Visaka Industries Limited (509055) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Visaka Industries Limited Q2 FY '21 Earnings Conference Call, hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Jigar Shah from ICICI Securities Limited. Thank you, and over to you, sir.

Thank you, Steven. On behalf of ICICI Securities, I welcome all to the conference call of Visaka Industries to discuss Q2 FY '21 results and future outlook. From the management, we have with us today, Mr. Vamsi Krishna, Joint Managing Director of Visaka Industries; and Mr. Shafiulla, CFO. I would now request Mr. Vamsi Krishna to start the call with his opening remarks, post which, Mr. Shafiulla will speak, and then we can proceed with Q&A session. Over to you, sir.

Thank you. Thank you. Very good morning, and welcome to all dear shareholders. I trust everybody is doing well as the pandemic is -- and the lockdown is opening up. So as you all might have seen, the quarter performance has been good. [indiscernible] both the division significantly contributed to the top line as well as the bottom. Textile division still picking up as the market hasn't opened up completely. We actually expect that Q3 onwards, the textile should start opening up as well. As expected and informed earlier, the Vnext products business has picked up well this quarter as the lockdown effect in urban areas has come down and also the digitization of marketing has helped us with our strategies and going in a consistent manner. The capacity utilization has improved to 70% and EBITDA margins rose significantly up to the level of 15%. The [ export ] business are doing well as well. We expect to end up with a healthy growth in the business throughout the year. We are planning to start our fourth construction plan in December 2020. The new board unit proposed in -- near Coimbatore in the Tamil Nadu state. The market for the asbestos products, in fact, has due to its affordability and utility to the lower income groups, has been a good support as the rural demand was good. The demand for the products has sustained due to an increase in the rural incomes. Prices are maintained. And in the offseason as well, our effort is to [indiscernible] so that we'll get as much product out as possible. The synthetic yarn division experienced continuous pressure as both the main markets for these products, which is Bhiwandi in Mumbai; Bhilwara in Rajasthan had been closed for the major part of the second quarter. However, exports continue to do well. This business incurred some loss in the second quarter, but we are confident that going forward, the business will be back once the markets open up because Visaka has a very unique feature in terms of its quality and the properties that the yarn will sell. And while this is a temporary slowdown in the textile division, we expect the business to ramp up immediately with good sales and margins in the subsequent months. ATUM, the new division, new DV of Visaka, has improved revenues compared to the previous [indiscernible] it has picked up momentum in hospital segments, in pharmaceuticals and now even data centers are taking a good look at the product [indiscernible]. ATUM has established itself as a product with its deployments across the country in various states, creating a pipeline of good projects in the coming months. ATUM has also started making in [indiscernible]. We are happy to share with you that [indiscernible] we installed our first ever ATUM project in Dubai for a mosque, which will be filing new markets in the [indiscernible] All financial performance of the company has been reasonably well. The total revenue was marginally less, INR 96 crores for this quarter compared to INR 228 crores of the previous. Building products revenue is grown by 15% compared to the previous year same quarter. [indiscernible] revenue has dropped by 54% compared to previous year. The building products total volume was up by 3% compared to the same quarter previous year. The EBITDA margins of the company for this quarter is at around 19% compared to about 9% in the previous quarter. The EBITDA for the half year also has grown up to about 20% from 12%. Building products has helped us contribute in this. The margins have increased significantly. And we see good reason to continue the good margins as we grow the numbers in terms of the market. PBT for this quarter rose by -- rose to INR 29 crores from INR 6 crores of the previous year same quarter, and the PAT rose to INR 22 crores from INR 13 crores. The performance is a result of better performance in the asbestos division. And we are happy and proud to say that this year, we have worked hard to maintain the premium in our product. And Visaka stands as one of the highest premium brands today in the market after rigorous efforts in ensuring that we provide the best quality and service in the market, continuous monitoring and good expenditure control. This point has been one of our major contributors. We've been working very hard as a company, especially with the tough times that we face as an economy is how best we can control our expenditures. And that is always a positive sign if you are able to manage good expenses. And overall, with the improvement of operations with good amount of technology involved, we have managed to infuse right technology at a good cost to help us improve our operations and efficiencies. So that is something that has really helped us this quarter. And our overall capital working [indiscernible] to about 90 -- 93 days for the half year ended compared to 130 days previous. This is due to the improvement in collections from our customers and a lower inventory period. Our management of inventory has been exceptionally good this year in spite of all the turbulent days that we faced. The interest cost [Audio Gap] from INR 4 cores in September '19 to INR 3 crores. The net debt has come down [Audio Gap] from INR 242 crores [indiscernible] as on September '20. [indiscernible] capital expenditure due to the new unit that we are undertaking. The debt has [Audio Gap] come down by at least about [Audio Gap] end of the year. And I'm also happy to share with you that we have achieved the -- that we've been granted patent status for solar roof [Technical Difficulty]

