Welspun Specialty Solutions Limited (500365) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Welspun Specialty Solutions Limited Earnings Call. [Operator Instructions] Please note that this conference is being recorded. I now hand over the call to Mr. Sailesh Raja from 360 ONE Capital Markets Limited. Thank you, and over to you, Mr. Sailesh.

Yes. Thank you, Sumit, and welcome, everyone, to the call. We would like to thank Welspun Specialty Solutions team for giving 360 ONE Capital the opportunity to host this interaction today. Without taking much time, I would now like to invite Mr. Goutam to introduce the management team. Yes. Over to you, Goutam.

Yes. Thank you, Sailesh, and good evening, everyone. On behalf of Welspun Specialty Solutions Limited, I welcome all of you to the company's Q1 FY '27 results call. Along with me, we have Mr. Anuj Burakia, Chief Executive Officer and Whole-Time Director; Mr. Navin Agarwal, Chief Financial Officer of WSSL; and Mr. Harsh Rungta, Group Head, Investor Relations, Welspun World. I hope you have had a chance to review the investor presentation that was filed with the exchanges. The presentation is also available on the company's website. And during today's discussion, we may be making references to this presentation. Request all of you to please refer to the safe harbor statement mentioned in our presentation. We will start the forum with the opening remarks by Mr. Burakia, and then we'll open the floor for the Q&A. So let me hand over the floor to Mr. Burakia now. Over to you, sir.

Thank you, Goutam. Good evening, everyone. Let me extend a warm welcome to all of you to the quarter 1 financial year '27 earnings conference call of Welspun Specialty Solutions Limited. Thank you for joining us today. I will begin with a brief overview of the global macroeconomic environment, followed by insights into the industry landscape and our company's performance for the quarter. After that, we will open the floor for an interactive question-and-answer session. According to International Monetary Fund's latest World Economic Outlook report, global economic growth is projected at 3% for 2026 and 3.4% for 2027 compared with 3.5% recorded in 2025. The report highlights that the global economic outlook is currently being shaped by 2 powerful forces moving in opposite directions. On one hand, the conflict in the Middle East has created a negative supply shock, adding to uncertainty and disrupting global trade flows. On the other hand, the rapid acceleration of global technology cycle driven primarily by large-scale investments in artificial intelligence is providing a meaningful boost to economic activity. Overall, the global environment continues to be characterized by heightened uncertainty and cautious business sentiment. For India, the Reserve Bank of India has projected GDP growth of 6.6% for current financial year, supported by robust monetary and fiscal policies. Against this backdrop, the operating environment in international markets remained challenging during the quarter. Export volumes declined primarily due to ongoing geopolitical conflicts, supply chain disruptions, tariff-related measures, all of which continue to weigh on demand and customer sentiment across key overseas markets. In addition, the reduction in the European Union's tariff rate quota for certain categories of steel products, including stainless steel, posed an additional headwind for exports. The domestic market, however, continued to provide a strong growth runway. As India's only integrated manufacturer of extruded stainless steel pipes and tubes, we are well positioned to address the growing demand for complex value-added products across industries such as oil and gas, petrochemicals, fertilizers, thermal and nuclear power, defense and infrastructure. With the government's continued emphasis on infrastructure building, energy transition and the Make in India, the import substitution initiatives, we believe this opportunity will continue to expand over the coming years and remain central to our growth strategy alongside our export business. Coming to the performance for the quarter. Our total income for quarter 1 financial year '27 stood at INR 197.5 crores with total product sales volume of approximately 6,300 metric tons. While stainless steel bar sales were impacted by the factors discussed earlier, tubes and pipes registered healthy growth driven by strong domestic demand. The operating EBITDA of INR 10.5 crores increased by nearly 2.5x compared to same quarter last year. The improvement in EBITDA per tonne reflects the benefit of operating leverage as capacity utilization continues to improve and also the product mix. Cash profit after tax of INR 9.1 crores increased nearly threefold over the corresponding quarter of the previous year. We continue to focus on new product development and expanding our customer base. During the quarter, we added 13 new customers across our business. We have also intensified our focus on Middle East and are actively pursuing key customer approvals. The SIRIM certification process is progressing well, which will enable us to commence business in the Malaysian market. I'm pleased to share that the company has successfully secured approval from NTPC for grade T91 supercritical boiler tubes. We have also received the Indian Boiler Regulation, IBR approval for the same product, further strengthening our position in this critical application segment. In addition, we have received our first trial order for city gas distribution CGD Instrumentation Tubing. Successful execution of this is expected to open up opportunities in this high value-added segment. I'm also pleased to inform you that the installation of our bright bar project has been successfully completed and the facility is currently undergoing stabilization and ramp-up. Looking ahead, while near-term macroeconomic uncertainties are likely to persist, we remain confident about our long-term growth prospects. Our priorities will continue to be improving capacity utilization, increasing the share of value-added products, strengthening customer relationships and creating sustainable value for all our stakeholders. At the same time, we remain focused on expanding our customer base across both domestic and international markets. The growing emphasis on supply chain diversification and India's emergence as a preferred global manufacturing destination presents significant long-term opportunities for specialty steel producers with strong technical capabilities. We believe Welspun Specialty is well positioned to capitalize on these structural growth drivers. Our disciplined execution, focus on cost optimization, prudent risk management and continuous improvement in asset utilization have enabled us to deliver a resilient performance despite a challenging operating environment. We remain committed to executing our strategy with agility and operational excellence. Sustainability continues to be one of our key business priorities. We remain committed to improving our environment performance and building on progress achieved over the previous financial year. Going forward, we aim to further increase the share of renewable electricity in our operations while improving our emission intensity through enhanced operational efficiency and higher production levels. With that, I would now like to open the floor for questions, please. Thank you.

