Visaka Industries Limited (509055) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Visaka Industries Q4 FY '22 Earnings Conference Call, hosted by Anand Rathi Share and Stock brokers. [Operator Instructions] I now hand the conference over to Mr. Manish Valecha from Anand Rathi. Thank you, and over to you, sir.

Thank you. Good afternoon, ladies and gentlemen. I welcome you all to the 4Q FY '22 Results Conference call of Visaka Industries Limited. We have with us from the management, Mr. Vamsi Krishna, Joint Managing Director; Mr. S. Shafiulla, Chief Financial Officer; and Mr. Vinay Bathija, the Head of Investor Relations. I would now like to hand over the call to Mr. Vamsi Krishna for his opening remarks. Over to you, sir.

Yes. Thank you so much for that. Very good evening to everybody on the call. Thank you all for joining and participating in our earnings call for Q4 FY '22 and FY '22 for the entire financial year. First off, I would like to congratulate for a good FY '22. This has been one more good year sequentially, as your company has achieved the highest turnover and profit in the history of the company. I now shall brief you on each segment. To start with our Vnext board and panels. The volumes have been quite impressive, talking 16% and 8% growth year-on-year and quarter-on-quarter for Q4. For the full year, the volumes have grown by 35%. We see this segment continue its performance as home affordability rates increase. Corporates begin to do new CapEx expansions. We are seeing very good drive for this product over the years. The majority of the market we sell for this segment has been domestic. The exports we see are having a very good growth pickup. The exports for the quarter grew 32% and for the full year ended, we grew almost about 52% over the last financial. Our Coimbatore plant also has begun production early this year and has been serving the markets down south. The utilization rates have been picking up, touching more than 90% of Q4 overall. The product that is the FCB segment, the fiber cement boards, is just beginning to be accepted at a large scale by the general community because of its several advantages over the other competitive products. We truly feel we have a long way to go, and we are just at the beginning. We shall continue to put in the efforts to maximize the growth in this segment. With the new announcements in the country happening in terms of warehouses and other SMEs, we see a really good growth trajectory for the boards and panels. Post-COVID, the demand that we see has picked up dramatically because of the advantages that we see, which is less labor to use in the construction compared to the traditional, and this is what has been realized by the market as well. The yarn segment has had an impressive recovery, achieved the highest revenues and profits for the full year. Volumes for the full year have grown by 50% for the financial fiscal compared to the last. The demand is back this year as things have become normal and economic activity has picked up well. The main markets like Mumbai and Bhilwara are fully operational. And also the sustainability factor, especially in clothing picking up, is seeing a good price in the market. This product is widely used for purposes like premium clothing, curtains and other segments. In this segment, we are doing well in India and in exports as well. The sustainability segment, which has been a new product from our side, where we recycle the bottles, have seen very good acceptance in the market, both domestically and internationally, giving way to a new growth for this division. Coming to the ATUM solar roof. The solar roof product, over the years, has gone through a tremendous amount of spreads, and we see a very good acceptance in the market this year. We closed about the volume of around 6-megawatt. This is just a start, the first good year for ATUM since its launch, and we have done some very good prestigious projects wherein we see a very good repeat order from the same customer, which is always a good sign for the new entry. We have done some very good projects in Q4 like the railways in Bangalore and the Serum Institute, to name a few. We have also got into the hospitality segment like the Mahindra Resorts among others. We see these days on the digital media about the roof generating income for the family, while the roof in question would lack the space utilization. But ATUM takes care of this as well that is the key advantage as we indicated earlier, too. We will reach full capacity this year. The projection is that the market is picking up very well, and we are seeing very good acceptance of the product. Usually, in the month of January to June, the time of the year is a peak season for us. For our traditional roofing business, taking into consideration this, our roofing business, has done really well. The demand is stable, the rising rural income over the years has become positive. The impact on this segment and to add the utility of the product, we inaugurated our additional line at Raebareli plant in the month of March. And this is -- this has commenced the commercial operations on 5th May. With the new line, our capacity for the upcoming FY '23 would be 9 lakh metric tonnes. The economies around