BMW Industries Ltd. (542669) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to BMW Industries Limited Q3 and 9 months FY '26 Earnings Call hosted by Arihant Capital Markets Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ronak Osthwal from Arihant Capital Markets Limited. Thank you, and over to you, sir.

Thank you. Hello and good afternoon to everyone. On behalf of Arihant Capital Markets Limited, I thank you all for joining into quarter 3 FY '26 Earnings Conference Call of BMW Industries Ltd. Today, from the management, we have Mr. Harsh Bansal, the Managing Director; Mr. Vikram Kapur, the CFO; and Mr. Sanjeev Sancheti, Investor Relations of Uirtus Advisors. So without any further delay, I will hand over the call to Mr. Sanjeev, sir, for their opening remarks. Over to you, sir.

Thank you. 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 starts 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.

Thank you, sir. Good afternoon, everyone, and thank you for joining us for BMW Industries Limited's quarter 3 FY '26 earnings call. This quarter marks an important step forward for the company with tangible progress across our strategic initiatives and operating performance. We are pleased to share that our greenfield downstream steel complex at Bokaro is progressing well. And during the quarter, achieved financial closure by tying up INR 500 crores of long-term debt financing from a consortium led by the State Bank of India, along with HDFC and Yes Bank, reflecting strong lender confidence and a key inflection point as we transition from a largely conversion-based model, to an integrated downstream steel processing business. Turning to financial performance. Operating income for quarter 3 FY '26 stood at INR 162.16 crores, growing 9.9% year-on-year and 11.9% quarter-on-quarter. Operating EBITDA for Q3 FY '26 was INR 3,855 crores, up 6.8% Y-on-Y with an operating EBITDA margin of 23.8%. Profit after tax for the quarter stood at INR 1,761 lakhs, reflecting a 16.3% quarter-on-quarter improvement. On a year-to-date basis, operating income for 9 months FY '26, stood at INR 45,573 lakhs with operating EBITDA of INR 10,690 lakhs and a margin of 23.5%. Our balance sheet remains strong and well positioned to support the ongoing CapEx cycle. Net debt stood at INR 23,231 lakhs with net debt to operating EBITDA at a comfortable 1.63x and net debt to equity at 0.3x, providing adequate financial headroom. As on 31st December 2025, ROCE stood at 10.1% and ROE at 8.5%, reflecting the ongoing capital deployment for the Bokaro greenfield project and the transition phase ahead of commissioning. Operationally, our CRM segment witnessed a strong rebound with dispatches increasing 18.1% sequentially, supported by improved offtake, firm pricing and better demand conditions. In parallel, we continue to build out our proprietary downstream business and established early-stage sales network, positioning us well for a smooth integration with the commencement of first phase sales from Bokaro by early FY '27. We reaffirm our medium-term growth guidance 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 the organic growth in our existing business verticals. Operating EBITDA is expected to grow at a CAGR of 45% over the same period, with operating EBITDA margin stabilizing at around 11% by FY '28, as we progressively integrate our new and existing business lines. It is important to contextualize our margin outlook within the evolution of our revenue model. Historically, our conversion-based business has delivered operating EBITDA margins in the mid-20s, largely due to minimal raw material exposure. As we transition to an integrated downstream processing model, our cost structure will naturally evolve. Steel inputs will now form a part of our cost base with raw material costs comprising approximately 80% of revenue. Consequently, consolidating 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 but rather reflects a conscious pivot towards scaling volumes, deepening value chain integration, getting closer to customers and enhancing stakeholder value. We encourage investors to assess margin trends alongside absolute value creation. While margins may normalize, the top line is expected to expand materially and profit after tax is projected to grow in the range of 35% to 40% CAGR over the next 3 fiscals, with PAT margin stabilizing at approximately 5% by FY '28, resulting in a return on capital employed of 15% or more. With the greenfield expansion progressing as planned, we remain confident in our ability to enhance operating resilience, diversified our revenue base and deliver sustainable long-term value to our stakeholders. With that, I will now open for questions. Thank you.

[Operator Instructions] Our first question is from the line of [ Bhavesh ] an Individual Investor.

My first question is on the revenues. Did the current quarter include any trading revenue? And if yes, so could you quantify the trading component and its margin profile versus the core manufacturing revenues?

Bhavesh, welcome back. This is going to be a very short answer. No, it does not include trading revenue.

