The Anup Engineering Limited (ANUP) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '25 Earnings Conference Call of The Anup Engineering Limited. [Operator Instructions] Please note that this conference is being recorded. Before we proceed to the call, let me remind you that the discussion may contain certain forward-looking statements that may involve known or unknown risks, uncertainties and other factors. It must be viewed in conjunction with our business risk that could cause actual results, performance or achievements to differ significantly from what has been expressed or implied in such forward-looking statements. Please note that the company has uploaded the results, press release, investor presentation and also the outcome of the Board meeting on the website of the stock exchanges and the website of the company. I now hand the conference over to Mr. Reginaldo Dsouza, Managing Director of the company. Thank you, and over to you, sir.

Yes. Thank you. Hello, everyone. A warm greetings from team Anup. I'm happy once again to have this opportunity to share with you all our performance for quarter 3 and 9-month period ending December 2024. The Anup Engineering Limited in quarter 3, we posted a revenue of INR 170.9 crores, a growth of 33% year-on-year, with an EBITDA of INR 40.2 crores at 23.6%, a growth of 13.4% year-on-year for the quarter. The profit after tax was INR 31.4 crores at 18.4%, a growth of 55% year-on-year. So for year-to-date 9-month period ending December 2024, the revenue stood at INR 503 crores, a growth of around 28%, EBITDA clocked at INR 115.9 crores at 23%, a growth of 29.7% year-on-year. And PAT, profit after tax, is at INR 87.5 crores at 17.4%, a growth of 44.8%. Please note here, we have a lower tax rate due to some tax reversals of last year and ESOPs being exercised by a few members. This performance of the period ending December 2024 should give us a good confidence of achieving our plan for this year, that is around 30% growth with an EBITDA of around 23%. The pure exports have seen a good growth for the period at 51%, and we should be closing the year with exports of over 50%. The working capital was healthy at 3.9x and net cash closed at INR 35.6 crores. The sectorial revenue across industries for quarter 3 was quite interesting. We have oil and gas at 17%, 1-7, petrochemicals at 20%, hydrogen at 45% and fertilizers at 14%. Of course, these are for a quarter and will normalize for the year. But what this clearly signifies is that our capabilities are fungible across industry sectors and is not dependent on a particular one. So when the business exists in any of the industry sectors, we will be in a position to compete for the opportunity globally. The product-wise revenue share is in line with what we had forecasted earlier. The exchange is at 57%, mostly coming from our Ahmedabad plant, and 42% for vessels and reactors from our new Kheda facility. Surely, our Kheda plant has started contributing well, which is seen from this 42% of vessels and reactors and columns coming out from that plant. At Mabel Engineers, most projects under manufacturing are planned for quarter 4 delivery, and hence, no sizable revenue is noticed in Q3. For the period ending December, the total revenue build is about INR 26 crores. And with deliveries planned for Q4, we should be on plan for around INR 50 crore revenue that we have planned for Mabel Engineers. Before I proceed, I would like to make a small note, a small correction in the investor deck that we have posted. On Slide #11, 9-month period FY '25 breakup of revenue of INR 503 crores, the domestic -- the numbers stand a little corrected. The domestic share is INR 208.4 crores, which is 41.4%; exports, INR 258.4 crores, which is 51.3%; and SEZ and deemed exports is at INR 36.6 crores, which is 7.3%. So this was just a correction on Slide #11. On the development side, there have been some good developments over the quarter, quarter 3. First and foremost, on our foray into critical equipment business, we have successfully manufactured and delivered our first chrome moly vanadium modified material equipment. These were 5 numbers for an Indian client. We have also started manufacturing our first solid internal equipment weighing 200 metric tons, single piece, at our Kheda facility for an export customer. In fact, this incidentally will be our highest single equipment value ever manufactured by Anup and the value would be over INR 40 crores for one single equipment. Now both