the world seem to be [ overheated ] continuing the upward price pressures around the globe. In our country also, there has been considerable inflation as we see the recent hike in the RBI repo rate. Though these are challenges in terms of increase in raw material prices, supply chain issues, freight costs, among other things, our teams have done the best to meet the challenges, and we continue to work hard towards the set goals. Coming to the new initiatives, strengthening our results towards a green and sustainable future and creating forward integrated solutions using our traditional core business products. We have set up a sustainability department, which would help us be on track towards the result. Our new initiatives, ATUM Charge, the progress has been very encouraging. We are very happy to announce that we have set up more than 250 charging stations across the country with the sustainable materials of Vnext and ATUM solar roof. We are the first in the country to create a self-sustaining model wherein all our products come together wherein the Vnext boards, the panels and the planks topped off with ATUM solar roof, which fuels the energy needs. Our concept was simple with the change in the sustainability area in the country. Are we powering energy using clean and renewable resources, all dependent on the traditional thermal power are dependable that is where ATUM Charge comes into the picture. We also have a digital app to support the charging stations is totally based on IoT. We have also opened the first experience center as we announced last time in terms of what sustainability is really means and how we can develop the use of sustainable materials across the country. The first store launched is at Hyderabad, a store we built with 100% sustainable materials, which is, again, our Vnext and solar products, which is an experience center for all things sustainable. Here, we get an opportunity not just to sell our products, but to explain the end consumer what the true need of a sustainable product really is. Coming to the financial performance. The total revenue for the current quarter has been INR 421 crores compared to INR 354 crores of the previous year same quarter, an increase of 19%. The revenue for FY '22 has been the highest ever in the company's history at INR [ 1416 ] crores, an increase of 24% from previous year. EBITDA margins for the current quarter are 13%, whereas it was 15%. This is due to the increase in the raw material and the freight costs that we've had. PAT for the current quarter is INR 30 crores, which is marginally lower compared to INR 31 crores last year same quarter. But the PAT for the financial year is INR 119 crores compared to INR 110 crores, an increase of 7% compared to the previous period. The Building Products segment revenue was INR 338 crores compared to INR 300 crores in Q4 of last year, showing an increase of 13%. The segment EBIT for the quarter has been 11% for the full year. The yarn business for Q4 was INR 83 crores as compared to INR 54 crores in the Q4 of last year, showing an increase of 54% with segment margin of 21%. The interest cost was almost flattish at INR 3 crores this quarter. To summarize, I think to give a closing conclusion mark. There is too much uncertainty with regards to the geopolitical situation as we see with supply chain bottlenecks across the country and some pressures on material prices. But your company is on the right track, and we are very bullish about the years to come. We are looking at a strong growth and a strong pickup in the months to come in terms of all the divisions that we have across the company, be it the ATUM solar roof or the Vnext boards or the traditional roofing business, along with the yarn business. We see that we are at the tipping point at the usage of boards and ATUM along with our sustainable yarns, which has been the core focus of the company to invest in products that have a futuristic growth to take the company to the next level. And that is where we are heading. Any new infrastructure coming, our boards are there. Any new power requirements within the [ infrastructure ] space, ATUM is there -- ATUM solar roof, as you all are aware, has got patents in India, South Africa and in America and other countries, which is patent pending. The new central government parliament, new Vista project, is almost using most of our Visaka products, which is a great news to us. Our yarn segment, which we call the Wonder Yarn, is made from recycled plastic and is a huge hit in the European, American and Indian markets. So overall, we are very bullish to look forward to a good year ahead. Thank you.

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

First of all, really kudos to entire team of Visaka because all the new initiatives are now showing results. Vboard has -- Vboard has a massive number and Q-on-Q autumn division has delivered double digit -- almost doubled in volume, which is very significant. Sir, firstly, I would like to understand, year-on-year, our total volume growth was 11.9%. And given that we have commissioned 2 new plants, which improved our capacity by 1%. So what is our goal for next year? What is the volume growth that we are anticipating, if you can elaborate on that.

