Venus Pipes and Tubes Limited (VENUSPIPES) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q1 FY '27 Earnings Conference Call of Venus Pipes & Tubes Limited hosted by Nuvama. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements do not guarantee the future performance of the company and may involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Sneha Talreja from Nuvama. Thank you, and over to you, ma'am.

Thank you so much. Good afternoon, everyone. On behalf of Nuvama, I welcome you all to Q1 FY '27 Earnings Conference Call of Venus Pipes and Tubes Limited. We are pleased to have with us management team of Venus Pipes represented by Mr. Arun Kothari, MD; Mr. Dhruv Patel, Whole-time Director; and Mr. Kunal Bubna, CFO. We will have our opening remarks from the management followed by the Q&A. Thank you, sir, and over to you, sir.

Good afternoon, and warm welcome to everyone on the Q1 FY '27 earnings call of Venus Pipes and Tubes Limited. I am joined by Mr. Dhruv Patel, our Director; Mr. Kunal Bubna, our CFO; and SGA, our Investor Relations adviser. We have uploaded our Q1 FY '27 presentation on the stock exchanges and the company's website, and I hope you have had an opportunity to go through the same. I will begin with a brief overview of the operational environment, followed by an update on our business and capacity expansion initiatives and then discuss our performance across domestic and export markets. The global operating environment continues to remain uncertain with geopolitical development, supply chain disruption and volatility in commodity prices impacting business across markets. At the same time, the medium to long-term outlook for the manufacturing and infrastructure remains encouraging. India continues to stand out as one of the key growth economies globally, supported by healthy domestic demand, infrastructure investment, manufacturing expansion and increasing localization across industries. The continuous shift towards India as a manufacturing and industrial [indiscernible] destination is also creating opportunities for India engineering and industrial products manufacture. For the [indiscernible] industries we see a structural growth opportunities across sectors such as oil and gas, chemical, petrochemical, power, pharmaceutical and other process industry, the good demand is also coming from the data center. We believe these trends provide a strong foundation for the industry growth over the coming years. Coming to [indiscernible], we are building our next phase of growth. We remain focused on building a constructive standard [indiscernible] in engineering platform combining scale product quality and global reach. Our objective is to establish winner takes the first [indiscernible] and to strength [indiscernible]. Over the last few years, we have consistently invested ahead of demand to [indiscernible] our capacity and our product portfolio. We are now entering an important phase where these investments are beginning to translate into new growth opportunities. Now I will hand over to call to Mr. Dhruv Patel for update on the quarter.

