Sealmatic India Limited (543782) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Sealmatic India Limited's FY '26 Half Yearly Earnings Conference Call for the period 1st April 2025 to 30th September 2025. [Operator Instructions] Please note that this conference is being recorded. A statutory notice, all content on this earnings call is for informational purposes of a general nature only and does not address any circumstances of any particular individual or entity. Do not construe any such information or material as legal, tax, investment, financial, professional or any other advice. Content on this earnings call does not represent or constitute any solicitation, inducement, recommendation, endorsement or offer by Sealmatic. Any information, materials, statements and/or data set out herein is subject to change any time without notice. And as such, no reliance must be placed on fairness, accuracy, completeness or correctness of any information and materials contained on this earnings call. I now hand the conference over to Mr. Umar Balwa, Managing Director of Sealmatic India Limited. Thank you, and over to you, sir.

Thank you, Michelle, for this introduction. Good evening, and a very warm welcome, ladies and gentlemen, to the sixth earnings conference call of today. I take this opportunity to express my heartfelt appreciation to all of you for taking the time out of your busy schedules and accepting our invite and to be a part of this call. I would also like to express our gratitude towards our shareholders and the keen interest expressed by investors and the analyst community in our company, Sealmatic. As I have already briefed over the previous 5 earnings calls about the company and our journey in the business of mechanical seals and hence, there's a lot of data available on the BSE site and also on our social media handles, such as YouTube, LinkedIn, Facebook, Instagram, et cetera. I will make this introduction as brief as possible which will allow us to take as many questions as possible. Sealmatic succeeded in increasing its turnover by around 23% on a half yearly basis, first half as compared to FY '25 first half. EBITDA increased by around 19% as compared to the period of the first half of FY '25 and FY '26, though the margins have come under pressure and has resulted in EBITDA of around 20% as compared to the previous period, which was at around 23%. This shall be enumerated later on during this earnings call. Despite the strong headwinds due to changing geo and ecopolitical climate globally, the demand for Sealmatic products is very strong and is being driven by the market in India, Europe, Middle East, North America and other regions globally. Our continuous investment into research and development drives our commitment to keep evolving our capabilities as a sealing technology leader. We participated with great success in the following exhibitions in the period April to September 2025. Highlights of such activities are NEFTEGAZ, Moscow; opening of Delhi office; Oman Petroleum Show; Defence & Technology Exhibition; Pump Symposium in Houston, U.S.A.; and the RoTIC exhibition in Dubai, UAE. In the Middle East, Europe, Russia and U.S.A., we are currently expanding our footprint to support various OEMs and end users. As of now, we have back orders, which are being successfully exhibited for critical API seals in the region of Abu Dhabi, Oman, Kuwait and Iraq. Once commissioned, this OEM Sealmatic supplied seals will run a profitable business for Sealmatic till the lifetime of the equipment, which generally is 35 years. We work very closely with end users such as ADNOC, KNPC, PDO, OQ, Borouge and OEMs like KSB, Sulzer, Sundyne, Ebara, Ruhrpumpen and host of other EPCs such as a PEG, Saipem, Maire Tecnimont, Worley, Wood Group and many other important customers. The service center in Abu Dhabi shall be up and running by December end 2025. Similar activities which were in an exploratory stage are now getting momentum in Oman, Kuwait and Qatar for the Middle East region. Our state-of-the-art service center, which is similar to Abu Dhabi is under discussion in Oman, Kuwait and Qatar. Russia has been a good opportunity and a lucrative market for us. We are putting a major thrust over there and have found considerable success in that market. Our drive towards penetration in various markets is relentless, and we are committed to establishing Sealmatic as a global player. Our global markets exports to over 63 countries have demonstrated a longevity along with year-on-year growth, and they will remain essential even as we explore new markets in the future. We will continue to invest for particularly in demanding API 682, oil and gas, nuclear, marine and other high-pressure, high-temperature, high-speed applications. In this manner, we'll create long-lasting value for our shareholders and our employees. As a result of which we are one of the chosen companies in the field of mechanical seals for critical applications in nuclear, marine, power plants, oil and gas, et cetera. We have undertaken various CSR initiatives for development of society, including education, health care, destitute care, women empowerment, et cetera. I would like to extend great appreciation and thanks to our shareholders for all of their support and to our employees, customers and partners without whom none of our achievements would be possible. I will now hand it over to Ratan Kandare, who is our CFO, to share vital details about the half year that went by. Over to you, Ratan.

