Tega Industries Limited (TEGA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Tega Industries Limited Q1 FY '23 Results Conference Call organized by Orient Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nachiket Kale from Orient Capital. Thank you, and over to you, sir.

Yes. Welcome to the Q1 FY '23 earnings conference call of Tega Industries Limited. Today, on this call, we have Mr. Mehul Mohanka, Managing Director and Group CEO, along with Mr. Syed Imam, Director of Global Product Management Group and Head of Sales, also accompanied by Mr. Manoj Kumar Agarwal, Director, Global Finance and Chief Financial Officer. Before we proceed to the -- begin the call, just a small disclaimer that the conference call may contain no forward-looking statements, which are based on the beliefs, opinions and expectation of the company as on date of. The actual results may differ materially. A detailed safe harbor statement has also been given on the company's investor presentation, which was uploaded to the stock exchanges yesterday. I would now like to hand over the call to the management. So Mr. Mehul, you can please take over.

Yes. Thank you, Nachiket. So good afternoon, and a warm welcome to all the participants on the call. I am joined today this afternoon with -- by 2 of my colleagues, Mr. Yaver Imam, who's the Director of Global Product Management Group; and Mr. Manoj Agarwal who's our CFO. I hope everyone by now has had an opportunity to go through our financial results and investor presentations, which have been uploaded on the stock exchanges as well as on our website. We are happy to present the financial results of the first quarter of this financial year. This quarter was marked by a bleak global macro environment affected by the geopolitical issues in Europe, the recessionary outlook in leading economies, the volatility in currencies and inflationary pressures on raw materials. In unfavorable circumstances, the underlying strength in our business is evident in our performance. On a year-on-year terms, we have delivered double-digit growth across all our key metrics. Since this is the first time that we are declaring our Q1 results after listing, I would like to explain a crucial factor in our revenue pattern. As seen in our full year results published last quarter, our revenue builds up throughout the financial year, starting from a moderate Q1 and finishing higher in Q4. Hence, the performance analysis of quarter-on-quarter versus year-on-year for our business will be more relevant. For the past few quarters, the disruption in supply chain, coupled with rising fuel and commodity costs affected the margins. In Q1, there was some respite in logistic costs, which has reduced since the last quarter. However, the costs are still higher than the normal prices from a pre-COVID era and commodity inflation persists as well as raw material prices remain elevated. As a business, we pass through any cost escalations to our customers with a lag of a few quarters. We are encouraged by the opportunities in front of us and have a strong pipeline with a robust order book of INR 3,004 million as of June 30, 2022, compared to INR 2,359 million as of March 31, 2022. We are committed to building a true homegrown global powerhouse in our industry. Now I would like to hand over to Mr. Manoj Agarwal, our CFO, to take you through the financial performance of the company for the period under review.

Thank you, Mr. Mohanka, and a very good afternoon to all the participants. I will share the highlights of our performance for the quarter, following which we will be happy to respond to your queries. Company reported a total revenue from operations at INR 2,444 million, delivering a strong growth of 41.1% Y-o-Y. Material margin also improved by 200 bps sequentially from quarter 4 March '22 to the quarter of June '22. Hence, we have been able to pass through some of the price increase to our vendors, for our suppliers. Operating EBITDA stands at INR 461 million and has almost doubled from INR 235 million in the corresponding quarter last year. Operating EBITDA improved from 14% to 19% Y-o-Y showing an improvement of 500 bps points on a Y-o-Y basis. The improvement of EBITDA is due to higher volume that resulting in better adjustment of fixed cost also. Other expenses has gone up from INR 461 million last quarter last year to INR 588 million in this quarter. Most of the growth on account of high volumes only and some element of price as well. PAT has delivered a strong growth of 94% Y-o-Y and stand at INR 230 million from INR 180 million corresponding quarter. PAT margin is up from 7% to 9.5%, an increase of 250 basis points. If I have been to exclude the nonoperating income, the PAT has gone up from 3.33% to 10.77% on Y-o-Y basis. Now we can open the floor for the Q&A. Thank you.

[Operator Instructions] We have a first question from the line of Sandeep Tulsiyan from JM Financial.

Yes, very good afternoon. The first question is pertaining to the volume versus value growth that we have seen in the current quarter, which highlight that with a lag of 2 quarters, we will pass through and definitely [indiscernible] top line and growth.

