Hi-Tech Pipes Limited (HITECH) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Q4 and FY Earning -- '24 Earnings Conference Call of Hi-Tech Pipes Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anish Bansal, Whole-Time Director of the company. Thank you, and over to you, sir.

Good morning, and welcome, everyone, in our Q4 and FY '24 Earnings Conference Call. I'm joined on the call by Mr. Arvind Bansal, Executive Director and Group CFO; and Mr. Arun Sharma, Company Secretary and Compliance Officer of the company. Today, it's our pleasure to discuss the financial performance of the company, which, despite a year marked with turbulence in HRC prices, has demonstrated resilience, adaptability and commitment for the achievement of the division.. During FY '24, we have recorded ever highest revenue from our operations of INR 2,700 crores as compared to INR 2,358 crores in FY '23, a growth of 13% Y-o-Y. Sales volume increased by 10.5% to 3.91 lakh tonnes in FY '24 as compared to 3.54 lakh tonnes in FY '23. Capacity utilization has increased from 60% to 67% in this year. EBITDA increased by 11% to INR 115 crores as against INR 103 crores in FY '23. PAT increased by 16.5% to INR 44 crores in FY '24 as compared to INR 38 crores in FY '23. During this quarter, revenue from operations declined by 3% to INR 681 crores as compared to INR 702 crores in Q4 FY '23 due to reduction in steel prices. Volume remained flat at 1,07,000 tonnes. EBITDA improved by 4.7% to INR 35.35 crores versus INR 33.75 crores in Q4 FY '23. EBITDA per tonne has improved by 5% to INR 3,280 as compared to INR 3,147 in Q4 FY '23. PAT declined by 29% to INR 11.2 crores as compared to INR 15.9 crores in Q4 FY '23 due to steep decrease in steel prices and increase in finance cost. Now let me take you through the operational highlights of the company. During this year, the company has supplied its material to various prestigious projects across the country. To name a few: Narendra Modi Cricket Stadium, the world's largest at Ahmedabad; Surat Diamond Bourse, the world's largest building; high-speed rail corridor for Mumbai, Ahmedabad bullet train project; Jal Jeevan Mission, world's largest portable drinking water program; Noida International Airport, Asia's largest upcoming airport; Adani Green Solar Park at Khavda, world's largest renewable energy park. We are inching towards achieving our vision of 1 million tonnes. And during the year, the company has started commercial production of its much-awaited Greenfield manufacturing facility at Sanand Unit II. This facility of 1.7 lakh tonnes of installed capacity is fully equipped to produce complete size range of steel pipes ranging from 0.5 to 16 inches. This facility is one of its kind and is capable to produce best-in-class solar tracker torque tubes and large diameter pipes, which are currently in a big demand across the sectors, especially water, infra and green energy. This facility will significantly contribute to increase value-added products and operating margins of the company. Further, construction activities at Sikanderabad, Unit 3, with proposed installed capacity of 1.5 lakh tonnes, is in full swing and hopefully, commencement of commercial production will start in Q4 of financial year '25. This facility will help us penetrate deeper in Northern and Central India. The project progress of Phase 2 of Sanand Unit II for capacitization of 1.1 lakh is also on track and is expected to start within this current financial year. Demand drivers. The Government of India has taken the vision for Viksit Bharat on the 100th anniversary of its independence. It opens up a lot of opportunities for every industry, particularly infrastructure and construction sector. Huge government as well as private CapEx is expected to be spent in coming 4 to 5 years, which leads to increase in steel pipes demand additionally. All the above developments are setting a stage for robust coming financial year. As we move forward, our strategy is clear to maintain financial discipline while driving growth through innovation and market expansion. The foundation we have built is strong, and I'm optimistic about what the future holds for Hi-Tech Pipes. We are poised to not only meet but exceed our financial goals. We may now open the floor for question and answers, please.

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

Actually, I missed your initial comments. You told us about the Sikanderabad unit, right? The Sanand Unit with 1.1 lakh MTPA capacity, when is it going to commission?

The Sanand Unit II, we commissioned this project in the month of January, and we started commercial production in the month of March.