Thank you, sir. Good evening, ladies and gentlemen. We are pleased to present our results for the first half of financial year 2026, which has showcased a significant performance. During this period, we have achieved revenue of INR 53.63 crores, which is an increase by 23.44% as compared to first half of FY '25, where the revenue was INR 43.92 crores. We have achieved the profit before tax of INR 8.67 crores during the first half of FY '26, which is a 15.70% of our total revenue. This profit earnings are in line with the profit percentage earned in March 2025. In this first half, we have achieved the EBITDA of INR 10.84 crores, which is around 20% of the total revenue earned in first FY. Thank you.

Sir, should we open the floor for the Q&A?

Yes, please.

[Operator Instructions] The first question is from the line of Shantanu Nakade from Value Educator.

So my question was what was the reason for the decline in the EBITDA margins in the H1?

Primarily because of the nature of the business as it has been explained over many earnings calls, that the more of project activity that we do, that is we have to subsidize our sales to OEMs for gaining market shares with the end users. That is one. And secondly, also increase in expenditure towards market penetration, as you would have noticed in my address that I mentioned that in the last 6 months period, we have participated in 6 exhibitions. So that is also a considerable cost towards such EBITDA decline. And this was expected as we would move towards the value chain, our EBITDA would come under pressure as and when we take many projects, which we have taken in the last 6 months.

Yes. Okay. Yes. So other expenses have also increased, sorry. My next question was the joint venture that is the SealTech. So earlier, I think the timeline was July, August, now we are expecting December. So when can we expect the business to start from this JV?

The business in the joint venture that we have established in -- workshop will start up and running by, say, December end. But the business of mechanical seals, which would come from ADNOC would take time for the seals to get commissioned. The seals are under exhibition at the moment. The seals will be supplied via the pump OEM to ADNOC in Abu Dhabi, and the commissioning would only happen by end of, say, 2026, early 2027. So that business -- that profitable business, which is about 175 seals that we have supplied to ADNOC would start generating business in, I would say, to be conservative from April 2027. But in the meanwhile, we are also in discussion with various EPCs to service mechanical seals. So once our workshop is up and running, we will start our business beginning January 2026.

Okay. My next question is like we have participated in various exhibitions in the September month. So how was the response? And are there any potential customers that you are expecting from this events?

In the last -- not in September, in the last 6 months, that is from April until September, we have participated in, as I mentioned, in NEFTEGAZ in Moscow, then Oman Petroleum Show in Muscat, Defence & Technology show in Chennai, Pump Symposium in Houston, U.S.A., and the RoTIC in Dubai. So this is the kind of activity and this is a relentless effort that we're putting in our efforts to penetrate the market. And the response obviously was very good. And we are excited with the opportunity that will come to us in the future by participating in such exhibitions. Obviously, no participation will get immediate business. This is long-term penetration. This is long-term engagement with customers. So the response was good, as I can tell you. And we are hopeful and confident as well that this will result into substantial business for us in the coming years.

Okay. And fall back into queue after this question. My last question was, are we in the line to get the replacement business in FY '27?

Yes.

The next question is from the line of Rahil Dasani from MAPL.

First of all, I would like to understand on the replacement demand since we know that it's going to come in from FY '27, but just to zoom out a bit, as a total portfolio or total seals that we have supplied till now, what would be the replacement value of that whenever that comes in? For example, in FY '24, we started the projects business. And if we have supplied in total of maybe 300, 400 seals, what would be the cumulative replacement value of that in the coming years that we have in hand based on the seals that we have supplied?

Okay. Mr. Dasani, until now, in the last collective period of 2.5 years, we have been very successful in getting 490 seals fitted with the Sealmatic on the various pump OEMs, which is divided between Kuwait, Abu Dhabi, Saudi Arabia, Oman and Iraq. And if you multiply simple arithmetic, I'll give you, 492 seals multiplied by USD 7,000. So we are talking about -- say, about $2.8 million odd figure. So that would be amounting to be something like INR 25 crores that will start generating for us as and when they get commissioned beginning FY '27.

Okay. So you are saying you have supplied 490 seals and then replacement value is in total INR 25 crores in very simple words.

Approximately. That's a very conservative figure. I'm very sure it will go much higher, but I'm just -- for the sake of being conservative, I'm quoting these figures.

Okay. Got it. And the project business was started from FY '24 itself, right?

Yes, around that time, we started our major thrust in that direction.

Got it. Okay. And as of date, I believe, in FY '25, what would be our total project revenue as a percentage of sales?

I'm sorry. Sorry, I didn't get the question. Repeat please. Come again.

