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

Ladies and gentlemen, good day, and welcome to Technocraft Industries India Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Purva Zanwar from 360 ONE Capital. Thank you, and over to you, ma'am.

Thank you. On behalf of 360 ONE Capital Markets, we welcome you all to 1Q FY '27 Conference Call of Technocraft Industries Limited. From the management side, we have Mr. Navneet Kumar Saraf, Director and CEO; Mr. Ashish Kumar Saraf, Director and CFO; and Mr. Anil Gadodia, Group CFO. I will now hand over the call to management for their opening remarks, followed by the Q&A session. Over to you, sir.

Yes. Thank you, and good morning to everybody, and welcome to the Q1 '26-'27 quarterly earnings call. On behalf of the management team here at Technocraft, we extend a warm welcome to all the participants and look forward to an engaging Q&A. Thank you, and I think we are ready to start.

[Operator Instructions] The first question is from the line of Prateek Bhandari from Aart Ventures.

If you could just provide a split between the stockholding in the form of revenue for the quarter?

Anil ji, would you like to give it since it's a direct financial question?

Sure. Yes, once again. Yes, we will give that for the quarter only?

Yes, for the quarter only.

So for the quarter, on a consolidated basis, scaffolding, which is steel scaffolding, it's INR 240 crores. And the Mach One that is aluminum is INR 165 crores.

And my second question would be on -- you have alluded to the growth for the Scaffolding and Formworks division. I wanted to understand how much of the growth would have come from the aluminum extrusion plant during the quarter?

Sure. So the aluminum extrusion plant is now running at 100% capacity. And so as far as -- and this has been happening since the March quarter. So no increase in volume from that. But there has been a notable contribution to the EBIT result because of having the aluminum extrusion plant. There's been a large increase in the price of aluminum during the quarter. And so having the aluminum extrusion plant has helped the company navigate that. So yes, so that has resulted to an improvement in the bottom line of the segment.

Okay. And just one last question. If I see on a Y-o-Y basis, there has been a decline in the volume growth for Mach One. So how do you see the competitive intensity for Mach One at the moment?

On a Y-on-Y basis, yes, there is a decline, and this is not really so much due to the competitive intensity or demand. On a quarter-on-quarter basis, volume is dependent on a lot of external factors like site readiness, project readiness, et cetera. I have mentioned this in the past. So that is -- that can obviously be deferred from quarter-to-quarter there. I think a more relevant comparison would be not the quarter-on-quarter Y-o-Y basis, but the immediate preceding quarter. If you compare with that, then there has been actually a small increase. Having said that, our focus is not a rapid expansion of volume but more sensible expansion, and we are very conscious about the kind, the quality of the customers that we service and we deal with and also the profitability. So taking all that into consideration, we are quite comfortable with the current volume of the Q1 for Mach One.

The next question is from the line of [ Shiva ] from [indiscernible].

Sir, firstly, on our margin with the Drum Closure segment, it has reached around 43% EBIT margin. And I think this is the highest that we've ever been at. Could you explain like what helped us reach this margin, sir?

So volumes is the main thing. I mean, this has been our highest revenue as well as highest EBIT margin and absolute EBIT ever for the segment. And the sales, the quantity that has been sold has been higher. The rupee depreciation has also contributed because Drum Closure, majority is -- almost 100% of our revenue is export. And so obviously, the decline in the rupee vis-a-vis dollar has directly contributed to increase in absolute sales realization. So I think those 2 are the main driving factors that has led to these results.

Understood. But do you think the margin is sustainable, sir, 43% that you're doing right now?

I always have given guidance earlier also that a sustainable margin is upwards of 30%. We have consistently been doing higher than that. We continue to have turbulent geopolitical situation worldwide with the war and disruptions in freight, freight costs, tariffs, et cetera. None of that has gone away. Fortunately, for us, we've been able to navigate all that pretty well and see consistently strong quarters. So I think I don't think we can say that 43% is a new normal going forward. I think we continue to target upwards of 30% and manage the business as best as we can.

