Visaka Industries Limited (509055) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '22 Earnings Conference Call of Visaka Industries hosted by Anand Rathi Share and Stock Brokers. 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 date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. We have with us today, Mr. G. Vamsi Krishna, Joint Managing Director; Mr. Shafi, CFO; and Mr. Vinay Bathija, Head Investor Relations. I now hand the conference over to Mr. G. Vamsi Krishna. Thank you, and over to you.

Yes. A very good afternoon to everybody on the call. I welcome you all to this con-call for the quarter. And thank you all for joining and participating in our earnings call for Q3 FY '22. I hope this year's beginnings have treated everyone better than the previous 2. The performance of our company, the Building Materials and the Yarn division has been good. The overall quarter revenues have grown by 26% year-on-year and 21% quarter-on-quarter. The Building segment revenue has grown by 17% for the 9 months as compared to the previous year 9 months, with a strong growth in volumes. The segment margins for the current 9 months is 14.8%. The increase in input costs and logistic costs have led to this decrease in margins during this period. Vnext business has done exceptionally well. And for the second consecutive quarter, it has recorded the highest ever quarterly revenues. The domestic segment for [indiscernible] has outperformed and the exports has improved as well. The Vnext businesses has grown with strong volumes and estimating highest ever revenues for the full year 2021-'22. We are happy to inform you that the new boards plant at Coimbatore also is operational from 1st of Jan 2022. The capacity addition would be about 50,000 metric tonnes and it would further add to the top line and the bottom line in the coming financial year. The Synthetic Yarn division has outperformed the expectations and reported the highest ever revenues at INR 85 crores for the quarter with very good margins. The main markets have recovered from COVID. And going forward, we expect continuous growth with the share of sustainable yarn increasing at a good rate. The other division, the ATUM solar integrated roofing, has improved revenues compared to previous years and the previous quarter and has picked up momentum. Revenues on a quarter-on-quarter basis has grown by 20% in this segment. We did do some exciting projects, which are noteworthy to mention. We have done some projects for the Indian Railways; the Serum Institute, which makes Covishield vaccines; and the pipeline to make projects for Manipal Institute; and various other hospitals and data center providers. ATUM is still yet to take its true potential in terms of the growth rate that we are observing. We are very confident that it will do well in the near future. We expect it to reach its full capacity of 100% of capacity utilization by '23-'24. Usually, the July-December time of the year is an off-season quarter for our traditional businesses, which is the roofing. And taking into consideration this roofing business, our roofing has done really well with good growth in the quarter on volumes. However, there is a pressure of margins due to the increase in input costs and logistic costs overall, and we are confident that the company will take adequate measures for the profitable growth in coming quarters. The expansion at our Rae Bareli plant would also be complete by this financial year-end. And we expect this will help us in increasing our market share in the Northern India. New initiatives talking about strengthening our results towards a green and sustainable future, we have set up a sustainability department, which would help us be on track towards our resolve. Our new initiatives conquered this result progress on ATUM charts, the EV charging stations have been very good. We have done close to 100 charging stations, and we plan to close this year by adding another 150 charging stations, making it a total of 250 by the end of FY '22. As also mentioned, we are looking to partner with other electric charging equipment providers who are in the market and are facing good growth traction in the market. We also have an app to support the ATUM charging stations that is totally based on IoT. Coming to the financial performance. The total revenue for the quarter is INR 354 crores compared to INR 281 crores of the previous year. That is an increase of 26%. The EBITDA margins for the current quarter is 12% -- 12.5%, whereas for the 9-month period, it is 15.5%. The PAT for the quarter is INR 24 crores compared to INR 23 crores of last year. PAT for 9 months is INR 88 crores compared to INR 80 crores, which is an increase of 11% compared to the previous period. In the Building Products segment, Q3 revenue was INR 269 crores compared to INR 236 crores in Q3 of last year, showing an increase of 14%. The segment margins for the quarter are around 10.7%, and for the 9 months, it is 14.84%. The Yarn business, the Q3 revenue was INR 85 crores compared to INR 45 crores in Q3 of last year, showing an increase of more than 89% with a margin of 19%. The interest cost has come down from INR 2.73 crores in the previous year to INR 2.4 crores this quarter. Summarizing the current position of the company. With the world's leaders meeting to discuss climate change with summits like G20 and COP26 and also our PM commenting a net-0 country by 2070, our organization is at its inflection point. The Indian Railways, which has committed itself to be a net-0 company by 2030, is a good potential market target for our product ATUM solar roof which will be a perfect fit to light up the Indian railways, along with the bus stands and other government setups across the country. To add on the huge warehouse demand that is of significant increase given the e-commerce giants and other corporates entering the market and individual housing societies gaining awareness towards sustainable and green power, all are giving us a good growth pattern to look at in the near future. ATUM solar roof would be the first choice given its advantages in its way of space utilization and higher electricity generation compared to the other alternatives in the market and thus giving us a faster payback. With this, U.S., India and other major economies committing to infrastructure spending, leading to improved economy and higher disposable income. This, coupled with lower interest rates and the housing sector boom will have a multiplier effect on our Vnext segment. Not to mention builders like Mahindra LifeSpaces, Godrej and others have committed to green products have been long-standing support to our products. V-Boards is in their first choice and its an IGBC certified product and emits 30x lesser carbon emissions compared to other products in the building industry. Over our Yarn segment, which we call Wonder Yarn, is also picking up in the recycled plastic segment, where we are recycling PET bottles, which has been a huge hit in the European and American markets. Users in Europe and [indiscernible] are making table clothes to sweaters and even cottons while this is also used to make banners across the world. Battery separator is also a big segment, which is a good potential for our yarns and has been doing exceedingly well. So the future is green and sustainable. And we feel that Visaka Industries is geared up for the future growth, given each of our business verticals has established itself and is on a path for a good growth rate in the near future. Our teams are intact and we are working, striving very hard and passionately to achieve these goals for the country and for our company. Thank you very much, and over to your question-and-answers.