Mr. Vamsi?

Yes.

Sir, sorry to interrupt, but we are losing your audio in between, sir.

Yes. Is it better? Hello?

Yes, sir, you can continue.

Yes, yes. So I'm sorry about that. So we are happy to share with you that we are the first guys in the world who have got a patent in India first to begin with in cities. These are filed in other countries as well. And we are the first guys in the world to have been granted a patent, which says that we are the guys who can make a roof that will also generate power at the same time. So that is something of a good achievement in the recent times for -- in terms of ATUM. So the main contributor this quarter has been the roofing business. [indiscernible] has also contributed well this quarter. And going on, we expect that Vnext will be a good contributor to the overall business and the margins as well. We expect these 2 businesses, along with the synthetic [Audio Gap] to contribute significantly. ATUM, of course, taking the baby steps. We are definitely doing better than last year, but we expect to do much higher in terms as the construction industry picks up in a big way. The market for the cement roofing business also [Audio Gap] and we expect this to continue the same way. The yarn business is expected to come back. And in the midst of all, also, we are happy to [Audio Gap] that we have started a new [Audio Gap] which is [indiscernible] up very well in the international markets. And [Audio Gap] to make more in R&D to develop a good product in the sustainable wing as well. So we would like to conclude that this year, it is going to be a good year, and we are working [Audio Gap] and we have high contributions in terms of value and overall, have a good year to finish with. Thank you so much.

Can we open for Q&A, sir? Mr. Vamsi?

Yes. Yes, please.

[Operator Instructions] The first question is from the line of Sudhir from Right Time.

Hearty congratulation on super set of numbers, particularly on the margin side and on the cash flow side, where you have managed to reduce your debt by INR 130 crores. So congrats, sir. Sir, my question -- 2 questions. One, we have seen that in the last 4 years with asbestos, markets have not grown. So how do you see your growth in view of good rural income and good monsoon going forward? And whether the kind of margin you have generated in Q2, whether it is sustainable or not? And the second question is, your contribution of Vnext is increasing in overall revenue. So what kind of growth do you see in Vnext also?

