Visaka Industries Limited (509055) Earnings Call Transcript & Summary

The next from the line of Chirag Shah from Nidara Capital.

Sir, can you hear me?

Yes. Yes. Please go ahead.

Sir, you mentioned that you have started a panel division in July of this year?

Yes.

Yes. So sir, is the unit economics of the Panel division and the Board division similar?

No. So panels is more of an integrated -- forward integrated product that goes in. So the -- in terms of size, in terms of revenue, boards will definitely be much higher than panels. But I think margin wise, both will be similar.

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

My first question is on the raw material risk management. The world absolutely has no surety when the Ukraine conflict will end and even if it is, does the sanction on Russia will not be lifted immediately. Also, with the currency depreciation and persistent inflation, the cost pressure will persist also. So one is, except for looking alternatives like Brazil, what does the company plan to do, mitigate the input and overhead costs? And second is, like in Europe, due to very high inflation, does the management feel that some small companies can go out of business in this sector?

So yes, first off, I think in terms of offsetting the situation that we are facing in terms of input costs. I think there is a threshold in terms of how much we can take to make an asbestos sheet in terms of costing because we have a higher alternative in terms of making a non-asbestos product. So there is a price variation in terms of non-asbestos product and an asbestos product. In terms of technology, there is -- it is proved. And we -- I mean, I think I speak for the industry here as well. Almost all of the companies do have some sort of a non-asbestos product, which we do cater in the market. So it really is the pricing and the margin player where at this cost and at this price, I can still depend on asbestos. And at this cost, I will not depend on asbestos. So that is really a call I think we will take when -- if it comes to that stage, we are not expecting that in spite of all these spikes. I definitely look at the situation improving once the war situation settles down. That's the first point. Second point, in terms of offsetting this, we are actually trying as a company to increase our exports in view of the depreciation of our currency and all of that happening and we are trying our best to increase our exports from the Vnext and other businesses that we are into. Coming to the point of smaller players closing down, I don't think I can comment on that in terms of what may happen because as of now, I think everybody is comfortable. I don't see a shutdown situation for the smaller players also. So that is the current outlook.

Yes. My second question is on price difference in asbestos versus non-asbestos, what is the...

So there are different variants. There are different variants in terms of -- there are some variants that have INR 10 to INR 15. Some have INR 15 to INR 20. So it really depends on what we are trying to cater in the market, right, from a simple plain non-asbestos sheet versus a colored non-asbestos sheet as well. So we have a little room to play there with, but I do not see that complete shift or such a panic situation where we need to look at this as aggressively. Yes, but we are definitely trying to make our best efforts to have as little impact in terms of saying, okay, asbestos is increasing, what is the best alternative for us as a company, and we are putting our efforts in that space.

My last question is on company foreign exchange exposure. So on a quarterly basis, what is the average amount of FX remittance? And to what extent do we -- your exposure -- does the company have a FX hedging policy?

Yes. I think Mr. Shafi, would you like to comment on that?

Yes, yes. It is almost to INR 40 lakhs to INR 45 lakhs exposure towards imports. And it is almost INR 11 lakhs to INR 12 lakhs exposure is there towards exports. So right now, based on the trends and after checking with the negotiation with management and the banks also, we are -- whenever required now, we are booking the forward call. Otherwise -- earlier Rupee was very stable, that much fluctuation was not there, we were not booking. Now, we have started booking also. Because from March, it was about 75, now it has gone up almost to 82. So wherever our requirement is there, we are booking. And earlier now, we used to take buyers credit for this import part. Now the payment terms have changed to advance. So we are making upfront payments. So there is no liability towards foreign exchange transaction. That is what our way of transaction and handling the ForEx front.

I think just to add -- yes, please go ahead.

What is the FX hedging policy as on date?

INR 4 almost. It will have impact of 2% to 3% on the margin if it goes about INR 4 to INR 5.

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

My first question is on ATUM solar roof. We still don't have the clarity on the product. So first, can you please explain what the patent is all about. Like there are other solar roofs and I understand that this is a roof integrated on fiber-cement board. So what is the patent about, if you can please explain about the life of the patent?

Yes. So I think quite simply to put it, ATUM is where solar is infused into our roofing products. It's not directly the fiber-cement board that we make. It's actually a variant of our cement board. And a lot of R&D has gone in, in terms of what type of roofs it can fit with this product. So that is really the integrated roof. And we have patent for the product in terms of the technical fusion, how the product is made. That is what the patent covers. And we have the patent for 20 years. It's a product patent. And we've got it in India, in U.S. and in South Africa. China and Europe are patent pending as of now. So -- that's a brief.

And sir, following on it, we have been hearing since the past 8 con calls or something so since 2019 that ATUM is a new product, but now I guess time is running out, can we please get the revenues or order book for it and the margins because we hear a lot about other companies like KPI Green bagging X worth of orders, and we have not heard Visaka and ATUM getting any big orders. Simultaneously, if you can highlight the sales efforts the company is putting?

