Vibhor Steel Tubes Limited (VSTL) Earnings Call Transcript
February 13, 2025
Earnings Call Speaker Segments
Ladies and gentlemen, good afternoon and welcome to the Q3 and 9 Months FY '25 Earnings Conference Call for Vibhor Steel Tubes Limited. We have with us on the call today Mr. Vibhor Kaushik, Managing Director of the company. [Operator Instructions] I would now request Mr. Vibhor Kaushik to share with the audience the company's performance in Q3 and 9-month FY '25. Thank you. And over to you, sir.
Hello, everyone. I welcome everyone on this call. I would like to begin with some positive news about our new upcoming plant in Jharsuguda. All the machineries for the Pipe division are now installed and at the moment, they are undergoing trial runs. The galvanizing tank for our Hot-Dipped Galvanized process is also installed. All the permissions to the government have been put forward and we are expecting the permissions to come very soon. The only one aspect that we are eagerly waiting for is the electricity to come to the factory so that we can start our production in complete manner. At the moment, the trial runs are done on the temporary electricity line that we have and also the generator that we have installed at the factory that is helping us to do all the trial run. So by the time our electricity comes, we should be able to do complete performance operation with all the teething problem that a plant generally have in the beginning, all of that shall be taken care of. So I wanted to start by giving this positive information to everyone here. Currently, I am taking this call from our Hyderabad factory, which is located in Mahbubnagar, Telangana. There are some positive news here as well. One is, we have successfully started our Square Pipe and Hollow Section production here and we are slowly building our presence in the market, because earlier, we were only doing round pipe from 1/2 inch to 12 inch. Now we have entered into Hollow Section as well for lower diameter and for the higher diameter. All of it has started to go in the market. And the response is very positive from our dealer network. Apart from that, in Hyderabad, we have added another product which is a higher diameter, 14 inch. 14 inch, we started our production only last month and that also is giving us very positive response. It has gone in the market and market has appreciated the quality, the finish of this product. Moreover, in Hyderabad, I would like to inform that our additional products such as highway guardrail, is doing phenomenally well be -- more than our expectation. When I say that it is more than our expectation, I would like to highlight here that the order booking at this point in time is well above 2,000 tonnes and our capacity to galvanize the highway guardrail is at least 2,000 tonnes. So it is a very positive news that we are able to run our galvanizing plant to full capacity here for highway guardrails, which is an additional product we only introduced very recently. Once the Jharsuguda operational starts, that galvanizing tank, which is having a capacity of over 4,000 tonnes, shall be very helpful in catering our strong market in these new product range such as highway guardrail. Moreover, I would also like to inform everybody present here that the additional product, in terms of transmission line, which is a structure-based for the electricity, is also showing a lot of promise. At the moment, we have orders around 300 tonnes and 400 tonnes that we are also doing in Hyderabad and the market is very eagerly waiting that we start our Jharsuguda so that -- Jharsuguda factory so that we can cater to more inquiries which are coming from transmission line. So our already strong foothold of pipe, which is going to be our backbone for our Jharsuguda plant. In addition to that, we have a very comfortable order booking in others as well, which we were initially thinking of going slow, but now because the response is very good, it is a very comforting situation that our galvanizing tanks shall be able to run to full capacity, hopefully. This is what we are hoping in Jharsuguda. The steel pipe which we sell in the market under general brand after Diwali has shown better requirements in the market, which is generally used to be the case pre-COVID. After Diwali, the markets generally used to pick up and this is the same thing we have seen currently as well. As you can see that our -- the tonnage deficit, which was more in Q2 has now -- that deficit has come down and we shall be able to complete our targets to achieve all the MoU from our raw material suppliers, which was a little bit of a challenge earlier, but now it does not seem to be a challenge at all because the market has come back and the demand has started and you can see that translated into our Q3 result in the top line as well. We are hoping Q4 shall continue in the similar manner. It was going in the same track, same line in January. It is February now and we are seeing the same demand, same order booking as well. So it appears to me that we should be able to fulfill our targets, achieve our MoU targets fairly easily now. These are the positives. In terms of the steel market, it appears that the government is going to be supportive to steel. There are safeguard duties which are being talked about shall be coming. This is what our raw material suppliers have been telling us and the same we are translating. But regardless of any safeguard duty or anything that government will be supportive of, there is a certain demand which has generated in quarter 3 and that demand is continuing in quarter 4 as well. So regardless of any extra support that we get from the raw material suppliers or from the government, the end user is showing that we shall be able to achieve our targets fairly easily. These are the positive notes that I wanted to communicate to everybody. Now if there are any questions, please feel free to answer -- to ask and I will answer. Steve, go ahead.