Sir, thank you so much, first of all, Sudhir ji, for your question. And as far the market for asbestos is concerned, I think, we have seen some of the worst times of the industry over the last couple of years where we saw very low growth rates or very low growth at all. And going forward, with the rural demand picking up, the signal is that rural utility of the product is being recognized, and we are seeing the good attraction for the product back in the rural segment. But going forward, though we may not see the glory days of our growth phase of the product, we will definitely see a positive growth sign is what we are looking at in terms of the asbestos industry. And because the substitute products are not seeing inroads in the rural retail counters. It's more of the project segments that our alternate products are taking up in terms of the space. So the asbestos space is now opening up again, which is a good time for the industry. As far as the pricing and the margins are concerned, like I mentioned briefly in the introductory note. We are working very hard to first maintain the in-house housekeeping in terms of making sure that our expenditure is the minimum in terms of the output that we can get. So that we will try hard to continue to have better expenditures in terms of keeping it tight. And in terms of the price validation that we are getting in the market, today, we are happy to share that in most -- almost most markets, we are demanding a premium for our product, which is a very plus point. So we will ensure that we will work in the direction of maintaining the good margins that we are posting right now. And with regard to Vnext business, I think, like we said, we have been working very hard over the last 10 years, it's been 10 years since the Vnext journey started for Visaka Industries. And we are very happy to share that today, and we are finally seeing a good sign or good direction for the margins, which we've been banking on and putting our efforts in. And we -- in spite of COVID, I think this year, we will be posting about -- looking at about 15% to 20% of -- that is what we are trying to achieve. So that will be something that really is a good direction that we've been working towards. And with regards to the margins, we are concentrating heavily on spreading the brand of Vnext. So today, in the last 10 years, we've been managing to create about INR 200 crores of new business to Vnext. And we aim to increase that further in terms of branding, in terms of marketing, in terms of product reach and spreads. So that will be a good focus to take up, yes.

[indiscernible] margin will be maintained for the next half or maybe next year. Is it right to conclude?

We should be in the similar bracket, yes. This is an off-season -- yes. Yes.

[Operator Instructions] The next question is from the line of Siddharth Rajpurohit from JHP Securities.

[indiscernible]

Mr. Siddharth, can you speak closer to the handset, please. We are unable to hear you.

Is it better now?

Yes, sir.

Okay. Sir, first, your voice dropped during the initial comments, so some clarification. You told gross -- what is the gross debt number and the guidance of the year-end?

Can you repeat it, please? [indiscernible]

Okay. Sir, in your initial comments, sir, you told the gross debt number, and I think you told the year-end guidance also.

Yes, yes. In fact, we should be looking at reducing about INR 100 crores in our overall debt. That's what I was trying to say.

Okay. Even after -- because generally, we built our inventories for the season.

Yes. Yes.

Yes. So what is the gross debt now, sir?

Now we are about at INR 240 crores, INR 250 crores now. We brought that down by about INR 100 crores.

No. Okay. So INR 140 crores is the current gross debt. And by year-end, you will reduce it to?

We will have it around the same because we are going to have additional plants coming up, so it will be around the same. Yes.

Okay. And sir, during Q1 call, sir, you told that the roofing business was benefited by nonavailability of steel roofing. So just wanted to know how is that situation now?

So actually, now the steel guys have all increased their prices drastically. So the affordability of steel sheet is going to be way more expensive than what it was earlier as well. So in view of that, also, we will still be in the same position where we will see a benefit towards our product as we will be back in the -- both of affordability and the right utility.

Okay. And sir, have you taken any further price increase, sir, during Q2?

No. No, we have not. Because Q2, as you know, is normally an off-season, and there's normally a lot of fitting that needs to be done in terms of how much [indiscernible] product out. We have not seen that particularly happening.

Okay. And the price hike that you have taken in Q1, that is still continuing, right?

There is a drop. There is a drop. Definitely, there is a drop because of the on-season that is going on. But net to net, we will see definitely a positive impact there in the overall number.

Okay. Drop would be -- what will be the quantum, sir?

So it depends on market to market, to be honest. But on an average, we will be at least seeing about a INR 5 to INR 6 drop from the first quarter to second quarter, at least, that's the trend, yes.

Okay. Okay. And sir, this drop is, say, industry-wide? Or we have worked -- we have taken the drop to capture monthly share...

No. No. The drop, as we speak, is industry-wide, as I mentioned earlier in the call. Today, we are happy to share that we are one of the most premium brands across India where we are demanding the highest price compared to any of our competitors in the market.

Okay. And sir, how is the industry grown in the Q2, sir?

So Q2, like I said, because of the steel sheet competition and the prices increasing on that front, we have been managing to grow as an industry. There has been overall output increase in terms of a sale quantum in the rural segment.

