Hi-Tech Pipes Limited (HITECH) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Hi-Tech Pipes Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I will now hand the conference over to Mr. Anish Bansal, Whole-Time Director from Hi-Tech Pipes Limited. Thank you, and over to you, sir.

Good morning, ladies and gentlemen. On behalf of the Board of Directors, I extend a warm welcome to all of you to the earnings conference call of the company for the first quarter of FY '27. I'm joined today by Mr. Arvind Bansal, Executive Director and Group CFO. I'm pleased to share that despite the challenges arising from Iran war, the company has started FY '27 on a strong note with healthy growth in volumes, revenue and EBITDA. The performance during the quarter reflects sustained demand across key end-user industries, successful ramp-up of our recently added capacities and continued focus on operational efficiency. Coming to our operational performance, the company achieved sales volume of 1,56,136 metric tonnes in Q1 FY '27 compared with 124,000 metric tonnes in Q1 FY '26, registering a strong growth of 26% year-on-year. This growth was supported by robust demand, particularly from the infrastructure and construction sectors, along with the increasing contribution from our expanded manufacturing capacities. Coming to the financial performance. The company reported revenue of INR 1,413 crores in Q1 FY '27 compared with INR 791 crores in Q1 FY '26, registering a strong growth of 79% year-on-year. Profit after tax stood at INR 20 crores in Q1 FY '27 compared to INR 20.92 crores in Q1 FY '26. Our EBITDA increased by 20% to INR 49.37 crores in Q1 FY '27 compared with INR 41 crores in Q1 FY '26. Further, EBITDA per tonne improved marginally to INR 3,162 per tonne in Q1 FY '27 compared with INR 3,148 per tonne in Q4 FY '26. This improvement reflects our continued focus on operational efficiency, product mix and cost management. During the quarter, we continued to strengthen our product portfolio. We have added several new sizes, especially in Jumbo Hollow sections and customer relations with an increasing focus on value-added and differentiated products and opportunities across infrastructure, construction, water, energy and other industrial applications. We are also continuing to develop our domestic and export markets while taking steps towards greater energy efficiency and adoption of cleaner energy sources across our operations. Moving towards our expansion initiatives, the company remains fully committed to its long-term growth vision of achieving 2 million tonnes capacity by FY '29. As part of this road map, we plan to add another 1 million tonnes of capacity in the next 2 to 3 years. The execution of this expansion program is progressing at a rapid pace, and we remain focused on commissioning the planned capacities in a phased and disciplined manner. The Direct Forming Technology facility, DFT at Sanand Unit-II Phase-3 is progressing as planned and is expected to be operational by Q3 FY '27. This facility will further enhance our capabilities and capacities in high-quality pipe segments and improve our ability to cater to evolving customer requirements. The API pipes facility is also progressing as planned with readiness expected by Q4 of this current financial year. This facility will provide us with an opportunity to participate in the specialized pipe applications, particularly in the oil and gas transportation segment and further strengthen our value-added product portfolio. At our Hindupur, Andhra Pradesh facility, construction activities are progressing well. The integrated manufacturing facility of ERW tubes, specialized solar tubes and other value-added steel products is expected to become operational by Q4 FY '27. These projects are important milestones in our growth journey and will provide the company with additional capacity, product capabilities and opportunities to serve larger and more specialized customer requirements. Outlook. Looking ahead, we remain optimistic about the structural growth opportunities in the steel tubes and pipes industry. The continued development of infrastructure growth in construction activity, renewable energy expansion and rising industrial demand are expected to provide strong long-term growth opportunities for the sector. With our capacity expansion program progressing well, newly added capacities ramping up, specialized facilities moving towards commissioning and our financial position further strengthened through the preferential issue, we believe the company is well positioned to capitalize on the opportunities ahead. I now request the moderator to open the floor for the question-and-answer session.

[Operator Instructions] We take the first question from the line of Nupur Sharma, an individual investor.

I have one question that how are you viewing the demand environment across infrastructure, construction, water, solar and other industrial segment for the remainder of FY '27?

The demand from the infrastructure and construction sector remains very strong. Now we are seeing a lot of new projects, which were earlier on hold and now they are coming on shape now. Going forward, I think for us, next 2 to 3 quarters will be quite crucial when it comes to invest in construction. Whereas solar is concerned, we are gaining share in the solar segment, and we'll be adding more lines in this year, which will further establish our footprint in the solar top tubes segment.

We take the next question from the line of [ Manan Poladia ] from MKP Securities.

I just have 2 questions for you. First, on the product mix within VAP and otherwise, if you could give us a breakup of the industries that you are catering to right now and if you see any new industries emerging as customers in the near future? That's one thing. Secondly, on the EBITDA per tonne, I think we've come in at INR 3,200 this quarter. I'm just curious if you could provide some time line as to where we see this ramping up to say, INR 3,750, INR 4,000 a tonne, that would be great.