Understood, sir. That's helpful. And my second question is with regards to the defense vertical. So have we already started selling our JT Cooler product or if you can give any update on that?

Yes. We have already started receiving orders from Israel. And yes, we are looking forward to exports in JT Coolers. Yes, it's a small order, not much to the tune of around INR 20 crores. But let's see how it goes. Defense generally is very, very slow in this matter.

All right. And any margin outlook you could give on that product, sir?

Margin would be different products, so it could be around 15% or so.

Right. So this was for the JT Cooler, 15%.

Yes, defense, JT Cooler is one part of it. The major part is JT Cooler, let's say like this, yes.

Right. And do we have any other product in the R&D pipeline, sir, like JT Cooler? Are we working on something right now?

It all depends on the order. Basically, see, let us understand the Defense division. It is not that we produce something and go and market. So it is basically the order comes from defense DRDO, et cetera. We produce. It could be fabrication, it could be some canister, it could be some -- a lot of other products that go into defense.

All right. Understood, understood. One last question. So we had received a recertification for selling in Europe, I believe. So have we already started selling scaffoldings in Europe?

Yes, we have been selling now for the last 2 quarters, and it's not a meaningful part of our sales. It's still very, very slow. Europe market is still reeling from the impact of Russia, Ukraine war and Germany is under slowdown. So construction has really not picked up the way we wanted to, but we are selling. We are selling which we were. So the certification has helped.

The next question is from the line of [ Abhinav ] from Equitas Investments.

Firstly, congratulations for great results. My first question was regarding your CapEx guidance for the year.

Right. So there is no significant CapEx planned in terms of new capacity additions this year. We will be basically doing our regular maintenance CapEx across all the divisions. So no significant CapEx this year. We've just completed our last CapEx in '24, '25, which was the [ CSN ] plant, and now that is fully operational. Sometime next year is when we would ideally be looking at Phase 2 of that. So this year, there is nothing significant.

Okay. Next question is regarding the engineering services division. So that has been growing quite fast. So what has been driving that?

The overall engineering outsourcing segment has been quite buoyant. The U.S. market has been quite strong across all the verticals that the segment deals in, machinery, transportation, plant engineering have been some of the verticals that have particularly been doing well. And so I think that's -- also the AI transformation has helped the vertical. We have continuously upgraded our services moving into more high-tech technology enabled, even deep tech services like AI-based vision systems, embedded systems, industrial automation and manufacturing automation. So those services have also helped us win large orders there. And hence, that segment has grown, and we see good prospects.

And what is the sustainable margin for the division?

So we have said before also about 15% is what we target as a sustainable margin.

The next question is from the line of Purva Zanwar from 360 ONE Capital.

So my question was on the Scaffolding side. How are you seeing the demand alignment for Scaffolding currently? Was the recent improvement driven by the one-off pickup in orders? Or are you seeing sustained demand momentum in the Scaffolding segment?

No, the folding segment has mainly been doing well on the back of strong demand in the U.S. We've been seeing that since January of this year. Last year was a little difficult year for us in the U.S. and for the overall Scaffolding segment. But the impact of tariffs and all that have been absorbed well into the economy. And there is a good boost in construction activity driven by AI chip manufacturing plants, semicon plants and also conventional energy installation. So as a result of that, the Scaffolding demand has been very strong. We have an active subsidiary in the U.S. and have strong penetration across the country. So we've been able to take advantage of that by -- through our distribution. And that's basically what's contributed to increase in the sales quantity, which can be seen both on year-on-year and quarter-on-quarter basis and improve realizations. And this at the moment looks quite sustainable because these are not some one-off short-term projects. These are the pretty significant long-term CapEx projects. And so we do see a good pipeline ahead.

Got it. And secondly, on the margins. So the 16%, 17% is sustainable? Or we plan or it can have -- it can increase a little bit further also?

