Visaka Industries Limited (509055) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Visaka Industries Q3 FY '21 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note, this conference is being recorded. I'll now hand the conference over to Mr. Jigar Shah from ICICI Securities. Thank you, and over to you, sir.

Thank you, Vito. Good morning, everyone. It is a pleasure to welcome you all on behalf of ICICI Securities to Visaka Industries Q3 FY '21 Earnings Conference Call. We have with us today on the call Mr. Vamsi Krishna, Joint Managing Director of Visaka Industries; and Mr. S. Shafiulla, CFO, Visaka Industries. Thank you, and over to you, sir.

Thank you, Mr. Jigar. Very good morning to everybody on the call. I'd just like to start off with sharing that we are very happy to share this stellar performance for the quarter, which is even sequentially better in this traditionally weak quarter normally. The building products segment, both asbestos roofing and the boards division have significantly contributed well to the top line as well as the bottom and is supported by improved margins by the yarn business. We expect the trend to continue for the fourth quarter and also for FY '22. This is all backed up, of course, by the rural growth. I think we've seen a great change from the lockdown days in the last couple of months where the rural growth has really picked up and supported as well. This, coupled by the cost reduction efforts, which the company has taken over the last year or so, has helped us prepare for this turn of this year. The potential urban growth, of course, will be an additional driver for the future, especially for the Vnext and the yarn businesses. Concentrating and talking about Vnext. Of course, I think it's been a long journey for us as a company in terms of trying to get the Vnext division spread to large. And we are happy to share that the performance has been very good. The exports also has picked up and supported very well, and the civil works have -- for the new fourth unit of Vnext plant at [indiscernible] have started and near Coimbatore which is expected to come into production by October of this year. We have also announced a panel unit in the same location. So Vboards and Vpanels almost are going hand-in-hand with it. Vpanels is more like a forward integrated product that goes with Vnext. So seeing the good demand in the boards and panels business, it was decided to add the panels in the fourth plant as well. ATUM, of course, is a futuristic product, where we are seeing good potential for growth over a period of time in the future. And the ATUM division has picked up momentum in segments where fiber cement board is used. We are also exploring exports for this product in terms of Nepal, Sri Lanka, South Africa and the Middle East. We are happy to share that we have deployed our first ATUM installation in Jhajjar with the file -- with the Chief Economic Development Officer. He was very enthusiastic about the product, and we did a first installment with his direction. Coming to the financial performance. The total revenue grew by 16% to INR 282 crores for the quarter compared to INR 242 crores of the previous year same quarter. And we grew by 23% sequentially compared to the September quarter 2020. Building products' volume is up by 13% compared to the previous year same quarter and 21% compared to September '20 quarter. The capacity utilization of the building sort of businesses overall has gone up to almost 90% now in terms of Vnext really giving a good support in terms of a push. And the spending capacity utilization has gone back up to 85% now in the current quarter of December 2020. The EBITDA margins for the company for the year -- for the quarter is 16% compared to 9% of the previous year same quarter. And for the 9 months, the EBITDA also has grown by -- to 18% from 11%. And the margins in Vnext product has, I think, been good -- it's a good sign. It has been maintained at 15% consistently for 2 quarters. The profit before tax this quarter rose by about 265% compared to INR 31 crores from INR 8 crores of the previous year same quarter. The PAT, of course, stands at INR 23 crores compared to INR 6 crores of previous year same quarter. This performance is a result of better price realization. I think this trend has been growing since the last couple of months as some markets has opened post COVID lockdown. And there has been a very good