BMW Industries Ltd. (542669) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the BMW Industries Limited Q2 FY 2026 Earnings Conference Call hosted by Arihant Capital Markets Limited. [Operator Instructions] I now hand the conference over to Mr. Rohan Baranwal. Thank you, and over to you, sir.

Hello, and good afternoon to everyone. On behalf of Arihant Capital Markets, I thank you all for joining into the Q2 FY '26 Earnings Conference Call of BMW Industries Limited. Today from the management, we have Mr. Harsh Bansal, the Managing Director; Mr. Vikram Kapur, CFO of the company; and Mr. Sanjeev Sancheti, Investor Relations of Uirtus Advisors. So without any further delay, I'll hand over the call to Mr. Sanjeev, sir, for their opening remarks. Over to you, sir.

Thank you, Rohan. Good afternoon to all the participants. Before I hand over the call to Mr. Harsh Bansal for the opening remarks, I would like to draw your attention to the safe harbor statement in the earnings presentation. I request each one of you to kindly go through the presentation now before the Q&A start, so that you are well aware of the [ same ]. Request you to go through the safe harbor statement very carefully. Over to you, Mr. Bansal.

Good afternoon, and a very warm welcome to the company's second quarter FY '26 earnings call. We will take you through the key highlights of our operational and financial performance for the quarter along with an update on our ongoing strategic initiatives and capacity expansion program. Revenue for the quarter stood at INR 144.9 crores, while operating EBITDA came in at INR 36.9 crores, growing at 4.8% on a year-on-year basis and representing an operating EBITDA margin of 25.5%. Profit after tax was INR 15.2 crores with a PAT margin of 10.3%. During the quarter, performance was impacted by temporary challenges in the CGL and in the TMT segments. TMT segment volumes were impacted by raw material constraints and pending contract renewals with our key customers. With negotiations now in the final stages, operations are expected to normalize and volumes stabilize over the coming months. CGL volumes were also affected by raw material shortages at the customer end and subdued market conditions. To optimally utilize our capacities spared due to the above, the company initiated proprietary production and sales of galvanized coils, a move aimed at optimizing capacity utilization in such situations going forward. The shift towards proprietary sales will also help the company establish a presence in the downstream coated product segment and to build a sales network ahead of full-scale operations from Bokaro. Phase 1 of the Greenfield project at Bokaro remains on track with commercial operations for color-coated products scheduled to begin in quarter 1 of FY '27, reinforcing the company's integration strategy and capacity is readiness. The growth in the Pipes and Tubes segment remained muted due to continued ramp-up issues by the customer and demand pressure amid prevailing market conditions. However, we remain confident of a gradual stabilization as macro indicators improve. Meanwhile, ancillary operations such as slitting, cutting and flat product processing are witnessing increased traction. As mentioned on our earlier call, the Bokaro project is poised to act as a key growth catalyst in the upcoming quarters as well as helping us expand our capabilities across the value chain. We reaffirm our medium-term growth guidance. As over the next 3 fiscals, we anticipate consolidated revenue to grow at a CAGR of approximately 75% driven by the phased commissioning of Bokaro Greenfield project as well as our existing business vertical organic growth. Operating EBITDA is expected to grow at a CAGR of 45% over the same period with the operating EBITDA margin stabilizing at about 11% by FY '28 as we progressively integrate the new and existing business lines. It is important to contextualize our margin outlook within the evolution of our revenue model. Historically, our conversion business model has delivered operating EBITDA margins in the mid-20s, owing to very limited raw material exposure. With the transition to an integrated downstream steel processing model, our cost structures will change. Steel inputs will now form a part of our cost structure, resulting in raw material costs, comprising around 80% of our revenue. Accordingly, consolidated operating EBITDA margins will moderate as the legacy business blends with a more input-intensive model. However, this should not be viewed as a deterioration in performance. Rather, it reflects a conscious pivot towards scaling volumes, deepening the value chain integration, getting closer to the consumers and enhancing stakeholder value. We would encourage you to interpret margin trends alongside absolute value creation. While margins may normalize, the top line is set to expand materially, and PAT is expected to grow at a robust 40% CAGR over the next 3 fiscals with PAT margin expected to stabilize at about 5% by FY '28, resulting in a capital on -- sorry, resulting in a return on capital employed of over 18%. We are pleased to inform you that the company's external credit rating has been reaffirmed at A by India Ratings and Research of the Fitch Group, reflecting a strong balance sheet and prudent financial management. This must be viewed in light of the additional debt planned for the Bokaro expansion. Overall, quarter 2 FY '26 was a transitional quarter characterized by short-term operational challenges and proactive steps aimed at reinforcing long-term resilience. With key projects progressing as planned and strategic initiatives gaining momentum, the company is well positioned to mitigate customer concentration risk, deliver sustainable growth and create long-term value for shareholders. Thank you so much, Rohan. Over to you. Rohan, [ did I ] put you to sleep?

