Tega Industries Limited (TEGA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Tega industries Limited Q3 and 9M FY '23 Earnings Conference Call hosted by PhillipCapital Private Client Group. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Dhiral Shah of PhillipCapital.

Thank you, [ Diko ]. Good afternoon, all. Thank you for joining us on the Q3 and 9 months FY '23 Post Earnings Conference Call of Tega Industry Limited. We sincerely thank the management to allow us to host the call. In the panel today, we have Mr. Mehul Mohanka, Managing Director and Group Chief Executive Officer; Mr. Syed Yaver Imam, Director, Global Product Management; and Mr. Manoj Kumar Agarwal, Director, Global Finance and CFO of the company. Before we begin this call, I would like to state that some of the statements are made in today's discussion may be forward-looking in nature and may involve risks and uncertainties. I now invite Mr. Mehul Mohanka to begin the proceeding of the call. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone. I welcome you to the Q3 earnings call. I'm joined by Mr. Imam, Director of Globe Product Management Group; and Mr. Agarwal, who's our CFO. As you can understand my -- I have a sore throat because of onset of a viral prevalent in this part of the country as of today. So I'd like to excuse myself, and hand over to Mr. Agarwal, who's our CFO, to take this forward.

Thank you, Mr. Mohanka. So on behalf of Mr. Mohanka, I just want to thank you all the investors to putting us -- continued faith on the company. And we're also pleased to announce that our business has been double-digit growth in key metrics in Q3, building on the strong momentum from H1. Sales have grown strongly across all regions. Our growing scale has also led to improved operating leverage and significant margin improvement, both yearly and quarter-over-quarter. Significant improvement in global supply chain, normalization of logistics and transport cost also contributed to improve margins, which is visible in the Q3 numbers as well. Despite the easing pressure, the costs are still higher on a pre-COVID base, and we are vigilant to managing our supply chain accordingly. Our expansion project in Chile, a requisite land acquisition has been completed. We are awaiting further approvals, shall keep you update on the progress of the same. We recently completed 1 year of our listing. Following our IPO in December 2021, we have had a long journey of over 3 decades, as India's leading business in global niche. I look forward to future with increasing optimism. We have many strategic initiatives in motion to elevate Tega Industries to the forefront of the industry globally, and we aim to generate value over the long term for all stakeholders. Now I'm taking the Q3 numbers for the listeners. So for Y-o-Y Q3, the revenue has grown from INR 2,578 million to INR 2,097 million, a growth of 15% Y-o-Y. Metal margin is around 55%, a little subdued mainly because of the geographical mix, not otherwise. We have been able to claw back the margin on account of logistics in this quarter, which we have not able to make up until quarter 2, which has helped us to boost our EBITDA for the quarter 3 as well. Other expenses also gone down with the fact that the loyalty cost has come down from quarter 1 -- quarter 2 and previous quarter as well. Operating EBITDA stand at 22.66% against 19.78%, same period last year. We have been able to manage our finance cost even in the increasing environment with a better capital -- working capital management. I go to the YTD Y-o-Y, the revenue growth has happened to the [Indiscernible] of 24%. We are at INR 8,176 million versus INR 6,671 million on Y-o-Y. Metal margin on a yearly basis stood at 57% against 58% last year same period. We anticipate that this margin will improve in quarter 4 with a better geographical mix. The reason being lumpiness in the business, so quarter-on-quarter, sometimes may not give a clear picture, hence, we go into the yearly margin numbers. Other expenses has also gone down with the fact that packing forwarding cost has gone down Y-o-Y. For 9 months Y-o-Y, operating EBITDA stood at 20.5% against 17.21% same period last year. On the debt side, we are at a net debt plus position of about INR 22 crores. Working capital days stood at 154 days against target of 130 days. We expect it got normalized in quarter 4. That is all on the finance side number. I open the forum for the Q&A from the investors. Thank you.

[Operator Instructions] Our first question is from the line of Sandeep Tulsiyan with JM Financial.

My first question is pertaining to your full year guidance that you had given for FY '23 at 15% to 20% sales growth given that we have been able to recoup volumes in newer geographies as well as got some price increases, [Indiscernible] performance looks good. So would you want to revise this guidance or at least indicate that the company should comfortably be at the upper end of this guidance.

So we expect upper end of this guidance. So we intend to be within 15% to 20% for FY '23 as of now.