[Operator Instructions] The first question is from the line of [ Luv Preet ], an individual investor.

Yes, sir, you said the margin has dropped from 14.9% from the last quarter to 12.5% this quarter. So can you explain the reasons? Hello? Am I audible?

Sorry, I was on mute. I was just answering the question, sorry about that. So as I mentioned, we are actually having a huge price differential in our raw material input costs, which have gone up across various industries, and we have been no different at that unfortunately. So that is one major reason. And the second reason is that the logistic costs have gone up drastically across the world as we have been observing. And these are the 2 major reasons for the reduction in the margins. Yes.

The next question is from the line of Chirag Shah, an individual investor.

Congratulations on a good set of numbers. Sir, I had some questions on the Board's business. So this plant that you have set up in Coimbatore, sir, what would be the approximate cost of setting up this plant?

Yes, that we've spent about INR 90 crores to INR 100 crores in this facility. We're getting the revenue also around the same range, around 1:1 capital to turnover ratio for that.

1:1 would be the otherwise good utilization, asset turnover. Okay, sir.

Yes.

Okay. And what would be the time frame that you think that you can reach this utilization of INR 100 crores -- a revenue of INR 100 crores?

By next financial year-end, we should be able to touch that.

Okay. Okay. Okay. And sir, for FY '21 at least based on the annual report, the EBITDA margins of the Board's segments is approximately 12%. You think with an increase in value-added products, this can go higher or you think this would be -- the 12% would be a sustainable number?

Yes, absolutely. Actually, the whole focus now is to increase our value-added products. So we do great in our designer boards, which also give us better pricing and margins in the market. So the continuous effort is to increase the value-added products through this product mix as well.

Okay. So sir, what would be the proportion right now of value-added products in the Board segment?

So maybe we'll be doing around 10% to 15% right now.

Okay. So then the 12% margin has some level, it can go up much higher in time?

Yes, yes. Absolutely, absolutely. We are looking at least 15% upwards for this division in terms of the complete operations, yes.