That's great, sir. So we can see an increase of revenue this quarter. So going forward, we can expect the same increase in Q4?

Yes.

So with only the Q4 remaining in the financial year, do you believe that the full year revenue guidance is still achievable? Like specifically, if we expect Q4 revenues to exceed INR 200 crores so that your guidance will be met?

I think we are well on track to do that, yes.

Okay. So we can expect a good revenue in the Q4, better than...

Are you -- I mean, what you're trying to say is that will we achieve INR 200 crores Q4 revenue...

Yes. Because if you have given a revenue guidance of 15%, so is that achievable in the -- if you do INR 200 crores in the fourth quarter? Can we expect that to happen? Not a specific number, but at least that 15%...

Yes, yes, yes. I was just coming to that. I'm not sure whether I can give you a specific number, but needless to say, I think the trajectory will continue.

Perfect. Perfect. And sir, could you share the current unexecuted order book as of date and the expected execution time line over the next 3 to 4 quarters?

No, no. The -- our order books are more time-based than specifically value-based. The values are more indicative than anything else. So the CRM contract remains for 5 years. The tube contracts, as earlier indicated, remains for I think 3 years and the extension in the TMT contract is for 12 months, which means until November '26. And the volumes which have -- sorry, the values, which have been indicated earlier, remain conservatively on track.

Understood. So coming to your contract part, so in your FY '26 Q3 press release, you had mentioned the contract being in the final stages of the negotiations with the key customer with expectations of normalization in volumes. So could you update us on the current status of the contract and whether volumes have started stabilizing?

We are talking about the TMT contract, if I'm not wrong?

Yes, there was -- I guess it was with the Tata Steel.

I mean most of my contracts are with Tata Steel, so that is kind of a given. But yes, the TMT contract has been renewed and it's a 12-month contract for now. We are discussing longer-term options. And yes, the volumes have stabilized, albeit a little lower, but they have stabilized.

Okay. And sir, in this quarterly presentation in one of the segment, Other segment has grown about 95.6% year-on-year. So could you explain what this segment comprises and the reason for such a sharp increase in the quarter? Should we consider this increase in Other segment as a one-off? Or do we expect a structural improvement and sustained contribution from this segment in the coming quarters?

So the Other includes some of the smaller plants and smaller revenue streams which -- and the reason why we don't put them into individual is because they were too small to put. However, going forward, as and when they continue to get larger, we will consider splitting them into their own verticals. But needless to say, yes, these are -- there is an increase in those businesses and those plants as well, and therefore, that is reflected over here.

Because even Q2 '26 was 22% -- 23...

Yes. It has been consistent.

It's been consistently increasing. If you look at Q2 FY '26, then it was 22%, 23.35%.

[Operator Instructions] Our next question comes from the line of Rohan Baranwal from [ Deep Investments ].

Sir, my question is on the operational highlights side. So looking at a presentation, which has been published, so the overall installed capacity utilization is underutilized and ignoring the incremental capacity you had in the Pipes and Tubes segment, the capacity utilized at 30%. So is there any like challenges you are facing on the demand side or because of the steel prices?

Thank you, Rohan ji, for that question. So typically, in pipes and tubes, and the kind of conversion business that we do, the capacities will get created before they are integrated into the customer supply chain. In our case, we have created the capacity and we are very, very confident that the customer supply chain will ramp up to that. In the best case scenario, because of the variability, the size changing, the number of SKUs, a good amount of capacity utilization would be in the range of, let's say, about 60% to 65%. So we -- from here on, we can easily double the utilization. And we are fairly confident about that. On the CRM complex, like we spoke about, the volumes have started picking up, and we are hopeful of meeting our long-term averages.

Got it, sir. And a follow-up question on the Pipes and Tubes segment only. Like as you said, you would be like enhancing your capacity utilization to 60% to 65%. So when can we expect that? And what would be the plan for increasing this utilization? So how will we be able to scale up at this size, sir?

So there are 2 parts of that question, Rohan ji. So one is that we had indicated that before the end of the financial -- sorry, the fiscal year, we will get to about 7 lakh capacity. We are well on track to do that. And when we get together for the next quarterly con call, I'm sure I'll be able to update you on that enhancement. That is one. The second is that the capacity utilization of 60% to, let's say, 65%, we are working with the customer to see how soon can we ramp up, what are the different bottlenecks, whether it's logistics, transportation, wherever we can help them debottleneck and enhance. Additionally, there are new SKUs, there are existing SKUs, which are manufactured at various locations by the customer, how to rationalize that, what's the cost scenario, et cetera. So I don't want to put a specific number on that, but suffice to say that over the next 2 years, we hope to achieve -- we hope to achieve it.

