Hi-Tech Pipes Limited (HITECH) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Hi-Tech Pipes Limited Q3 FY '24 Results Conference Call hosted by Antique Stock Broking Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Pallav Agarwal from Antique Stock Broking Limited. Thank you, and over to you, sir.

Yes. Thank you, Nirav, and good afternoon, everyone, and a warm welcome to the third quarter results call of Hi-Tech Pipes Limited. We have the senior management of the company represented by Mr. Anish Bansal, the Whole-Time Director; and Mr. Arvind Bansal, Executive Director and CFO, with us on the call today. So I would now like to hand over the call to Mr. Anish Bansal for his opening remarks. Yes, over to you, sir.

Good afternoon, and welcome, everyone, in our Q3 ended 31 December 2023 Earnings Conference Call. I am joined on the by Mr. Arvind Kumar Bansal, ED and Group CFO; Mr. Arun Sharma, Company Secretary of the company. I hope everyone has had a chance to go through our results and investor presentation uploaded on the exchange. Now let me take you through our financial highlights and the vision of the company going forward. As you are all aware that the government of India has taken the vision of Viksit Bharat on the 100th anniversary of its independence. This is a very ambitious vision, and it opens up a lot of opportunities for every industry, particularly infrastructure and construction sector. The national infrastructure pipeline for FY '25 is a first of its kind, all of government's exercise to provide world-class infrastructure to citizens and improving their quality of life. Under this policy, an investment of INR 1.1 lakh crores is expected for the development of world-class infrastructure in near future. Steel consumption is also expected to increase from current 120 million tonnes to 250 million tonnes by 2030. And the same goes for tubes and pipes sector as well. Your company also took this challenge as an opportunity. And it is certain to achieve the vision of 1 million tonnes installed capacity by 2025. The focus of the company to increase proportion of its value-added products is also yielding positive results. And it has increased from 26% in FY '23 to 31% in Q3 FY '24 and 29% in 9 months FY '24. We have the vision to increase this share to more than 50% by FY '26. During the quarter, the company has supplied its material to many upcoming prestigious projects of the country, including Sardar Vallabhbhai Olympic Sports Enclave at Ahmedabad; Surat Diamond Bourse, the world's largest building at Surat; high-speed rail corridor for Mumbai-Ahmedabad bullet train project; and Jal Jeevan Mission across several states in India. Sanand Unit 2 Phase 1 project of the company is also in the final stages of commissioning and trial production. This project is equipped for manufacturing high-end pipes for solar tractors and has got approval from various solar tractor manufacturers of the world. Phase 2 will be focused towards the oil and gas sector with highly specialized surface coatings. Now coming to the quarterly performance. The turnover of the company has increased from INR 569 crores in Q3 FY '23 to INR 630 crores in Q3 FY '24, an increase of more than 10%. Sales volume has also increased from 91,232 tonnes to 98,473 tonnes, an increase of 8%. This has been achieved in spite of global challenges of steel prices decline. The EBITDA of the company has increased from INR 28 crores in Q3 FY '23 to INR 31.57 crores in Q3 FY '24, an increase of more than 12%. Profit after tax of the company has increased from INR 13.02 crores in Q3 FY '23 to INR 14.33 crores in Q3 FY '24, an increase of more than 10%. During the 9 months, the turnover of the company has increased from INR 1,683 crores in Q3 FY '23 to INR 2,018 crores in Q3 FY '24, an increase of 20%. Similarly, sales volume has also increased from 2.48 lakh tonnes to 2.83 lakh tonnes, an increase of 14%. This again has been achieved in spite of global challenges of declining steel prices. The EBITDA of the company has increased from INR 61 crores in Q3 FY '23 to almost INR 80 crores in Q3 FY '24, an increase of more than 17%. The PAT of the company has increased from INR 21.84 crores in Q3 FY '23 to INR 32.81 crores in Q3 FY '24, an increase of more than 50%. The outlook for the coming quarter. With the steel prices stabilizing and the restocking by dealers and distributors expected from this month. Along with the rich basket of steel products and the new facilities at Sanand Unit 2, we are very confident that all these positive factors will pave the way for achieving the best-ever quarterly performance for the upcoming quarter. Now we may discuss over questions and answers.

[Operator Instructions] The first question is from the line of [ Ritwik Sheth from One Up Financial Consultants ].