Okay. And sir, did you mention that you also export these boards?

Yes, absolutely. So we do almost 30% of our current capacity to the Middle East, to European markets, to Nepal, Sri Lanka and Thailand. So various countries as of now, yes.

Okay. And sir, for example, if in the European market or in the Middle East, sir, is there no domestic players in that segment or you all are more cost competitor?

So, yes, definitely, we will be more cost competitive, but the majority of the business is of imports for these countries, even America for that matter. The United States, even though they have a large in-house manufacturing facility with James Hardie, and others. These guys have huge imports in terms of fiber cement boards. So our effort is to increase as we go provided that we get good return as well.

So with the domestic market returns be better or they will be probably better in the export market? Obviously, just not freight cost and all has increased, but all things being equal.

Yes. Right now, of course, as you rightly mentioned, the freight cost is a big hindrance for us. Nevertheless, we are maintaining our markets internationally even the pricing. But definitely, the way we see it, India is the growing market, and we are experiencing better returns -- overall returns in India. So our focus has been predominantly to increase that market share here.

Okay. Sir, who would be the competitors in this segment -- in the Board segment?

So in Boards, there's Everest, there's Ramco, there is Swastik for immediate competitors, then there's Bison Panel, this NCL group, they also have a version of it. But all of us are actually trying to substitute the plywood market. So in essence, the real substitution, the real competitor will be how to substitute the plywood industry to use ecofriendly boards such as our products. So that is our main focus.

Sir, last question from my end. Sir, any impact of the present Russian crisis on the boards because I believe some raw material is imported from there?

Not on the boards. Not on boards.

Not on the boards. What about roofing?

Roofing also, I think we're -- for now, we're well taken care of. We're not seeing any major issue for at least the next 6 months. So we are fine in that case. Yes.

So sir, in the boards, any raw material which is imported or everything is sourced domestically, sir?

Boards, we do import pulp. Pulp is one of the products that is imported. But other than that, everything is localized.

[Operator Instructions] The next question is from the line of Yash JM Financial.

A few questions. So what has been the price increase in Cement, Asbestos and the Board segment? Because I believe you were mentioning about the freight and commodity costs going up. So in the current quarter, have you taken any price increase to offset the cost increasing, which could make us go to the margins which we had last financial year?

Yes. So we have had price increases almost about 10% in our raw material mix in the overall given various materials that we look at. And we are trying to offset that to the maximum extent and the offset having about 2% reduction that's what we have shown. So that is the rate at which we are operating. Yes?

No. So -- I mean so you've taken a price increase of 2% is what I have heard, almost -- sorry, I couldn't understand?

Price increase is actually based on market trends as you are aware. So we are trying our best to pass on the input costs as much as possible. So we have got an increase of hardly about INR 5 in this quarter, but the effort is constant to increase it further. So yes.

And given the fact that the first half of the calendar year is the peak season for Building product segment, how do you see the demand shaping up this time around? You had some bit of impact of Omicron in January and you have higher commodity costs going through February. So what do you feel about this current season for the demand on the boards and asbestos side? How robust is it? Or...

Actually, I wouldn't agree that we are only first-half-of-the-year dependent. It's only first quarter that is a major contributor for us. But Q4 and Q3, again, is where we see revival of the markets company. So we are positive on that trend. And secondly, Omicron has -- had a slowdown for about a week or 2 in terms of the markets -- overall markets. But I think we are seeing things coming back to normalcy as we had before. So we are positive about the coming quarters as well, yes.

And on the yarn business, how has been the yarn pricing trend again post the third quarter? Have they held up well or there has been some decline in the yarn prices for us? And...

So the yarn business is completely -- it's very -- it's fluctuating on and off, but it's more of a management in terms of how best we can procure at the right time and ensure that we get the best in terms of pricing. So clearly, as we've shared the details and numbers, we are on the right track, and we are doing well on that front.

The next question is from the line of Subham Agarwal from Aequitas India.

