Hi-Tech Pipes Limited (HITECH) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Hi-Tech Pipes Limited Earnings 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, Slok. Good morning, everyone. A warm welcome to the first quarter results call of Hi-Tech Pipes. We have the senior management of the company represented by Mr. Anish Bansal, the CEO; and Mr. Arvind Bansal, the ED and Group CFO. So I would now like to hand over the call to Mr. Anish Bansal for his opening comments. Over to you, sir.

Thank you, Pallav. Good morning, everyone, and thank you for being with us today. It is an honor to address you and share the remarkable strides our company has made over the past years. As we reflect on our journey and our achievements, I'm proud to say that we have solidified our position as a leading manufacturer of ERW steel tubes and pipes in India. There has been an election quarter in India, there was a code of conduct and slowdown in the government activities. Further, there was steel price volatility in the domestic and international market, but in spite of all these domestic and global challenges, our company has given outstanding performance and growth. This quarter, we achieved a record breaking sales volume of 1.22 lakh tonnes marking a significant 45% increase compared to 84,000 tonnes in Q1 FY '24. This milestone not only underscores our growth but also highlights our ability to meet and exceed market demand. Our revenue has risen impressively by 35%, reaching to an all-time high for any quarter of INR 867 crores, up from INR 642 crores in Q1 FY '24. Our EBITDA has more than doubled, increasing by 101% to INR 42.69 crores from INR 21.19 crores in Q1 FY '24. The substantial improvement in profitability showcases our focus on operational efficiency, cost management and value-added product share. Further, our profit after tax has surged by staggering 125% climbing to INR 18.05 crores compared to INR 8.03 crores in Q1 FY '24. This exceptional PAT growth is the direct result of our successful strategies in higher sales utilization, better inventory management, cost reduction and better product mix. A significant contributor to our success in this quarter has been an increase of share of value-added products and contribution made by our recently commissioned Sanand unit-II Phase-1. As we continue to ramp up operations, we anticipate an increase in its output and efficiency going forward. These advancements have played a crucial role in enhancing our production capabilities and market position. We are proud to have supplied 3 pipes for some of the country's most prestigious projects, including the Noida International Airport; Kangra Airport in Himachal Pradesh; Khavda Solar Park in Gujarat, which is the world's largest solar park; Agra Metro project; and Gandhi Nagar Metro project to name a few. These projects not only showcase the quality of our products, but also our capability to support major infrastructure developments. In addition, we have taken notable steps in this quarter to improve our sustainability and operational efficiency. Our proposed installation of rooftop solar generation power plant at our new Sanand facility is under progress and is expected to be commissioned in October 2024. The solar power purchase agreement for sourcing of green power through group captive open access is expected to be available in September 2024. Post this expansion, the total solar power consumption by the company will be at around 13.5 megawatt, which will be around 30% of our total power requirement. These initiatives are substantially aimed to reduce our energy costs. Further, we are actively engaged in the generation and captive consumption of green hydrogen gas, contributing to our commitment to environmental sustainability as well. The government of India has continued its thrust on infrastructure development in the country and has increased its total outlay to INR 11.11 lakh crores in the recent budget announcement. Hi-Tech is well positioned to leverage various government initiatives such as Pradhan Mantri Awas Yojana, AMRUT scheme, [indiscernible] Mission, railway corridor development, airports development and retail revolution. These initiatives are creating a favorable environment for growth and providing ample opportunities for us to expand our presence in the future. The construction of our brownfield facility with an installed capacity of 1.10 lakh tonnes in Sanand Unit-II Phase-2 and a greenfield facility in Secunderabad with an installed capacity of 1.5 [indiscernible] at full suing and expected to be operationalized within this financial year. By the close of this financial year, the Hi-Tech Group will be at 1 million tonnes of installed capacity. India has taken the ambition to achieve 300 million tonnes of installed capacity for production of steel in India by year 2030. We are also ready for Hi-Tech 2.0. In its journey of growth and development, now we are ready for next leap of capacity expansion through greenfield and down initiatives, along with technological advancement. Our next phase of capital expenditure includes an ambitious plan to put up new DST lines for manufacturing of large diameter section pipe and to increase our installed capacity to 2 million tonnes over next 3 to 4 years. This expansion will involve introducing new product segments and new geographies and further enhancing our portfolio with more value-added products. These strategic investments will position us to capitalize on emerging opportunities, drive growth and continue delivering exceptional value to our customers and stakeholders. Thank you. We may now take the questions, please.