Yes. Am I audible?

Yes, you are. Thank you.

Okay. So yes, so we will move on towards the Q&A round. [Operator Instructions]

[Operator Instructions] The first question is from the line of Bhavesh who is an individual investor.

So my first question is with respect to the revenues. So did this quarter include any trading activities?

No, it is not, Bhavesh.

Okay. Sir, second question is that we know that the EBITDA margins have improved this quarter. So what factors drove this increase?

So there are -- don't read too much into that. I think the important thing to remember is that we are still in the 23% to 25% range. Some of these things change based on we started selling our own galvanized coated products. We may have got a market upswing in some products or something like that. The factor mix [ is better ] a factor of mix, the product mix, the zinc pricing and all of that. So I wouldn't read too much into that.

So can we accept an uptick in the margins or it will remain at this level only?

No, I think it's safe to say that we'll remain in the 23% to 24% margin.

Perfect. And your press release mentioned that the company is in the final stages of contract negotiations with the key customers and that operations and volumes are expected to normalize in the coming months. So can you confirm, is this customer Tata Steel?

So we usually do not name the customer, but it's a key customer, and what you're talking about is only for the TMT segment, yes.

So Tata Shaktee is the...

Tata Shaktee is the roofing sheet brand and not the TMT brand, but yes.

So what is the expected size of this contract and the revenue contribution?

So it's a little early to talk about that. I'm sure as and when that happens, we will come out with an adequate disclosure here.

Okay. And sir, so the current status of the Bokaro Greenfield project. So if you could -- so 1 request would be that if you could upload a few pictures on the website of the company so that all the investors and the potential stakeholders are aware of what is exactly happening. Because there is no update apart from the press releases and the presentation. So we have no idea where the project is at, where is it at the...

Bhavesh, point well taken. While I'm not sure whether I can do that on the website, but I'll definitely make it a point to update the presentation, the following subsequent presentation.

Yes, we can add the pictures on the presentation.

The pictures like every quarter, what exactly is happening, like where it is at. So the stakeholders will be quite impressed with the company.

Having said that, you are most welcome to visit, yes. I mean, there's no better way to check up...

While we will do that, but if you visit, you will really get the pulse of the progress.

Okay. And sir, how confident are you that the revenue will begin flowing from Q1 FY '27 as guided?

I mean, how do I say this, on a scale of 0 to 10, I'm above 9.

I mean, we won't stick out to write it on the...

I mean, that's the only reason I've not said 10.

But yes, very much confident?

I am, yes.

Okay. Sir, I will come for the follow-up round.

[Operator Instructions] The next question is from the line of Aditya from [ Sarthak ] Securities.

Am I audible?

Yes, please.

So my first question is, what is the expected time line for the completion of contract renewals with your key TMT customers? And what are the anticipated volume ramp-up targets post renewals? And following up, how does the current TMT segment utilization of 43% compared to normalized operational capacity? And what growth trajectory are you projecting for FY '26, '27?