[Operator Instructions] First question is from Ashok Shah from Eklavya Invesco Family Office.
Sir, first of all, best wishes as we already completed our expansion. Is it -- was it on time or we had to take late in doing expansion? And also by what time this power is expected to be started for the commercial production?
This is a question that has given us a lot of struggle to be able to answer to our own selves as well, how long the electricity will take. But now we have taken a lot of effort. We have established good communication with the government as well, with the industrial department as well. And now we have found out that the power, which was supposed to come to us in October has now been delayed for certain reasons. Our factory is located and the substation from where the electricity is supposed to come to us is located on the other side of the highway. So there were some complications. They had to take permissions. One government department had to take permission from the other department of government department such as highway department. So the file was pending due to these reasons. Now those hiccups are gone. All the permissions are streamlined and contractors are there working. We see them every day. So all the lines are laid out, the cable is laid out. The only transfer of the cable from one side of the highway to the other was pending. And that work is now we can see visibly every day. So now if they say that the electricity shall come to you in month, it appears to be that the electricity will come to us within a month. But regardless of whether the electricity is coming in 15 days, 30 days or a little more, the good news is that we have started our trial run, which means that when the electricity comes, all the machines go through a certain technical parameters, certain operation steps. So those steps are now underway, which in itself takes around about a month. So I think it looks like we should be able to streamline ourselves very soon for the production to start in Jharsuguda.
So sir, as you stated, I think within 1 or 2 months, production will start. So can you just give some rough idea in the next year what will be production sales addition due to this increased production in a rupee form also?
The Northeast portion of India has very limited presence for our product, for our brand. This is a project that we were eyeing for many years now. The dealer network that we have in places like Raipur, in places like Bhubaneswar, in places like Kolkata has shown us a lot of inquiries and they are very eager for us to start. But when we look at a new plant, we look at certain things, for example, our galvanizing unit, which is where most of our margins come from. I can tell this that besides 5, the other products that we have has got inquiries right now, which we will be diverting to Jharsuguda. So it should be running to a very good capacity. Forward-looking statement is very difficult to say, but it is extremely, extremely promising. I can tell that much. And it should generate a revenue -- historically speaking, when we entered Telangana 6, 7 years ago, it gave us an additional turnover right from the word go when we started. We are expecting the similar thing, similar outcome from Jharsuguda as well, the reason being Telangana only catered to one city, Hyderabad. However, Jharsuguda caters to multiple areas. So the sales are not a problem. There is Raipur that's demanding. There is Bhubaneswar that's demanding. There is West Bengal that's demanding. There is other parts of Northeast that are demanding. So -- and also in the South, Visakhapatnam, where we're not supplying also becomes a viable option for us from Jharsuguda. So the number of stations that we will be catering from Jharsuguda is more than it was 7 years ago when we were putting up Hyderabad. So it is very promising and it shall show result and I think it shall show result as soon as the operation starts and we are eagerly waiting for it to start.
So as a ballpark figure, should we expect more than INR 500 crores of sales addition in the current year -- next year?