demand and increase in volumes overall, if you see, as it will be the main push for us, which really has a positive impact on the overall numbers that you see. And also overall improvement in the operations, which we've been mentioning, I think, even the last time we had mentioned that as a company, we've concentrated quite effectively in taking operations -- most operations online. We are more efficient and more effective in terms of cost management. So this is a combined effort that you see in terms of the numbers. Our working capital cycle has come down to 81 days for the 9 months ended 31 December 2020, from almost 130 days compared to the previous year. This is obviously due to the improvement in the collections from customers and lower inventory period due to the sudden uplift in demand. Also, this situation is -- got into the picture. The interest cost has come down from INR 4 crores in December '19 quarter to INR 2 crores in December '20 quarter. The net debt has come down by INR 171 crores from INR 242 crores as on this December 2020. And even if there is like -- even if there is going to be some amount of working capital requirement in terms of the CapEx for the new plant, the company is expected to become net debt free by the end of 2022. So this is adopt -- or plan or pitch of what has transpired. And we'll be happy to take on questions in terms of the -- in the conversation. In conclusion, I'd like to share that the rural demand has been a big boost for us. And also with the Union Budget announcing significant measures for rural group, I think this will be a good year to look forward for the businesses that we are in. With the capital expenditure that the government is talking about, it will definitely add as a boost to the plans that we've made. The demand for building products and the yarn will continue to grow. We expect double-digit growth for both the cement roofing business as well as Vnext roof business with Spinning maintaining and returning to normalcy in Q4. While we expect to maintain the current margin in asbestos business, the Vnext is expected to deliver 15% plus, about 18% margin, in the next quarters to come and likely to go up in the coming year. Our Spinning is likely to deliver 12% to 15% margins in the next -- in the coming years, what -- in the coming quarter and year is what we are looking at. In conclusion, we are on a very strong wicket on all parameters, along with the future outlook for the coming years. I'd like to share as well that even the export market has seen a good uplift in demand for the Vnext boards and on asbestos roofing sheet. We are happy to share that we started exporting non asbestos roofing sheet as well, which opens up a new category in terms of the product mix that we have. The Board, of course, has a good lift in terms of premium products. In fact, we are one of the only ones who have a premium board of A category in terms of the product dynamics that we have in the country. So that gives us an advantage in terms of product push, apart from the export business that we're looking at. In textiles, I'm very happy to share that in spite of the various hurdles the textile industry has gone through, we have taken it up as an opportunity to expand on new businesses. So in the time of lockdown, we've developed the multiple shades of new fibers and technical textiles which are helping us in our product mix today. We are active in selling dyed fibers, we've got into flame retardant fibers. And the range of sustainable yarn is almost touching about 10% to 15% of our sales monthly, which is basically the recycled PET bottles that we keep talking about. Now that the number has gone up to 135 million plastic bottles that we are recycling. So all in all, I think all the industries are looking in a positive direction. And solar being the new entry into the market, we have seen positive trends, but we'll have to wait and see how certain rules and regulations are being talked about from the government front. Apart from that, the urban sports ] with the government has launched as proposed in the budget of about INR 1.4 lakhs over the next 5 years. The fact is about a [indiscernible] scheme that has been proposed. As a company and as a business, we see a good opportunity to take part in most of the upcoming new constructions in a sustainable view. Thank you, everybody. I'll be very happy to answer any questions that you may be had.