Sandeep Tulsian, your voice is breaking. Can you repeat, please?

Is this better?

Yes. Please go ahead.

Okay. So my first question was on the value versus volume growth that you've seen in the first quarter and the price increases that you have taken, we did see a very strong top line growth of 41%. So if you could just break it up to understand how much price increase taken [ what ] if realization increases built into this number, if any more price increases are yet to come through, which could not be completely taken in this quarter?

Thank you, Sandeep. So out of this 41%, actually, the 3 components, what is the exchange side. In the exchange, we have lost about 3% Y-o-Y. And on the price side, we take increase of 13% -- around 13% to 14% on the price side and the volume is about 30%.

So it's largely more [indiscernible] understood. And also, if you could help us understand between your different segments, mill liners and non-mill liners, how the growth has been. And within mill liners, specifically DynaPrime range how that has grown during the quarter? And if you can also give some qualitative perspective with [ charges ] in geographies where you see growth from any particular over category, which is growing faster versus the other? How do you see this number panning out for the year? A qualitative perspective on the same please.

Yes. So on the 3 broad category, which we talked about DynaPrime mill segment and non-DynaPrime mill segment, and the normal segments. On the DynaPrime side, on absolute terms have grown about 157%, which consists of volume about 150%, price 10%, and actually a loss of 10%. Having said that, I just to put on record that if you can recall last year first quarter, there were some challenges in Chile, in supply chain side. So there, we have not been able to build up about INR 15 crores of revenue. So that is because the -- the trajectory is showing very high in terms of growth DynaPrime in this quarter, which will certainly be normalized in the coming quarters. On the mill side, non-DynaPrime, we have grown about 32%. Again, 18% is more of a business growth and 17% is about price growth. Non-mill side, we have grown 15% Y-o-Y. That is 8% is about business growth and about 7% is the price growth in that.

Okay. And any perspective on the ore versus geography versus any new customer addition that you can help us understand how this growth can turn out for the financial year FY '23?

Yes. Mr. Imam, will you take that call?

Yes. As far as ore is concerned in the -- we are concentrating on copper and gold ore as we have right from the beginning, from the IPO, we have been informing that 75% is there. So our focus is still on gold and copper and with iron ore as a small portion of that. The process that we have put in as far as buildup of identification trials and turning it into a full bill as far as DynaPrime is concerned, is going on across geographies. Earlier, it was limited to LATAM. Now we are doing it across geography. We have also concentrated on the business development with putting someone actively involved with business development. So our business development activity is very strong and some of the numbers, which you are getting is because of the increase in the business development activity.

Understood. And last question that I have is on the logistics and the CapEx cost. Logistics, If you can -- I think in the previous call, you have been pretty transparent in highlighting how this cost cannot be completely passed through, but as these costs will come down, which we are seeing, what kind of margin impact this has had in the current quarter? And how much it can pull off to. And also on the annual CapEx number, we had given an overall guidance of are INR 250 crores to INR 270 crores over a 3-year period. So how much will you incur in the current financial year out of that?

Yes. Thank you, Sandeep. So on the logistics side, what we see that the peak, which was in quarter 3 last financial year, from there, it is on the down trend. When I say downtrend, it has gone down at least by 20%, 22% of the peak, but still very high from the normalization rates what we had at a pre-COVID levels. Yes, that has an impact on our margin. If you see the margin, what we had in the March quarter, from there, we have able to build up about 200-plus basis points on a quarter-to-quarter basis. So normalization of logistic cost from the peak is giving some advantage to us in terms of overall margin increase. And we still believe that this will go a little further down as well. Having said that, we do not know how China, Taiwan issue will ramp-up because that will may have again a big impact. If it happens to be a kind of a disaster, otherwise, we believe that logistic cost going to be a little more normalized in that sense, so mix of normalization and passing through to customers will help us to take the margin to a level of 60%, which is what we aspire for. On the CapEx side, we are still on the same kind of stand what we've taken in the last call. As of now, on the Chile side, we already acquired land, having spent about INR 25 crores towards that. And the rest of the year will be going to kind of spend on the CapEx side as planned. And we'll talk about about INR 250 crores of CapEx plan for the next 3 years, is still going to happen on a quarter -- on a yearly basis. Most spend will happen in first 2 years and third year will be a little lower.