Okay. And sir, what will be the fiber and pulp price currently, sir?

So I cannot share the fiber price details with you. I can share a trend with you. The fiber prices and the pulp prices are yet to be finalized in terms of the next year that we are going to face. But the overall trend seems to be in a stable situation right now because there's a lot of uncertainty still in the market, both India and global. So right now, we are seeing some sense of a similar line in terms of the pricing. But like I said, [indiscernible] strategies in a way [indiscernible] to our numbers internally as tight and as fit as possible. That's the effort that we are making.

Okay. And sir, my final question is, can you feel a need for non-asbestos-based roofing product?

So actually, a great question. So what we are actually trying to do with ATUM is replace the metal sheet plus solar [indiscernible] for the need in the market. So if you see today, any new warehouse that's starting from, be it Amazon or Flipkart or any new trend that is coming up, most of the people are going for solar. And so they would normally go with metal sheet plus a solar on top of that. So our answer actually to the whole asbestos, the steel sheet and to the traditional solar solution is a one-shot solution with ATUM. That is where we are seeing a huge traction in the PEB segment, in the data center segment, in the new constructions coming up, where in people are seeing us as a new alternative to asbestos and even steel sheets, going with an equally roof like ATUM, which will also generate power.

Okay. And that we are not using -- we are using pulp in the ATUM roofing...

ATUM is a forward integrated product from the Vnext non-asbestos division, yes.

Non-asbestos. Okay. Okay. And we are -- means, are we creating the cement roofing also using a pulp product?

So we do both. We are doing non-asbestos cement roofing sheets and asbestos cement roofing sheets. I'm very happy to share with you that we have also started exporting non-asbestos cement roofing sheets to Middle East. And we were actually -- we've actually centering for some [indiscernible] and we are getting repeat orders for that as well. So, yes. If that is a particular need for any time, we are delivering that as well.

And what will be the price difference, sir, just on average?

There is INR 10 to INR 15 premium in non-asbestos roofing sheets.

Per square meter?

Per running meter, yes. Running meter.

The next question is from the line of [ Piyush from Serendah ].

Congratulations on a great set of numbers. Just wanted to ask you, if you look at your solar roofing product, how does it compare in terms of cost and convenience to say, installing a standard roof and then putting solar panels on top?

Yes, absolutely. So the cost point of view is at a great touch point. Today, we are at a cost, same equivalent to a traditional metal sheet plus a solar traditional that goes on the roof. So costing point of view, we are actually apples-to-apples we are seeing. The advantages that people are seeing today is the repeat in labor charges, right? The whole concept of putting up 2 products rather than one product because the traditional method of roofing now, the steel sheets are installed by one set of applicators. And then the solar is by a completely different set of crew that comes and sits on top of an existing roof. So the whole concept of who takes the liability to puncture the roof, who takes the care if the roof is damaged under the solar panel. So a lot of people are facing such issues in terms of longevity, in terms of an installed product. There, ATUM is actually making for most people where they say, "Oh, why don't we just give it to one entity, which actually takes care of both the roof and the solar angle." That's one point. The second point that people are really finding advantageous is the base utility of the product. The roof itself can withstand very high wind pressures, it can withstand fire, it's a completely Class A fire-rated. So there's a bunch of a lot of new advantages in the product itself in terms of utility that just beeps out the traditional products that we are fighting against today. So that's a good traction point and an attraction point where today people are getting converted to us. And especially with the whole data center I was mentioning earlier, wherein people cannot go for -- they don't need a traditional roof, and then they don't need an additional solar on top of it in terms of utility. So there, something like ATUM fits in perfectly where it's a one-shot product and also get a roof for their terrace spaces. So that's really been a key differentiator for us compared to the traditional guys.

Just a little curious about how the delivery of power, does it match up to conventional solar panels installed on a roof? How is the maintainability? Do you offer maintenance packages? How does this -- I mean, traditionally, the way this has worked is that the roof is already available. And especially the solar EPC guy comes in and then offers a full package, installation, maintenance, productivity, everything. How does that work in your case?

