Ratnamani Metals & Tubes Limited (520111) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Ratnamani Metals & Tubes Limited Q2 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sahil Sanghvi. Thank you, and over to you, sir.

Thank you, Shani. Good evening to everyone. On behalf of Monarch Networth Capital, we welcome you all to the 2Q FY '26 Earnings Call of Ratnamani Metals and Tubes. We are delighted to host the management of Rani. And from their side, we have Mr. Manoj Sanghvi, the Chief Executive Officer; and Mr. Vimal Katta, the Chief Financial Officer. So without taking much time, I will hand over the call to Mr. Manoj Sanghvi for the opening remarks. Thank you, and over to you, Manoj, sir.

Yes. Thank you, Sahil. Good evening, everyone. I warmly welcome you, and thank you all for joining the performance update for quarter and half year ended 30th September '25. I'm happy to share that our performance for Q2 has been strong and our subsidiaries, RTL and RFSS have gained momentum. On a stand-alone basis, our sales stood at INR 940 crores, which is 5% increase over the same quarter last year. And on a consolidated basis, our sales were INR 1,191 crores, reflecting a robust 23% growth compared to corresponding quarter of the previous year. Talking about stand-alone results, overall volumes improved during the quarter. However, revenue growth was modest due to softer input prices and product mix. Growth during this quarter was mainly driven by carbon steel segment. The domestic market continues to remain somewhat subdued, but we are confident of maintaining volume growth across all product categories. While revenue may stay flattish or show a slight dip, we expect that our strong focus on operational efficiency and cost control should help maintaining EBITDA in the range of 16% to 18%. We also achieved several important milestones during the period namely, we commissioned the Phase 1 of Orissa plant and the Phase 2 is expected to be commissioned in the next quarter. We successfully pioneered supply of hydrogen compliant carbon steel welded pipes to Europe. Our Kush plant received the API monogram certification from American Petroleum Institute, enabling new business opportunities for stainless steel line pipes, namely as per API 5 LC. The Kutch plant was also conferred with National Award of Excellence in Energy Management by CIL. Now moving to subsidiaries. RTL continued its strong performance, achieving a revenue of INR 95.6 crores, a 40% growth over the corresponding quarter of last year. This growth comes from both export and domestic sales. Its EBITDA margins improved from 9% to 13% due to operational improvements. We remain optimistic of achieving 15% to 20% year-on-year growth over the next 2 to 3 years, supported by healthy order visibility. Our expansion projects at RTL are progressing well and will further increase our capacity. The upgrades will also help us step into new customer segments. Our another subsidiary, Ratnamani Finow Spooling Solutions, manufacturing schools for nuclear power plants is also gaining traction. It achieved a revenue of INR 110 crores during the quarter. RFSS has a strong order inflow visibility and execution processes are improving every day. We maintain our INR 300 crores plus order -- sorry, revenue guidance for the full year for RFS. Including the results of RTL and RFSS, profitability ratios of our consolidated results have further improved. Coming to a few updates on our corporate structure. We have acquired the remaining 40% equity stake in our Switzerland-based entity, Ratnamani Trade U, making it a wholly owned subsidiary. At RTL, we restructured the shareholding through rights issue, reducing our holding from 80% to 75%. In Saudi Arabia, our subsidiary has now received the CR, which is commercial registration and the activities for setting up stainless steel manufacturing plant will begin in the month of January. This marks an important step in building our presence in Saudi and GCC market. With multiple expansion projects in progress, strong performance by subsidiaries and a positive industry outlook in long term, we are confident to continue scaling our performance in the years ahead. Thank you once again for your continued support and confidence in the company. I would now open the floor for questions, please.

[Operator Instructions] Thank you. First question is from the line of Radha, B&K Securities.

Many congrats on the order intake and the turnaround. Sir, my first question is, so in the domestic carbon steel segment, you have witnessed strong order intake of INR 750 crores this quarter, taking the total order to INR 1,100 crores. So this comes at a time when the commentary of demand scenario from you as well as all the other steel pipe players is subdued. So please help us understand the product mix, how much is water and oil and gas or process pipes from this carbon steel domestic segment? And in which segments are you witnessing demand recovery? And where are you seeing muted demand? Is there a recovery in ERW?

Thank you, Radha. The INR 750 crores of order which is booked in the carbon steel segment is a mix of both line pipes and process pipe. And within line pipes, I would say 60% is for oil and gas and 40% is for the water segment. Within oil and gas, we have some orders for city gas distribution as well as for the product pipelines.

Sir, how much is process and how much is line pipes?

That breakup, I don't have at the moment. But if you send an e-mail or if you request by e-mail later on, I can give you the breakup.

Okay, sir. And secondly, sir, with respect to the demand scenario of stainless steel domestic as well as overseas, which are the regions where do you see a demand recovery or good demand or even stable demand? And where are you seeing muted demand?

