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

Ladies and gentlemen, good day, and welcome to Q2 and FY '27 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 this question may contain certain forward-looking statements that may involve known and unknown risks, uncertainties and other factors. It may view in conjunction with our business risks that could cause actual results, performance or achievement to defer significant significantly somewhat has been expressed or implied in such forward-looking statements. Please note that company has uploaded the results press release investor presentation and also the outcome of the Board meeting on the website of Storm Exchange and website of the company. I now hand the conference over to Mr. Reginaldo Dsouza, Managing Director and CEO of the company. After the speech of Mr. Dsouza, Mr. Punit Lalbhai, Chairman and Non-Executive Director of the company, will give insights of the company's performance. Thank you, and over to you, sir.

Thank you. Greetings from team Anup to all the members present on the call. I will take this opportunity to give a brief on our performance for Q2. I'm sure you all understand the current global uncertainties and the associated headwinds for our business. With this consideration, I sincerely believe that our company has been able to hold ground and continue gradually towards this annual goal. As explained during the last call, we did plan a gradual revenue buildup from quarter 1, quarter 2 and a strong H2. Despite the longer-than-anticipated disruptions in supply chains, elevated energy prices resulting into higher raw material costs and also more than double shipping costs due to the ongoing was, we have been able to maintain the desired progress on most projects in line with our customer contractual requirements. The revenue numbers for H1 are in line with our plan and new projects are moving well on the shop floor with good revenue milestones lending in quarter 3 and quarter 4. The consolidated revenue for quarter 2 has been INR 182 crores, a 46% increase from quarter 1, with an EBITDA of INR 17.5 crores at 9.6%. This margin is a reflection of underabsorption of fixed costs due to lower revenue. Fixed cost remains on plan at INR 62 crores. The margins will improve with substantially higher revenues planned in H2, helping fixed cost absorption. The material cost has been elevated at about 6% with inward freight contributing to about 2%. This is largely due to the impact of higher raw material costs and the freight component. The exports of the total revenue has been at around 50%, which is as per our strategic intent. The conventional energy sector is demonstrating good traction with about 80% revenue coming from oil and gas, petrochemicals and thermal power. On the Products segment, heat exchanges contributes to about 51%, 42% on vessels and reactors and 7% from silos and other companies. The order booking continues to be encouraging over the last 3 quarters. The new order booking for this year has been INR 674 crores as on date, which has surpassed the order booking for the whole of last year. The pending order book as on date is INR 947 crores with good opportunities on hand we are confident of continuing the momentum on the order booking going forward. On the strategic developments, we continue to focus on getting into more complex and proprietary products. We are glad that we have added a few important products in H1, namely 2 products of Lummus technology in Netherlands, on each of [indiscernible], Germany and LNG. These are all high value for equipment business with very less competitions, largely from Tier 1 manufacturers, thus, improving our order conversion. We continue to pursue with these 2 more important global licenses and all going well, we should complete qualifications in this year for these tumor licenses. And as articulated earlier, we now move with a very strong focus on critical and proprietary licensed equipment. On the capacity front, with our 3 locations that is Ahmedabad, Kheda and Chennai. We can deliver about 20,000 metric tons per year with approximately [ INR 1,200 ] crores revenue. Our technical and site services business is moving from with 3 sites under execution at this point in time. Completion of these projects is planned in H2. To give you a brief on the overall market outlook, we see a very strong traction for conventional energy mix for oil and gas, petrochemicals and thermal power. Fertilizer projects are also hitting ground more than expected in India, Africa and also in South America. We see thermal power strong, at least for the next 3 years, especially in India. Nuclear also for strong opportunities in the future. We strongly believe that the energy security energy demand to fulfill growth aspirations of developing nations and the exponential electricity demand for new edge technology means the conventional energy mix we'll see strong demand for the next 8 to 10 years. Cleaner energy, we will also see momentum in many regions of the world to tackle climate change. On the financials for this year, I believe with a clear visibility on projects to be executed in the balance 6 months of this year and costs defined to a large extent, we have a fairly good visibility. With quarter 3 and quarter 4 ramping up on revenues, we should end the year with a revenue between INR 840 to INR 860 crores with an EBITDA in the range of INR 120 to INR 128 crores. Further, a pending order book of INR 941 crores means around INR 400 crores carryover for the next financial year, which covers almost 5 months revenue for the next year. And with good business opportunities in the next few months, we will be able to maintain a healthy order book to ensure FY '28 revenue growth of about 20%. We will continue to navigate the current global uncertainties with supply chain and shipping still being a challenge, and strategize to protect our costs. Hopefully, the walls should settle down opening crucial shipping waterways, easing the energy and thereby the downstream costs. With this, I will end my opening remarks and I would hand over to Punit for his comments.