As of FY '25, what would be our total project revenue as a percentage of sales? How much is from the OEM business?

I can only give you approximate figures, which would be [ per site. Yes, ] I'll just talk about -- I don't have figures handy in my records over here at the moment. But what I can talk to you about is the 6 years -- 6 months that went by. So if you break up the turnover of INR 53 crores, 52% was OEMs, that is OEMs and projects put together, API and non-API both put together. And 7% was end user and 41% was our business which has been going on since the inception of the company, which is distribution in Europe and other parts of U.S.A. and South America. So 52% was OEMs.

Got it. So sir, I'm a bit confused because if we are saying that we have supplied close to, let's say, 416 seals and you are saying the replacement value is conservatively INR 25 crores to INR 30 crores. But then the sales itself, initial sales that we have done on the lower cost side would be north of that. And I believe when we met earlier also, you said, when you sell these seals in the initial phases, these are in couple of thousands. And when you sell it in the replacement markets, it's in a couple of lakhs. So I'm not able to understand this gap as to why the replacement value is so low if the initial sales of these seals that we have done at a lower cost is only so high?

Probably you have missed what I said, Mr. Dasani. I said 52% is both OEMs API and non-API. So if you only segregate API, that would be something like 12% or 13% of turnover. So that would be INR 5 crores for the 6 months.

So do we get the replacement demand only for the API seals you are seeing, not for the non-API?

API is a noncritical seal. And of course, that would also generate a replacement business, but that would be so high as the API seal. API seals are critical in application and that is why they are...

Got it. And the lower number, I get it. So the API sales is a much lower number. And in the last 6 months only, we have done only that INR 5 crores of number, got it. Okay.

6 months.

And -- sorry?

I'm only talking about the last 6 months as we are...

Of course. Of course. Fair enough. And now sir, coming to the naval and power projects that we have announced for which we have won orders from Mazagon as well as BHEL, these would not come under the project and OEM segment, right, where we don't make the margins initially?

No, these are very specialized business long-drawn projects. Say, any order that you get for marine application, which is typically for the Indian Navy, that takes about 2, 2.5 years, 3 years, sometimes to execute those orders. So those orders are long drawn and those orders, of course, obviously, you don't lose money, you make your money in the initial sale because even the replacement cycle also takes a very long time. So there is no point investing your money in that particular segment. Why? Because it also is difficult to get qualified for such projects. There are very few companies who qualify into naval business, especially for the propeller shaft sealing, where only -- I believe, only 3 or 4 companies globally are qualified. And in India, we are qualified with all the shipyards such as Mazagon Dock, Goa Shipyard, Cochin Shipyard, GRSE and likewise.

Understood. And sir, while we have announced these orders, we haven't announced the monetary realization that we make off of it, both for the BHEL project as well as for the Mazagon Dock project. So if you can share that, what would be the amount there?

I'll be very honest and frank with you, Mr. Dasani, we cannot share those figures. Those are confidential figures, and we are bound by certain confidentiality.

Okay, understood. So if I try to ask this question in a different way, for the power projects, I believe we are the only one approved with BHEL, right? And these are...

Along with other 3 companies. As an Indian company, we are the only one who's approved by BHEL for 660 megawatts, 800 megawatts projects. At the moment in the country, only the new projects which are coming up, are 660 megawatts and 800 megawatts.

Okay. Got it. And just one another thing, unlike our other partners and collabs that we make globally with several of our partners, for example, in Egypt and in other countries, we have done a JV for the first time in Abu Dhabi. So why is that? Did we get some strong visibility from their side as a bargaining chip? Or what was the reason to do this JV?

For us to get approved by ADNOC, ADNOC [ has had stupendous ] growth. Like if you would be aware that in the Middle East, there are strong drive being done by various Kingdoms, which is called the in-country value addition. So if I have to do business in ADNOC, if this was a precondition. Otherwise, they wouldn't approve me as an approved vendor in their AVL. So that was the first condition they asked us to put up our own service center because these are critical applications. So if my seals are coming to ADNOC and tomorrow something may go wrong, how would I service those seals. So even before I got my first seal solicited with ADNOC, I had committed myself to putting up a service center in Abu Dhabi. And we have done a joint venture with a company with whom we have been having a comfort zone for the last few years, and we know them well because they're entrenched in ADNOC and they do a reasonably good job. And we thought it fit that going all alone, it will be better to have a local partner who understands the culture, who understands the language. And that's why the JV has been done in Abu Dhabi. But I can assure you that in the coming years, the same philosophy will also drive us in Oman, in Kuwait and in Qatar and also, of course, Saudi Arabia because it is a mandate from the government over there or rather from the Kingdom, that anybody who wishes to do business has to put up a local service center. And there's a lot of stress by the local government over there. Unless and until you're not locally present with your own setup, you won't get a chance to be approved for the various projects.