Domestic at the moment, still -- there are a few tenders, but not as it was back in 2022, '23. A few tenders are under bidding, and we expect a lot more next year. So this is on the domestic line pipes front. International geographies, if we see, there is a strong demand within GCC, which is both Saudi and Abu Dhabi. And then there is demand -- there are a few projects in Europe. America at the moment, because of the high duty, not only tariffs but also antidumping. So large diameter pipe, we are not very hopeful and neither do we supply much to the United States.

Okay, sir. And sir, the current order book of Fino, I believe it stands at INR 500 crores. So what is the execution time line of the same and the user industry mix between nuclear, wind and anything else that is contained in this?

So at the moment, all the orders that we have at RFSS is for the nuclear power industry. Going forward, we shall target thermal -- some portion of thermal power plant as well as oil and gas pools. However, our current capacity is completely booked for nuclear projects. Currently, first -- by the end of first quarter of next year, this INR 500 crores complete can be executed. In the meantime, we have bid for various projects, and we expect to receive some orders maybe in this quarter or maximum next quarter.

So INR 500 crores will be executed by 1Q FY '27?

Correct.

Okay. That's great, sir. Sir, what is the volumes that the sales volumes that we have reported in Sino -- and what led to higher margins in this business?

You want to know metric ton -- so our capacity currently is close to 1,500 tonnes for the nuclear industry. So of which currently this quarter, we've done close to 200 tonnes.

Okay. And the effective of 1,500 tonnes, sir, how much can we go maximum?

1,500 tonnes, we can achieve, say, roughly between INR 250 crores, INR 300 crores, what is -- but by the end of this financial year, as we are expanding capacity in RFS, we will have 3,000 to 4,000 tonnes of capacity. So from next year onwards, our peak -- at peak utilization, we can touch a revenue of INR 600 crores to INR 650 crores.

So what I meant with detective capacity is this entire INR 1,500 crores we can sell or maybe 70% of 1,500 metric tons annum that can be sold in terms of volumes?

70% to 80%.

Understood. And sir, what is the current rejection rate in the sports business? And is there any scope -- further scope for improvement in rejection rate that could lead to further improvement in margins?

See, a lot of items are bought out items, which after rigid inspection, they are brought up. So there can be rework. However, rejection percentage would be very minimal over here.

Okay. So any scope for further margin expansion, sir, in this business as compared to the ones -- as compared to 33% that you've reported in this quarter?

See, first quarter, there is a turnaround. Let us wait for some time. As efficiency increases, productivity will increase. And those impact of those on margin can be seen, yes, if effectively, it is managed and executed.

Okay. That's great, sir. And sir, we are adding this cold finishing line in Saudi. So for that, we'll be requiring mother hollow tubes. So that would be exported from our India facility as we have enough capacity here?

Yes, yes. We plan to export the mother hollow tubes from India, thereby utilizing the capacity of hot finishing here and further processing or doing cold finishing in Saudi.

Okay. So how much -- so once we do this, so if today's margin is, let's say, x, then after this entire process is done, how much will the margin expansion be by what percentage?

So currently, we are supplying cold finished tubes from India to Saudi. Definitely, margins in India are better. However, it is the need of the for us to be there before anybody. Right now, there is one stainless steel tube and pipe facility, which is being set up in Saudi, which is for hot finish product. However, we plan for cold finished product. So it is not only increasing our market share once we are there, but margins -- if margins per se, if we see margins definitely, if we serve the order from India will be greater than what we do from Saudi.

So if you're saying one more player is there, so that -- you're talking about an Indian player expanding capacity there?

No, no. There is another player who is putting up a stainless steel tube and pipe facility for stainless steel tubes and pipes, hot finish. He's putting up an extrusion plant...

You could give the name, sir?

It's available over the worldwide web. If you do a little research, you'll find out.

Okay. Sir, we've been deploying -- we have been deploying capital in schools, hangers, Jeri and Saudi. So with these investments, what kind of overall ROCE are you looking at the company when we reach some optimum utilization for all these new businesses? And according to you, which division will create more value to the company and where do we as investors and analysts need to focus more?

So see, when I talk about Ratnamani, Odisha capacity utilization will start. And then this is another project once it starts in Saudi, plus we have the circumferential saw capacity expansion, which is going on. So when all put together, we will be -- at peak, we will be able to touch the revenue of INR 600 crores on a stand-alone basis. Now RTL, we have -- with the current CapEx, what we have done plus the CapEx, which is ongoing, both put together, we will be able to reach the revenues of anywhere between INR 700 crores to INR 750 crores -- and RFS, of course, with the capacity expansion, which is expected to be online by the first quarter of next financial year. With that, we will be able to do another INR 600 crores to INR 700 crores. So on a consolidated basis, all put together, INR 70 crores, INR 75 crores, INR 70 crores, INR 1,500 crores and INR 6,00ro INR 7,500 crores in the next 2 to 3 years is what we can look at with, say, mid-teens or a little higher mid-teens margin.