Thank you, Regi, and good afternoon to everyone. It's a pleasure to be here. Regi has very comprehensively covered the status of where we stand today. So I will be extremely brief. I think a couple of themes are very important and one should focus on those for the remainder of the year. I think, number one, though we've had a very disappointing H1 compared to our historic performance over the last 3, 4 years, the number to track is the laddering up of revenue from quarter 1 to quarter 2. And as I have reviewed things, the second half of the year has started off well, and we are quite well positioned to achieve that further ladder up and climb back to historic levels, which we should approach by the end of the year. So we are looking forward to a strong H2. The second theme that I'm particularly pleased about is the all-time high orders in hand. I don't think we have ever had about INR 900 crores pending order book. So that points to a healthy future, a strong H2, and on current trajectory, a very strong financial year '28. It's also heartening to see that the new orders that are coming in are coming at much improved margins despite a very challenging raw material scenario. So on the whole, a challenging first half to the year, predominantly driven by our challenged order booking in the previous year. This year's order booking, however, is very encouraging. So overall, we feel that we are headed in the right direction, and we should deliver on these promises. So with that, I will end my comments and open the floor for questions. And we'll request Regi to take the lead on answering questions, and I will jump in as and when required.

[Operator Instructions] The first question is from the line of [ Jami Gandi ] from Ambit Capital.

I just wanted some clarification on the order intake and backlog numbers. While I understand we have given the number till date, but I would appreciate if I would -- if you would get the exact number for the quarter ended in September. That will give us some clarity.

Yes, [indiscernible]. So our exact our new order intake or the closing order book for 30th September [Technical Difficulty].

Regi, you're cutting out. We can't hear you.

Yes. So our pending order book position as on 30 September, was 864. As on debt is 941. And if you want the exact new order intake for this financial year, YTD as on 30th September was 597 and as on date, is 674.

All right. That is very helpful. My next question is that we secured orders for 3 proprietary license products, and we plan to add more equipment going ahead. So I just wanted to understand the lay of the land, like, what are these products? And how will they expand our opportunities all over? And will these be margin accretive and basically these things?

Yes. So as explained earlier, these are the proprietary Tier 1 product where -- which are basically into the niche segment, and we have limited competition. So these broadly would allow us better conversion since we are going to compete with only 2 or 3 in the world. And the second is these come with a very large value for equipment. On an average, it would be about INR 8 crores to INR 10 crores per equipment, unlike the average that we have today of around INR 3 crores per equipment. So largely, these help us to compete better have a better conversion and also have very less number of equipments on the shop floors for execution.

All right. Understood. And if I could just add one more. I wanted to understand our geographic mix now. So exports revenue for first half were close to 49%. But currently in the backlog, export orders are close to 33%, 34%. So are we expecting more orders to come from export side in the coming half once the geopolitical tensions cool off? Or how are you looking at that mix going ahead?

Yes, with respective of the geopolitics, I believe from the current backlog of inquiries that we have on hand, we have a larger ticket size of expected orders coming from exports. So largely squarely, we would come back to about 50% average exports even for the next year.