Thank you, Arun ji. Speaking of the quarter gone by, we continue to see healthy demand across our key end user industries. A key development, as announced on our last call, has been the commencement of our fittings and value-added [indiscernible] and builded pipes and tubes capacities in May. We have started receiving encouraging response from our customers for these products. As with any new product category, customer approval and certifications are an important part of the process, and we are working closely with customers across industries to complete these requirements. We expect penetration to improve progressively as these approvals come through and customers start scaling up their orders. We took another important step towards forward integration by entering into pipes pool business with a planned CapEx of around INR 70 crores backed by LOI from client in data center segment as announced in the previous quarter. The project is progressing well, and we remain on track to commence the spooling facility by end of this year. Venus has been among the early players in the stainless steel pipes and tubes industry to pursue forward integration into fittings and now spooling. These initiatives are an important part of our strategy to progressively build a one-stop piping solution for our clients. By expanding our product basket, we will be able to address a large share of our customers' requirement, enter higher-value applications and deepen our relationship with clients. We also expect this to improve our product mix over time. Coming to our performance during the quarter. Revenue growth was driven by a combination of volume growth and higher realization, with realization benefiting from the increase in steel prices, while higher steel prices supported reported revenues, our EBITDA per kg also improved. We also saw a higher growth in welded pipes and tubes during the quarter, while the contribution from seamless pipes and tubes also remained healthy. Going forward, our focus will remain on improving our product mix, increasing the contribution from value-added products and driving operating efficiencies. As our newer capacities scale up, we expect these initiatives to support the quality of our earnings and margins. On the geographical performance, our domestic business continued to witness healthy demand across key end markets. We remain focused on sectors with strong structural demand for stainless steel pipes and tubes, including oil and gas, chemical, pharmaceutical and engineering, while simultaneously increasing our presence in higher-value applications. During Q1 of FY '27, our domestic revenue stood at INR 227 crores, registering a robust 31% year-on-year growth. We remain confident about the domestic opportunity and we'll continue to deepen our presence across existing sectors while also penetrating into newer sectors such as data centers and solar, where our expanded product capabilities can create opportunities for growth. On the export side, we continue to see a healthy opportunity for Indian manufacturers as global customers increasingly look to diversify their sourcing base. Our presence across multiple geographies provide us with a diversified export platform, and we continue to work on expanding our customer base geographical reach. However, the prevailing geopolitical tensions have created some uncertainty in the export environment. Despite these external challenges, we see healthy traction in international markets and secured strong export orders from our key export markets, particularly U.S. during this quarter. Exports remained robust at INR 94 crores, contributing nearly 30% of our total revenue, reflecting the strength of our product portfolio and customer relations across global markets. Going forward, our focus will be on further diversifying our geographical presence, entering newer markets and increasing the share of value-added products in our exports. Our investments in capacity, product range and certifications will help us capture these opportunities over the medium term. Our order book for the quarter also stood strong at more than INR 600 crores without considering the LOI of INR 185 crores with a strong mix of domestic and export reflecting strong demand for our products. Overall, we believe Venus is entering an important phase of its growth journey. The investments we have made across fittings, value-added seamless and builded pipes and tubes and now spooling are expanding our product capabilities and opening up new adventures for growth. Our larger objective is to build Venus into a one-stop piping solution provider and engineering solution provider with a broader product portfolio, deeper customer relationship and growing presence across geographies. We remain focused on scaling these new businesses, improving our product mix and continuing to grow faster than the industry while creating sustainable long-term value for all our stakeholders. With that, I would like to hand over the call to Kunal ji, our CFO, to take you through the financial performance of the company.

Good afternoon, everyone. We are pleased to share that Venus Pipes and tubes has delivered a record performance in Q1 FY '27, achieving our highest ever quarterly revenue and EBITDA. On revenue front, revenue from operations for Q1 FY '27 stood at INR 320.5 crores compared to INR 276.4 crores in Q1 FY '26 register a 16% year-on-year growth. The revenue mix for the quarter come at 55% from stainless pipe, 38% from welder and 6% from others. In the core business, Venus Pipe revenue grew 15% year-on-year while welded pipe revenue grew 21% year-on-year during the quarter. Exports rose to INR 94 crores compared to INR 103 crores in Q1 FY '26. Export following, [indiscernible] geopolitical situation despite the export continues around 30% of our revenue, reflecting the strength and diversification of our internal business. Coming to EBITDA. EBITDA for the quarter stood at INR 51.5 crores compared to INR 44.9 crores in Q1 FY'26 registering a 14.7 year-on-year growth. EBITDA margins stood at 16.1% broadly stable compared to 16.2% in the [indiscernible] quarter last year. PAT for Q1 FY '27 stood at INR 26.4 crores compared to INR 24.8 crores in Q1 FY '26 registering a 6.5% year-on-year growth. PAT margins for the quarter stood at 8.2%. [indiscernible] started FY '27 on a strong [indiscernible] healthy revenue growth and [indiscernible] quarterly EBITDA. The underlying demand environment remain encouraging and our expanding product portfolio provide us with multiple avenues for growth. With this, I would like to open the floor for questions.

[Operator Instructions] The first question is from the line of Shubhi Gupta from [indiscernible] Asset Managers.

My question -- first question is that what are the utilization levels? Also, are we maintaining the growth guidance for this year, which I believe was about 20%. So if you could just answer that first?

Yes, utilization level is around something more than 60% and for [indiscernible] it is around 85%, 90%. And yes, we are maintaining the guidance at similar level.

Okay. Sir, one more thing, sir, during your remarks earlier, you mentioned that you'll be focusing on improving our product mix. So if you could just tell me what is the target product mix that we are aiming for? Is there a specific proportion that you're targeting?

Yes. Primarily on the side of welding, we started the year we started with the are [indiscernible] business so that is an area we are focusing to increase the proportion. Secondly, the CapEx we finished in end of the year May 2026, where we added quality on the side of stainless steel business and apart from that, we also added fitting business in our [indiscernible]. So we believe for this coming quarters to go, we should see the impact of this [indiscernible] product.