these are in line with our strategy to have calibrated strategic inroads into critical and complex metallurgies. Second development, on our capacity expansion plan, as committed over the last call, we have started the construction of our Phase 2 at Kheda location. This will add one complete bay and one open yard. It is expected to be operational in the third quarter of the coming year, FY '26. So with this, we will have in all 3 complete bays and one open yard at Kheda capable of delivering about INR 40 crores per year. This will be about 33% of our master plan for Kheda, which is to have 7 manufacturing bays. So at 7 manufacturing bays, that plant should deliver somewhere around INR 1,200 crores. And that's how this INR 400 crores with Phase 1 and Phase 2 would be about 33% of our total master plan. Next, our operations at Mabel Engineers and the office at Vadodara have stabilized quite well. With these installed capacities at our 3 manufacturing locations, that is in Ahmedabad, Kheda and Tamil Nadu, we have a capacity capable of delivering revenues up to INR 1,100 crores to INR 1,200 crores per year, depending on the product mix on the order book. We will expand further in line with our growth guidance. Next, I would take a few minutes to talk on the future outlook. We are currently working on some interesting inquiry base, largely for exports though. Domestic, as I mentioned earlier, has been sluggish for last 3 quarters now, but we are seeing some movement recently from private conglomerates, and we have been successful in getting some orders. PSC projects have not taken shape yet, though, there have been some good announcements from Indian government, both on refinery and petrochemical projects. I'm sure we should see them surfacing probably over the next 6 to 8 months. Middle East is dominating with new gas projects, and U.S.A. and Canada and Europe we see good hydrogen projects lined up. But as you all know, last 2 quarters has been a wait and watch for many economies globally. Geopolitical developments, wars, speculation over policy changes due to change of regime in a major economy, trade tariffs and many other factors have delayed decisions on some interesting projects. But having said that, my view, these will settle down eventually and projects which are of strategic importance for the energy transition road map will surely see the light. Our overall pending order book as on date remains encouraging at INR 831 crores, and considering our plan for this financial year, it means we have an opening order book of about INR 600 crores executable in the next financial year 2026. With 2 months balance into the year, we should be able to bag orders in line with our growth plan for the coming year. So our guidance for the next year FY '26 continues to be at 25% to 30% revenue growth and with an EBITDA of over 20%. Exports will be in the range of 50% to 55%. So we, as a business, are mindful of the risks and challenges that can come our way. We are cautious of the geopolitics and how it could impact trade. We are cautious on the projects and the countries that we work with. We are cautious of the competitive landscape in India. We are also cautious of the aggression in the market to bag orders. And we are watchful of the energy transition activities globally and also the trade tariff dynamics and many other factors that can play. We at Anup and the Apex team just concluded our strategic business planning meet and have decided the future road map. I may not be able to spell out the strategy, but we surely have targeted a few new products and service verticals we will get into to diversify our product portfolio. I'll surely share further details during our next year-end call. So to conclude, with this position of 9-month period ending December 2024, we are on track to achieve our revenue and profit plan for this year. The encouraging pending order book with some interesting opportunities ahead gives us a more certain visibility into the coming year FY '26. I am confident that at the strength of my team and with the continued support from our reliable partners and suppliers, we will be able to deliver on our plans. My sincere thanks to all my committed team members, our partners, our suppliers and all our shareholders for standing by and trusting in us to deliver results. We are grateful for your trust and support. Once again, thank you all for being present on this call and for your patient listening. Happy to have your questions now. Thank you.