And first of all, congratulations team Visaka for the performance. Sir, my first question is regarding the Roofing and Board division. So recently, we are coming across a few new streets from rural India, which is talking about slowdown, specifically, the 2-wheeler numbers that are coming out is pretty low. So I wanted to get a sense from you, how do you see this current season panning and the monsoon trend and the rural health in specific, if you can give some insight, it will be really helpful?

Yes, absolutely. I think, first off, I will definitely agree with you, there has been some amount of slowdown in terms of what we were expecting and predominantly, it has been because of Omicron. But that lasted for hardly 2 to 3 weeks is what we have experienced. Seeing the market trend now, how we are seeing things go, I think the markets are slightly on the way of recovery. We are seeing a different trend from what we have observed during the Omicron period. So I think things are going to be positive. We are not necessarily seeing a reverse trend or anything. Coming to the rural segment, yes, this time monsoons also were good. We have seen that there has been a good impact in terms of the rains, but we are seeing -- we are waiting, I think there is a slight delay in terms of that to convert into the market spend, but the trend is looking positive.

Okay. And as far as the margin is concerned, so if you compare year-on-year, the total margin drop was close to 6% as far as building product is concerned, so I wanted to know your input regarding how much are we able to pass on as of now given the market trend? And will we be able to reach back to the margin levels that we saw last year or we will settle somewhere in between?

Sure. So once again, I think the main issue has been that our industry has done exceedingly well last year that has been predominantly because of the Roofing division because of the supply -- the cut in supply because of the lockdown and the pent-up demand that has flown through right after lockdown had opened, that was actually the major benefit that this industry have got, and we could get such margins because of the high demand. This year, what we're seeing is, again, things are back to normal. There's no pent-up demand because of lockdown and things are going in a very smooth fashion. So that type of margin on a specific year-to-year comparison will be an uphill task given that the industry has stabilized. Having said that, the constant effort is to ensure that we get good margins and maintain our levels to the best optimum rates. And I think we are on track to do that, though the hike in the margins, what we got last year may not be seen this year. We are seeing that being covered up with our other businesses doing well. That's the reason you see that our margins, even though there is a slight drop on an overall basis, we are still in a positive trend. So that's the take on that.

Okay. And on this Vnext division, we delivered INR 77 crores of revenue. But specifically, if I want to know what's the EBIT margin that we delivered this quarter, will that be possible?

We can share that with you offline. I'll be getting to -- yes.

No problem. And on the raw material side, so as you mentioned, there were both raw material pressure as well as freight pressure. I believe there are some -- last month of December quarter, the raw material prices started to go down. So did you observe the same trend in your input cost? And what is the freight scenario as of now compared to last quarter or last 2 quarters?

So first off, I think it's important to observe the trend. Typically, the pulp industry follows a trend because it's a seasonal product for them. So there is some amount of increase and decrease that happens over the year. But what we have observed is that there is no major exciting reduction in the freight that we have observed because the markets still have to stabilize. And I think that will take almost -- I think our estimate is in the next 6 months or so, we should see a lot of normalization happening because if you see globally also, most countries are lifting the basic COVID measures, safety measures to be taken also they are saying that we don't have to abide by that as recent as U.K. lifting the COVID norm. So as situation normalizes, we feel that the logistics costing which was super high in the last 1, 1.5 year will come back to some sense of normal tendency. That's when we'll be able to get the best benefit in terms of the price reductions. But having said that, we are very strong in R&D. Our complete focus is on how to ensure that we keep our raw material costs through and that will always be on track.

Okay. Perfect. And lastly, on the Wonder Yarn division, as you mentioned that you are getting good traction from the U.S. and Europe and our division performance phenomenally well this quarter, do we see any future plan to expand this as of now?

So absolutely. So I think it's interesting to observe that the recycled yarns what we have undertaken either new product development has worked well in our favor. We have managed to reach almost up to 25% to 30% of our current sale that we are doing. That needs to be seen in terms of how well the market stabilizes. We don't want to base our judgment on a couple of months or quarters. But we are positive on that. Definitely, as the market shows us a good stable outflow of this 20% to 30% and higher, definitely, we will be exploring in that favor as well.