Okay. That's great, sir. Sir, lastly, I understand you don't discuss specific on the margins. However, in the stainless steel, considering the domestic -- weak domestic demand and in capacity and also overseas tariff issues, last year, its margin was 100 in the stainless steel segment. In this year, could you help me understand how much has the margin come down for seamless as well as welded separately for you or the industry?

It is quite a difficult question. In the past also, I have mentioned that product-wise or within the product, there are several subproducts. So within seamless also, maybe there is one product where margins are similar to what on a group basis we have. However, there are some products where margins are very high. So difficult to break down into seamless, welded, carbon steel, ERW, spiral, consolidated, if we keep -- it becomes better and easier for us to explain.

Sir, because your presentation mentioned that there is a margin pressure. So just wanted to understand on a blended basis also, if you keep the same product mix last year versus this year, then what kind of margin pressure the industry is witnessing now?

No, margin pressure is in one particular segment, which is, say, carbon steel line pipes and that to water, okay? Now oil and gas, there are a few projects. So pressure because demand for the domestic oil and gas or water segment because of the payment from the central government is subdued at the moment. However, stainless steel still -- of course, there is competition from other manufacturers. However, we get our fair share.

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

Sir, just wanted to understand given the good order book addition this quarter, can we assume that now the next couple of quarters, at least we would be able to add the order book whatever we are executing or the overall demand scenario is still pretty weak and these are just one-off order book additions which we have witnessed at this point of time?

No. Currently, a lot of projects, especially export is under bidding for carbon steel. So if 1 or maybe 2 order clicks, definitely, the order book will have a jump from here. However, the domestic demand is still, as I informed during the last conversation that domestic demand, yes, there are a few tenders. However, it is not to the level where we can see a substantial jump in the order book. We will continue to book orders as we did. quarter-on-quarter, yes, there can be a little lag because these are tenders. Sometimes the government decides on opening the tender a little late, which takes it to the next quarter. However, the execution for this year, yes, we can still -- we are still trying to be as close as possible to the last year on a stand-alone basis.

Noted. So basically, you're saying that the similar to last year, while the second half was a little bit better versus first half, this kind of the scenario can repeat this year as well in terms of overall execution?

Yes, there is a possibility because the capacity is available. We already have orders of roughly INR 2,050 crores in hand. So if all of those or maybe partially, say, INR 1,800 crores, INR 1,900 crores is also executed, we can still book another INR 400 crores, INR 500 crores and execute in this financial year.

Understood. And sir, if you could give me a bid book and the bid book split between export orders versus the domestic segment. It would help us to better understand the demand coming from which pocket.

No. So there are various projects, if I talk about export in all the product categories, which is stainless steel, seamless, welded, carbon steel line pipes as well as process pipe. It is from, say, Abu Dhabi, which is customers like ADNOC or contractors who are working for ADNOC. Similarly in Saudi for Aramco or Saudi Basic industry, which is SABIC. And then in Europe, a few gas or hydrogen compliant pipelines.

I actually meant the bid book in terms of value-wise and the split between export value as well as the domestic bid book value.

I do not have at the moment. But next time, maybe I'll keep it ready.

Noted, sir. Sir, my second question pertains to Saudi. While we are doing coal finishing, is there any duty structure which basically would be slightly negative for us in terms of sending the mother pipe or mother hollow to Saudi? Or do we have an understanding that we would get in some certain exemptions in terms of -- because nowadays, many countries are adding melt and ports in their product profile. So just wanted to understand our thought process on that.

So as of now, there is no duty on stainless steel, seamless tubes and pipes because there is no local manufacturer. But there is one manufacturer who is planning -- whose capacities are under installation. So as soon as he starts commercial production, yes, there can be duties, custom duties to the tune of 10%. But however, what our understanding is that manufacturing in Saudi with 10% duty, still India would be highly competitive. So sending mother alloys from here will not be an issue. Until yes, there are 3, 4 mother allow manufacturers in Saudi, then there is a chance of antidumping, but which is not a likely situation in the near future.

Noted, sir. And sir, just lastly, we talked about a lot on the downstream product development in the stainless steel pipe and tubing division. So if you could give us some idea that what are the new products which we have developed their application and the potential increased market in those accounts, so it would be really helpful.

So it's an ongoing process. There is no particular product which I can name here, both stainless steel seamless, stainless steel welded, -- also in carbon steel like we just completed the supplies for a hydrogen compliant pipeline, which is first from India. Many players have done trials yet before us. However, we were fortunate enough to get this order, and these pipelines will now be installed in Europe, which are future hydrogen compliant pipelines. So similarly, we are trying, of course, various product developments in each category. For carbon steel, I can name a few like carbon capture or clad pipes. For stainless steel, similarly, there will be tubes for hydrogen, tubes for other processes, some grades in fertilizer, which are not manufactured in India, electropolyish tubes. So there are plenty, which is an ongoing development process, which is going on.

Noted, sir. And sir, last year, we have actually basically created our subsidiary in Europe. So this is largely a trading subsidiary, right? So any inroads we have made through the subsidiaries for our stainless steel or carbon steel products so far? Or it's a long process and we'll have to wait before this starts?