[Operator Instructions] The next question is from the line of Sneja Talreja from Nuvama Wealth.

Just two questions from my end. One is on the order book. Did I hear it correctly that you said your order book is INR 600-odd crores currently, which if I'm not wrong, was around INR 450 crores last quarter?

Yes.

Where would this INR 150 crores of addition, which kind of sectors could you enhance where is the incremental order book, like INR 150-odd crores within a quarter is a huge number. Where is this incremental order book, which sectors are contributing to this kind of a growth?

Primarily it's from power, engineering, chemical and oil and gas.

Understood, sir. And secondly, on the fittings front, what sort of a response are we seeing in the market? Where is the share of fittings at this point of time some sense? And when do we see our margins inching up? I know you have a long-term guidance of again inching up to 18%, 19%. But when do we start seeing our journey improving on a quarter-on-quarter basis? That's second and last question, sir.

See fitting definitely as we are selling pipe to the end customer, [indiscernible] end customer to do the same. So we are seeing encouraging response from the end customer but as if we are in [indiscernible] business, [indiscernible] requested approval and process are underway. So we believe from second quarter onward, if you [indiscernible] from the side of fitting, it should also come into the business. And again from the perspective of EBITDA, see we started at the [indiscernible] of May, the [indiscernible] fitting business rising. For the second quarter, I believe we should see [indiscernible] margin.

Regarding order book, we are having order book of INR 600 crores for the sector of pipes and fitting sector. Apart from this, we are already having an LOI of INR 155 crores for our project. So altogether, we are having an order book of about INR 800 crores.

The next question is from the line of Dhruv Jain from AMBIT Capital.

First question is on export and domestic mix. So while you alluded that you have a very strong order book across these 2 categories. In terms of FY '27 mix, how should we think about it? Does this 30% could eventually go to 40%, 45% at the end of the year or any number that you want to share?

See, currently it should be more than 30%. But from the order perspective, what we have in hand, we have more than 40% or around 45% from export.

Okay. And sir, last 6 or 7 quarters, we've seen that margins have been in the same 16% kind of so. Now with the spooling solutions and the fittings piece coming through, how should we think about FY '27 margins and eventually FY '26 margins with the scaling up of fittings and spooling solutions also coming through. I understand the approval side of things that Dhruv just spoke about, but just wanted your sense there.

See, the intent is to take it to 18% in coming 2 years to go. But definitely for FY '27, it should be less than 17% on an overall basis. Because see, third quarter is the quarter where we will be starting on the side of fitting and all. And again, data center will come in third and fourth and then it will likely spill over in a year to go. So those things will happen over a few more quarters. So the margin will start in [indiscernible] in the EBITDA.

Okay. And sir, if you could just call out what is the debt at the end of first quarter? And what should be the CapEx number that you're looking at in this year? I'm guessing large part of it is [indiscernible]...

Primarily net debt level is around INR 280-odd crores and what do you say the next?

CapEx?

Around INR 10-odd crores and net debt is INR 325-odd crores.

This INR 100 crores would be used to increase which capacity?

Primarily the total INR 100 crores, INR 70 crores will be cooling and fittings and other machineries, INR 15-odd crores towards CapEx -- maintenance CapEx and all [indiscernible] plant. So between INR 100 crores, INR 110 crores.

[Operator Instructions] The next question is from the line of Bharat Shah from BCS Capital Ideas.

Just a broader question. [Foreign Language]. If we see the composition of our business, we are in a specialty area generally, our products have better end of the product portfolio profile. It is also evidencing good export performance generally speaking over a period of time. But despite customer adaptability, product portfolio, reasonable technology work and generally long-term favorable demand conditions. [Foreign Language] But that strong 400 to 1100 odd to 3x. [Foreign Language] But absolute size of the business and absolute size of profit still remains very insignificant. [Foreign Language] a bit underwhelming.