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

Sir, again, one question on the order book. I think that includes letter of intent. Can you just give a breakup, how much is the letter of intake letter of intent in the order books currently?

So broadly -- Mohit, broadly, the letter of intent is where we get a confirmation from the customer with rate to be started off and the official PO follows in maybe 2 to 3-year weeks down the line. Now if you want the exact number of LIS, that number is about INR 40 crores is coming from the allies. These are nothing more confused orders where 0 data has already started in, and we've also started work -- it's just a regularization of the PO, which normally the EPC companies and public sector units take some time to deliver the actual peers.

Perfect, sir. Understood. And sir, in terms of your order intake, what kind of brand rate you are expecting, say, maybe Q4 onwards. Currently, I mean, you mentioned it's repo Q2, I think it was around INR 140 crores as the kind of order intake, if I back calculate. What kind of project you are expecting from Q4 onwards?

So for order book, new order book, if you see if you back cancel it, I think that quarter 1 was roughly about INR 310 crores. Quarter 2 was INR 283 crores. And our intent going forward also is our -- considering our cycle time of about 12 months from order to delivery. Considering our capacities in place, we should be booking INR 250 crores to INR 300 crores every quarter.

The next question is from the line of Saket Kapoor from Kapoor Company.

Sir, just to reiterate what you mentioned in your opening remarks that H2 would be more of a normalized rate, and we will be looking to close the year at around INR 800 crores of top line. That is what it is. And the EBITDA number you have given is at INR 128 crores. So please correct me on these 2 figures?

Yes. So we have provided the guidance in terms of a range. So the top line, we should be anywhere between INR 840 crores to INR 860 crores. And on the profit -- on the EBITDA, we should be 120 to 128 within this range.

120 to 128, sir?

That's correct. So on an average, anywhere between 14% to 15% EBITDA margins and a top line of around 840 to 860.

From the -- what would lead to now the expansion in the EBITDA margin because the revenue will move up by say around something around 200 -- will age to 200, but slightly above 200, but the margin expansion would be significant. That is what -- the collect would be if these numbers are going to be -- this number are delivered. So if you could just explain what will lead to this significant margin expansion. And then on the pending order book on which we had lower margins, we have been able to complete the execution. If you could just give some color on what changes have happened that will lead to this significant pain in market.

Yes. So if you look at the execution in quarter 1 and quarter 2, these are largely the orders that we booked in H1 of last financial year. So if you look at last financial year numbers, we would have booked around INR 250 crores kind of an order book against our average requirement of about 500 to 600. So broadly, squarely our H1 order booking of last year was poor, and that came in with a rider that we had to move very aggressively to book orders. If you have heard me on the call, we had to book some orders on very, very aggressive margins just to cover up our fixed cost. And those are the ones that are actually getting executed in quarter 1 and quarter 2 because our order to delivery cycle is roughly about 11 to 12 months. Now what we have booked subsequently in quarter 4 of last financial year and quarter 1 of this financial year, we booked at a much improved margin as compared because we could actually build up the actual cost of raw material as on today. And those are the items which are at a much improved margins, which are going to be reflecting into the revenue for quarter 3 and quarter 4. And that is how the -- if you look at quarter 4, our margins for those will be 20% plus for the quarter 4 execution because we have taken it back to our improved margins. So on an average out basis, we will end up into 14% to 15% margin profile towards the end of the year. So largely, it's short to answer the revenue that is lending up into quarter 3 and largely in quarter 4 are coming with a much improved margins.

Also, Regi, there is the fact that in quarter 1 and quarter 2, we have there is a huge under absorption of fixed costs because the revenue hasn't been there, right? I mean our revenue has been low because of low order booking in the first half of the last year. Therefore, fixed costs are eating away the margin.

That's correct. That's correct.