Sir, a few questions from my end. Firstly, in the press release, you have mentioned that by FY '26, you target to reach 50% value-added products for the total volume, which is right now close to 30% on our volume run rate of about 1 lakh tonne per quarter. So when FY '26, probably we will be doing much higher volumes from current levels because of the new capacity coming up. So can you highlight and give us a rough -- what is the incremental volume application and which sectors? What are the product portfolio going from this 30% on current capacity and then 50% of the higher capacity?

Yes, Ritwik. So here, all the upcoming capacity in Sanand and wherever we will be putting up the fresh capacity, this is all focused towards value-added products. So there will be like galvanized, there will be different kind of coatings on this. There will be different SKUs, such as like solar trackers. The solar torque tube that we have launched recently, we have got a very good response for this and similarly, the galvanized pipes for Jal Jeevan Mission, so all these new capacities and, of course, oil and gas also in future. So all these fresh capacities that are coming up are focused only towards value-added products.

Okay. So basically, when we go from 5,80,000 towards 10 lakh tonnes, this 4,20,000 will be majority, more than 75%, 80%, will be -- the capacity will itself be towards value-added products, right?

Absolutely, absolutely. And also, the roofing business that the company ventured very recently, this is also again a value-added product, the color-coated roofing sheet.

Right, right. Okay. And sir, you mentioned solar torque tubes. So that I believe is coming from Sanand, the current which is getting built. So when can we expect commercial sales from the solar for that application?

So from this quarter itself.

Okay, from Q4 itself.

Yes.

Okay. Sure, sure. Okay. And sir, this -- what -- can you give a color on the EBITDA per tonne for these value-added versus our blended EBITDA per tonne of about INR 3,200 currently? Would it be meaningfully higher, closer to INR 5,000...

So Ritwik, the EBITDA per tonne for the value-added products ranges from INR 4,000 to INR 5,000 per tonne on a 12-month average basis.

Sure, sure. Okay, okay, sure. And sir, second question is on the working capital. We are in the range of 45 to 48 days currently. So is there any scope of reduction from current levels, from 45 to 48 days? What are we targeting over the next 2 to 3 years once we get in the higher capacity? If you can throw some light on that, it will be helpful.

So Ritwik, as you will have noticed, even last 2 to 3 years, we have bring down this net working capital days from like 70, 75 days to now 45 days. And I'm sure with the new capacities and new SKUs and more of our marketing penetration, so this should come down. We are focused on this, and we want to like have the best possible efficiencies in terms of working capital. So we'll try to bring it down. So our internal target is to bring it to 30 to 35 days. So let's see how and when it happens.

Sure, sure. And so for this huge jump in capacity from -- in the next 15 months, are we looking to add any distributors, dealers from the current base? How is it right now and how we target to take it over the next 2 years?

Ritwik, I think there will be an increase of about 20%, 25% in terms of our dealers and distributors over the next 15 months. And we are engaging a lot with our distribution channel partners on a very active basis. And we'll be expanding this once our Sanand Unit 2 comes up.

Right, right. And what is the current base, sir?

So currently, we are at around 400 dealers and distributors.

Okay, sure. And sir, one last question from my end. What will be the CapEx for FY '25?

FY '25 CapEx will be around INR 100 crores. It's a ballpark figure. It may vary like by 10%, 15%.

Okay. And this will be to reach like 7,50,000 to 10 lakh tonnes, right?

Yes.

Okay. And this will be coming in brownfield, existing...

Yes, yes, that is correct.

[Operator Instructions] The next question is from the line of Vikash Singh from PhillipCapital.

Sir, I just wanted to understand, since our -- most of the capacity is now commissioned, what kind of volume growth we are envisaging in FY '25 and then FY '26?

Sir, I'm expecting at least a 20%, 25% jump in the net sales volume. Q3, this capacity of 1.5 lakh tonnes, this will be on stream in this quarter itself. So basically, we'll have a room of expanding our sales volume by 80,000 to 1 lakh tonnes for next -- for the upcoming year.

Okay. And by when we are expecting 1 million tonne capacity to commission and the volume growth for that?

So by end of FY '25.

Okay. So FY '26, again another 1 lakh to 1,25,000 tonnes...

Yes, sir.

