sir.

Right. So you see, firstly, [Foreign Language] the revenue which was in March 2021 was -- we saw a jump from INR 1,300 crores to INR 1,900 crores [Foreign Language], it has increased steadily from that year. So exact percentages, I'll have to sort of -- my group's CFO, can probably come to you on that. But [Foreign Language] why is it that in the last 3 years, the growth has been lesser than that one jump that we received 3 years ago because that's, I think, conceptually the point you are making. So that is mainly because of the CapEx. [Foreign Language]. We had done a substantial increase in the scaffolding segment in that year 2021, where the scaffolding business had grown from probably -- I think if my memory is right, about INR 400 crores revenue to about INR 800 crores -- INR 850 crores revenue. [Foreign Language], we are doing the next major capacity expansion now, which we announced last year for the Aurangabad plant. So [Foreign Language], we will see that INR 450 crore jump in FY '26. So this happens once every 5 years, once every -- so next year, FY '26, we will again see a similar situation to what we saw in FY 2021. We'll see an increase of almost INR 650 crores in total revenue next year. So that's really got to do with the CapEx cycle of the company. And in between the CapEx cycles, the growth that we are seeing is regular organic growth in the business.

And for like March '25, sir, [Foreign Language] like at least 30% of top line growth [Foreign Language]?

No, March '25, maybe we will not have 30% because we will not have the full benefit of Aurangabad. March '25 [Foreign Language] textile INR 150 crores [Foreign Language] that is possible.

[Foreign Language] March '22 [Foreign Language] top 21% [Foreign Language] '24 [Foreign Language] 18% [Foreign Language]. [Foreign Language] March '25 [Foreign Language] 21% EBITDA for a year for a complete year [Foreign Language], sir?

See, that is a little difficult because we are working with moving targets here. We would certainly like to , but it is difficult to say on that because [Foreign Language] in the scaffolding formwork segment, our prime raw material is aluminum. So aluminum, we are subject to a little bit of volatility in the raw material prices. Having said that, aluminum extrusion plant [Foreign Language], which will hedge us, but that's going to primarily be in FY '26. So it is possible. But again, it's not something that we can be very, very sure of.

Thank you. As there are no further questions from the participants. I would like to hand the conference to the management for their closing comments.

Okay. Thank you, everybody, for attending and participating in today's investor call and your insightful questions. On behalf of the Technocraft Management team, we thank everybody, and we look forward to the next one. Thank you, everyone.

On behalf of Systematix Institutional Equities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.