Visaka Industries Limited (509055) Earnings Call Transcript & Summary

Welcome to the Q2 FY Results Conference Call of Visaka Industries Limited. We have with us from the management, Mr. Vamsi Krishna, Joint Managing Director; Mr. Shafiulla, Chief Financial Officer; and Mr. Vinay Bathija, Head, Investor Relations. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand over the call to Mr. Krishna for opening remarks. Thank you, and over to you, sir.

Yes. Thank you so much. A very good morning and a very good afternoon to everybody on the call. Thank you all for joining and participating in our earnings call for Q2 FY '22. Trust you all are safe and your families are safe and wish you season's greetings for the season. The economy has picked up well and showing clear signs of recovery from COVID. The performance of all our businesses at Visaka has done well in this Q2 earn season for us. In the Building segment, the Vnext businesses have done exceptionally well and recorded the highest ever quarterly revenue. The revenues have grown by almost 37% year-on-year. The domestic segment for V-Boards has outperformed and the exports are also improving. We expected healthy growth in this business throughout the year and due to the increase and really stabilization of demand in the real estate, things are looking good in that space. The new boards plant, which we have been talking about, also has started trial production this month, and we plan to start the same by December as mentioned in our earlier communications. The exports have taken a tough time because of the OpEx rate increases across the board, but we are confident that the business that we are doing will be stable and look forward to increasing and improving the same. The Roofing segment has done comparatively well during this off-season. The rise in input costs and selling prices reduction in the Q2, typically because of the off-season, has led to some drop in margins this quarter. But we expect the roofing business will continue to do well as we see a sustained increase in the rural incomes, which will create a good demand for us coming this year. And also the effect of other factors where we got good monsoons this season, and we expect that to help us increase our business in the coming months. The expansion works that we have taken up in the Raebareli unit in Lucknow are also in good speed. And we are likely to complete this by Jan this coming year. The synthetic yarn division also has done well. Markets are recovering from COVID and going back to the normal stable textile market. We see good contributions in this space and revenues should increase and improve going forward. Coming to the ATUM division, the solar integrated roof has shown a good growth in revenues compared to the previous year -- previous quarters and the momentum is picking up. Revenues have grown almost about 25% to 28% in this segment. And we've also started exports to countries like Africa and the Middle East, which is a good sign, and we are seeing good opportunities in the export market for this product as well. Talking about the new initiatives. As you all are aware, we launched a couple of new products and new lines a couple of months ago. And this is only helping us strengthen our resolve towards lean and sustainability businesses. We have set up a sustainability department, which will help us be on track towards this result. Our new initiatives are completely focused towards green India, sustainable India and the world, with our innovative products. As most of you would know, in our last call, I had explained about the concept of ATUM Charge, which is EV charging stations powered with our ATUM roof. I'm happy to share with you that it started off, and we have launched 10 charging stations on a single day last month, which was a great feat and achievement by the team. And we are operational in almost 11 states right now with 11 charging stations, and the locations and details are there in our detailed presentation. So this business would be in tandem with the EV industry and the EV growth that we look at. I would say that we are in the right space at the right time, with the right products. So in the market, if you really look at the Vnext businesses and the ATUM business, would be a great synergy and drive creating a very unique proposition in the market in terms of being sustainable and offering a sustainable infrastructure compared to the various alternatives in the market. And the utilization, as we speak, will increase as more and more EVs are on road and with more charging stations we add. As I also mentioned, ATUM Charge is looking at partnering with other charging facilities as well and other businesses with large networks. And we will be soon sharing some interesting news on that front as well. And all of this, we are building a great app. We are going digital with this. We have a great app to support the entire ATUM Charge network that is totally based on IoT. Coming to ATUM Life, which is Visaka's new initiation in the space of sustainability, which will offer fully sustainable and eco-friendly green products, a one-stop shop for sustainable products. And the first store is under construction as we speak, and it should be out in the next month or so. Maybe 2 months, we should be having our first ATUM Life store launch as well. So summarizing the company's current position with the world leaders meet at the recent COP26 and G20, our PM also has committed that as a country, we should go net zero by 2070. And this is great news for us as a company, because we are very linked and in line with the green initiatives, the green targets that are there for the country and the world. We would be