Understood, sir. Sir, we have already seen some improvement in our EBITDA per tonne. So by FY '25, our volume value-added sales mix plus the targeted EBITDA per tonne, if you could give us that number, it would be really helpful.

So Vikash-bhai, it will be on the upward trajectory for sure. So our internal target is -- it matches your expectations. But I just want to keep fingers crossed. There is an election year also. So there will be 1 or 2 months, maybe the markets may not be as good as we expected. But definitely, the one thing I can assure you that the EBITDA per tonne will be rising because of the initiatives that we have taken in last 2 to 3 years. So all the markets, geographies, SKUs, our product verticals, everything is aligned for a much higher EBITDA per tonne.

Understood. And sir, second question, in terms of value addition, so in terms of capacity of 1 million tonnes by FY '25, what is it the value-added capacity in the mix?

Sir, almost, you can say the value-added capacity will be around 60%.

Understood. So that would also help in our EBITDA per tonne. Sir, just one last question. Some of our competitors have been -- had a very aggressive plan basically. So just wanted to understand, are we in a right [ mood ] to announce further capacity expansion beyond 1 million tonne because that is kind of the visibility is already there? And by when we can expect something from you?

So Vikash-bhai, we are not going to stop at 1 million tonnes. But we want to go step-by-step. So 1 million tonnes itself is almost like a doubling of the production volume. So we'll be going step-by-step. And we have done like lot of our homework for the further capacity expansion. And it will happen in due course, but we want to go one-by-one.

Next question is from the line of Dhyey Desai from Niveshaay Investments.

I just had this question that we are focused a lot on the infrastructure and construction sectors. So considering that this is an election year, do we expect any lag of a quarter or 2 in our demand? Or how do we expect demand growth in FY '25 as a whole?

So basically, currently, as I can see, we are having a decent order book for infrastructure and construction sector. So that will be pulled off till March end comfortably. And within these next 2 to 3 months, I am sure our marketing team can accumulate enough orders that will sail us through Q1.

So can you just guide me on the order book in terms of volume?

This volume currently that we are having the order book is suffice for March numbers. It isn't -- I cannot give you the exact number, but it is in excess of 25,000 tonnes.

Okay, got it. Also, I wanted to understand how is the revenue per tonne and EBITDA per tonne for the color-coated sheets or color-coated coils?

So EBITDA per tonne for color-coated coils is [ in excess ] of INR 4,000 per tonne.

Okay. And what is your revenue per tonne, like considering there are stable steel prices?

So typical will be around INR 75,000 per tonne for color-coated.

[Operator Instructions] The next question is from the line of Akash Singhania from AART Ventures. [Operator Instructions]

Anish, I have two questions. First is on the, yes, capacity, as you mentioned, we'll have around 1 million tonne of capacity by next year FY '25 end. Then let's say, post the commissioning of this capacity in FY '26, what is the tentative utilization we can have? And what could be the peak utilization or volumes we can have from 1 million tonne capacity?

So sir, peak utilization across our sector is around 70%. And by FY '26, I think we shall have all this capacity up and running. But even then, I would say like 60% is a very safe assumption because of this election year also. But for FY '26, I think we'll have good amount of volumes in our hands.

Okay. And my second question was on recent interview on ET Now around 9, 10 days back, which you had given and you have given a target EBITDA for FY '26. Actually, it was a bit unclear to me. Was it INR 250 crores or INR 450 crores? So can you just reiterate that, the target which you have put for our company for FY '26?

That is INR 250 crores, FY '26, yes.

Okay. So just to break down this INR 250 crores, like as per my math, even if we do 6 lakh tonnes into INR 3,000 EBITDA per tonne, it goes to INR 180 crores. So where would my calculation or math go wrong? Like if you could just guide sir...

FY '26, we are targeting a higher EBITDA per tonne. Currently, we are at INR 3,100, INR 3,000 to INR 3,100 in this...

So INR 3,500 per tonne, I think, would be a reasonable assumption.

For FY '25, it's INR 3,500. And for FY '26, we are targeting INR 4,000 per tonne. Because by that time, we'll have all the oil and gas and expanded capacity of color-coated roofing also and expanded capacity of the galvanized steel and pipes also.

Okay. So these value-added products, out of 1 million tonnes, what will be the total capacity for value-added products?

Almost 6 lakh tonnes.