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Anup Engineering Ltd
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Ladies and gentlemen, good day, and welcome to the Q2 and half year ended FY '23 Earnings Conference Call of the Anup Engineering Limited. [Operator Instructions] Please note that this conference is being recorded. Before we proceed to the call, let me remind you that the discussion may contain certain forward-looking statements that may involve known or unknown risks, uncertainties and other factors. It must be viewed in conjunction with our business risk that could cause actual results, performance or achievements to differ significantly from what has been expressed or implied in such forward-looking statements. Please note that company has uploaded the results, press release, investor presentation and also the outcome of the Board meeting on the website of stock exchanges and website of the company.
I now hand the conference over to Mr. Punit Lalbhai, Director of the Anup Engineering Limited. Thank you, and over to you, sir.
Thank you, everyone, and good afternoon to all who have joined this call. I'm Punit Lalbhai, the Director of The Anup Engineering Limited. Let me share with you that I have with me our new CEO, Mr. Reginaldo Dsouza, Mr. Bhavesh Shah, our CFO; and Company Secretary, Chintan Patel, on the call. We are officially joining today for our con call for H1 financial year '23.
So it gives me great pleasure to introduce Mr. Reginaldo Dsouza, who we all call Regi. He has a very excellent track record of performance. His career, which has spanned 25 years with Godrej and Boyce, has many important features that makes him a fantastic person to lead Anup.
He has experience around sales and marketing and all the front-end functions of an engineering practice. But what is even more important is that he has also led the estimation, he has led manufacturing, he has led IT, and he has led continuous improvement as well in his various roles at Godrej. He has a proven track record and we are extremely happy to have him on board with us. And he will, of course, introduce himself in more detail once I conclude my opening remarks.
Rishi Roop Kapoor had expressed his willingness to move on to a more strategic role with the Arvind Group. So he still remains with the group. He is going to look at incubating new technologies and newer businesses in the space for Arvind Limited, and we will have access to his wisdom and his capability. He has brought this company from very modest beginnings to where it is today. So his contribution is recognized, and we are happy that he is still with the group and we have access to his knowledge and capabilities.
So I would like to now hand the call over to Regi to introduce himself and talk us through the results.
So thank you, everyone. My name is Reginaldo Dsouza, Chief Executive Officer at Anup Engineering. I come with an experience of about 25 years in the engineering industry. I have been associated with Godrej Group for 25 years, of which, around 20 years in manufacturing and operations, and the last 5 years has been in sales and marketing, estimation, and IT. The last 14 years has been with the process equipment business, and hence I had the fortune to experience the back end and the front end of our process equipment business in depth. This surely augurs well for my role at Anup Engineering in scaling up and building future strategies for the business and ensuring sustainable performance in line with our growth aspirations. I'm truly excited to lead Team Anup. Thank you, and count on the support and guidance from all our well-wishers. Thank you so much.
Let me now begin by taking you through our numbers for H1 financial year 2023. The revenue is at 1-5-3, INR 153 crores, up by 8%. EBITDA is at 3-0, INR 30 crores that is 19.6% EBITDA margin. Happy to say that we have a very strong order book of 5-3-6, INR 536 crores as on Q2 end. We expect an annualized growth of 30%, that is, we expect the revenue of 2-2-5, INR 225 crores in H2 FY '23.
Our new state-of-the-art facility at Kheda Phase 1 is likely to get commissioned by end of Q4 FY '23. The civil and fabrication work to be completed by Q3 end.
So thank you, and happy to answer if any of you have any questions. Thank you.
Can we start with the Q&A session, sir?
Yes.
[Operator Instructions] The first question is from the line of Chetan Vora from Abakkus Asset Management.
What I was asking that you just stated that for the second half, you're looking at a revenue of INR 225 crores, so that implies overall revenue of INR 370-odd crores, right? And at the start of the year, you were guiding nearly INR 400 crores of revenue. So we are revising it downward. Is it?
Chetan, we were talking on some growth of 30%. We are maintaining the same levels. 30% over last financial.
Fine. And what's the scenario on the commodities front. The margins have improved on a Q-o-Q level, so how should one see on that level?