[Operator Instructions] The first question comes from the line of Parth Bhavsar from Investec.

Congratulations on good set of numbers.

Parth, your voice is not audible.

Sir, congratulations on good set of numbers. Sir, I have a couple of questions regarding exports. So what was our export share this quarter? And what was it last quarter and even in the previous year?

Parth, thanks for the question. You see, as I was mentioning in my opening remarks, the export has definitely got hit out of the situation that's existing at present. So you can say the exports have now reduced to approximately 20%, 25% of our total steel sales and which had been the case in last 3, 4 quarters. Whereas in case of pipes and tubes, I think the exports are hardly any now. I mean we are very focused on the Indian strategic requirements. So only very few close customers who still, let's say, like to buy from us. Other than that, I mean, pipe is all, you can say, domestic and high value add now.

And sir, what was the share maybe last year? Was it 25%? 25%?

You mean on the export front?

Last year. Yes, exports, yes, yes.

In financial year '26, our total pipe export was, I think, about 8% in volume, 8% to 10%. And steel was nearly 20%. So it's similar now.

Got it. Sir, I wanted to understand like what is our order book outstanding for both the businesses put together?

I think we've been consistently maintaining, let's say, though the healthy order book, I would say, would be about 3 months of steel and 5 to 6 months of pipes and tubes. But given the situation, I think currently, what we are working with is about 3 months of pipes and tubes and a couple of months for steel. And as the markets improve and the situation improves, I think we'll be back to our normal operating level of 3 months of steel and 6-plus months of pipes and tubes.

Got it. Got it. And sir, just to understand for the bar sales specifically, what would be the share of captive volumes?

So whatever bar sales that we are talking about is all to the third parties. Whatever goes captive is not considered a sale in first place, right? So that is over and above -- yes, yes, yes.

Got it. That's very clear. And sir, just one last question on power and fuel cost. How do you see this number faring over coming quarters?

See, we really cannot predict as to how the oil marketing or gas marketing companies are going to price, though we try to get their inputs. One thing is very clear that the -- this quarter, quarter 1 got an impact -- a significant impact due to the increase in gas price and which was almost like 40% to 45% increase of the price. Now they have now settled the price at a certain level, which is also high compared to what it used to be in pre-Hormuz, let's say, problems. So here on, I think the fuel prices will be determined by what happens there in the Strait of Hormuz. At this point in time, we are neither seeing a reduction coming so easy on the gas, but nor we are anticipating that they will further increase the prices. So this quarter might see the same price level as it was in the last quarter.

Sir, are we able to pass this on like on the existing orders?

No, that is not the trend, Parth, in this business. But what happens is as the cost goes up, obviously, everyone starts to build this cost in their cost of production and...

On incremental orders?

Yes, yes. And so it gets passed on for future. But obviously, when the cost increase, the margins get squeezed. So that's the usual way things happen.

Right. And sir, just a last question, if I can squeeze in. You've received the trial order for CGD Instrumentation Tubing this quarter. So I wanted to understand how big is the opportunity over here?

So independently, it is -- I mean, difficult for us to really size this, but I can only say that this is a very regular product considered as value-add because instrumentation tubing means very small in size and very precision. And it fits well into our strategy because the extrusion is a preferred route. And so for us, it is important to add such segments in our offerings. So this will be yet another category of products that we'll start offering here on.

[Operator Instructions] The next question comes from the line of Rahil Dasani from MAPL.

Hi, I am audible?

Yes, you are audible, Mr. Rahil.