Absolutely. So first of all, I think, one great point that I missed telling from my end is that we are 40% more [indiscernible] compared to the traditional guys in the same area. What I mean by that is if a traditional solar can fit in about 100 kilowatt in 1,000 square feet, we will be able to do that in 700 square feet. So that's really the advantage that we offer because of the utility of the product. The installation teams can actually walk on the solar module of ATUM, which is a big no-no, it's a big red light for the traditional solar modules. So that's actually the installation mechanism that we've developed, which enables people to install much larger quantum of solar power compared to the traditional guys. That's one point. The second point is, in terms of energy output point of view, it is the same as the traditional, wherein the entire wiring, the entire system is again, exactly done as the traditional. So there's really no change in terms of the usage. We're actually getting a benefit in addition. Talking about the AMC services, yes, we do offer to a few clients. It depends on project to project. So we are doing multiple initiatives. Today, we are doing only a product sale or we are even taking up turnkey solutions in terms of turnkey orders where the client wants a roof and we will come -- we will keep the complete roof from the scratch to finish and even spreading that slightly into the Vnext, we are constructing complete factory sheds today as we speak in terms of Vnext plus ATUM. So both cumulative solution is what is being pushed into the market. So I hope that...

Yes, that is really useful. One last question. How large is this product line for you, ATUM? And how large can it become on a 3- to 5-year horizon?

So right now, we've installed a 30-megawatt facility in our Miryalaguda plant, which is about INR 75 crores revenue, which we should be turning in from this facility. The way we've set this up is that with hardly with another INR 1 crores, INR 1.5 crores, we can expand our 30-megawatt output to 60-megawatt output, and thereby doubling in our turnover as well. So these are the numbers that we can look at from the existing investments.

The next question is from the line of Vaibhav Badjatya from H&I Investment.

So we have seen a strong pricing action in last 2 quarters. So you highlighted that it is due to the steel roofing prices going up. So can you help us understand what is average realization as of now for our asbestos roofing segment? And what is the differential [indiscernible] steel roofing as of now?

Sorry, I didn't get that -- differential. I didn't get the last part.

Differential price between asbestos roofing and steel roofing.

Right, right. So earlier, I mean, before the entire full year happened, we were still at the price difference of hardly 5% to 8%. The drop was -- the difference was very less. If you see in the last 4 to 5 years, which was one of the very stressful periods for the asbestos industry, where the steel availability had become so high and the prices were so low in terms of a differential tool asbestos. We saw a huge shift happen in various segments where people said, "Okay, why don't we try something new? Why don't we try something with color?" And that's how the fashion -- the attraction for the product kickstarted. But over time, like I was mentioning, the utility of the product, if you really go to a rural home, they cannot sit under the metal roof. That's the reality of the product, right, because of the thermal absorption, because of the sound that it makes in rains. So these are the points that really stuck out to users practically, which actually saw a return to asbestos in many parts of the country. That's where you see a slight amount of regrowth or recapture by many of our industry peers as well, where we say that, okay, metal sheets has come down in its way in terms of seeing, the rural retail utility consumers see that asbestos is a better fit than metal sheet. So that's part of the product understanding. So now with the full pricing that you were asking, what we're seeing from a 5% to 8%, that gap has increased further now. So now we are seeing almost about 12% to 13% difference in metal sheet to an asbestos sheet. So that definitely helps us in an addition to help us move the material at a better price. So that's the current standing. Yes.

So you're saying asbestos sheets are at a 12% to 13% premium to comparable metal roofing, that's what...

No, not premium. We are cheaper than metal. We are lower cost than metal sheets.

Okay. Lower. And earlier that...

Earlier that we were 5% less -- cheeper. Now we're about 10% to 12% cheaper, yes.