So this quarter, if I'm not wrong, we must have benefited also because of liquidation of inventory given that last 2 quarters, we were building up inventory on this side? So is it fair to assume that by Q4, things will get back to at least slightly higher than normal?

So I would like to mention this point that the last 2 to 3 years have been extremely turbulent for the textile industry, wherein many companies have taken shutdowns and high severe losses. And we, as a company, opted a different strategy, and we are seeing those benefits as we go. I think definitely, we will be in a good position in the coming quarters, I can tell you that yes.

The next question is from the line of [indiscernible] LLP.

Sir, my question is on our ATUM division. As I understand, we have one of the best mechanical properties for this division. Ours is cyclone resistance, leak proof, fire resistance and all those qualities are there. Still, I see that traction is -- we are not gaining good traction. May I know the total cumulative megawatt till now we have constructed? And what are we planning for 2, 3 years down the line?

Surely, absolutely. I think, first off, you're absolutely right. The qualities of the product are exceedingly good. We can spend wind loads of up to 250 kilometers per hour, we can take a point load of around 300 kilos. So these are some of the advantages as a roof and solar that we've developed. And the rightly mentioned we have also got patents in the U.S., in South Africa and India for that product. So the product -- the life of the product has been hardly about 2.5, 3 years now. And the first year, we did a revenue of about INR 7 crores to INR 8 crores. Following the COVID year, which was around the same figure. And this year, we are projecting to double that. We have set up almost about 30 megawatts right now in our plant capacity. And what we are observing is that in the last couple of months, we have crossed about 60% to 70% in our capacity utilization. And we foresee that in a very -- very near quarters, we'll be seeing 100% capacity utilization in that segment as well. Given that, we are also seeing good recruited reputed names in the industry, people like -- the standard means that we have shared earlier in terms of Indian Railways or Serum Institute or Manipal, these projects have taken us almost 2 years to close. And now the response that we are getting with the products is mainly positive. I think the growth rates will be very insignificant to mention once we really get product is then going. So we are very bullish on this product. We feel that we'll be able to show the results very soon in the next couple of months in terms of the expansion and the product deployment.

The next question is from the line of Satish Kumar an individual investor.

Congratulations for the good quarter. Sir, are you manufacturing solar cells, sir, or are you importing? And because there is a new import duty from April this year, right? So how the new duty will impact or benefit of our company on the solar business? And are we applying PLI for solar manufacturing?

Yes, absolutely. So you're 100% right, again, there is an input duty that is coming on the cells and that will definitely help us as we are completely Made in India product and we are also ALM certified. They are hardly just 20 to 25 companies in the country who have been ALM certified and the basis on the certification is that we have Made in India and we have manufactured in India. And to answer to your first point, -- we -- right now, we are importing only the solar cells, everything else is Made in India. So our product, our model, our ATUM roof is actually completely in Made in India. Only the solar cells are imported. That also we are seeing lot of Indian companies like Tata and Adani who are proposing to make solar cells in the country. So we'll be soon taking the benefit of that as well.

The next question is from the line of Vishal Talreja from DB.

Congratulations, sir, on a good set of numbers. My question is regarding the EV charging stations. I wanted to know what sort of a revenue model is it? And what is the CapEx required? And what kind of batteries and vehicle service support?

Yes. So actually, what we are doing is that we are concentrating on the charging infrastructure. So nationally, if you see people are talking about charging stations, charging points and all, all of these guys are still dependent on thermal power, if you really see the net impact in terms of what we are trying to do. We are actually creating a solar generating network station. So that is our concept wherein the entire infrastructure will be catered and built by Vnext products and the roof for this infrastructure will be by ATUM. So the charging station per se will be powered by ATUM. And this is technology agnostic. What I mean by that is you can charge your car, you can charge a bike, you can charge an auto. Any sort of an electric vehicle or even your traditional electricity appliances and users can be offset with our ATUM charge. So that is the point one to answer your question. Second is that what we are trying to do is we are trying to take benefit of our large dealer network. So we have almost around 10,000 dealer stations across the country. What we are doing is we are trying to facilitate and give charging infrastructure to provide a rural network and an urban network, which will have a solar generating asset across the country. So that is our focus. Regarding CapEx and returns, we'll be very happy to take it offline and share with you in detail what we are planning to do in that aspect. Thank you.