Yes. Surely. So first off, I think it will take more time because ATUM type of product is not in the market today. What you are talking about is still the traditional solar roofs, the companies that you are mentioning. And in reality, in terms of product outlay, in terms of construction industry, what we have observed is the gestation period for a product in the construction space typically is quite long, at least what we have observed. With Vnext if you see it has taken almost 8 to 10 years for us to start talking in terms of 30%, 35% growth rate in terms of market share or growth rates in that product. But having said that, yes, I think we'll be definitely able to give you a more clear picture in another -- I think in another 6 months to a year, I think we have been able to share very good positive conversions in terms of the spread and market. I think overall aspect of it, since the product is being new, and people have not experienced a product like this. I think the conversion that is happening will definitely lead to strong positive growth in the next 6 months to come. So that is the outlay for ATUM as of now.

The next question is from the line of [indiscernible] Agarwal from [ TreeHouse Investments ].

My first question is on the Vboard segment, particularly the market size and competitors. As you have said in the previous call that Visaka is the market leader and that kind of Visaka represents the market. So seeing the current robust growth, why aren't new players coming in? Also, why wouldn't the ply companies enter the segment, considering they have more capital than companies already operating in the industry?

Sure. So I think why new players are entering -- not entering, I think it will be almost an assumption to speak on. But I think broadly, if we look at it, I think the groundwork that was required for establishing a business now today, I think -- this year, we are looking at anywhere between INR 350 crores in this division for Vnext. And the way the business has been dependent heavily on the architect fraternity and the dealer distribution network, which now we have close to around 2,500 selling points across the country. In terms of that, I think we have been able to establish a good market fit in terms of the utility, and that has required a lot of groundwork, a lot of homework which has a long gestation period, like I was saying. And the immediate competitors in this industry in terms of roofing shifting into a product like cement boards. I think most of the large players have made their entry. And in terms of their appetite and capacity, they have been able to deploy in the market. We have been more aggressive and bullish on the product. So I can talk on that basis in terms of saying okay, Visaka felt that Vnext will be a business that can be built in terms of scale and in terms of impact. And we are doing that. And I think we will be the only brands who have been setting up plants as aggressively compared to other competitors also. So I can comment on that in terms of plant. Why plywood guys have not entered. I think they have -- a couple of plywood guys who have tried to do this business. I think some companies were trading with cement board, tried to enter the market, but the market fit didn't happen, I think. So that's the reason the competitive market has been a little slow in that front. But I think as an industry and the growth that we are experiencing, the product utility we are experiencing, I think cement boards will be a very well-established business in the next couple of years. We'll be seeing a lot more deployment across all fraternities. I can comment as such now.

Okay. My second question is regarding funding of the new factory. Does the CapEx be all internal accruals? Or what are the debt levels we are looking at?

Yes, we will be taking some amount of debt in that as well. It is going to be a mixture for the new project, yes. And we're going to invest about INR 100 crores in that space.

The next question is from the line of [indiscernible] [ Shambhavi ] from Infinity Funds.

So my first question is on Vnext solutions. Can you elaborate on that product as what exactly it is, the current scope of work, revenue margin, order book? So basically, what is happening in that segment?

Yes, sure. So in terms of Vnext, I think first off, to mention, we started off as a single product player wherein we were really trying to fight against plywood and trying to fight against gypsum board. Today, I think that has been very well established. Most people who had never heard what a fiber-cement board was, today they really know what utility of product like cement board has in terms of having 3 hours fire rating or having water resistant or termite resistant. And over the years, the groundwork that we have been able to create, today, we are seeing many projects directly using our products in terms of the false ceiling against gypsum board or the drywall partitions, which have 3 hours fire rating or even in the residential market where people are using our product in the bathroom and in the kitchen areas because it's unaffected by water. So that is really the area that this product is taking its position against the gypsum boards and against the plywood. And today, the increase of workmanship in terms of fabricators and carpenters working on our product has increased drastically. So that is, I think, what is really creating a new business for us. And also, the network that we're able to create in terms of our distribution, we are spread across the country in terms of market spread. The project placement, the manufacturing plant placement also has been well spread out. We are in the north, west and south. Now we are expanding in the east as well. So we will be the first company in the country to have a pan-India presence in terms of having manufacturing capacity as well apart from being the largest in terms of volume in manufacturing and sales. And we see that this adoption of fiber-cement board is only increasing and with -- earlier somebody was asking about the price impact or price increases. Because of the market situation, we could even get a positive response from the market when we took price increases on the product. So I think we are on the right track in terms of what we originally sought out to in terms of creating a business in Vnext. And in the next 5 years, just to share with you in terms of what we are experiencing and expecting, I think we should set up a plant every 1.5 years or every 2 years for the Vnext business in terms of the demand that has grown. So that's a rough outlay for you in terms of what Vnext is trying to create.