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

Congratulations on very good set of number.

Thank you, Vikash Ji.

Sir, my first question pertains to what had actually contributed to the volume growth in particularly in this quarter, while we were thinking that the election would be a weaker -- election quarter would be weaker. And now, even we have done pretty good in the 1Q itself, are we upgrading our target to 5 lakh tonnes of sales volume this year itself?

So Vikash Ji, so first, your question regarding to volume growth in the first quarter. This was mainly due to our new facility, which got commissioned in Q4 of FY '24 at Sanand. So the volumes have started from this facility. And going forward, we expect a decent volume from this unit. So as you are right, the total -- the target for this volume for this year will be approximately 5 lakh tonnes, 0.5 million tonnes.

And what kind of EBITDA per tonne we are targeting for this year?

So sir, I think we'll be maintaining our EBITDA per tonne, which is right now around INR 3,500. So this is to say the least. And going forward, once the steel price stabilizes, it will start moving upwards.

Understood, sir. Sir, my second question pertains to the sharp correction in the steel prices in the last couple of months. So given we carry an inventory, I just wanted to understand how the inventory it as under 2Q. If you have any idea about that? Or are we taking any steps to mitigate certain portion of this impact?

Yes. So there is a steel price decline in the last 2 months. So we have like a good amount of fixed price orders against some big contracts. So they are there. And the raw material price, that is also coming down. So we get adjusted through that. So, more or less, I'm of a firm belief that these lower steel prices will result in higher volumes in the future, and the gap between the secondary steel and the primary steel has also narrowed down significantly. This will help in achieving higher volumes for our company.

Noted, sir. Sir, just one more thing. At 1 million tonne capacity, how our value-added capacity and general capacity mix would look like in [indiscernible] terms?

So sir, at 1 million tonnes, our value-added share is 50%.

So we have still a good legroom to increase in the [indiscernible] to value addition. [indiscernible]

Yes, currently, we stand at 36%. And going forward, I'm sure there is a room for expansion.

Understood. Sir, just one last question from my side. This another 1 million tonne expansion on your journey to 2 million tonnes, have we ballpark the estimate and what kind of CapEx we would be needing and how we are going to funding that...

Sir, this journey will be a 3- to 4-year journey. And the finance and the funding will be through internal and in external sources. They will happen gradually. So -- but we are confident that we will take a good position, and we'll further strengthen our position in the market. This will include new products, new geographies, segments.

And the CapEx -- estimated CapEx, any ballpark period if you would let us know?

Sir, it is still under the final stages of -- we'll come with the disclosures as and when we are closing to the final basin stage.

The next question is from the line of Anand Gulani, an individual investor.

Congratulations. I'm calling as a very happy investor who has multiplied his return by more than 11 times today. So very happy and congrats to you. I just have a quick question. If you can educate us in 2 minutes from your side. Could you just talk a lot -- a bit about the photovoltaic solar panel, which has been discussed a lot, and how is Hi-Tech [indiscernible] from the customer side and also the supply chain side to make most of this marketplace?

So Anand, so basically, the solar, as we all know, the India has a very ambitious solar power mission and in solar power, all the structural steel is now primarily made of specialized steel clips, and Hi-Tech has taken initiative and lead in this segment. The newly commissioned plant in Sanand is exclusively catering to this segment. And with the kind of the contracts we are having in hand, going forward, we see a major import substitution of these tubes. As we have mentioned -- as I mentioned in my opening speech, we are supplying to the world's largest solar park in Khavda, Gujarat. This is a 40 gigawatt solar power plant, which is the world's largest and the commissioning and everything is a 3-year project. And we're being nearer to the project site, we are the preferred vendor for this.

Got it. Congrats again.

You're welcome sir.

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

So my first question is regarding our utilization. So at our current facility, what kind of peak utilization that we could maintain?