The next question is from the line of [ Ramesh Riwalia ] from [indiscernible] Capital Advisors.

I had a question related to the Roofing division. So would be just to know if there is any pricing pressure that we are facing in this division? If you could throw some more color that will be helpful.

Yes. So the pricing question...

The intensity, yes, which is causing that?

So there is -- actually, there is no pricing pressure in terms of increasing the prices. So what I mean by that is our price is always dependent on the market trends and the competitive products. What I mean to say is that the steel competitors, the steel sheets always have had a healthy difference between our product pricing. So as long as there is a good difference between the metal sheets and the AC roofing sheets, we are good to have pricing control in the market in terms of what best we can push on in terms of our increase in costs. And given the situation in the last Q2 and Q3, the market trend was a little slow because of off-season and the overall demand. So that's the reason you don't see that super high margins that we got earlier. But we are in the right track in terms of how we maintain the demand and supply costing, yes.

So you mentioned that you have taken some INR 5 increase you have got until now. So would you be able to give some more color around what was the price that we enjoy on which you have taken this INR 5 increase? I mean, how much is that as a percentage?

Sorry, you'd like to know the percentage of increase?

Yes, sir. I mean this INR 5 translated into how much percentage?

So it will be around 5% to 7% in overall terms, yes.

Okay. And sir, the -- how's your outlook for FY '23? I mean do you expect the volumes to further grow on our FY '22 base given that we had a good monsoon? So how should we think about the next year, given that you're almost coming to the end of this year?

Yes, absolutely. I think if you see the overall industry per se and the product fit, if you really talk about the target market and the product fit, I think asbestos roof -- the roofing sheet market is perfect for the Indian residential market. What I mean by that is in India, almost 70% is in the rural side. There's the rural housing heavily depends on a roofing sheet. And fortunately for us, the metal roof does not fit in the target market in that space because nobody would like to have a metal roof as their house like I always ask this question, we would not like to live in a metal box. What I mean by that is that the radiation of heat is extremely high. And given that we are in the rural side of the country, the heat transfer and the rain effect on the roof is quite high. And in that utility of things, the AC roofing sheet is a profit fit. And we see that this increase in these housing spend increase in the focus for rural housing will definitely give us a positive trend in terms of how the market will grow. Apart from that, we have seen good increase in the North and Eastern markets. So that is the space where we've also taken an expansion. So we definitely see that the market is in a good pace in the coming year and so on.

But last question, if I can squeeze in? Sir, this Rae Bareli plant, once this plant is operational, can you name some of the organized players that you will be competing with and who are strong over there? So who do we plan to take the market share from in this segment?

I don't -- like I always keep mentioning this, I think the game of stealing market share or taking market share is not what we follow. In fact, that is a very strong logic that we take across our product markets. If you really see, each of our products is innovative in its own way and we try our best to be ahead of the market. And likewise, even in our marketing strategy, we always try to develop further markets or newer markets rather than just sharing the market network from one company to another. So I think the strategy itself is different for us. We will not befitting in that bracket of things, yes.

Sir, can I be -- would it be -- yes, sir.

May I request you to please rejoin the queue. The next question is from the line of [ Divyanchi ] from [indiscernible] Investments.

My question is, what scope of work are we doing under Vnext solutions? And what are the revenue targets?

So is this about Vnext solutions?

Yes.

Yes, yes. So Vnext solutions, actually, I didn't get a chance to explain about the turnkey solutions. What we plan to do with that is we are taking project orders from corporates, mainly B2B and executing them. And the yearly targets that we've taken the next -- the coming financial year, you would see about INR 50 crores is what we are expecting from that division.