[Operator Instructions] We have a first question from the line of Siddharth Rajpurohit from JHP Securities.

Sir, the recent numbers of Hero Motors -- Hero MotoCorp is being studied as that there is a slowdown in the rural economy. Do you see that, sir? What is your comment, sir?

No. I think there's always a difference in products that we are looking at. I think -- this point is, I think, is earlier also in previous years of performance. I think automobile segment compared to the building segment, there is a slight difference in terms of the market pull and demand. We are not seeing any such signs. We are actually seeing a very robust outlay in the rural segment.

Great, sir. And sir, second is for Vnext, sir. Sir, the real estate economy, the industry is expected to now perform well and enter into a new cycle, sir. How do you -- how are you seeing -- is there a lot of Or? consolidation there are more players available for you to serve, sir? And is the market big or only a few players are there for you, sir?

Yes. So I'll answer this in 2 bits. I think, first of all, I think the whole concept of the Vnext construction or Vnext solutions, as we call it, in terms of using the product for its utility, I think finally, people are seeing the active value of it in terms of literally saying that we are water resistant and then we are fire resistant and then we are termite resistant. And also that we are eco-friendly. I think that awareness and demand has really caught up post COVID, I think people are more conscious in the materials that they are using. That is helping us in terms of the overall outlay. In fact, in the December quarter, in a single month, we've sold almost about 10 million square feet of boards. So that's the kind of outlook we are looking at in terms of the product pull. And in terms of market consolidation, I'm not seeing major consolidation happen still yet. The output that we are having is from the retail outlets that we have built. We have a very strong base of almost 2,000 plus outlets of Vnext alone, concentrating on Vnext alone. And then, of course, we have a rural network from the parent company, which we have almost about 7,500 outlets. So all in all, we are looking at about 10,000 outlets that can potentially give us a good outlook. We are not really looking at concentrating or getting less benefit through consolidation of other markets or other real estate players. I think the overall spread will be quite uniform and positive.

Okay, sir. Sir, so in our product -- what is the setup of our products, Vnext or other products that we make under that brand? The expense of those products for the development of [indiscernible] Are those products been accepted by any models or are being approved in that area, sir?

Absolutely. So there is actually a GH -- this is a Global House Technology Competition that happened last year. And we are happy to say that our technology has been selected for this. So basically, you have to be a part of the approved technology that the government has in order to supply to these projects. And I'm happy to state that our product is specified, our technology is specified and acknowledged in the various government departments. So you call it our now or the other urban scheme that the government is talking about. We will have a good opportunity to be part of the project. In fact, even the new construction of the parliament that's happening, we are also supplying a quantity to that building as well. So despite -- to give you a realistic picture, I think even the technology adoption is happening at a much faster rate. The efforts are paying off now, and we are seeing a positive rate in terms of the product being used.

Have we started to get orders under this, sir, the new approval?

Yes, yes. We have been supplying, actually. In fact, the last couple of years, we have been one of the major suppliers for this as far as toilet schemes. If you take a look at the women toilets that they were talking about, we actually supplied quite a good tonnage in that segment as well. You talk about rural housing, you talk about Anganwadi schemes, we have supplied quite a good amount of tonnage in that market.

Okay. Finally on the yarn, sir. So what is the share of recycled -- share of recycle in the overall yarn that we sell, sir?

Yes. So right now, we'll be about 10% to 15% of our total sales of recycled.

Okay. And is this to dealers or do we have OEM tie-ups also?

Yes. We have OEM tie-ups. We actually supply directly to OEMs, which thereafter go into that. We are -- so just to give you an idea, we are supplying to some good brands like Marks & Spencer who are active in taking sustainable yarn. And our other clients are like Raymond's, [indiscernible], these are the other kinds of OEMs who are actively taking products from us.

Sir, sustainable yarn is expected to grow in a big way globally, sir. Are you seeing to add more CapEx in this area?

Yes. So we've actually been investing in trying to see how best we can get output from our existing facilities. And this is what we have reached in terms of output. If the demand goes up, we'll be very happy to switch over and keeping the price and EPS in mind. We are geared up for taking up larger loads in terms of sustainability but we see good potential there. And if we need to change our data so that we can, we are in a good situation for that.

And the product -- the current product quality or the products that we make, sir, is there scope for there? Is the demand going to come in that segment? Or we have to operate on technology, sir?

No. I think the investments that we've been doing and the R&D that we've been doing to develop these fibers that I'm not seeing major investment in that front. In fact, we've been applying some good tools with existing facilities to give us that. But if anything comes up, I think we'll be looking at that. Right now, nothing is on cards. We can actually take care of the upgrade or change in -- from regular fiber to sustainable, et cetera, with our existing facilities itself .

And one question to Shafiulla. Shafiulla, what is the gross debt currently?