5 So it is safe to assume that last year quarter 2 EBITDA margin of this 20%, 22% that was a comparable number for this quarter are achievable in quarter 4 -- at quarter 4 execution? That could be I would understand it.

Yes. So if you actually put the numbers together, for us to come to a bit 120 and 128, which is roughly about the range of 14% to 15%, our quarter 4 will have to be around 20% to 22%. If you work [indiscernible]. And since we have a very good clarity in terms of which projects are going to be completed during quarter 4. So -- and the cost we have on our hands. So we've actually worked out the numbers. So your assumption is right.

Okay. So we have work for the RM part and all the cost escalation impact also while by projecting these numbers. So [indiscernible].

Only thing is, as I mentioned in my opening remarks, shipping is something which is still uncertain. But largely, I don't think it's going to get escalated beyond this so much. So -- but largely, yes, it's taken care of.

Yes. So if we execute to plan, those should be the numbers.

Sir, and about this consultancy part of the story, I did not attended last call, so by your pardon for that. How is this business shaping up? I think so some very -- this is a high-margin business, which we were contributing to develop over a period of time. So if you could just throw some color where are we in terms of our completion -- and when will the execution of the deliverables for the [indiscernible] business, we would be able to depict in our numbers?

Yes. So this was a vertical which we term as no technical services, which is nothing but the health check assessment of equipment at site, repair work that site and also some amount of site fabrication. We did -- as I mentioned, we did some dipstick study last time and did some projects which were successful. Now we have created a vertical for this. This year, we expect this business to be around INR 50 crores. We've got some very good traction in the first 6 months. We are executing also multiple projects at this point in time. And the margin profile is anywhere between 30% to 40%. Just being it's a repair work. So obviously, the margins we expect are much higher than our normal products. So the margin profile would be in the range of 30% to 40%. And this year, we expect this to be around INR 50 crores. And as I mentioned, our strategic intent is to take this business to about INR 200 crores in the next 3 years.

Perfect. And for the [indiscernible] contribution, sir, can you outline how is that unit? And I missed the China part of the story what have been our manufacturing capabilities there? And what kind of capacity have we built up on the Chennai unit?

So Chennai, as you know, this was an acquisition which we broadly did to 1 for 2 reasons. One was to have a geographical spread down south of India. And the second was to acquire the capability of silos and tanks. These are nothing but some products where we were not qualified with the EIL and that's the reason we got these 2 products. Last year, we're able to -- was about INR 43 crores. This year, based on the order booking and the progress as on did, we should end the year close to about INR 65 crores to INR 70 crores coming from [indiscernible]. So significant contribution coming from there, almost twice the turnover of last year and would be a significant part going forward in the next year.

If I may add that, how does the order bookings shape up for the for mobile as an entity. And secondly, on the borrowing part, although borrowing on the CapEx part, any kind of CapEx that is required to be done by in terms of this execution part, we did around INR 13 crores, INR 14 crores is what we see in the cash flow. So what is the number that we may look forward?

Yes. So on the CapEx side, Saket, with the last piece of expansion, which is on right now at Kheda, which is nothing but a covering of one of the base. With this quarter, we would have done with our investment in terms of capacity expenses. Normal capacity expansion. We may invest incremental for capability going forward, but largely no further investment in CapEx or capacity at least for the next 2 years. So I believe this is a time where we have put in capacity in place, and now we would be milking these investments going forward. And we will specifically -- at Mabel specifically, we don't intend to do any CapEx, at least for the next 2 years. We have 3 manufacturing base there, and I believe we have a runway for the next 2 years at Mabel.

Okay. And sir, one more figure, you mentioned that at optimal capacity, the total infrastructure that we have today, we may exhibit our revenue of INR 1,200 crores at optimum. That is what the number should be?

That is correct. So the current capacity with all the 3 plants put together, as is today, is roughly about 20,000 metric tons per year which should convert with a fairly good product mix of INR 1,200 crores revenue for the year.