My questions are primarily around the Tubes and Pipes segment. Start off with, if you can maybe give me an understanding as to the demand situation overall in India. Our tubes and pipes volumes grew 60%. If you can share what led to this growth? And how will this continue going ahead? If you can expand on this, please?

Yes, sure, Mr. Rahil. So one is the factual number, which is a growth. At the same time, I must also say that the quarter 1 of last year, we also had one planned maintenance. So our volume was low in that particular quarter. Having said that, now, you see we are -- what has happened in last 4, 5, 6 quarters, if you really see, the exports have continued to decline for the reasons which are beyond our control. But at the same time, we kept on focusing on getting more approvals, making newer products and get into newer segments. And while we were losing on the export front, we were adding these segments and these new sectors to our portfolio, thereby keeping our volumes consistent. So I think India, currently, I'm very confident for the next foreseeable 5, 6 years, there is huge opportunity within India. And ours being an integrated setup, I think we are fully positioned and very strongly positioned to grab the opportunities that are going to come our way. And therefore, on the tube side, I think while we are keeping, let's say, eyes open and looking for opportunities in export as well. But then I think domestic market presents a very strong opportunity for the Indian companies.

Got it. And which sectors or segments would be leading this growth for us? Where are we seeing so much demand coming in from whereby they are not only absorbing our export supplies, but also helping us grow so much?

You see there are wide spectrum applications. But if we -- if I have to pick up like 3, 4 important ones, is the critical grade tubing, let's say, within oil and gas, especially the refineries and the LNG setups. As you see this, whatever happened in the past in the Middle East has again started to build a lot of trust on, let's say, investments into oil and gas assets. So that is one segment which is bringing a lot of business. At the same time for India, the story of energy security is very strong. So we are seeing huge investments coming in thermal already. And at the same time, you would have -- if you would have followed these large-sized nuclear power plants, which have been announced by not just government, also the private players. So we have been talking about this in our past calls also, and we were kind of following the sector. But now I think it's very, very clear and announced in public, and this is now here on the ground. So we will see huge activity in nuclear power in next 4 to 6 quarters, I believe.

Got it. Just before going to my thermal list of questions, a bit more understanding on the export part. If you can give me more data around the Europe quota situation, what sort of volumes are getting cut? I believe there are 7 to 10 exporters from India who will get cut? And do you think that we are losing on exports because we are more extrusion focused and the piercing players are being preferred since they are 20%, 30% cheaper. If you can give me some understanding on this.

Yes, yes, sure. So see, Rahil, we need to understand that there are applications where both products could be acceptable, right? But when it comes to, I would say, plain vanilla line pipes, so the line pipe is, I would say, in the graph of criticality, mostly in general, you can say, are considered the lowest, okay? Now that market, not now for last 2, 3 years has already gone into piercing, right? So what you see all the exports happening is, let's say, that low-end line pipe in larger quantities. I'm not saying the other things are not going, but then that comprises a variable. And the situation in that market was very different 3, 4 years back when we were also exporting the same products from extrusion, right? So a sea change has come in the last 2 years, and that's a reality, right? So for extrusion as -- and this is not new. I mean, for last 2 years, we have been saying that we are only focused on high value, only focused on value add because that is what will keep us going and keep us going and growing because there are so many applications where, let's say, for the criticality design or the grade complexity, extrusion is either must or preferred. So the 2 businesses, of course, are overlapped, let's say, a piercing player or an extrusion player. I'm not saying that they are completely delinked. But at the same time, I think being integrated and being into extrusion, we are very strongly positioned. And we are -- we have our strategy in place as to what we are supposed to do, if not 6, 7 years, at least for next 2 years.

Fair enough. So if I were to just conclude, would it be right to say that Europe has the requirement -- the bigger requirement in Europe was for the line pipes, which is more commoditized, lower value where we got competition from piercing as well as we as a company didn't want to focus on lower value products. And hence, the exports have taken a back seat for us, especially in Europe.

Yes. And see, our exports to Europe have anyway reduced in the last 2 years, not now or this quarter, right? But at the same time, yes, it would not be wrong to say that quite a large portion is line pipe and general tubes and quite a large portion of it goes into the stock holders because that's how business happens in Europe, okay? Now that doesn't mean that none of the high-value tubes are going. But I mean, it's very -- you can say, as a proportion, very less. And as you rightly said, now the quota has been reduced. significant reduction has happened and overshooting the quota will mean double the duty, which was earlier 25% has now become 50%. Now earlier when it was 25%, obviously, there used to be always some quantity which used to exceed the quota. But the rules are such that they would apply some duty on total import by applying some formula. So the average duty in, let's say, in the pre-reduction era used to be anything between 6% to 10%, which was applied to all the imports into Europe, which now if I go by the same criteria or same formula, might become 30% or 35%, which I think is very prohibitive.