So I'll answer that, Chetan. The bulk of the order booking that was done for this year was in the second half of last year, and that is why our H2 is going to be a lot heavier on the delivery front. So what will happen is that most of these orders were taken at the peak of the sort of raw material spike where we had very little time between actually bidding for the orders and actually the spike happening after winning the orders.
So the raw material pressure is likely to continue till the end of Q4. So the margins should remain around what we see them in Q2 for the rest of the year. However, the good news is that going forward, all the orders that we've booked post the spike, that form a big chunk of this INR 536 crore order, they have started returning to the old levels of margin. So we should likely see good margins return in the first quarter of the next year.
So is it fair to assume that of the total book of INR 540 crores what we have right now, and INR 225 crores, which is to be executed in the second half, the remaining part of it will be at a normal historical margin of 24%, 25%?
Yes, very close to that is what we can say.
Right. And the other question was that I was looking at the balance sheet, there appears to be that you've loans given to the extent of INR 35 crores, which was nil as of March '22. What is this for?
Pardon? If you can come back.
On the balance sheet, the half yearly balance sheet what you've filed, the loans given stands at INR 35 crores, which was nil as of March '22. What would be this for?
Yes, it is a loan given to our subsidiary. In consol balance sheet, it is nullified. It is a contra entry. So in stand-alone, it is a loan given to our subsidiary which is operating at Kheda.
Okay. So Kheda is under the wholly-owned subsidiary?
Yes, Kheda is right now as a wholly-owned subsidiary.
Right. And what you've mentioned in the press release is that the Kheda will be getting -- the first phase will be getting commissioned by the end of the quarter 4 FY '23, right?
Yes. Yes, we are confident.
Okay. And this will be the 2 lines or 1 bay? What is that?
It is 1.5 bay. It's the first phase what we have envisaged. So the complete first phase will be operational, which includes 1 full bay and half a bay. The full bay is used for the assembly, and the cutting and bending will happen in the half bay.
Right. And then last question from my end, what's the order inflow for the year?
So Chetan, we have booked close to around INR 300 crores in H1. We are seeing a similar traction for H2.
[Operator Instructions] The next question is from the line of Harshil Solanki from Equitree Capital.
My question is to Mr. Dsouza. Sir, can you please help us with your vision for the company for the next 3 to 5 years? Which industries and products would be your focus area? Secondly, your export mix is currently 17%. And how do you plan to increase the exports, what is the right to win in the export market?
Yes. So articulating my vision for the company. We have charted out a very clear agenda. Number one, we need to diversify in different geographies and product categories. Mainly, I talk about exotic metallurgy. So it will give a higher value for our equipment and product mix for us. Second is acquiring technology of proprietary products. Third, expanding the capacities and capabilities. So Kheda is a clear example of how we are going to increase our capacity and capability because of the sheer size of that facility. As you all know, it spreads under the hook 17 meters, which gives us a huge leverage in terms of getting more into a heavier, complex, and larger diameter equipments.
And of course, last but not the least, the strengthening of our organization to build up a strong and capable team to take our business to the next level of growth. So these are broadly the vision articulation going forward. And in terms of what do we see as the growth rate. With the addition of Kheda, along with our existing facility, which as we said should be commissioned by Q4, we expect that we should be able to grow at a CAGR of over 25% for the next 3 years.
Got it, sir. Just a follow-up on that. So you mentioned you are looking to diversify across industries and products. So how we will do that, because historically we have been focused on petrochemicals and refinery. So how do you see the winning orders from other industries and other product solutions?
Yes. [Technical Difficulty]
Hello, did we get disconnected?
Sir, we can hear you.
Okay. Okay.
I think, sir, the current participant is disconnected. We will move to the next question from the line of Kunal from Carnelian.
So 2, 3 questions I had. First question was, Mr. Dsouza, what are the challenges you see with Anup presently? And you did talk about the vision, right, so challenges which you believe which you kind of need to look into is the first question.
The second question, you did mention your experience with various process equipments, right? So if you could elaborate a little bit what specific process equipment would Arvind -- Anup basically kind of look at going ahead? And what are your thoughts on that?