[Operator Instructions] The first question is from the line of Jaiveer Shekhawat from AMBIT Capital.

Regi and team, congrats on another strong quarter. My first question is with respect to your order intake in the international markets. Just trying to understand what has happened on a sequential basis. Have you seen a dip in the order intake?

No. In fact, I would say that the exports have continued. The dip has basically come in the domestic side. Exports over the last 1, 1.5 months, in the last quarter, that's November, December, of course, we have seen a little sluggish moment, mainly because the decisions were pending because of the change of regime and other tariff and other discussions so on. But now we are seeing good traction and discussions. In fact, in January, we've got some good order booking overseas.

Sure. Because I was just trying to see the order backlog that you had at the start of this quarter, which is about INR 690-odd crores and which has come down to about INR 540-odd crores as of, say, the December quarter, while the revenue booking was only about INR 115-odd crores. So I was just trying to see, have there been any orders that have been canceled or that had gotten pushed out? If you could highlight any of that?

Yes. So the revenue book is INR 170 crores to be precise -- 1-7-0.

No, only on the exports market. I was actually meaning on the exports market.

Okay. Okay. So you are talking about the exports. Yes. So there has been some -- so there was a large order, which we had booked close to about INR 20-odd crores, and there was descoping and there was a short closure of the order by about INR 60 crores. And that's the reason you're seeing that difference in export. But we could -- of course, we have safeguarded our margins, and we could quickly continue our order booking and fill those slots from some domestic and some international markets.

Could you just explain or substantiate as to why there was a cancellation or the short change, what you said?

So that was an order for a project in United States. And it was dependent on our feedstock. So it was the feedstock of ethane. And there were some challenges in the feedstock availability for the assessment probably at the customers' end. So we don't have the actual details from the customer side, but what we understand is, currently, they have descoped and short closed that. Maybe that they are looking at once the feedstock revives somewhere in the quarter 3 of next financial year, for us, it may come up again. So we'll keep our fingers crossed for that. Of course if it revives somewhere in October, November, we should be the natural choice for that since we already completed the half year in terms of design and other stuff.

Understood. And currently, I mean, given the momentum that you've seen over the last few quarters, what's the usual order intake trend that you're seeing on a quarterly basis on the exports market?

So on the export side, we should be getting traction over a quarter, close to about INR 110 crores to INR 115 crores per quarter.

Understood. And it's also quite encouraging the way hydrogen has sort of shaped up for you. So could you call out what has been the overall share of hydrogen-related projects in the 9 months and then what's your expectation going forward?

Yes. So by the 9 months also, it's been about 30% of our revenue comes from hydrogen. And by the year-end, we believe that it will remain. Of course, in the quarter, it looks a little skewed. It looks 45% for quarter 3. But as I said, over the year, it should normalize. And based on the numbers we have, by the time we complete the quarter 4, hydrogen should have close to about 30% to 32% share of our total revenue. And just to add, it is mostly blue hydrogen with a small share of green hydrogen.

Understood. And the expansion that we have seen on the gross margin side, is that because of higher export mix? Or is that because of higher hydrogen mix in the quarter?

I would say, both. When I say both, it's like one is, of course, export because, as I said, export on the ForEx side, we are a little conservative when we book the order. So generally, we tend to release it at the end of execution on the ForEx side. And second, being on hydrogen, we see a lot of exotic materials where we see lower competition as compared to low material grade.

Right. And in relation to your manufacturing tie-up with Graham, have you been able to crack into any of your new proprietary products and in terms of how you're thinking about the overall opportunity over, say, the next 2, 3 years?

So when we signed the agreement, we were actually in the process of executing a project for them for an IOCL project in India. We just completed the dispatches last month. We've got a couple of inquiries right now that we are working along with them, for exports basically. And that was our objective. Actually signing the agreement, the main objective was that domestic business would continue, but we wanted to tap on the international business. And unfortunately, that's what we are seeing on the table right now. Of course, it's not getting -- it's not got into an order shape yet, but there are inquiries for exports, which we are looking at.

Sure. Anyway, I look forward to hearing more possibly in the coming quarters about newer products and services that you had decided on your strategy.

The next question is from the line of Mohit Surana from Monarch Networth Capital Limited.

A few questions. One, in the last con call, you mentioned that we execute fixed-term contracts. So, basically, I wanted to understand if there is any volatility in the raw material prices, how do we manage that? Second question is with respect to the capacity utilization, if you can give some sense of how was your capacity utilization for this quarter and for 9 months? And the third one, I will ask once the other 2 are addressed.