Your first question is relating to product mix. For us, our end applications, like 50% of our end applications is towards construction and infrastructure sector. 20% is like water and oil and gas transportation. The balance will come from engineering, solar and other specialized segments. This is one. The new segment where we are seeing some green shoots is the data centers. Now we are seeing a lot of new inquiries for large hollow sections for data centers, and we have matured some orders there. Going forward, I see this will be an exciting new space for our company. Regarding EBITDA per tonne, this quarter, despite the challenges arising from the elevated gas prices, we are still able to maintain an EBITDA of around INR 3,200 per tonne. What I believe is we have recently operationalized 3 of the plants. Our first focus was that we maintain the capacity utilization at these plants. We have offered some extra special rebates to our dealers just to penetrate in the market. As they are able to penetrate and our product presence increases, EBITDA per tonne will surely go upwards of INR 4,000 per tonne.

Just one quick follow-up on that. For the data center large hollow section, if you could provide some quantitative guidance for, say, even the next year FY '28, I think that would help.

In this new segment, what I'm eyeing is to start with about 15,000 to 20,000 tonnes for this financial year, and this will grow organically going forward. I cannot name the projects, but these are like big, big gigawatt scale data centers that I'm talking about.

We take the next question from the line of Karthik, an individual investor.

I have a question that the company has outlined its vision of reaching 2 million tonnes of capacity. Could you give me an update on the progress of various expansion projects and your confidence about achieving the financial year '29 capacity target? And also, do you see the incremental capacity being absorbed primarily by the domestic demand? Or do you expect exports to play a larger role? This is my question, sir.

Thank you so much. First, your question relating to 2 million tonnes capacity. Yes, we are very confident, and we hope this -- we'll meet this FY '29 target quite comfortably. The expansion projects are going on in our UP facility, in our Andhra plant and our Gujarat facility right now as we speak. With all this, another 0.5 million tonnes is set to start construction by end of this financial year. So FY '29 target, we are very, very confident that we'll achieve that. This new capacities will primarily get absorbed in the domestic demand. But with that, our percentage of export share is also rising. The company has just stepped into the international markets since last 1.5, 2 years. The response is phenomenal. Our long-term target is that the 10% of our total sales volumes comes from the international market. That will remain there.

We take the next question from the line of Vikas Arora, an individual investor.

I have one question regarding the EBITDA. The current quarter EBITDA has been INR 3,160. So while you are ramping up the new capacities and you are saying that product mix also improving. So I just want to know how the product EBITDA will improve further? And what will be the optimistic level for -- with this ramped up capacity? So my question on this, sir.

Yes. Thank you, Mr. Arora. Basically, our target is to reach INR 4,000 per tonne. This Q1, we have faced a lot of headwinds when it comes to energy costs, especially the gas prices. Gas prices have more than doubled, which is impacting our total EBITDA. Along with this, the logistic costs and the ocean freights have gone significantly higher. But -- and this new -- these 3 new plants that we have operationalized, I think once we reach the critical mass, we'll stop offering the discounts, the additional discounts that we are offering, and we'll be moving in that INR 4,000 band.

We take the next question from the line of Pallav Agarwal from Antique Stockbroking.

So a couple of questions. First was on the volume guidance for '27 and '28 and '29 also, if that's possible.

This year, we are targeting a sales volume of 6.5 lakh to 7 lakh tonnes. For FY '28, we are targeting 1 million tonnes of sales volume.

Okay. And so in '29, will we have any volumes from the additional 1 million tonnes, the new expansion?

Yes, but that will come in the H2 of FY '29. I'll restrict to FY '28. And beyond that, we'll see when the fresh capacities get installed.

Okay. And what are the CapEx targets for reaching this capacity?

Total CapEx is around INR 650 crores for this 1 million tonnes and out of which we'll be doing about INR 200 crores of CapEx for this financial year.

Okay. And the balance probably will be spread over '28 and '29.

Yes. Some of it has been incurred in the previous year also.

Okay. Fair. And so I think our VAP right now is about 35%. So with DFT, et cetera, coming in, so I think you're targeting a 50% share of VAP. So when -- can we reach that in FY '27 itself?

DFT will come in end of Q3. I think we'll get the full benefit of DFT in FY '28. This 45% to 50% target is for FY '28 for VAP.

Okay. So then our EBITDA per tonne should gradually move to INR 4,000, probably exit rate maybe closer to INR 4,000 by the end of FY '28?

Correct.

Sure. And lastly, sir, I just want to understand, there's been -- in the purchase of stock in trade, I think 4Q was a very high number of INR 420 crores, and that has come down to INR 280 crores. So what exactly is the nature of this purchase of stock in trade?

Basically, there is this quantity INR 100 crores to INR 150 crores has been there like in the previous quarters also. There was this some import consignment that we had. But due to geopolitical situation, the company decided to dispose it in the high seas also. This is relating to that. As we are going forward, this will keep on coming down. Like INR 50 crores to INR 100 crores is what it will be.

Okay. And lastly, just I think on the blended realization, if I just divide the revenues by the volumes, it's still a pretty high number. It comes to about INR 90,500 per tonne, which is significantly higher than the peers. So is this because we are selling some value-added pipes or this will normalize going ahead?