So thank you for that. Yes, as you rightly said, most of the new initiatives that your company has taken is in the right direction and is showing results. We are looking at close to around 15% to 20% growth further in the new financial year.

This is volume you're talking about or total revenue growth?

The total revenue growth.

Okay. Fair enough. And coming to the Vboards part, we commissioned the plants last quarter, and we are already working at 90% capacity which signifies that the demand is pretty strong. So do you have any future growth plans in this segment right now that you would like to share?

Yes, absolutely. Actually, we will -- we do have some interesting growth plans. We'll be announcing shortly on that.

Okay. And lastly, on the raw material side. So our margins are kind of subdued as of now still. So how -- what do you think will be -- will we be able to pass on more increase in price coming in the next quarter because the demand remains strong? Or do we still face margin pressure?

Sure, sure. So one of the reasons the pressure looks quite heavy this year is because of the previous good year that we had, just to point out that the main COVID year, we had actually very good demand from the rural India, even though we had severe lockdowns. So the pressure on demand was quite high, so we could get the maximum price benefit in spite of other cost pressures. This financial year, as the pressure of demand was not as much because there was no lockdown, no pent-up demand as we see it. The margins look that with the pressure that it was under. Going forward, yes, we are expecting the market to be positive. We should be able to offset to a large extent in terms of what the pricing pressures we are seeing. We are also looking at the situation wherein -- because of the China lockdown initiatives and the Russia-Ukraine situation, once things ease down and open up, I think, definitely, there will be a positive front on the raw material and the logistics front in terms of the increase. So we are looking at the situation to be positive for the year.

Okay. But compared Q-on-Q, is there any decline in logistics price or it has remained [ animated? ]

We are not seeing any decline at the moment. It remains to be as.

Okay. Okay. And lastly, on the Spinning division. So do you think this margin is sustainable going forward?

Yes. I think we got a beautiful mix of new products and the old traditional product as well. Going forward, I think because of the demand situation being intact, we should be able to get the same margins across the divisions, yes.

That's good to hear. That's it from my side and best of luck.

The next question is from the line of Deep Gandhi from Astute Investment.

So all of my questions are related to the Fiber Cement Board division. So first question I had was, in the presentation, you mentioned that you have almost after the new capacity which you have commissioned, you have 2.4 lakh metric tonnes capacity. So if you can just indicate what kind of capacity do you think the second largest player has, just bit a sense how -- what kind of scale benefit your company has as compared to the other competitors? So this is my first question.

Yes. So in regards to the scale benefit, I think right now, to look at, we are actually the largest players, as you are already aware in terms of both supply and production. We are close to almost, I think, the second player. I don't want to comment too much on that. But I think there is a good gap in terms of the order pickup and the deployments that we are doing, the aggressive plans that we have taken up. So definitely, we do have larger spread because of our distribution pattern. We have a very strong network, which we carry on from our traditional business that has been our learning and approach, is to make the product as available across the country. So we have more than 2,500 selling points across the country just for the Board division apart from the 10,000 selling points we have for the traditional business. So in terms of scale -- and definitely, we are adding more and more every month. And that's it for now. I would like to comment on that, yes.

It will be very helpful if you can also just give some broad numbers. I do not want the exact, but if you can a little bit, quantify the difference in sales, it would be very helpful.

I can tell you that we are almost about 40% of the current market share. I can give you my details. I think you'll have to ask the competitors about their details. But as far as we are concerned, I think your company is on the right track, yes.

Sure, sir. So the next question I had also in the past calls, you have alluded that you are also present in the value-added products in this division. So I just wanted to understand what is the difference between a normal fiber cement board and value-added product. So if you can please explain that?