That is fine. But sir, after the Sikanderabad, I guess, we have 1 more lined up, right, sir?

Yes. So that is the Phase 2 of Unit II, which is of the capacity of 1.1 lakh tonnes and the construction -- we have started the construction for this project at Sanand.

It will be Phase 2 of Sanand, right?

Yes. Correct.

And it is -- when it's expected sir, the commissioning?

In Q4 of this financial year.

So Sikanderabad as well as Sanand Phase 2, both are expected in Q4 of FY '25?

Yes, sir.

And sir, one more thing is, what I wanted to highlight is, we are missing our guidance on the EBITDA per tonne. Is it basically due to the reduction in steel prices?

Yes, sir, you're absolutely right. But in Q4, we saw a steep steel price reduction to the tune of INR 2,500 to INR 3,000 per tonne. This is unprecedented. But even then the company showed its resilience and our market penetration and our strong network, but the EBITDA per tonne hovered around INR 2,300 despite a steep price reduction, steel price reduction. But now the steel prices are aligned with the international prices, and we don't see any further steel price drop from hereon.

So sir, what is the guidance for EBITDA per tonne in FY '25? How do you see the company on a quarter-on-quarter basis?

Sir, the company is doing EBITDA per tonne in the range of INR 3,700 crores to INR 4,000 on a blended level, but the steel price reduction, this rose about INR 400 to INR 500 per tonne.

No, I got your point. But sir, how do we see the EBITDA per tonne for FY '25?

Sir, there will be definitely increase. Our internal target is INR 4,000 per tonne. And if the market and once this election period is over, we expect huge flow of orders, especially on the infrastructure side.

Sir, do we see any lean period because of elections? Do we see a weak Q1 due to elections?

Sir, what has happened is the new orders, the new tenders by the government that are on hold. So I think we will maintain our volumes, but a big jump in terms of orders, we'll see from mid of Q2.

So I mean is it fair to assume a degrowth in Q1 on a quarter-on-quarter basis?

No, sir, the demand is strong because the steel price has stabilized, so restocking has started happening at the distributor's end. So there is no degrowth in Q1. There should be a positive growth.

And sir, as per the media interview, we had initially guided about 4.5 lakh to 5 lakh tonnes of -- in volumes?

That is correct. That remains intact.

The next question is from the line of Pradeep Rawat from Yogya Capital.

So my first question is about the industry size and what is our market share?

So the total estimated market for ERW steel pipes is around 8 lakh tonne to 1 million tonne. This is -- hello.

8 lakh to 1 million tonne.

Yes, this is per month. So basically, on an annualized basis, 10 million tonnes.

Okay. Okay. And what is our market share?

So we are targeting this year, 5 lakh tonnes, so you can say about 6% to 7%.

Okay. So what is our long-term target for market share?

So we are growing by -- we are building our capacity. We are scaling our production by 20%, 25% per annum. So that should be intact for next 5, 7 years.

Okay. So my next question is regarding the -- what is our raw material and how do we like manage fluctuation in raw material prices? Do we hedge our raw materials or something like that?

So our raw material is hot-rolled steel coils, we source it from primary producers. And in terms of this, Q4 was the extreme months where we saw steep decline within a single quarter. So we try to book as many as the fixed price orders. There's -- we hedge it now naturally by the orders and we try to procure the material just before the production. So that is how we try to manage this volatility.

Okay. So on an average, how much time does it take to convert the raw material and sell it?

So approximately 40 days; 20 days, we maintain our normal inventory and 20 days is finished goods inventory. So you can -- in totality, you can take 40 days.

Okay. Fair enough. And taking a step behind over the years, I can see our operating margin had consistently declined from 6% to now 4%. So what is the reason behind this?

Sir, in our industry, we are working on an EBITDA per tonne basis. So if you see the EBITDA per tonne that is almost stable. In the last 2 years, we have seen the steel prices fluctuating very, very widely. But now in Q4, the prices, the domestic steel prices have aligned with the international prices now. So I think there's no more steel price fluctuation, I foresee the EBITDA per tonne, which we are targeting of INR 4,000 per tonne should come there with the kind of value-add products that we have right now.