So okay. So I'll just break that into different questions. One is I would not want to put a final time line on closure of the negotiations. I'm just a little superstitious, I might jinx it. So I'll leave that for now. But like I told Bhavesh, I will surely come out with a press release within 24 hours of the contract getting finalized. That is one. Typically, if you look at the preceding quarters, our utilization on TMT has been closer to the 70%, 80% range. And we are hopeful that one is finalized. We would like to ramp up to that within -- as soon as possible. There are various aspects of that. We are still in the discussion. So without doing -- without disclosing -- without the fear of disclosing things that I can't disclose, I think needless to say that this was an operating plant. It won't take very long to ramp up. But there are a lot of other factors that we need to look at. For '26, '27, our overall guidance remains the same and onwards as well.

Sure, sir. Okay. So the next question is management mentioned CRM volumes were impacted by raw material shortages at the customer end. So like what percentage of CRM complex revenue is now coming from proprietary GI product sales versus contract manufacturing?

So in the quarter under discussion, the volumes coming from proprietary were very, very small. We will see those numbers growing up in the future quarters. But in the last -- in the quarter under review, the reason why it was small is because we had to start at a very short notice. And so while that was done, it will hold us in good stead in the future. In the quarter under review, it was not too much. I think we had about maybe [ 2,000 or 3,000 tons ] or something.

Okay. So like what margins are you achieving on proprietary sales compared to contract manufacturing? And how does this shift into...

Sorry, but we don't get into individual margin discussion yet.

Okay. Sure, sir. Sir, the last question, sir. The Pipes and Tubes contract has been extended until H1 FY '27, I reckon, with expected revenue of around INR 365 crores. So like beyond this contract expiration, what is the strategy to sustain and grow this segment?

I didn't grasp your question completely. Can you...

So like the Pipes and Tubes contract has been extended until H1 FY '27, I reckon, with expected revenue of INR 365 crores. So beyond this contract expiration, what is the strategy to sustain and grow this segment?

So I think this is a part of our offering on the conversion vertical. We are not -- we have given a guidance of up to FY '28 on this, where the capacity that we hope to finally create by the end of this year, about 700,000 tons. Till at least FY '28, we are looking at consistently ramping up the volumes in this. So the -- once we are closer to, let's say, 70%, 60%, 70% utilization, we'll start talking about steps to sustain it. But until that point, I think we are only talking about ramping up to a higher utilization number. Having said that, 4 years down the line here. So I mean, it's a little early to talk about that.

Absolutely. And sir, lastly, like what is the customer concentration risk in Pipes and Tubes? And are you actively pursuing like new customer relationships as well?

In Pipes and Tubes?

Yes.

No, we are not. So we have -- our entire capacities are contracted to our primary customer. And we are not looking at any other customers in that segment as things stand now.

[Operator Instructions] The next question is from the line of [ Virag from VS ] Investments.

I would like to ask for the [ ROE and ROCE ] and return on capital has declined from 10.8% in FY '25 to 8.2% annualized in September '25 while ROCE stands at around 10.2%. Given substantial [ credit ] requirement, at what revenue and EBITDA levels all these metrics [ recovered to ] FY '25 [ levels or better ]?

Just let me get this clear. Do you want to know the reasons for the reduction in the ROE and the ROCE?

Yes. And when can we see the recovery [ path ]?

So the reduction is essentially because we have had higher investments on account of our own proprietary products and sales, which is not yet fully ramped up. So once it fully ramps up and that cycle hits in, then a lot of these metrics will come to a stable state. And typically, what happens is the H1, indicators are always lower than the full year indicators. So I would request you not to compare the September numbers with the March full year numbers. And also, we've already guided that once our ramp-up in capacity, in-house capacity goes up, then we're looking at, I think, 18% return on equity is already capital [indiscernible], not ROCE. So if you look at the opening remarks, which you have read just now, by FY '28, we're looking at a ROCE of about 18%.