Thanks for the question. So the answer to your first question, yes, we have only fixed [ tier ] contracts. And as I would have mentioned earlier, we built in all the costs at the estimation stage itself. And most of our critical orders, we do back-to-back with our vendors as well. So from that sense, most of the critical orders where we feel that there could be a volatility, we go back to back with our vendors. And from that sense, our prices are protected. And the second part in terms of the capacity utilization, of course, as you know that we put up the additional capacity at Kheda in the last September. So if you add up both the capacities together, we would be close to about 70% to 75% capacity. And as I said earlier, too, we always keep about 10% capacity for short-term shutdown equipments, which are generally more profitable.

Understood, sir. Sir, just to again talk about the Kheda, I mean you mentioned that we already have complete bay and open yard and the revenue potential from that will be around INR 40 crores. That's what you said, right?

What I said was that in our Phase 1, we have 2 bays, which are already commissioned up and running. We have started construction for Phase 2, where, again, we are building 2 bays, but one will be fully covered and one will be open yard. So when you look at the end of probably September of this year, where we will have that commissioned, we will have 3 complete bays of 200 meters long covered, under roof, and one open yard. So effectively 4 bays, 3 covered, 1 open yard, and that should give us a revenue of close to about INR 400 crores.

Understood. Sir, the last question is with respect to the financials. I see your consolidated PAT is lower than your standalone PAT. Is it like we faced some losses in Mabel? Can you just throw some light on that?

Yes. So Mabel, as I said in my initial comment, all the manufacturing that we have done in quarter 3, they are all dispatchable in quarter 4. So there was negligible revenue intake into quarter 3 for Mabel. We have a large order for Reliance getting executed. We have already started the dispatches in this month, that is in the month of January, and it will go up to March to complete that purchase order. So most of the revenue will be booked in quarter 4, which will get us back to close to about INR 50 crores revenue from Mabel, which we had planned, and close to about 15% EBITDA.

The next question is from the line of Vikram, an individual investor.

Excellent results again. So congratulations. A quick question on March '25, where do we see ourselves ending? I mean, at this stage, we are close to what, INR 500 crores for the 9 months. So any sense of where we'll end up with March '25 numbers?

Yes. Thanks. So we will end up in line with our guidance of 30% growth. So putting the numbers together, we should be about INR 725 crores for Anup Engineering.

Understood. And just Mabel another INR 50 crores?

Standalone. And Mabel, of course, as I said, Mabel would hit a number of close to about INR 50 crores, but about INR 20 crores of that will not be reflecting in our books because that was before we closed the share transactions.

Okay. So what you're saying is the chances are consolidated number for March '25 will be INR 750 crores?

That's correct.

And so that means the last quarter will be a huge quarter in terms of size and INR 250 crores kind of a number.

That is correct. Anup and Mabel put together.

Yes. And we have the capabilities in terms of infrastructure and all the regulatory all to kind of deliver that, right?

Yes, absolutely, absolutely. We have all the projects lined up. We know what's going to get dispatched and ready before March. We know for Mabel as well. And in terms of capacity, if you look at, as I said, the current capacity is about INR 1,000 crores. And moment we complete this construction that we have started, it will be INR 1,200 crores. So I'm pretty sure that should give you the confidence in terms of our capacity to execute.

Excellent. And in terms of -- I know you mentioned that you've just finished a strategy workshop and obviously, you can't outline everything. But in terms of the key highlights, would they be different products? Would they be new technology partners? Would it mean getting into different markets? Any sense on that?

Yes. So it definitely is going to be different products. That's the reason we said products. So it will be on product and services both. And mostly what we are looking at is mass volume kind of products. So in a sense that it continuously keeps the volume going. What we do today is mostly customized every order we need to design and kind of a stuff. We want to look at products which are more sort of not very customized, to some extent, customized, but more generalistic in nature, which gives us a little bit of comfort in terms of engineering and others. And I'll add to your earlier question. I'm sure you would have looked at the history. Last quarter is always a very, very good quarter.

No, but this is exceptionally good. INR 250 is a big number. So that's...

And what happens is generally, you would have heard me saying Q1 and Q3 are generally not that great quarters in a sense, we have a lot of absenteeism because of festivals and other stuff, whereas Q2 and Q4 are generally the peak quarters with full attendance and so we have a good drive in terms of project progress.