So again, we have given guidance in the past that 15% is a sustainable margin, 15%, upwards of 15%. And so therefore, that -- we are doing a little better than that. And no change in our guidance on sustainable margins, remains at that.

Got it. And last question was, what would be our current raw material mix in aluminum Formwork division between virgin aluminum and extrusion-based materials?

No. So firstly, aluminum, your question is, just to clarify, what is the difference between virgin aluminum and aluminum extrusion. I didn't quite understand what you mean by that.

So what portion would be our backward integration? It's fully 100% backward integrated currently or...

100% backward integrated, yes. So aluminum is only for our Mach One business where we make aluminum extrusions. And it is -- all our aluminum extrusion requirement is 100% produced in-house.

The next question is from the line of [ Darshil Jhaveri ] from Crown Capital.

Congratulations on the really great set of results. So I'm just a bit new to the company, so pardon any naive question from my end, sir. I just wanted to know, we've done really great margins right now, right? You've had a very good uptick in margins on a consolidated basis. You said 15% plus is sustainable. That was for consolidated or what is margin guidance you could have for this year, sir?

For every segment, it is different. So for the Scaffolding segment, 15% on a consolidated basis is sustainable.

So for overall company, 15% is sustainable and then segment-wise?

No, no. So we can't look at overall company. We have -- 15% is a sustainable margin for the Scaffolding and the Engineering Services segment and for the Drum Closures segment, it's 30%.

Okay, okay. But currently, you're doing significantly better than that, right? So in general, has something changed? Or are we being just a bit conservative in guiding because I think Drums, you're saying, what, you've done 43% and right now, it's 30%. That's the reason I just wanted to ask. Like is there a change in the business? Or yes, sorry.

Yes. No. So look, as far as there is a lot of volatility, as you know, in the external environment. And this volatility is what is leading to these big deviations between actual and sustainable. And right now, it just so happens that the volatility is benefiting us. Tomorrow, the volatility could go against us as well. So I don't think we are at a situation where we are comfortable taking a bet on a higher sustainable margin just based on a few good quarters. Yes, the business, we've been doing well because of good execution, and we'll continue to do that.

Correct. Correct, sir. So okay, fair enough for margin, sir. But in terms of overall revenue growth, any outlook that we have, sir, because even this Q1, we performed really well. I think some part of it could be related to aluminum prices increasing. So could you just help me out of that, sir?

See, as far as Drum Closure is concerned, there has been increase in the quantity and increase in realization, which has led to higher numbers. As far as the Scaffolding and Formwork segment is going, there has been a good increase in volumes in the Scaffolding segment. As far as the realization is concerned, it's been more or less stable. There hasn't been a remarkable increase in the sales realization because steel prices have not increased drastically. So the main reason for the increase has been the volume. As far as the aluminum Formwork segment is concerned, the volumes are relatively flat preceding quarter basis, there's a marginal increase. And yes, there is some increase on account of aluminum. So that's where it is.

Yes. Yes, understood. Sir, overall, so for our business, we could see sustained growth of 20% plus because if you think volumes have also increased and some boost from realization. So if I would have to estimate, I think what could we do over the next few years? Some kind of range you could guide us on, sir?

It is very, very difficult for us to give any guidance on any long-term growth range. Like I said, we are in different businesses, different products. Take the -- In scaffolding and Formwork segment, it is a capital item that goes in construction sites. So it is very, very difficult to give a projection on the future. Our focus is that we are focused on execution, and we'll keep doing that.

Okay. Okay. Fair enough. And if I may, just one more question from my end. So in our type of business, is order book back into your project, as you said, the CapEx projects. So if there is a firm order book and the execution period for like the dividend, that could be helpful, sir?