Got it, sir. Got it. And sir, on the new greenfield capacity side, like on the Bokaro project. As we can see in the presentation, you have the total project cost would be close to INR 800 crores. So how this -- like how this capacity would be funded through? And can you also give some more like highlight on the PLI scheme side as well?

So the proposed funding is already a part of the presentation, Rohan ji. If you see, we have indicated that 70% is debt and 30% is equity internal generations. Of that, so the INR 803 crores is actually split into 2 parts of INR 748 crores and I think INR 55 crores or something. The INR 748 crores, the debt has already been tied up with, as I mentioned, SBI, HDFC and Yes Bank of INR 500 crores. And the balance, we are already working on, that will be tied up as well. The consent to establish on the balance because it involves pickling and use handling of asset took a little more time, but it's now with us, and we started working on that. What was the other part of...

Second part of the question, can you repeat?

My second part of the question was on the side of [ links ]. Okay. So question was mainly on the -- the funding of this debt. And also, what would be the finance cost of this debt, sir?

I'm not sure whether I can give you an exact number, but it's very competitive, below 8%.

Got it, sir. Got it. And sir, this greenfield capacity is actually focused on towards the value-added product side, the high-margin business. So what could be -- what is the incremental margin we can see from this color coating or gal volume or these galvanizing products, sir?

So I will not get into the specific individuals. But as I've indicated, the top line growth and the bottom line growth have been broadly done. Bokaro plant will include a range of finished products, which includes galvanized, galvalume, ZAM and color-coated. So it's very difficult to give you specific product-wise margins. On a blended level, we've indicated 11% EBITDA and 5% PAT.

Got it, sir. Okay. So I have some new -- few more questions. I will get in the queue so that others could ask questions.

I'm absolutely okay to continue Rohan ji, whatever you want.

Okay. Sure, sir. On the Pipes and Tubes segment only, what would be the contract expiry for these products, sir? And what -- like how diversified the volumes are? Can you give some more lights on like the customer or the product mix changes on this side, sir?

I'm not sure I understand your question, Rohan ji, but this is a tolling business where my customer is Tata Steel. And I don't think I can comment on Tata Steel's customers.

Got it, sir. And sir, what is the expected ramp-up profile for each major product line for the Bokaro plant? And like how does we compare it with our internal assumptions for the IRR calculations, sir?

So again, I think between first quarter of FY '27 and Q4 of FY '27, all the lines will go into operation one by one. And on the specific IRR calculations, I'm not sure I can comment on that at this point yet.

Got it. And sir, any guidance on the side of revenue contribution coming from Bokaro in FY '27, '28 and further?

We've given a blended revenue guidance. But beyond that, I would refrain.

Okay. And is there any backward integrated -- like integration with the Bokaro plant with the existing CRM or TMT operations in terms of sourcing or shared services or logistics, sir? What kind of synergies we can play on this side, sir?

I mean in due course, we will look at optimizing on synergies. But as of now, these have not been assumed.

I think that's answered majority of my questions.

[Operator Instructions] Our next follow-up question is from the line of Bhavesh an individual investor.

Sir, on the Greenfield Bokaro plant, are we still on track for commissioning of Phase 1 by April 2026? And should we expect meaningful revenues in the same quarter?

So number one, Bhavesh ji, yes, we are on track. Number two, considering this is a completely new business, and we will be sourcing some of our raw materials to begin with. There is a ramp-up phase. There will be meaningful revenues for me. I'm not sure as an investor, if you will find it meaningful, yes.

No, no. If it crosses like INR 200 crores, INR 250 crores -- if it crosses the 20% to 30% mark, then...

I don't want to get into the individual short-term kind of guidance.

I think we have given an overall guidance in our...

75%. I agree that 75% -- to achieve that 75% next year, you should cross INR 1,200 crores.

So it's not next year, Bhavesh ji, it's over the next 2 years.

So it's a CAGR.

It's a CAGR.

It may not be exactly equal every year.

Which is why we have given a 2-year indication and not year-wise.

Because the ramp-up of capacities are going to happen over the period, right?