Okay. So our value-added product portfolio stands at 30%.

35%. So this year, we closed our total VAP share at 35%. And this year, we are hopeful of -- in excess of 40%.

So like if you assume that our VAP share would be constrained, so how should you see sustainable EBITDA per tonne from here on?

So 35% -- we are targeting our VAPs in above of 40%, number one.

Yes. If we assume at 35% constant.

So there are 2 facilities. The Sanand II is completely value-added products. The torque tubes, the large diameter pipes and there are some special SKUs being developed over there.

Okay. So these value-added...

Whatever added capacity is coming in, is towards value-added products.

Okay. So these value-added products have higher margins. So what kind of margins do they get like EBITDA per tonne basis?

INR 4,000 to INR 5,000 per tonne.

Okay. So my next question is regarding the margin only, I can see your peers have -- similar peers to you have higher margins than you like 6%, 7%, close to 6%, 7%. So what could be the reason behind it?

Sir, if you talk about the industry leader, APL Apollo, they are doing INR 4,200 per tonne EBITDA on a blended level.

Yes. So why their margins are better than us?

The scale is there and there, your share of VAPs is almost 50% to 55%.

Yes. If I see JPL industries, they also have 6% to 7% margin, and the scale is similar to us. So why is that different?

So sir, basically, when we talk about JPL, it's not the right comparison because their -- half of their share is in the secondary steel products also. So from the recycling. So that's not the ideal. So when you talk about JPL, that is the most nearest competitor.

Okay. Okay. Understood. And regarding our trade receivables, that has increased 50% year-on-year in FY '24 as compared to 13% rise in top line. So how should I read it?

So sir, in this Q4, we had big orders from the Jal Jeevan Mission and we had supplied like big quantity there. So typically, the receivable cycle days is 45 to 60 days in the scheme. So I think this should get evened out in the coming quarter.

Okay. Okay. So...

It's a temporary -- it's a temporary increase.

Okay. Okay. So we should see like it's going to be normal.

Yes, coming years. Yes.

Okay. And the other question is regarding the discount we give to our distributor or sales agents to push sales. So how it has been right now? And how has it been historically?

Sir, just Q4, we had to give some like extra discounts. Other than that, the discounting is as per the industry norms, it's not high. So just to safeguard their inventory costs, we have given some additional support. Other than that, it is okay.

The next question is from the line of Rahul Agarwal from Bandhan Mutual Fund.

How much would have been the inventory impact?

Sorry to interrupt you, sir. Your voice is very less. Can you come near to the mic and speak, please?

Better?

Still lower, sir, but better.

How much of the inventory impact in [indiscernible].

Sorry to interrupt you, sir, your voice is breaking now. May I request you to use your handset, please?

Yes. Is this better?

Yes, it's better now.

Yes, I'm asking, how much is the inventory impact in Q4? Let's say, it was normalized, so then what would have been the EBITDA per tonne?

Yes. So in the Q4, the total steel price reduction was to the tune of INR 2,500 to INR 3,000 per tonne. And our total impact on EBITDA per tonne due to this factor was around INR 400.

INR 400. Okay. Going ahead in Q1, so you said there is some bit of an increase. So we should see an inventory gain, that's a fair assumption?

Yes, sir. Let's hope so, sir.

Okay. And volume you mentioned for this year will be in the range of 450,000 to 500,000?

Yes, sir, 4.5 to 5 lakh tonnes because we will have the installed capacity at 7.5 lakh tonnes. And considering this is the first year for Sanand II, so 4.5 lakh tonnes is the minimum, which is at 60% on a blended level, and the optimistic case is 70% utilization, which will take to 5 lakh tonnes. So we'll hover between this.

Okay. And your journey towards lets say million tonne, will it start this year or it's mostly the next year probably?

So sir, 7.5 is already there and the other 2.6 will get operational in Q4, end of Q3 and beginning of Q4.

So at the exit of FY '25, you should be at 1 million tonnes. That's a fair assumption?

Yes, sir.

The next question is from the line of Pallav Agrawal from Antique Stockbroking. [Operator Instructions] The next question is from the line of Shikhar Mundra from Vivog Commercial.