Gross debt is about INR 167 crores.

We have next question from the line of Nimish Desai from Kitara Capital.

Yes. Congratulations on a good set of numbers. I wanted to ask what are the utilization levels you have reached now in asbestos and boards and panels, sir? Have we reached pre COVID levels, sir?

Yes, absolutely. So in terms of all our businesses, except for solar, which is still yet to -- it's a newcomer in the lot, I think asbestos is back to a pre COVID level, we are around 85% from capacity utilization. Boards, of course, we are even better than pre COVID levels. We are doing around 90-plus in terms of our capacity utilization. In fact, we are easily waiting for the new plant to start contributing as soon as possible in terms of the market spread that we are looking at. And textiles has come back to pre COVID levels as well right now, even though we had a break of almost about 6 months due to market funding . Now I think going forward, we should see that operating as well.

Okay. So -- and as just going through the margins, you mentioned that your Vnext this quarter has reached 15% margin and your overall company level margin now is over 15%. So your -- even in your asbestos, you are getting those 15% margins, I believe?

Yes. So earlier -- actually, if you noticed, earlier, Vnext was not contributing much to the margin because it was under the development phase. We were doing a lot of market development and product was taking time to get accepted in the market. I think over 10 years, we've done a lot of hard work in terms of getting this market reach or spread. So that contribution is now seen very clearly. I think the numbers of what you can see here. We will be, as a company going forward, I mean, if the pulp prices and other raw material prices remain more or less steady, it's not having abnormal increases, we will be looking at a positive of 15% in terms of overall comp there.

Yes, because the Q1 was 20%; Q2, 18%; and this Q3, 15%. So what is the trend you look for coming years? Is it the 15% to 18% or 18-plus range?

Yes. Like I said, I mean, difficult to give a long whole year thing, but definitely 15-plus -- maybe anywhere between 15% to 18% is what we'd be looking at currently.

Excellent, sir. And sir, now your non asbestos risk is -- your volumes are increasing. So would you be able to share any volume numbers in that?

So in terms of overall, I can tell you in terms of overall turnover point of view. Turnover point of view will be anywhere between now getting close to 40%, 45% in terms of overall spread of non asbestos to asbestos. And in terms of export market, we are suddenly seeing a good interest in non asbestos roofing market. We've done some very basic amount of export to test the market, and we've got very positive feedback from that. So we are looking at trying to explore some amount of export roofing sheet of non asbestos as well. That should be an additional [indiscernible].

So sir, what do you see this percentage share of non asbestos going forward, FY '22 or maybe '23?

So definitely, with the new plant -- new plants coming up, we'll be having more about, I think, an increase of about INR 70-odd plus crores from the non asbestos division. The whole goal is to increase non asbestos contribution as an overall company. So that's the direction we are going in. I think in the next year, definitely, we'll be having additional INR 70 crores of non asbestos revenue coming. So that's the direction we are in.

So sir, we are using same boards and panels facility or asbestos facility?

We're using asbestos facility and the non asbestos facility. So it depends on the markets that we are looking. So if you look at some markets where they are okay with having products made in the same facility, we supply from that plant. But some plants -- some customers are very particular about not having asbestos plants make non asbestos products. So we do take up especially. All our Vnext plants are actually greenfield projects. They have nothing to do with asbestos to begin with. So I'd just like to mention that.

[Operator Instructions] We have next question from the line of Subham Agarwal from Aequitas India.

First of all, congratulate the entire team of Visaka for posting such a good number. Sir, my first question was regarding the building product division. So we posted revenue of INR 236 crores. Can you give us the split between Vnext and cement asphalt asbestos in this division for the quarter?

About INR 60 crores to INR 80 crores should be the Vnext business out of this. I think Mr. Shafiulla, am I right, I think it should be close to that, yes?

Yes. Yes, right. INR 60 crores -- roughly INR 60 crores, yes.