Got it. Got it. Okay. And now, sir, my last line of question around the thermal part of it. If you can share more as to the opportunity that we are seeing from the thermal segment, especially BHEL, I believe a new tranche of orders is to be announced in this coming few months. If you can share more on that? And secondly, as of date, how many approved players are there for this particular grade of pipe for BHEL? Yes, if you can share on 2 of these things.

You see, first of all, we need to understand the thermal power sector from the country standpoint. So a total of approximately 80 gigawatt is what is planned to be built over the next 8 years. This we are talking of the central plan with, let's say, almost all the plants in super critical category. Now in addition to this, obviously, there would be other projects coming from the state governments and the private sector and things like that. Now all these -- all along, we have seen that BHEL had been a key player in -- as, let's say, a boiler manufacturer, which is like relevant portion for us. And -- but now when you look at this sustained story of building so many plants, I think other players are also now becoming active. For example, L&T, MHI is already doing some projects, right? I believe that Thermax is also now entering the fray. So obviously, when the business is sustained, new players will come in because for this kind of execution, it is difficult to just depend on one company. So these requirements, what we are seeing in the market according to us, will further increase. Now as far as who can supply is concerned, there is no one answer because there are different grades and categories of tubes. For some categories, some manufacturers are approved or can supply. For others, there are others who can supply -- other set of manufacturers who can supply. So in some cases, for the same grade, same category of tubes for different, let's say, owners, like, for example, if the owner is NTPC or if the owner is Adani Power or if the owner is Reliance or they also have their say and their own list of approved suppliers. So I think it's no one rule, but let's say, project to project, it differs. And...

But sir any reason that -- yes, please.

Yes. No. I mean I'm just saying that as far as we are concerned, I mean, we are approved with almost all of the projects. So we don't have the limitation.

Got it. Any reason that we haven't won a thermal project for quite some time now while our competitors have? Is it the same extrusion versus piercing reason that we are seeing an issue with them being much more competitive than us?

See, 2 things. One is probably it will not be right to say that we have not been able to win. But let's say, we also need to see what kind of grade, what kind of project and what are the time lines to be delivered and things like that. So we also need to note that the execution part, which had been a challenge, and that is why, as I was sharing that now L&T is coming in, and Thermax is coming in, others are coming in because this sector in last 1 year, we have seen has become limited by the rate of execution because there was only one player, one large player, right? So the supplies were getting choked. The acceptance of supply was getting choked. And therefore, we didn't -- we wanted to have a steady flow. We just don't want to be dependent only on one particular customer business or, let's say, right? Yes, so we are pretty spread out, and we have a healthy and the right mix of business so that it doesn't get choked.

Got it. And if I were to ask this which particular kind of piping is where extrusion players are needed and preferred compared to piercing players?

Generally, I would say, given an opportunity at the same price, everybody would want extrusion, as simple as that. So...

Of course. And that's why I was asking which particular set of piping in a boiler or in a thermal plant is where the customer would have no option but to go for an extrusion player?

See, technically speaking, in stainless steel, I don't see any categories now left. That is number one. But owner to owner, it is still differing. Some owners are still not accepting, but others are accepting.

[Operator Instructions] The next question comes from the line of Parikshit Gujrati from Niveshaay.

So just as you mentioned that as new and new sectors are opening up, for example...

I'm sorry, I missed the last -- could you please repeat your question?

Yes, yes, yes. So I was just asking that as you mentioned that new sectors are opening up in the industry such as oil and gas, data centers, power. So my question was, can you break up a little bit on the unit economic side that what amount per tonne of pipes and tubes are required per gigawatt of thermal or say, per gigawatt of data center or per gigawatt of nuclear power like that I was asking.

So Parikshit, first of all, some of these segments are emerging, right? So they are yet to get matured and for us to really very sure of the quantities. But what we only know is that they are huge. Number two is it will not be simple to answer as to, for example, per gigawatt or per megawatt of plant, how much pipe is used because I think there are a lot of pipes in a power plant, starting from carbon steel to alloy steel to stainless steel and then also a mix of seamless and welded and likewise. So -- but if I have to answer your question very, very generally. One project of about 800 megawatts, which is called one super critical project, would consume nearly 4,000 to 5,000 tonnes of tubes, which are a subject matter of interest for us.

Okay. No. So sir, I was basically just asking for stainless steel seamless only, not carbon steel and not alloy steel.

Right. So as I said that 4,000 to 5,000 tonnes of tubes and pipes, which are of interest to us. So that actually means that.

Okay. 4,000 to 5,000 tonne per 800 megawatts.

Per project of 800 megawatts.