I would not like to put it in terms of the numbers, but I can put it in terms of tonnage that we see right now that our transmission line and highway guardrail alone right now, there is an inquiry that we can take to 2,000, 3,000 tonnes. The galvanizing capacity is 4,000 tonnes. So just the extra products that we have, have so many inquiries and pipes are waiting. So pipe in Hyderabad, very first month, we were able to complete a target of 2,000 tonnes. So it looks like there is -- if all of this we combined together, we see 2,000 tonnes, 4,000 tonnes already. So that is around about 50% of our capacities in Hyderabad. So there is a definite turnover and all the turnover is from galvanizing, which has a higher markup value as well. So I will not put it in terms of the value and say INR 500 crores is achievable. But I can tell you in terms of tonnage that we can already see that 50% of our production in Hyderabad shall be able to come from Jharsuguda right away.
So at what price current valuation we are selling this product, sir?
There is -- all the products are a little bit different, but we can take anywhere between INR 75,000 -- INR 70,000 to INR 75,000 for these products.
So would it convert to, sir, it's more than INR 300 crores of sales?
Mathematically speaking, at the current price, it appears. It appears around about -- if you do the math on this, it comes over INR 300 crores. But again, I would not like to keep the numbers because the prices of the steel is fluctuating all the time. Talking about the price is going up because of the safeguard duty and everything. So it might be different. So that's why in terms of the production, we always say that this much of order booking is there in terms of tonnage. Value could go up and down, but there is tonnage. The tonnage will remain the same.
Sir, any plan for solar plant to reduce the power cost?
We already have rooftop solar installed in Hyderabad and in Mumbai. So we are already taking advantage of that. In Jharsuguda also, rooftop is not very lucrative because in other states, 1 megawatt is allowed over there, 500 is allowed as per my information. But we will install that in due time, but let us first go ahead and start our production, which is our first target. And then in a few months, we will take a call of how we're going to go ahead with the solar.
[Operator Instructions] The next question is from [ Divya Sharma ] who is an individual investor.
I have just a simple question. What will be EPS after this plant becomes fully operational? What earnings per share we are fighting for?
Our effort is to go ahead and it has taken up a lot of energy, a lot of effort to start this. And also, there has been a lot of manpower deployed to Jharsuguda as well. So Jharsuguda has seen expense so far. Now the production is yet to start and the production is promising. So the earning per share is subjective because there are external factors involved in it. There are many things involved in it. I can just tell you this that we are looking at a very positive outcome from this plant. And the timing couldn't have been better because at this point in time, it appears that when we're going to start our production, the steel prices look stable or showing upward trend. Apart from that, the new places where we are tapering the new markets, the new product has a lot of demand. There are a lot of demand in the construction. There are a lot of demand in the power. We are already getting -- although we are a new player, we're already getting a lot of inquiries. So we shall be able to have a positive turnover and these products that we have has better margins. So it shall all translate into our books. And if it translates into our book, the EPS shall be looking much healthier.
But sir, just a random figure, if this plant becomes fully operational to its full capacity?
Well, I think if it becomes fully operational, then the sky is the limit. There are some things that I was saving for the end. But now that this question has arrived, there is another product which is going to come in Jharsuguda, which is even more in terms of its margin. The machines have arrived. We have installed the machine, test trials are going on, which are -- these are called the poles, octagon poles and monopoles.
Yes, sir. You mentioned in previous con call as well.
Yes. So octagon poles and high mast, we are expecting to start at the same time as will be our pipe and as will be our highway guardrails and as will be our transmission line. The only one unit which will take a little bit more time to start is a monopole, which has a phenomenal demand right now, which is also electricity. It's another mode of transferring the electricity power. Instead of the conventional towers, more areas, monopoles are preferred. That machine is going to be delivered and shall reach us by the end of April, it looks like it right now, which is going to be an additional benefit. So Jharsuguda just right now has a lot of potential as we see it. And once this new product starts, which also has a lot of demand, we're already getting inquiries from it. So the overall scenario appears from Jharsuguda very, very positive, let alone that our strong backbone of pipe is going to be there to support us at all time. But besides that, these all products are showing a lot of potential. So it is just positive. There is -- I cannot see anything which is not positive which is going to come from Jharsuguda. So EPS and everything shall show a lot of improvement because once it starts to show in the numbers, we are planning to give numbers like this for each and every product differently where investors can see what is our margins and what is -- how is it turning out. So it's forward-looking. So in forward-looking, to give a very right actual figure in terms of EPS is difficult, but it appears very, very positive.