This is very comforting because many management in the last few days have had changes in their guidance. So it's great to see that you're maintaining the guidance, and it is going to be a heavy quarter and you're already midway through. So I guess the level of confidence is high. So thank you.

The next question is from the line of Rishabh Chaudhary from Carnelian Capital.

Am I audible?

Yes.

Could you shed some more light on the order book visibility for the coming year and how we'll achieve our revenue target of 30% growth year-on-year? Where do you anticipate the growth coming from?

Rishabh, thanks for the question. So as I said, we see a good traction, of course, in the export market for now, the inquiry bank that we are holding, we are holding close to about INR 900 crores kind of an inquiry bank as on date. Of course, 70% is coming from exports. And domestic, we see a revival. We've got a couple of projects on the cards with inquiries from customers coming in. So we should be good for the next 2 months. And in fact, January also has been good in terms of some order booking, both domestic as well as exports. So we should be very comfortable for 30% growth for next year. As I said, we already have 600-plus opportunity for next year, executable into next year. And with the pending order book position and the visibility seen in the market today, we should be comfortable for a 30% growth next year. So where we are seeing the growth in export, it is largely coming from the hydrogen stream, which is largely fueled by U.S. and Canada and, to some extent, some European countries. Middle East is throwing up a lot of projects on gas. Currently, also, we have a large contribution of gas projects from Middle East, and we have a few inquiries up our sleeves for gas as well. And in domestic, of course, the private players are mostly on the petrochemical side right now, the PVC, VCM kind of projects from Reliance and Adani. When the PSUs start, which are already announced a couple of projects, they would be mostly on the refinery and petrochemical projects based on the guidance from Indian government. So those are the sectors that we see we should be doing some good work. So hydrogen will continue. Hydrogen, I believe, will continue to be about 20% to 30% kind of contribution growth.

Understood. Understood. That was quite elaborate. Secondly, the EBITDA margin guidance that you gave was about 20% plus as against the 23% plus we are looking at this 23% what we're looking this year. So any specific reason for guiding for a lower margin in the coming year?

Not specific. I will only say that we are a little conservative in the sense that since growth is on the agenda, we would not compromise growth. And that's the reason we are being a little conservative. Otherwise, we should be good around this number that we are having this year.

Understood, sir. And just one last question. Typically, once you book an order, what is the kind of lead time we see for it to translate into execution into our revenues?

Are you asking from the lead or are you asking from the inquiry?

From an inquiry. Once an order has been booked from then to when it translates into revenue.

Okay. Okay. So as of today, the product portfolio that we deal with, it is anywhere between 11 to 12 months average. So some products could be 8 to 10 months, some could be 12 to 14 months. On an average, 11 to 12.

The next question comes from the line of Mohit Surana from Monarch Networth Capital Limited.

My questions are already answered.

The next question is from the line of Bhavya Sonawala from Samaasa Capital.

Am I audible?

Yes. Please go ahead.

So my first question is regarding the Graham agreement that we signed. Just wanted to understand, do you see more opportunity where we are able to manufacture on behalf of our clients like Graham? Do you see more opportunity like this coming ahead in export as well as in domestic markets?

Yes, there are. In fact, we are in discussions with some end users and customers. So we are looking at opportunities like this because it helps us to book our volume rather than we having to struggle every time for an order. So we prefer to be exclusive manufacturers for our customers like Graham. So yes, opportunities are on the table. Once it materializes, we will surely come back to you on.

Okay. And these are specifically for export or we're looking at a domestic and export mix altogether?

So these opportunities like Graham, right, they are probably the proprietary equipment holders. So they do projects globally, including India, same with Graham. But our objective would be once associated with licenses like Graham, it gives us an opportunity for -- to tap even into the export market. Domestic, any which way we can compete and probably if we are competitive, we can get the order from them. But I think such strategic tie-ups helps us to get more into export, in addition to the domestic market.