Yes, of course. So value-added product, it really needs -- depends on the application, really. So we make products right from 4 mm to 25 mm, interior and exterior. At that, we have specific applications where the exterior products go, either as a roof underlay or a soffit or a decorative type. So each of these have different raw mix. In fact, we are one of the companies which are very ahead in terms of R&D. We believe that strong R&D always helps us come up with products that are ready for the future. So in terms of that, I can't tell you the specifics of my raw mix and R&D, of course, but that is where the premium increases wherein a certain application requires a certain utility. The product is made according to that raw mix. So based on that, our prices for the premium segment varies. I can give you a guideline in terms of the premium products, which are used for the external cladding or the decorative cladding are of the highest premium for this segment.

Sure. And if you can share what kind of revenue contribution do we have from such products? And also if you can explain the -- sorry, the margin difference between a normal and a value-added product.

Yes. I will not be able to share the margin difference with you right now, but we are doing almost about 10% to 15% of our total revenue for this segment in the premium space.

Sure, sir. So the next question I had was -- so if you can explain or mention, so what kind of business in this segment currently is completely B2C and what kind of it is B2B. So currently, a major part of industry dealing directly with some B2B players like real estate developers or as direct B2C kind of business or has already started, so if you can mention that?

Yes. So we have a very strong base in the retail. We have been very vocal about that. We have a 70% to 30% of our business, 70% being through retail which is our B2B, and 30% being B2C which is direct projects.

Sure. And so in the past annual reports, you do mentioned the EBITDA margins for this division. So if you can mention what kind of margins did we do in FY '22? And also the actual volumes sold in FY '22 for this division?

I don't have that detail with me. I will -- my team will share that with you offline regarding that.

We'll move to the next question from the line of [indiscernible] H&I.

Congratulations on a good set of numbers. In the Vnext board segment, what is the business model like? Is it through dealers? Would we don't give [indiscernible] for corporations -- yes, congratulations on good set of numbers. In the Vnext board segment, what is the business model like? Is it a B2 dealers? Do we even get the large builders of corporations? Also, we understand the product is better than ply -- [ Greenply ] what has held it back? What is the overall market size here? So also a ballpark number on what sort of margins we see here. Also, if you could explain its applications, vis-a-vis Greenply, please.

Surely. So like I was saying, the business model for Vnext has been quite strategic actually. The whole last 10 years has been to build a strong base in terms of our deployment -- product deployment. So if you really see, we have to target architects, interior designers, the carpenters, applicators and structural engineers. So these are the 4 to 5 major sources of -- or you can call them as influencers where we have to keep tapping on in terms of creating an awareness, in terms of specifying our products and in terms of our general distribution pattern. Apart from all these, we have to maintain a very strong retail network in order to service the above segments. Coming to specific projects. When we look at like the new parliament that is coming up or any private project for the Mahindra, that will have to be a 3 to 4 strong approach in terms of reaching out to their architect, to their main corporate projects team, and with the right suitable fabrication team. So it's a multiple approach. It's not that we have to depend on only one stream of sale. So that is more of the style of functioning that we do. Apart from that, I think our team is very, very interested in reaching our innovative approaches like in terms of the applications that we do. Quite simply, in the beginning, we almost did close to 25 to 30 applications, right from false ceiling to mezzanine floors to shelves to internal partitions. So the list just keeps going on. And from there, trying to find the right fit for us. Now today, we sell hardly in 5 to 6 applications where we are concentrating on, as you can call them as our core applications. Just to give you an idea, the drywall partitions is one of the most accepted application for a product as such. Just to give you an idea in terms of the demand growth for that. Any commercial, industrial or even residential, which is a smaller margin for us today in terms of the overall market demand. But surely, the commercial and the industrial spaces are huge, huge amounts of drywall products where Vnext is the preferred product. Apart from that, the utility point of view in comparison with competitive products like plywood, gypsum board and even brick wall, we really look at the water, fire and termite resistant quality. I mean, that's been one of the basic pitch that I think the market has been seeing over the years. We are truly water, fire and termite resistant, which other competing products are not because of the core raw material itself. The inherent product, the inherent quality of our products, does not have a facility or an enabling factor for it to be disintegrated in water like the gypsum boards or catch termites like in the plywood board. And we also have a very high fire rating of close to 3 hours when we do a full construction of our drywalls. Coming to the margins, we are seeing a very healthy space in this. Right now, we are doing anywhere between 11% to 15% that's the bracket in which we are operating right now. It depends on quarter-to-quarter. But going forward, with the price trend that we are seeing and the scope of the product in terms of its utility, the plywood industry is seeing a stagnation in terms of the growth or in terms of the margins that they are seeing versus the opportunity that a growing product like us have in terms of the margins. Just to give you an idea, we are doing hardly 50% of the price of plywood in the market today. So the scope of having a market understanding in terms of the demand and pricing, we have a long way to go in terms of growth. Coming to the aspect of drywalls. As I mentioned earlier, with regard to the COVID situation. Post-COVID, because of lot of migration of the labor going back to their homes, there was a huge shortage of labor that we observed wherein our product really took off. So that I think is one of the key highlights for the turning point of the product where the market started realizing that we can get work done faster with lesser people with the products like Vnext.