[Operator Instructions] We have our next question from the line of Dhiral from PhilipCapital.

Sir, if you can quantify the DynaPrime number for the quarter?

Sure. And even DynaPrime quantity of revenues is INR 453 million against INR 176 million corresponding quarter last year.

Okay. And what about non-DynaPrime mill liner and non-mill liner?

So let me break down for you. So on the revenue side, for the current year, Dyna Prime is INR 453 million, non-DynaPrime mill is at INR [ 1389 ] million and non-mill is INR 466 million.

Okay. And sir, gross margins, if you compare on a Y-o-Y basis, it is down 180 bps. So what explains the fall in the gross margin?

What is down?

Sir, gross margins. If I see gross margins on a Y-o-Y basis, last year, Q1 as compared to this year Q1, it is still on 180 bps.

Yes. So as I said that if you see the last year, the price traction on the upward side started from quarter 2 onwards. So the price impact was not in quarter 1 last year, and the price ramp-up started from the quarter 2. Hence, if you see the trajectory of the margin, the margin started going down from quarter 1 onwards until March last year. And from March last year to this quarter, we have a bit coming up gradually. So that [ way ] to see 60.42% was in quarter 1 last year and March was 56.58%. Now from 56.58%, we have come up to 58.70%. So in that sense, we have been able to transfer the cost to the customers, and as we said, it will take a little longer time because of the very abnormal increase in prices. So we are just coming to the 60% trajectory in the next 1 to 2 quarters.

Okay. And sir, lastly, if I see, sir, on other expense side, on a quarter-on-quarter basis despite the fall in the revenue, our other expense on Q1 has remained elevated?

Yes. So see, other expenses mix up the fixed cost and your variable cost. Now there are 2 elements, if you see otherwise yourself, the inflationary environment is very, very [ big ]. So all the inflation globally is very high. In fact, it's others around that inflation is double digit outside India, which is the most cost prone countries, right? That has impacted the cost in terms of other expenses. And also some of the volume cost sitting there. So in other ways, we have been able to manage the inflation environment by keeping the cost at the same level what we had last quarter.

Okay. So we are still maintaining our EBITDA margin guidance of 21% to 23%, right, for the full year.

You are right.

Okay. Sir, just lastly, since our 85% to 90% of revenue is export generated and we have seen rupee depreciating almost 5% to 6% in June quarter. Then to sir, we have reported an exchange loss that you stated earlier. So what is the reason for that?

So in our numbers, a lot of exchanges are there. So in the revenue, what has happened that on the India side -- dollar side, we have get about $20 million in revenue, okay? But when you translated the overseas revenue into INR, there's a loss of about INR 75 million. So Indian dollar side, we have gained, but while we convert our revenue to INR, we have lost about INR 75 million. So hence, INR 75 million, INR 20 million Indian side gain making INR 55 million of net loss as far as revenue is concerned.

So which are 3 major revenues, sir, in which we book our sales apart from dollars?

So India, we have dollars and euro, [ AUD ] and CAD and as far as our other entity is concerned, which is Chile and South Africa, that's in peso and ZAR locally. So we need to convert that into INR while we make our accounts, right? So there's a translation loss of INR 75 million.

[Operator Instructions] We have a next question from the line of Balasubramanian from Arihant Capital.

Congratulations for good set of numbers. Sir, our exports value growth shows 50% and volume growth, minus 27% as per the [ Axiom ] and the major of exports in Australia around 44%, and Netherlands and South Africa and Canada and remaining other countries. Sir, like what kind of challenges you are facing while transporting these countries right now. So what is the container cost average kind of 20,000 to 25,000 for footing fleet containers?

So let me try to answer because I think I'm not able to clearly hear it because of line disturbance. So we talk about the challenges in exporting the material outside India. So that challenge has little bit eased out this financial year. So even challenge was there last year also, we have been able to plan in advance to ensure that our customers should not suffer, right? And we have not filed any of the supply to any of our customers worldwide. Now from there, things are much better as of today. As I said that the prices of containers gone down from 20 -- from -- by 22% from the peak of quarter 2 last financial year. So ability of containers even price, both are on a downturn trajectory. But again, we are keeping a very, very close watch on that, how it pan out.