It's again a mix. Drum Closure segment is not order book based. It's a B2B product linked with the direct sale to drum plants. Scaffolding and Formwork segment, again, Scaffolding segment is not order book based. Most of the sales are made through our own distribution centers to end customers order to order. Somewhat order book based is the Formwork segment where there is an order book of anywhere between 3 to 5 months. So that's how it is.

The next question is from the line of Rahul Kumar from Vaikarya Fund.

Congratulations on a great quarter. On this Drum Closures profitability, have we received any tax return or tariff refund this quarter?

Not in this quarter.

Not yet. Okay, okay. And approximately how much tariff refund we are supposed to get.

So the majority of the tariff refund is going to be in the scaffolding quarter, and it's about close to $3 million.

Okay, okay, okay. So the margins which we are seeing in the Drum Closure business, is this delta increase, which you see? Is it entirely because of the rupee depreciation? So at current, whatever the INR, USD, we should expect this new kind of margins to sustain? Or do you see any further risk on to this?

Well, we are hoping for the best. I mean, yes, the INR depreciation has obviously helped and contributed meaningfully to these margins. We are in no hurry to reduce our prices. The customers don't expect us to reduce our prices. Competitively, we are well poised being the second largest in the world. So from that perspective, we are quite comfortable and hopeful that we'll be able to maintain or even better these margins.

Okay. Understood, understood. Second question is on the Mach One business. I think we have seen some sort of recovery in the volumes. And as you mentioned that this is more the site readiness, et cetera, which has helped this quarter. So 2 questions on that. How is the demand environment for you? What are the discussions with your customers happening right now? And two, how do we see this capacity utilization scaling up, let say, over the next year or so?

Right. No sir, the demand environment is very strong. India, the overall project launches, which is what is we track, which directly correlates to our demand is quite strong across all the 7 major cities across the country. So as a result of that, we see a strong demand and strong inquiry pipeline. Other than residential, there is also a strong demand in commercial and GCCs and now even data centers, which are starting to come up. So yes, for the demand environment is actually quite strong, and we are well poised to take advantage of that. The second question was -- sorry, your second question was regarding capacity expansion. So we just did that in Aurangabad to take advantage of this, and that's helped us. Sometime next year, we are looking to launch Phase 2 of our capacity expansion in Aurangabad. So that will also happen and that will enable us to sell more.

Okay, okay. And so currently, I think we are at 60% capacity utilization. Am I correct in that?

No, no. We are almost at 100%. We are at over 95% capacity utilization as far as our Formwork -- as far as our extrusion plant is concerned. As far as just Mach One is concerned, we are currently at about 75% to 80% capacity utilization. And as far as the Scaffolding segment is concerned, we are running at about 95% capacity utilization.

Okay. Okay. So just on the Scaffolding business, I think as you mentioned that the demand environment in U.S. is pretty strong and you do sustainable volumes going forward. So based on your discussion at this point of time and the visibility, which you have got from the company, what kind of volumes do you expect, let's say, over the next 3, 4 quarters, which you will do? And as you're already operating at 95% capacity utilization, do you plan to add more capacity or how much time typically that will take for you to expand?

Yes. So we are quite comfortable that at least the foreseeable next 2 quarters, we should be able to maintain or even better the kind of volumes of scaffolding that we have seen in the first quarter. Difficult to give a projection beyond the foreseeable 2 quarters because of the volatile circumstances that we are operating under and dealing in. As far as increasing capacity is concerned, yes, we are closely studying that. And since we are operating at 95% utilization, we are looking at various options to increase capacity. Luckily for us, the lead time required is not very high because we have good infrastructure already available. And the long lead times like setting up a plant, et cetera, is not required. We have space available in our plants in Mumbai as well as our plant in China. And so we are studying that. And if required, we should be able to add capacity within 3 months.

Okay. Understood, understood. Okay. Just last question to Anil ji. I think you mentioned the Scaffolding and the Mach One revenues for this quarter. Can you give us the same data for, let's say, last quarter and Q1 of FY '26 as well?