So sir, 70% is the peak utilization that is possible in our industry. And currently, we are maintaining at 64% to 65%.

Yes. And we have 2 CapEx in our pipeline. One is for Secunderabad Unit 3 and one is in Sanand. So am I right at this?

Yes, sir, absolutely. So currently, we are on 7.5 lakh tonnes and will be at 1 million tonnes by end of this financial year.

Yes. So how much CapEx are we spending on both the projects?

So approximately INR 140 crores is the CapEx for these 2 projects.

Okay. And we -- as you mentioned that we have an EBITDA per tonne of INR 3,500 per tonne. And in FY '24, we had an EBITDA per tonne of INR 2,900. So my question is, what led to this expansion? And do we feel this expansion is sustainable going forward?

Sir, our share of value-added products in last financial year was in the range of 27% to 28%, which now has gone up to 36%. And out of our total combined 1 million in capacity, we'll have approximately 50% capacity share on value-added products.

And what is the EBITDA per tonne for value-added products?

So it ranges from INR 4,000 to INR 5,000 per tonne.

And for non-value-added.

Between INR 2,500 to INR 3,500 per tonne.

The next question is from the line of [indiscernible], an individual investor.

Congratulations on a good set of numbers and.

Your voice is breaking.

The current participant is disconnected. We will take the next question which is from the line of Krishna, an individual investor.

Congrats, sir, for the good set of numbers. So I just wanted to know what is the revenue [indiscernible]?

Sir, sorry, I couldn't hear that properly.

Is your question relating to revenue for this year?

Yes, it's clear.

So sir, our projected volume for this year is 5 lakh tonnes, that is 0.5 million tonnes, and we are poised to achieve a top line of INR 3,500 crores for this financial year.

Okay, sir. And sir, going forward, right now, we -- the Gujarat Sanand one, we recently started like 3 months back, right? So what is the current capacity utilization? And how it will be like going forward?

Sir, right now, it is in the range of 35%. And this is the second quarter of commissioning and the certain approvals are expected in this current quarter. And we are hopeful to achieve like 65% in Q3 and Q4 for this plant.

[Operator Instructions] The next question is from the line of Pradeep Rawat from Yogya Capital.

So my question is related to my last question. So you said that our EBITDA per tonne would be similar for FY '25, what we have right now. So, given our value-added share would increase for this year? So are we being conservative here in giving the EBITDA per tonne guidance?

Yes, Pradeep Ji. I'm a bit conservative here because steel prices are also moving like in a volatile manner. So I think, at this stage, it is better to be conservative. And I think once this volatility set down, we'll revise our EBITDA guidance going forward.

Okay. And my next question is regarding our space availability. So how -- do we have any space in our current facilities to expand a brownfield expansion?

So sir, going forward, as I mentioned earlier, that our journey from 1 million to 2 million tonnes. So currently, the land bank the company has is to the tune of 0.5 million tonnes. So till 1.5 million tonnes, the land bank is with the company.

Yes. And what would be the CapEx differential between a brownfield and greenfield expansion? So can you highlight upon that?

So sir, greenfield CapEx is about 60% to 65% of the greenfield capacity, this a typical thumb rule.

Okay. And my last question is regarding the green hydrogen that you talked about. So I just missed that. Can you elaborate on that?

So sir, for [indiscernible] Division, we use the [indiscernible]. And ours will be the first company we [indiscernible] to employ this. I do think as this is a new technology, and we have taken the first initiative in this segment. And this will not only help in mitigating our carbon footprint, but it will also add to a lot of cost savings.

The next question is from the line of Aman Sony, an individual investor.

Sir, congratulations on a very good set of numbers and thank you for providing the opportunity. Sir, Q1 -- I mean, because of the general elections and I mean inside of the heatwave, we have delivered a robust number. And Q2 is generally I mean seasonally a weaker quarter because due to monsoon activities, the infrastructure comes down. So are we -- I mean, anticipating good Q2 as well?

Yes, sir, we are expecting a good quarter in terms of volume. Because of this new facility, the year-on-year growth will be a good growth year-on-year basis.