[Foreign Language] Idea about the stainless steel pipe industry. [Foreign Language] Number of [indiscernible] require to enter the market. We have did the capacity expansion after the IPO in May 2022, where we almost with the [indiscernible] capacity expansion. So we have created our Venus in the market. Apart from the Venus presence, we expanded our product portfolio also just like fitting or we are now moving forward in the solution where you will get the better margin since the in-house product of the pipes and fittings will be consumed in-house or we'll be able to provide the customer engineering solution. So in the coming quarters after 1 or 2 quarters, definitely we'll able to get the improvement in the bottom line in a very significant way since we are entering into the value-added product or some of the product will be consumed in-house, which will get the value addition benefit. Our focus from beginning, our focus was to be the player in the segment. We started our journey as a fabrication of the pipe and ERW pipe. Then we made the backward integration for the stainless pipe. Then we entered into the fitting market. Now we are entering into the end to end solution for the customer. [Foreign Language] towards the margin size. [Foreign Language]. Now on the [indiscernible] it is minimum 20% and to improve the bottom line and [indiscernible] to improve the balance sheet of the company.

Those points are valid. Our products are more value added. Constantly we have tried to move up the value chain. We will businesses do you think the international some demanding customers. so obviously quality of engineering it will work. quality of the work, it passes all those tests. [Foreign Language] absolute size of the business, [Foreign Language] Doesn't it sound little under-building competitive whatever strains and probably opportunities in the markets are?

[Foreign Language] This is the engineering business and this is also passion of all the promoter. [Foreign Language] we are very young player in this segment. [Foreign Language] We have in a lot of CapEx in the last 4 years so due to this CapEx, we have taken some of the working [indiscernible] to run the company [indiscernible] working April. [Foreign Language] go into the more value added product. So it's definitely margin towards 16 [Foreign Language] so you will see lot of improvement in this size. [indiscernible] also.

[Foreign Language] Our interest cost is much higher than our depreciation charge. CapEx and CapEx intensity were affecting the business performance. Interest costs have also been so high. Interest costs typically [indiscernible] if you see is 2x the cost of depreciation charge. [Foreign Language] I hope you are getting my point.

Yes. Definitely. [Foreign Language]

[Foreign Language] this [indiscernible] business has done phenomenally well of course their pipe business still had some challenges but spooling business had a margin of almost 52%. I mean it was staggering kind of a margin. So do we think that our spooling activity will produce such a major difference like what we have seen for [indiscernible]?

Just not part of the [indiscernible]. [indiscernible] is doing this business [indiscernible] in last 3 years. I will not comment much about that one. But definitely, we are also foreseeing good margin in our spooling business better than the pipe business or fitting business. So in the coming quarters, once our spooling business starts, you will see results in 2 to 3 quarters.

[Foreign Language]

End of this Q3.

[Foreign Language]

[Foreign Language] you can say some of the effort in '27 topline 5% [Foreign Language]. I am expecting top line as almost 10% to 15%.

[Foreign Language]. Doing all value added [indiscernible], and given where the opportunity domestic which is robust, even exports, I suppose, should recover once this [indiscernible] is hopefully is out of the way. [Foreign Language].

Almost right now we are in the FY '27. Almost I am expecting that next 3 years by FY '29 or '30, [Foreign Language]. you will get the better valuation.

[Foreign Language] by FY '29 or FY '30, somewhere in between. [Foreign Language] and margins should be 4% higher than where we are today?

Minimum, we are targeting 3%, 4%, but conversely you can assume [indiscernible] 18%.

[Operator Instructions] The next question is from the line of Deepak from [indiscernible].

I had a couple of questions. So first, we have showcased a good order inflow this quarter for our closing order book to be around INR 600 crores. Just wanted to double click on that. Where are we seeing those new order inflows coming to us? Is it within the existing customer base? Or is it that we have added new customer in this quarter to drive such a high order inflow? I mean it is more than what we reported in the last 4 quarters. So just curious to know, is it within the same customer that we are gaining wallet share or we have added a few more customers this quarter? And most of this order inflow, is it related to domestic market or it includes a mix of both domestic and exports?

It's a mix, again, more domestic and export. The order inflow has been good from U.S. in this order book of INR 600-odd crores and again in the domestic [indiscernible] again the customer are [indiscernible] from [indiscernible] chemical predominantly from the [indiscernible] customer also [indiscernible] chemical from the new customer also. It's a mix.