Sir, it shows that 27% volume degrowth, so you are exporting more value-added products or?

[indiscernible] 27% volume, you talked quarter-on-quarter?

Yes, compared to last quarter.

So that's what I think our MD also initially said that if you have seen our March quarter results, our is a lumpy business, right? Hence, we ramp up from quarter 1 to the quarter 4. So quarter 1 tends to be lower, and quarter 4 seems to be higher as a business. So hence, comparing with the quarter-on-quarter may not give a good direction to you, even you can compare Y-o-Y gives a better direction as far as our business is concerned.

Sir,I'm talking about year-on-year compared to last quarter -- last year quarter.

Last quarter, we have grown 41%.

Okay. Sir, I'm talking about the volume growth in exports?

So volume growth, I said we've grown about 30% of volume growth, Y-o-Y.

Okay, sir. So could you please give a breakup for Chile revenue, DynaPrime and others?

So I think that much of revenue will just be very -- we are just going in very detail. So DynaPrime, basically Chile what they do about close to about 80% to 85% in the mill segment with DynaPrime. And about 15% they do in non-DynaPrime segment.

We have our next question from the line of Digant Haria from GreenEdge Wealth

Yes. Sir, my question was, so that I understand that we -- most of our sales come from the mining industry. But within mining, if you can give some flavor of how much comes from copper, aluminum and within non-ferrous, which are the major drivers and within each of them, do we have major clients where we can still make inroads and ensure that our growth for future years is high.

So in our business, basically, rightly said, we deal with more of a mining producing industries. So on the metal side, we deal majorly on the gold and copper side. Right? And gold is a major portion of our revenue tends to be 40% to 45% and then followed by copper, which is 20% to 22%. And third is about your iron ore, which is about 15%. These 3 are the major segments for our revenue driver. And then rest of the about, I'd say about 20%, 15%, 20% comes from all set of metals. You talk about platinum, titanium, Diamond, zinc, aluminum. So a lot of metals are there. But the major contribution comes from gold and copper, which is about 65%.

Okay. Okay. Okay. So I understand that in gold, maybe we would be quite dominant because gold is anyways very small quantities are mined every year. But then in iron ore and aluminum, I think that our market share in these metals would be very low because these are very, very large industries, especially the iron ore and the aluminum. So is there any scope like is there much more scope than what we are there in these industries or the products they use are different from the products that we have in case of mill liners or conveyor products.

Okay. Yaver, will you take this?

Yes, I will take this Manoj. See, 75% of the liner business is in copper and gold. The reason being that copper -- to mine 1 tonne of copper, you have to process around 200 tonnes of ore. In gold, to get 10 grams of gold, you have to process 1 ton of ore. So what happens is if you look at iron ore and aluminium, aluminum is the total different industry, the process is different. As far as iron ore is concerned, iron ore today occurs at a very high grade around the -- in India, we have 67%, 70% of the grade and globally in Brazil and all you have around 40%, 45%. So they have to be enhanced from 45% to 67%. So the mills requirements are much lesser over there compared to other industries, okay? So that is why the -- our market share is also in gold copper. And then iron ore, as Manoj said, the reason being that the process requirement for the liners is accordingly.

This is very helpful and very detailed explanation. So sir, and in gold and copper, would we be present with the top 10 or top 15 mining companies of the world, like would we have inroads there? Or are there some big accounts which we can still track in the coming years?

We are -- as we have said right from the beginning on the IPO, we are just touching this thing because the area which we have opened with DynaPrime it's a $1 billion industry okay, [ limelight ] industry for us. And we have just started in that, and we -- as Manoj said, we did around INR 201 crore last year. So there's a huge growth prospect going there. And we are in presence in all the top 40 miners of the world.

Okay. If I have more questions, I'll come back.

[Operator Instructions] We have our next question from the line of Alisha Mahawla from Envision Capital.

So what is the capacity utilization currently?

Manoj?

Yes, yes. I'm just giving that. So in this quarter 1, we're at about 61% of our capacity utilization.

Okay. And for FY '23, except the CapEx that could range [indiscernible], there's no other CapEx that we're currently doing?

Yes.

Okay. And what was the order book number that you mentioned? I missed it.

That is we have about close to INR 300 crores of order.

And this is executable in 1 quarter, 3, 4 months?