Sir, and given that we are entering into the season of asbestos, so are we expecting or have taken any price hike in Q4 right now?

So I think the general spend is what we've been observing over the years for that. I'm sure you're also observing. The off seasons are the Q2 and Q3 for an industry like us. So going forward, definitely, we will be seeing our price improvement or so and not the stages of Q3 and Q2 because Q3, Q2 have low demand. Going forward, I think there should be a marginal increase. I cannot say that it will be a certain target. We don't have a target that's set obviously. But there is -- I can't see any reason for the price not to go up given the demand condition. Is that right, Shafiulla?

Fair enough.

Sir, in your opening remarks, you mentioned that working capital days has significantly reduced from 130 days to 81 days. It also implies that inventory level currently must be at a lower end. And given that season is starting, do you see any constraint or whether our volumes will be similar to March '19 level?

Yes, absolutely. Actually, in fact, we want to do more than March '19 level. Because March '19, we got a good post thunder market. We are trying our best to maximize our outputs. I think all our production units have been, I think, upgraded to the latest facilities. So we should not be having a problem in terms of not meeting the demand. All of our facilities are running efficiently and giving us the best output that we can. So we should not see any issue of non availability or shortage of material for the upcoming periods.

Okay. And so when it comes to the new plant of Vboard, the 50,000-tonne plant, which is expected to start in October this year. What is the revenue potential from that specific plant?

So about 50,000 should give us about INR 65 crores to INR 70 crores of revenue to begin with. But if we add different product mixes, which we normally do, like premium products or designer products or our painted products, the revenue will go up because the pricing structure for each of the variant is different. So this is the -- okay. In terms of turnover.

And lastly, on the expansion of panel. So what is the revenue potential there? And is this the extension to the normal Vboard plant? Or how does it work? If you can elaborate on that.

Absolutely. So panels right now, I'm actually -- I think I missed updating all of you. Thank you for pointing that out. I think the Jhajjar expansion that we've done, I'm happy to share that we have such full capacity in terms of sales. They are almost about 85% to 90% in that as well in terms of product supply and capacity utilization. Nepal has been a very good market for us, and that was the strategic move of putting a panel plant there. And in any of our facilities, if you see panels are made with Vnext boards, so it's like a forward integration, as I was saying earlier. So any Vboards plant that we -- final plant that we plant will be the best suited with the Vnext production going on. So likewise, that's how we've planned and augmented as well, keeping the space and the markets in mind. And about -- point of view, I think Mr. Shafi, can you share what is the turnover that we're getting from individually -- I think we couldn't give you the split right now. But the turnover from panel?

Around INR 15 crores to INR 16 crores per annum.

Yes. So the major focus will be to spread the boards and the Vpanels would be as a value-added product that we have [indiscernible]

So how does the margin trend for a panel division compared to Vboard? Given that you have given a 15% to 18% margin for Vboard, I assume that panel would be a forward integration, so margin would be higher.

Actually, forward integration, I think it did not necessarily mean a product upgrade. It's like a value addition in terms of finished product. The margins will be in the same bracket. They will not be in a higher bracket because in terms of actual work, in terms of the actual value-add, you are giving a finished cement block substitute. So the competition again is with a very low range pipe plant. So the margins will be the same as they would not be higher.

We have next question from the line of Ajek Padia from Shriram Investment.

Sir, I missed out on the opening remarks, so what was the volume growth for asbestos in the third quarter?

Sorry, I'm unable to hear you. I can't say.

Sir, I missed out the opening remarks. What was the volume growth in the asbestos segment for the third quarter?

I think, overall, as a company, we grew by 16% in revenues, asbestos is thereabout 10%. And going forward in Q4 also, we are looking at having a reasonable growth of about -- around 10%, yes.

I assume being the fourth quarter a stronger quarter, so we will surely have more than this number, the volume growth in asbestos?

Yes. The -- in fact , is that we are seeing a positive trend. And I'd definitely like to look at that and achieve that.