Sir, but what could it be if we take a pessimistic approach?
You can consider it definitely better than at the moment what we have.
Sir, can we expect at least more than 5 -- which was, I think, in previous year's quarter, I think previous year quarter 2, it was INR 5.61?
See, with where things are at the moment, I would say that it is achievable, maybe even better than that is achievable because this year, there were corrections that have been due for as long as, I would say, 2 years. The prices of steel, everything went up during COVID and the corrections were expected in other maybe textile, you take any other products, the correction happened. But steel correction happened, it took its own sweet time. Now those corrections are behind us. Now it appears that we are leveraged pretty well. So yes, every outcome appears to be that what figures that you have in mind shall be achievable. But forward-looking it is difficult to say. But if you put everything together with the demand in the pipe sector, with the demand in all the other products, it is quite an achievable target.
Next question is from Ashok Shah from Eklavya Invesco Family Office.
Sir, our debt is around INR 260 crores, INR 270 crores approximately. So what's the next repayment plans and how much interest is expected to reduce? And are there any interest reaction due to positive outlook given by our CARE Rating agency?
The rating has given a positive outlook, shall be giving a positive outlook. The interest -- our current requirement of funds is the same as last year. With the new production coming up, we will gauge how the market is -- how the demand is. It appears that we might need to raise more from the bank because this is going to be a working capital that we will require. So working capital, banks have been supportive.
So sir, currently, what interest rate we are seeing?
Our interest rate is difficult to say because, see, the working capital is 9.5%, then there is a lot of LC and there is a lot of BG that we use when we procure our raw material. Each one of it is different. The interest is different. But interest cost as a whole has reduced from before. It was now -- from before as in before we went IPO, the IPOs right before that, now that has come. The only difference is that the corrections of the steel has reflected very differently. But in terms of interest rate, that has come down and it should continue to do so now, remain at the same levels and now. So 9.5% for working capital for BG and LC is different, 7.5% somewhere, somewhere 8%. So it's all different. We are using -- leveraging our funds differently according to the situations.
So in any category, it's not more than 10%. Is it true?
Well, my CFO can tell better. But what I can remember, no, I don't think it's more than 10%.
[Operator Instructions] As there are no further questions, I would now like to hand the conference back to Mr. Vibhor Kaushik, Managing Director, for closing comments.
Thanks for all the questions. They were all very appropriate questions. At the end, I was saving it for the end, but during the question-answer itself, I have ended up revealing that we shall be starting octagon pole and high mast pole as well. But apart from all the new products that we have, I would like to highlight that the association of our brand with Jindal is very strong and that is our backbone. And every dealer that is associated with us in Northeast is very, very eagerly waiting for us to start production there. Once the production start, just for our product, which we have been producing for the past over 20 years, shall be able to generate enough growth in the company in terms of the turnover and also in terms of its bottom line. The outcome -- the outlook appears very positive in steel now. With the backing of the government, it appears there is a backing in the government, the prices shall appear to look stable, shall appear to even go higher. But more importantly, which is what we look at, there is a demand in the market, which we're seeing because our sales has increased in this quarter and that sales shall continue in quarter 4 as well for the pipes. So with this, I would like to thank everybody and I would like to communicate with everyone that it is appearing very, very positive for this quarter and for the year to come. With all our new plants coming up, new our products coming up, it's very, very positive for Vibhor Steel Tubes. And thank you all for your support in our company and we shall bring all the expectation and translate into reality for everyone. Thank you very much.
Thank you very much. Ladies and gentlemen, on behalf of Vibhor Steel Tubes Limited, that concludes today's session. Thank you for your participation. You may now disconnect your lines.
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