adding great value in the market with the products at hand. Just to share something interesting, we are also working closely now with the Indian Railways, which has committed itself to be net zero by 2030. Our product ATUM would be a great fit -- a perfect fit for the railway station groups, be it bus stands or the small government setups across country to add to the warehouses and other corporates that we are in touch. All of this is simply being a roof replacement like ATUM, which is a roof that generates power, would be a great first choice given its space utility and a higher generation of electricity compared to any in the market. ATUM also offers a faster payback compared to traditional roofs and traditional solar panels. Just to share some good news with you all, we've managed to track good orders and have got repeat orders with Hindustan Aeronautics with ATUM as well. We are getting repeat orders from the large hospital segment that is across the country. We're getting good orders from companies which are in the data center space and also traditional large family enterprises across the country. With the U.S. and India and other major economies committing to infrastructure spending, are leading to improved economy and higher disposable income, this, coupled with lower interest rates and housing sector boom, we see that both the businesses, V-Board and with ATUM, have a good future and a good growth rate that needs to be [ tapped ] on. Not to mention builders like Mahindra LifeSpaces, Goodridge, Sobha and Prestige and other builders who are going aggressive in their commitment to green products, V-Boards will be their first choice, as we are the least carbon emission generating product in the building industry today, which is certified by IGBC, CII and many other reputed agencies. The extension of both the above ATUM and V-Boards have been our new initiatives, which will be used in our new expansions of ATUM Charge and ATUM Life as well. Our Yarn segment, which we call Wonder Yarn, is also developing recycling plastics, PET bottles, yarn that is made out of that, and is a huge hit in the European and American markets. Today, we have touched successfully above 15% to 20% of our monthly sales in this segment, which is a completely new space for us, used in the European markets and they're making table cloths, suitings and even curtains, while it is also used to make battery separators in many parts of the world. So if the future is green and sustainable, we feel that Visaka is actually at an inflection point to pivot on where our hard work over the last 10 years in this space are looking to be in the right direction. We will be in the right space with better expectations in terms of our performance and the market. Just to give you a snapshot of our financial performance. The total revenue of the current quarter is about INR 295 crores compared to INR 226 crores of the previous year. That's an increase of about 29%. EBITDA margins for the current quarter is around 15%, whereas for the current half year, it is at 17%. PAT for the quarter is about INR 24 crores as compared to INR 22 crores last year, showing an increase of 7%. PAT for the current half year is INR 64 crores compared to INR 57 crores, an increase of 13% compared to the previous half. The Building Products segment revenues Q2 revenue was INR 241 crores compared to INR 202 crores in the last quarter, showing an increase of 19%. Segment EBIT margins for the quarter were 13.4% and for the half year, it was 16.8%. The Yarn business revenue was INR 51 crores compared to INR 24 crores in the last Q2, showing an increase of 100%, but that is more of stabilizing of the market rather than being of growth, but the margins improved by 15%. The interest cost has come down from INR 3 crores to INR 2.4 crores this quarter. Overall, I'm happy to announce that all the businesses that we have touched upon, starting from our traditional roofing business and the textile business, are seeing a stability. And going forward, we will be seeing a good increase in the same. The new businesses of Vnext and ATUM are taking good shape and we expect good contribution in the coming months and the years to follow in terms of their sustainability and green impact on the society and the planet. Overall, they would lead to significant contributions and coming to the new businesses that [indiscernible] higher growth rates in the market. The market for the roofing is robust, and we expect to continue this way, with the new units going to come in around December, January. The Vnext also is in a growth record numbers, with our new plant coming up. The yarn also is showing double-digit margins, and this is likely to continue both in domestic and export as well. We would like to conclude by saying that the company is going in a good direction. We are all charged up. The team is very passionate and determined to enter the new spaces of sustainability and capture larger market share with our innovative products and being innovative in our mindset as a team. So thank you all. That was just a brief note from my side and look forward to interacting with you all.

[Operator Instructions] The first question is from the line of Subham Agarwal from Aequitas India.

Sir, my first question is related to the Building Products division. So as you mentioned, we delivered a very healthy growth of 20%. And in fact, our volume growth was also pretty healthy at close to 15%. But if you see Y-o-Y, our margin declined by 600 basis points. So I wanted to understand what are the key raw materials where we are facing the challenges? And what is the increase in raw material price? And have we been able to pass on some increase?