Okay. Understood. And my just last question, probably might be difficult for you to answer, but with the new administration in the U.S. and they have taken a stand against the renewable energy in terms of solar and do you see any effect in future going ahead to hydrogen and probably other nations following it? Any kind of thoughts that you can share?

I think it's too early to comment. Of course, we will wait for policies to be announced. But having said that, if you look at our product portfolio and the industries that we serve, solar and other renewables does not impact because we are not in that field. Hydrogen is, but we are on the industrial hydrogen, which I believe is here to stay. So from that perspective, not a direct impact. But yes, when economies get impacted, we will have to be cautious and vigilant.

The next question is from the line of Balkrishna Ajortia -- I'm sorry, he's an individual investor.

Mr. Dsouza, am I audible?

Yes.

Mr. Dsouza, congratulations for your good set of number to you and your team. I just want to know a few things. One is current debt level in the company. And second thing, this current expansion plan is going on. So sir, I want to know it is fully -- I say, by internal accruals done or it will be done by debt tenure?

So thanks for the question. We are net debt free. So we don't have any debt net. And whatever investments that we are going to do even in Kheda now for Phase 2, it will be completely from internal accrual. I hope that answers your question.

The next question is from the line of Shyam Maheshwari from Aditya Birla Mutual Fund.

Congrats on a great set of numbers. One question on the U.S. side again. I think you mentioned it in your opening remarks as well, but just wanted to understand a little bit more in detail. So as far as we know, the Trump administration has now kind of stopped any further disbursements when it comes to the IRA, and that involves your hydrogen ecosystem as well. So is there any sense that you're getting from your end customers as to them maybe kind of halting or taking a more cautious approach towards their ongoing projects, particularly in the U.S?

Yes. So we've heard this. We've also read these policies. Now what we understand from our customers is whatever orders that we are executing, these are large multinationals and end users, basically. So they have invested their own fund to get this project going. And we don't see -- so even now -- of course, there could be some other technical reasons why projects were to get delayed because what happens is these items, once we supply this equipment, these have to be modularized in a package. And these modules are generally -- will be moduled in places like China or Indonesia and other places. Now the tariff structure will definitely greatly impact them because, finally, it's a landed cost, which will impact for the end user. So they are cautious in a sense waiting and watching as to what would be the tariff structures because, based on that, they will have to define from which countries they need to buy. And I think the cautious approach that I mentioned in my opening remarks is basically what we are seeing is from the trade tariff perspective, the end users are a little watchful and they are waiting for some concrete understanding on the trade tariffs. Other than that, in terms of projects, I believe hydrogen is here to stay. We all know. We are talking about industrial hydrogen gas. And we don't see any project. In fact, in Europe, we're getting good opportunities in hydrogen at the moment. So I hope I answered your question.

Yes. Yes. And sir, how much would U.S. be as a percentage of our hydrogen business?

So of the overall hydrogen business, the 30% that I spoke about, U.S. standalone this year would be close to about 26% to 27% of that. Part -- we have completed the part we are going to execute in this quarter. So we should be good at that.

So we have significant business from other geographies as well as more than 70% of the hydrogen business is from other than U.S.

So even we have good -- apart from hydrogen, we have a very strong business. So currently, the biggest account for us today is coming from Middle East. Middle East, 2 countries. That is Abu Dhabi, which is from ADNOC, Abu Dhabi National Oil Company. And the second is Saudi Aramco, which is in Saudi Arabia. And I'm sure these 2 companies are like 2 countries, so most reliable. And that's why I used the word earlier that we are very cautious on which countries and which companies we work with.

[Operator Instructions] As we have no further questions, I would now like to hand the conference over to Mr. Reginaldo Dsouza for closing comments. Over to you, sir.

Thanks. I'll once again take this opportunity to thank my wonderful team at Anup and Mabel, and to each and everyone helping us deliver this performance. A big thank you to all of you, our shareholders, for your trust and support, as always. Thank you. And on behalf of my team, I wish to all of you happy days ahead. Take care and stay healthy. Thank you so much.

Thank you. On behalf of The Anup Engineering Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.