Okay. And fittings as you, we are to commercialize this. So what kind of revenue are we expecting from the fitting in FY '27 and '28?

FY '27, we are expecting around 5% to 7% of the total top line, and coming to [indiscernible], we are expecting around 10%, something less between 8% to 10%.

Okay. And one last point. So just sir, highlighted that we are looking at a 20% growth, which almost signifies a INR 1,400 crores revenue for us. And 5% of that is roughly INR 70 crores, and that is what was indicated that we are anticipating INR 70 crores worth of revenue from data center. But if I remember correctly, in the last call, you indicated that the order book execution of that INR 185 crores. Letter of intent is around, I think, 15 months, which basically gives you a INR 137 sort of crore kind of revenue. And since we are executing only for a quarter, I'm just curious where is this mismatch of INR 470 crores top line from data center versus what you indicated earlier that it's going to commercialize only in Q4, which indicates that it would not be more than INR 40 crores?

See, what we have done a lot of work on the side of plant perspective has been done on the data center and the customer is quite curious to get it at a faster pace. So we have pulled up the data center and we are quite hopeful significant portion so the entire CapEx may overlap to fourth quarter of Q4 FY '27. But major portion we are targeting to finish before December 2026. So we believe a good amount of top line will also be contributed from data center. And the execution period is basically you can say before December 2027. And again, we will try our level best to achieve that targets.

[Operator Instructions] The next question is from the line of [indiscernible] Shah from PhillipCapital.

Sir, this quarter, we have seen the growth in the welded pipe segment is much higher than the seamless. If I look at your historical, the seamless have grown much better than the welded. So what has changed for us in the welded pipe segment particularly?

So what has happened with the seamless to a good extent, utilized to the maximum as we added the capacity by the end of May 2026. So the contribution for the increased capacity will be coming from the coming quarter to go. And again, we have been trying to increase welded and we have been able to do that in this quarter on the [indiscernible].

Any particular set that given [indiscernible] growth on the ...

Mix [indiscernible] on especially [indiscernible].

Do you expect similar run rate to the same since we are running at full utilization?

See, with the new capacity, the intent is to get it at the full capacity. But again, it will not be in the immediate quarter. But each quarter, we believe the capacity should keep on increasing and the fullest going forward.

The next question is from the line of Rishi Kothari from CBA Asset Managers.

My question is around welding and [indiscernible] bifurcation. So what was the ratio for domestic revenue and export revenue for welded and seamless products.

On a blended basis, it is around 30%.

On a blended basis, we don't have [indiscernible]. You can't give [indiscernible].

Blended is 80-20, is it?

Yes.

Blended if you take definitely the last quarter, seamless was more.

Last quarter seamless was more. What about this quarter?

This quarter, Q1 quarter.

Any numbers that you want to quote in terms of the...

No, I don't.

Okay. But seamless was more [indiscernible].

Also on the [indiscernible] asked on the [indiscernible] we are expecting Q3 FY'27 it will go [indiscernible].

Yes.

And one followup. Demand are we looking at in [indiscernible].

For spooling you said?

Yes.

Yes see. India data center capacity what we believe was around 1.3 gigawatts roughly into [indiscernible], which is targeting by [indiscernible] around 10.5 gigawatts in coming 5 years. So we obviously [indiscernible] the amount of demand is there from the side of data center and we see spooling -- we see energy pipes which are required for cooling data centers. [indiscernible]. Then [indiscernible] So we are quite hopeful a good robust demand is there on that line of business. And apart from that, we are working on other sectors also like solar and others. So we believe there would be a demand like the company expect strong demand across several high sector data center, power, semiconductor, CNG station [indiscernible] infrastructure and also going forward, nuclear energy. So in addition to this, if you see the domestic opportunity, the company continue to focus expanding business. So we believe with the gradual easing of the geopolitical tensions and normalization, export are expected to improve further. So if you see the combination of this incremental capacity, improving utilization and favorable shift towards higher-margin product like fitting and spooling and demand from these emerging sectors and potential recovery in overseas market should support we believe both revenue growth and margin performance over the coming quarters.

So we are more or less bullish...

See, it all depends. You also need the geopolitical situation should improve. That should help the company to grow.

[Operator Instructions] The next question is from the line of [indiscernible] Gupta from SS Family Foundation.