All right, sir. My second question is more on the strategic aspect of the organization. We have been listening to the management past 3, 4 years where the management thinks about these innovative products and a new segment with forward integration, like ATUM which it is, I believe, then ATUM Charge, Vnext Solutions, ATUM Life, et cetera, but none of the products have performed, and now we see ATUM Charge is off the presentation itself. This one was showing the lack of clarity of the management or rather if I be a bit straightforward in ability of the management, which is reflecting in the stock prices. Your comments on this and on company's future strategy, please? And if you can elaborate on the marketing efforts the company is putting in?

I think that's a little rough, and uncalled for. Ma'am, actually, I don't think -- maybe we'll be very happy to sit with you one-on-one to give you some more clarity in terms of what we are trying to do. But overall, I think we have not gone back on any of the initiatives. In fact, all the initiatives that we have started are on positive trend. The impact in terms of trying to do something new, in terms of introducing new product in the building space or in the construction space has a gestation time. It's not like a technology product where we can scale up within 6 months in terms of having a download or not using the app. I think -- I definitely request Mr. Vinay to set up a call with you one-on-one to share what the company is doing and where it's going in terms of the direction that we have proposed. I want to restate that whatever new products we have launched all are in the market. They are commercially ongoing. And definitely, it will take time for -- to show you the results that we're expecting. But I think we are very much on the right track, yes.

The next question is from the line of Rajat Setiya from ithought PMS.

Sir, about this building product segment, have you considered reporting the margins and you report revenue separately, but have you ever considered reporting the margins also separately?

Yes. I think we have shared, I think, over time, right? We have been sharing...

No, no, we will share once it's convenient, means once it works out for us. Because as far our statutory requirement, segment reporting contract, we are not reporting anything separately, but we will see into that. We'll see whether we can publish related on that. Anyhow, we can tell you on one-on-one basis.

Sure, sir. It could be good to put those numbers in the presentation that will be really helpful.

No. Anyhow, these volumes are going up. Now we can look at that. So, so far now, we were not putting based on these numbers. So we are looking into that.

So right now, at what capacity level did we say are you operating -- we are operating in this Board segment?

Yes. Right now, we are around 90% -- 90% to 95% across the 4 plants.

Okay. And the fifth one is about to come, right?

Fifth one, we've just announced. So we are going to start construction any time this month actually.

So how long...

Sorry?

How long will that take to commission?

We will take around -- we are expecting mid of next year. So something around maybe end of first quarter or something is what we should be having a product outlay.

Okay, and sir, I think in the past, you had mentioned that we will grow this segment by 30%, 40% every year. So just we would like to understand what gives us the confidence, do we have some sort of visibility or is there a plan, sales and marketing plan in place. So what gives us the confidence that this segment can grow by this high rate every year?

I think the confidence comes from actually achieving it. Year-on-year, we are experiencing a minimum of 35% plus in terms of growth. Actually, the revenue bump that you are seeing, what our company is experiencing in the last couple of quarters is from this division. Having said that, in terms of marketplace, there has not been a product like fiber-cement board in the Indian market, and we have introduced that product, substituting traditional materials like plywood and gypsum board. And in terms of market share, that is where we are converting people using plywood or gypsum board to use cement boards. So that is really what is the market we are looking at to convert. And our market deployment strategy is quite strong in terms of the rate of adoption. We touched hardly 2,500 selling points, as I mentioned. We see that number increase or double, triple every year, 1.5 years as we go in terms of distribution network. So definitely, we are looking at such numbers here.

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

Yes. I am audible?

Yes.

My last question is, we see the non-roofing revenues have gone up. So what is the road map ahead? Do we see demerger of SCB segment, if you can give the road map 4 to 5 years for each product?

Yes, surely. So I think definitely, the non-asbestos business that we have been committing or we've been sharing over the past so many years is coming to play. We are looking at how best we can increase revenues from the Vnext division and from the solar business. I think now we have touched, I think, somewhere around 60-40 is the ratio that we are looking at. And I think within the next couple of years with the rate that we are expecting the new businesses to take over, definitely, we'll be seeing a higher contribution from non-asbestos business. We have communicated that the goal is definitely to do more than 50% of our revenues from non-asbestos. I think we've reached a milestone with Vnext touching 25% alone, apart from the extent that will be another 20%. So I think, yes, I think next 1 or 2 good years, we should be seeing -- see the actual transition happen.

The current participant has moved out of the queue. That was the last question for today. I hand over the conference to the management for the closing comments. Over to you, sir.

Thank you. Thank you, everybody, for joining us. And I think it's been a tough quarter, I think, for the overall industry and the general market as such. But I think we are in the right track. The company is trying to make the best use of its resources and trying to maintain the expenses to the minimum in terms of business operations. And going forward, as the situation stabilizes, we definitely expect our company to do better in terms of both revenue and margins. The important thing to notice on -- strong demand always gives us confidence for the future of the business. And I think each of our divisions is experiencing that in spite of the heavy input costs that we are experiencing. So I'd like to reassure to everybody that we are on the right track and we look forward to going through and creating a good business in the coming months. Thank you, everybody.

Thank you, ladies and gentlemen, on behalf of Anand Rathi Share and Stock Brokers Limited. That concludes this conference call. Thank you for joining us. You may now disconnect your lines.