Okay. Second question is on further more color on these gross margins, which have declined in the quarter. You did highlight there is some geographical mix, which changed which led to this decline. If you could also elaborate on that? What was this specifically?

Yes. So in quarter, what happened that our mix on South Africa entity and Chile entity has gone up than India side. And overall basis, India margin is much better than these geographies. So because of that mix, there is some impact for this quarter in the margin. Further, the North America business for this quarter is down than expected. Which is more or less kind of spill over to quarter 4. So because of the margin geographical mix from North America, lower mix, which is a better margin geography for us and from South Africa and Chile, which little higher cost centers for us as far as RMC cost is concerned. Hence, this margin is showing lower for quarter 3. And we are -- we assure that in quarter 4, we'll be able to cover it up both for the quarter 4 and year as a whole.

Got it. Understood. And a bit more color on other expenses. You did highlight logistics costs have come down and packaging forwarding costs have gone down, which led to this increase in margins. If you could quantify a bit what was the logistics cost as a percentage of sales in first quarter and approximately how much has it fallen in third quarter? And also, is there a further downside based on the new freight rates that you would have contracted for a couple of more quarters going ahead? Is it we are at the bottom right now? Or is it further expected to decline?

Yes. So let me give some numbers to you. So basically, the logistic cost sits mostly on the India side because other than India, like Chile and South Africa, we do all ex works. India side, the cost was around 8.21% of our sales in December '21 quarter. Which has gone down to around 6.04% in September '22. And it has gone down further in December quarter to 4.62%. So if I take a group as a whole, where we were lagging about 1.5% in FY '22, if you can recall, we have been able to recoup about 1.2% as of now. And we expect that this cost may further -- it has not still reached to the level it was prior COVID. But we still expect that some cost reduction will happen, and we were able to reup another 25 basis in quarter 4, not beyond that.

Got it. And some bookkeeping questions, Mr. Agarwal regarding the price and volume growth as also the segmental numbers regarding DynaPrime non-DynaPrime and non-mill liners that you typically provide every quarter.

So we are at the same range we talk about, right, DynaPrime, were at a range of 25%, non-DynaPrime at about 9% to 10%, I'm talking on the volume side. So that we are still clogging as of YTD December '22.

Okay. So if you could give like absolute rupees crore in third quarter? And how much was that growth on a year-on-year basis in each of these segments.

So let me give you 9 months Y-o-Y, that will give you a picture because Y-o-Y, December '22, we have done about INR 165 crores in DynaPrime, I guess, INR 135 crore last year. Mill, we have done INR 425 crores against INR 360 crores last year 9 months. Non-mill, we have done about INR 192 crores against INR 143 crores last year, our HT Services.

Got it. And what was the price and volume and ForEx breakup that you share?

So volume -- overall volume is 17.6%. -- as of for the 9 months and price excess together is about close to 6%.

Okay. This is for 9 months again, right?

9 months. Because lumpiness now, so it's better to take YTD numbers.

Okay. And is there any ForEx gain element over here?

Yes. ForEx is about 1%. Around 1%, 1.25%.

Okay. I mean in other income, normally, what we reported ForEx gain, is there a jump in this quarter?

There was -- again, is there, I think about INR 8 crores ForEx gain is there for this quarter, because the currency got I think, appreciated in the geography than what it was in quarter 2.

Got it. And one last question from my side. We definitely have a very comfortable balance sheet position right now. Any plans on inorganic acquisitions in related area, any adjacencies that you have found out, which would be a close watch out for you in terms of acquisition. Also our promoter stake continues to remain at 79%. We have, of course, a good 2 years to bring it down to 75%. So will that be through a fundraise or will it be a stake sale? Any thoughts on these 2 aspects, if you can share, please?

So as our MD said in last quarter also that we always look for a better kind of a deal which makes sales for the stakeholders, right, for value appreciation. So we just try to time the market in terms of, if we get anything good to have Tega's fold, which we give the value appreciation to the stakeholders. We may go for that also. And because we have to kind of dilute 4%, we have that advantage to kind of raise the fund in company also. So we're just waiting for the right time how to marry the both situations once come into the fold. So we are in the look of opportunities. Whenever it comes, makes sense for us. Obviously, we'll go for that.