Yes. Yes. So first off, I think the first point is that we are in the off-season of this year. Typically, margins do take a hit in this time of the year almost every time. But having said that, as we have been indicating, there is a huge impact on the incoming raw material costs, mainly cement and pulp cost for the boards and then as the sales cost because of the import costs, right? The fixed costs have taken a huge hike. In fact, some places have even gone up even [Technical Difficulty] In Q2, it is a tough task to push everything on to the consumer, because of low demand typically during this time. So that's the reason we're not. [Technical Difficulty] But otherwise, we are confident that [Technical Difficulty]

I'm sorry to interrupt you, sir, but we cannot hear you, Mr. Krishna, clearly, your voice is breaking.

Yes, I couldn't hear the answer totally.

Is this clear? Is this better?

Yes, sir. Sir, we lost half of the answer, sir.

Yes. Yes. I will repeat myself. If you just confirm that my voice is clear now, I'll go ahead.

Yes, it's clear. I can hear you.

Okay. Okay. Great. So I was just saying that typically, during Q2, our pricing and costing point of view. They do -- pricing, that's come down typically in the Q2 because of off-season and low demand. Unfortunately, this time, we had to face the logistic costs, which took a huge hike due to the overall global scenario. So that being in terms of our pulp usage and our asbestos usage. Having said that, the other part of the cost that had a huge impact on, was cement. Our cement costs actually took a huge hit -- increase due to various factors in the market. So these are primarily the areas where we had a price increase to deal with. But having said that, our business model is robust and we feel that once the situation stabilizes in terms of the raw material costs, we'll be back on track. Having said that, yes, I think we are looking forward to a good Q3 and Q4 because that's where we can pass on a little bit to the consumer as well as the demand stabilizes.

Okay. And sir, specifically talking about the Vnext division. So we delivered a healthy revenue of INR 70 crores, but what would be our EBIT margin in this division in the current quarter?

So Vnext, as I shared last time as well, we are operating between [ 10% to ] 15%. So we are still operating in that margin as of now.

Okay. So EBIT margin in this division has remained constant at around 15%?

Yes, yes.

So it would be fair to assume that most of the margin hit was mainly because of the [ strong ] division?

We did take a hit in Board as well, like I said, because of the pulp costs. That's why I had given a range of 10% to 15%. It's right now in that space. But I think, once the logistic cost -- actually, to be very honest, I think the logistics costs are really abnormal. I mean, every industry tries to take the best aggregate of time and the situation. I don't think that this cost will be a permanent cost in terms of logistics. I think they're just trying to make the best out of the situation. Once situation stabilizes, I think we'll be seeing better results, yes.

So logistic costs, mainly you would be referring to the imported raw material, right?

Absolutely.

Okay. Okay. Fair enough. Sir, and secondly, given that now we are operating close to optimum capacity utilization at Vnext and we did a healthy volumes of 1 lakh, 87,000. But last year, our December quarter total volume was close to INR 2 lakhs. So can we expect to do better volumes in December quarter in Building Products division?

So we are trying -- we are working in that direction, actually speaking. And that's the reason we are going for expansion in both the divisions as well. So more than December, I would feel that maybe Q4 will be a better signal to see increased volumes. But definitely, Q3 also will be better compared to what we have been seeing and as the trend goes. Yes.

Okay. And when it comes to Yarn division, obviously, the realization and margins have gone up pretty significantly. So previously, we used to do close to INR 60 crores. So can we expect to do better than INR 60 crores run rate every quarter hence forward with a similar margins right now?

To be honest, the yarn business has maintained its traditional margins, if you look at year-on-year -- apart from the COVID space. So as you know, the yarn business is a niche market, we cater to a very niche market in terms of what we supply. But going forward, we are trying to bring in new products, as I've been sharing with you in terms of the market demand. And we do -- our aim is to maintain the same, if not higher, of course. Our aim is to maintain the same, and we feel we will be able to do that, yes.

And we are not planning to increase the capacity in this division?