No. So basically, what has kind of -- earlier also, it was the differential, we were cheaper and now also we're cheaper. The percentage-wise numbers can be -- might have changed recently.

Yes.

But -- so then what -- apart from this convenience of -- what has suddenly changed in last 6 months? I understand that our product is far superior in terms of utility because of ability to handle temperature and all. But that feature was seen pre -- in last year as well, last to last year as well. So what has suddenly changed? I was just trying to understand what has suddenly changed in...

I got the question. So what you're seeing today is that there's a huge shift to the rural side. What we haven't experienced in the last couple of years is such high and strong demand from the rural segment. Because if you see the whole lockdown process, I think, on the whole process of people going back to their homes, a lot of people going back to their hometown. There are people going and doing small, small construction in terms of their requirements. There, we saw an uplift in the rural side. In fact, even if you see the overall -- but it is sale of what we've managed to achieve, the rural markets have really shown a good uplift in the product because of a lot of inflow of rural back into their hometowns. That's where we saw some amount of increase in terms of product purchase.

Are there any -- I mean, I'm not sure how to think about this, but is it like steel roof -- lot of steel roofing do come from China also? Is it something related to import restrictions that has been there, and that's why the availability of the steel roofing [indiscernible]

Sorry, yes, with or without import restrictions of China, the Indian steel supply itself is quite large. Today, if you see -- I think what's going to happen, I think, this will be interesting fact to you, where metal sheets are taking in majorly share in the commercial and industrial applications, not so much in the residential. And now residential is now more -- asbestos is coming back and sitting comfortably, occupying the residential -- rural residential market. The commercial and industrial markets are now specifically going to the steel sheets or the PEB segment, which now, again, we are targeting with ATUM in our interesting own strategy. So that's really the differentiation that's going to happen where the steel sheets are going to sit in the commercial and industrial markets of our country. The asbestos sheet will fit in the rural, retail, the home residential markets in the country. ATUM, again, coming into a very interesting space where we have an opportunity to fight against the metal sheets and the traditional solar guys carving a new market space for it. So that is really where we are seeing. So we will literally like to think now that we can offer you a product in any segment that you want as a consumer.

The next question is from the line of Ritika Garg from Aequitas.

Congratulations on a good set of numbers. Sir, I wanted to understand what is the breakup of revenues in the building products segment between asbestos and Vnext?

Yes. So in a whole, if you take a look at the whole year in the total revenues that we see, we will be seeing about 60% to 70% from the A.C. Division. And the Vnext will be about 20% to 25% coming up in terms of the contribution of the overall numbers.

And sir, how was the -- sorry, go on, sir.

Yes. And we'll be in bracket as Vnext now at around 20%, 25% as well.

Okay. And sir, how was it in H1 and Q2?

So the numbers that I've given now will be -- this will be overall if you take a look at cumulatively as a year-on-year also, if you see, this is the bracket that we'll be falling in, in terms of our market spread. Vnext, of course, our aim is to increase this at a much rapid rate now, now that we see a good traction in the product rather than even seeing like a one plant addition to one plant addition. We do need to do a lot more in terms of awareness as a product, which is really increasing. I must say, we did a small burst of -- we took an advantage of IPL this season, and we had an opportunity to advertise our product. And it was a great branding, it buys -- a lot of inquiries we've received in terms of saying, "Oh, we didn't know that there is a product like this." So really now, we need to consolidate and we need to spread our wings in terms of saying, look, we have a 10-year legacy today to show that Vnext has proved what it can do in terms of the product utility. Now it's our job to spread it at large in terms of market and spread it, literally chase numbers, right? Go behind how far we can spread the product in terms of adoption.

Right. So sir, was the breakup 60% to 70% asbestos even in Q2?

Yes. Yes. So the only thing that you'll be seeing in the difference, ma'am, would be in the textiles. Because the textiles contribution will not be as much as the previous quarters that we've seen for the Q1, Q2, which we will make up in the Q3, Q4 going forward.