Got it. Understood. And sir, just last 2, 3 things from my side. First of all, you said that the total seals that we have given until now is north of 400, I'm not able to recollect the exact number, but does that also include the 160, 180 seals that we have given to the pump OEM for ADNOC?

Mr. Dasani, I was not listening to the question. Can you just stick to one question because there are many other people waiting in line? So it would be fair for you to stick particularly to one question.

[Operator Instructions] We'll take the next question from the line of Harshit, an individual investor.

So I was going through the financial statements and somewhere it was written that you incurred a loss of INR 51.6 lakh in the joint venture and the business is started from the month of May, and there was no revenue on it. Can you sum it up? Can you a bit explain on that?

Harshit, when you start a company, it is in an inception stage, and there are expenses which cannot be commercialized. So these are start-up expenditures. So as you would have heard and read then the workshop will only start in January 2026. Obviously, there would be the expenditures without any sales.

Yes. Yes. I just wanted to get a clarity on that only. And sir, secondly, like -- last year, like in the month of Feb -- Jan or Feb, I think you last posted, okay, you have received orders and all. So now you have stopped doing that. So sir, it would be greatly helpful like if you start posting like if you are getting new orders or something so that we are aware about it, otherwise, like we need to wait for 6 months for this earnings call and only then we can like get an update about the company.

Also, Harshit, even this earnings call is not mandatory. We do it as a -- we are not required to do that. We do it for giving information to our customers, to our shareholders, to investor community. So as much as information we feel it is vital and important, we'll upload on the BSE site.

Okay, sure, sir. And sir, do you have any plans for fundraising?

That's a very private question. Probably you may write an e-mail to us, we'll answer to that question.

Okay. Okay. Sure. And sir, like previously in earnings calls, you have said like the Chandragupta Maurya would start from FY '27. So are we still on line on that?

Yes, yes, yes. The Chandragupta Maurya period is ready with Chetak horse.

[Operator Instructions] The next question is from the line of Shantanu Naik, an individual investor.

So I have one question to ask. Out of the almost 7 to 8 exhibitions that we have done in past 6 months, so what would be the approximate cost for all of them, if you can just put some ballpark figures, not exact, but still?

Every exhibition would cost us INR 35 lakhs to INR 40 lakhs per participation.

Okay. So we can assume around INR 2 to INR 2.3 crores for all the 7 that we have done?

Yes, it costs that much. Imagine traveling to Moscow, 3 people traveling from Bombay to Moscow hotel, the booth cost and the decoration...

Right. Right. Exactly. That makes sense. So all these exhibition costs are expensed in this half year results, right? Hello?

Yes. Yes. I said, yes.

Congrats on good numbers.

[Operator Instructions] We'll take the next question from the line of Rahil Dasani from MAPL.

Yes. So sir, the question I was asking is that the 400 seals that we have given until now, 400 plus, you said something 410, 420. Does that also include the ADNOC project for which we have given close to 160, 180 seals?

Yes. This 490 seals that I'm talking about are -- some have been supplied, some are under exhibition, some are under engineering or preparation of drawing. So all put together, as on date, we have 492 seals which will go in Abu Dhabi, in Kuwait, in Saudi Arabia and Oman and Iraq.

Understood. And sir, how many of these you said was API seals? Can you repeat? I missed it, I'm sorry.

No problem, Rahil. All are API seals.

All are API seals, you are saying?

Yes, yes, yes.

Okay. Got it. No, because initially, you said that only a few of these are API, others are non-API, hence, we only make replacement revenue of a smaller number comparatively.

No. The turnover that are expressed, which was 52% OEM also included non-API. But now when we are talking about -- see, we're talking particularly about this 490 seals. When I talk about this 490 seals which are all API seals, which are divided into the GCC countries.

Got it. Got it. And sir, what sort of seals demand are we already seeing in this year, excluding the 100 that we have already won the contracts for from BHEL? Since we have also gotten into a few new countries like Russia, Middle East, Egypt?

Sorry, are you talking about BHEL? Or what are you talking about?

So I'm asking what sort of total seals demand do we expect to supply for this year based on the talks that we are having as of date because we have entered several new countries like Russia, Middle East, Egypt. I believe we already have 100 seals ordered in hand from BHEL, so excluding that I am asking.