The next question is from the line of [ Damian Shimatani ] from [ Havells ] Investment.

From last time we spoke, I see ATUM has picked up in revenue. So congratulations on that. But I see a lot of players doing solar roof, including big names like Tata. So how are those roof different? Also, what is the marketing strategy for this product? Because like we have patents, but I see no ad, whereas other players with traditional groups are doing a lot to create awareness. And also, the second would be on margins. I do not understand the product is at its [indiscernible] stake, but at full capacity, what sort of margins can we expect? Also, this came to my mind, what the ATUM get its patent? I mean how is it different from traditional roof?

Surely. So thank you for that. So first off, I think just to explain the basic difference of solar roof ATUM versus the traditional players, is that solar roof as a category is used as a generic term wherein you can refer to it as rooftop solar or solar roof. That means there's a roof and there is solar in that. The product difference that we have created is with our vast experience being in the roofing industry for the last 30 to 40 years now, in terms of understanding what the utility of a roof is and what the future of a roof can be. We have done some innovation in terms of using a solar cell into our product itself. So typically, if you have a metal sheet plus a traditional solar roof, that can also be called as a solar roof or a rooftop solar. What we have done is we are giving you a single product which is hardly 14 mm in thickness, which is as thin as MacBook Pro or thinner even in some cases, wherein that is the roof which generates power for you, without any additional solar retro fitment, which the traditional players do. So players like -- the large players that you talk about are all in the traditional module spaces, wherein they install traditional modules on top of existing or new roofs. ATUM is a roof that goes as the base itself on the metal structure with generating roof by itself. So that's a quick, easy explanation to what's really ATUM roof is and that is where the real innovation is wherein we could all -- we could get a patent in the U.S. as well because of this differentiation. I'm sure all of you have heard of [ Tesla ] solar roof, which has created a lot of noise and a lot of market buzz, wherein spite of that, we were able to achieve our solar roof patent in the United States because we are actually a roof that generates power, whereas competitors like Tesla Solar Roof still go and sit on an existing roof. So that is the major difference. Just to give you a direction in which we are going to start off with, we are actually targeting the B2B space wherein the product acceptance and understanding is more easy and getting us conversions. We have recently got good orders in Q4 from the Piramal Group, from Serum Institute, from Rainbow Hospitals, from [indiscernible] Centers, from FTC International. So various hospitals, various government railways and other institutes, private and public, are observing the key difference where in ATUM is really adding value in terms of the power and roof combination. Apart from that, we are also the lowest area in demand in terms of the highest energy generation. What I mean by that is in hardly 60 square feet of space roof area, we can generate 1 kilowatt of power, which is almost equal to 4.5 units, whereas traditional players do it at least 80 to 100 square feet and above. So that is really the core difference. Talking about the margins, yes, we are too early to talk about margins in this division as you rightly said. But on a full capacity, on a larger scheme of things, we can look at anything between 10% to 15% is what we are expecting.

The next question is from the line of Karan Asli from Maximal Capital.