Okay. Sir, just one related question. So when you said you are seeing some good growth in all -- across all geographies. Is it possible to give some color as to which geographies are seeing faster growth, other than, of course, you highlighted South Africa and Chile are subsidiaries that within geographies, the major markets that you have, if you could give some more color in terms of where the growth was higher, what were the numbers if the U.S. was decline, how much was the decline?

Too many numbers may not be give, but I can tell you that other than North America, maybe all -- even North America [ calls ] to talk about, it is on a slow pace, again, because of lumpiness. Something got a spillover, which we got covered in quarter 4, rest all the geographies giving a trajectory of the -- on the higher trend as far as the revenue is concerned.

[Operator Instructions] Our next question is from the line of Rakesh Pal with Peace Wealth Capital.

Sir, I have one question -- 2 questions, actually. My first question is we are hearing that copper mines are being closed in South America. So what will be the impact on our company? And the second question is if I can see your order trajectory, it was peak during quarter 2 of this financial year and then it reduced. So how does the revenue -- does the quarter who lacks the revenue by 1 or 2 quarters. These 2 are my questions, sir.

As far as South America is concerned, there are some headwinds in -- especially in Codelco, but the number of projects which are coming on stream over here in copper over there, overall copper production is not going to fall by too much as far as South America is concerned. Second issue is that most of the mines which we are working in are operating mines. And till -- even if the production goes down by a couple of percentage points, the mills are running and we are being in the consumable business, our revenue does not get much affected by it.

And sir, my second question is about the order book. How does your order book varies over the quarter? I guess I can see quarter 3, your order book was highest, then it declined. So does this lag in the revenue by 1 or 2 quarters? That is my second question.

See, again, as we have always said, the revenue is lumpy because the order books are lumpy. So this year, we started with a good quarter 1. And overall, I think the pace of the revenue is what it has been kept because of the order booking. So our order booking continues to grow at that -- between the 15%, 20% range. And in effect, the result of that is that the revenues are growing.

And in terms with the order book is for how many months, what is the execution period of this order book?

Approximately 3 months.

[Operator Instructions] Our next question is from the line of Jasdeep Walia with Clockvine Capital.

Sir, out of top 3 copper and gold mining companies globally, how many are your clients, where you're supplying commercial quantities and not quantities meant for testing?

Both in copper and in gold, the top 20 miners, we are there in all the top miners, okay? So both in copper and in gold.

You're there in all the top 20 miners globally?

Yes.

And you're supplying commercial scale quantities?

Yes.

[Operator Instructions] Our next question is from the line of Sagar Shah with PhillipCapital.

My first question was related to our CapEx plan. Can you throw some light on that -- on the update on our CapEx plan?

There is a lot of background noise. We are unable to hear you.

Okay, sure. So my question is related to our CapEx plan. Can you throw some light on our CapEx [Indiscernible] actually?

So as we said last time, the CapEx plan for the group is close to about $30 million, $32 million in next 3 years, and major CapEx will be in Chile, close to about $22 million, right, followed by some addition in India and South Africa.

Correct. Okay. Got your point, sir. [indiscernible] hedging policy, you mentioned [indiscernible].

Can't hear you boss, can't hear you. Sorry, can't hear you. Can't hear you. Voice is breaking.

Sir, related to our for hedging policy, sir.

Yes.

Yes. So we have recorded around INR 8 crore of foreign gain in new quarter. So can you throw some light at what exactly is our hedging policy. How do you -- have you received? Or is it -- can you throw some light? Or is this just a notional figure? Is it just a one-off?

No. So in hedging policy, we have hedging policy, where we hedge net of import in India parlance. In South Africa, again, net of hedging position, we have export. So there we have a gain, which is realized. So in that realized gain, overall group-wise, about INR 6 crores of the realized gain we have, and unrealized gain is about INR 1.25 crores as of 2022.

Okay. okay, okay. Got it. My last question, sir, is related to our order book. As of December '22, on absolute basis, what is our order book, sir?

So as of December 31, closing order book is about INR 325 crores on a group level.

[Operator Instructions] Our next question is from Hiten Boricha with Joindre Capital.

Congratulations for a very good set of numbers, sir. I have a couple of questions. The first question is on the order book side. So you mentioned we are looking to grow a 15%, 20% kind of order book in next year also. So can you throw some more light on where is order book inquiries coming from each participant sector or [indiscernible] side [indiscernible].

We can't hear you. Can -- some problem in the line. A lot of cracking is happening. Can you repeat the question, please?