Not as of now. Once we stabilize the new products, like I said, that what we are trying is to launch new products with the same facilities, with the same -- with the least R&D costs. Because that's the mindset we are trying to work with right now. As the volume picks up, like, let's say, tomorrow sustainability business of yarn also goes up to, let's say, 30% and above, then definitely, we'll be looking at adding. Having said that, this comes after a recent expansion just 2, 3 years ago. So I think we are in a good track. As the business increases, we'll be very happy to look at expanding on that front as well. But as of now, there is nothing on the [indiscernible].

Fair enough. And coming to the ATUM division, so you did mention that our revenue growth was close to 20% to 25%. But in absolute terms, what would be our revenue last quarter?

So actually, if you look at the entire business of ATUM right now, we started about 2 to 3 years ago, right from inception. And the COVID year was, I think ATUM was -- ATUM and textiles, both are [ good things ]. Textiles because of the entire market situation. And ATUM also has taken a huge hit, both of them. So the number point of view, we would have reached almost about 5 megawatts now. So maybe around INR 10 crores is what we'd be seeing. But going forward, I think we are very confident that this year, the kind of orders we are getting, so we're getting a lot of repeat orders for a new product, which is nonexistent, is always a good sign to get repeat orders from established clients. So we are in that space right now. And I think -- and that increases maybe in the next 1, 2 years, there'll be a very good transition from traditional roofs and traditional solar to a product like ATUM. So we are quite bullish on that, yes.

Okay. So based on our current capacity, what kind of revenue that we can generate out of that?

So like we said earlier, ATUM on a complete basis with the existing capacity, we can generate about INR 75 crores on a full capacity utilization. And then with an additional CapEx of hardly INR 5 crores, we can double the turnover in that. So that's the position that we are in with ATUM. So quite literally, we are waiting for a takeoff to happen like we've faced with Vnext. How the gestation period was quite long in Vnext, we are not expecting the same gestation in ATUM, given the awareness of solar and rooftop solar in particular. So we expect to reach that quite soon, yes.

And lastly, on the new initiatives. So given that we have already launched 11 charging stations, so can you please elaborate on the unit economics, how much we are spending on each charging station? And what kind of revenue and margins that we are potentially seeing, probably next -- or in the next 2 years?

Yes. Yes, absolutely. So actually, to be very honest with you, we have a very interesting plan for ATUM Charge in terms of the overall dynamics. And we've just launched the 11 stations last month. So we have to see in the numbers rolling in the next couple of months. I'll be able to share this offline with you in terms of what detailed and specifics in regards to that. But I just want to give you confidence that we are trying to develop something interesting at this stage. So to give our numbers would be difficult, yes.

No problem. Fair enough. We'll take this offline. And again, congratulations on a very good set of number and best of luck for all the new initiatives that you are taking.

[Operator Instructions] The next question is from the line of [ Satish Kumar, ] an individual investor.

Congratulations for a good performance in a challenging time. And my first question, in the ATUM charging segment, are we talking with any other players like Tata, [indiscernible] who are all entering into the charging segment? If you are charging, are you seeing any cost to your expense then?

Yes, absolutely. So actually, the concept of ATUM Charge for us, the play is very different because we will be very strong in the whole infrastructure play. What I mean by that is today's charging stations are heavily dependent on thermal power again. If you really look at all the developments that have been happening, not everybody has looked at the power source point of view. That's where we will be adding very good value in terms of solar generating with the roof itself. Having said that, we are having a very exciting discussion with many of the players, as you have mentioned already, because we come in to the space of EV charging as an infrastructure support. And that is where there is a huge lack in the market as well. People will not be able to generate the highest power at the smallest area available. And that is where ATUM comes in as a really good product fit. So yes, we are talking -- to answer you in short, yes, we are talking to the parties mentioned by you and also others who have large networks across the country. The model that we are looking at is to tie up with large network individuals, corporates and other businesses, wherein we can develop infrastructure for them to offer charging stations. So that is one of the routes that we are exploring, yes.

In the Solar Roof segment, so the FY '21 annual report, our pipeline is around 20 megawatts. FY '22 annual report, it is 10 megawatts. So reason for the reduction, it is due to COVID [ such heightened reductions ]?

Yes. But we are seeing an upward trend now over the last couple of months. And we feel that this year going forward, it will be definitely better, yes.

Okay. As to that [ spike ] regarding [indiscernible] fiber, I think we are importing 99 -- more than 90% from Russia. In case any mining challenge in Russia, how we are prepared to handle the situation?