The third question being, what is the capacity utilization right now in this INR 500-odd crores order book, is it factored in something from Kheda as well?
Yes. So in terms of challenges for Anup, going forward, of course, as we grow, having a strong capability to lead this business into the next leap, it would be my first priority. That's the challenge that we have. In terms of, as you all know, on-time delivery has always been a strong USP for Anup Engineering. And as we grow into the next growth cycle, we need to maintain the on-time delivery for the business and also the competitiveness.
So as we grow, we need to balance out the on-time delivery performance, the competitiveness, and maintain it, so that we are able to take the next leap into the future. And also, of course, streamlining the entire org structure to be capable of delivering this result would be on topmost of my agenda. And also going forward, set the processes and systems to take care of the new challenges that come our way as we move along into higher value chain in terms of complexities and the higher value per equipment.
And also, as we have articulated, exports is going to be a strong driver for us going forward. We need to channel our resources and strength, build capabilities to be able to take this challenge of growth in the export market. So broadly, these would be the challenges which we are very well aware of. We are working towards it and that would be the topmost agenda for me to take this business forward.
Sir you mentioned on the people part. So it's more to do on the technical side, senior level, sales, marketing, if you could elaborate a little bit on that front, would also kind of help sir.
Yes. So when I said we need to build capabilities. Basically, when we move towards higher complexity in the value chain, we need to build, of course, the technical capabilities and also the software skills when we move into the export side of the business. Having said this, I would like to make a note that as I've taken over the business, I'm pretty happy with the team that we have. It's only a matter of consolidating and building the capabilities for higher complexity of equipments in the value chain, which we already have a plan in place and we are working towards it. And soon it will be in place in the org structure.
Fair enough, sir. And on the process equipment part, you did allude to in your opening remarks, right? So if you could elaborate a little bit on that also, I mean, what exactly would be our focus area other than the heat exchangers and how big and fast could this opportunity unfold, and also the areas where we are looking for the technology, either acquisition or collaboration.
Yes, surely. So Kheda, the sheer size of the plant, that is 17 meters under the hook and 25 meters wide, 200 meters long, that itself signifies the aspirations that we have when we set up this plant. So broadly, when I mentioned that I have an experience on the process equipment side, it was mainly on my experience with the earlier organization where it has more to do with a higher level of equipment in the value chain, especially higher thicknesses, say, for example, 200-plus of shell thicknesses, more on the exotic metallurgies in terms of titanium and others.
And Kheda has been designed, the whole focus going forward would be to have heat exchangers primarily being based out in our existing locations. And the Kheda, because of the sheer size, reactors and pressure vessels would be planned for Kheda. As you would have seen from the product mix that we had historically, close to about 75% around, we were always on the heat exchanger side, and the balance would add up to about 20%, 25%.
Going forward, with Kheda in place, that's the change that we want to bring about. We want to keep exchangers to about 60%, and the balance is where we want to increase it, so that we do justice to the capabilities that we've built up at Kheda location.
Kunal, I think 3 strengths we've historically had as Anup. I think our competitiveness, our on-time delivery, and our quality. We've hardly had a quality complaint for the last 5 years. I don't think we've ever missed a customer CDD. So I think preserving this is going to be key to looking to the future. And I think, as Regi mentioned, just the organization gearing up in terms of systems and processes and getting the right people to have a very fast and successful scale-up of Kheda, I think these are the challenges that we need to watch like a hawk and deliver. And I'm extremely happy with the 1 week to 10 days that Regi has taken over, already a lot of this groundwork is preparing the master plan.
And I'm sure he will unveil more of this in the next call when he has had a full look at the current status and us going forward. But we are in a good place is how I would describe our start point from this moment onwards, and building those capabilities, we have a large degree of confidence. Getting into proprietary equipment, there are several conversations happening, which, of course, we'll inform you as they become more concrete. So thank you for those questions.
Fair enough. Sir, just 2 questions which I mentioned at the first also. So what is the capacity utilization right now? I mean, this INR 530-odd crore order book which we have is for Odhav only, right? There is nothing pertaining to Kheda...
That is a moving target. Capacity is a moving target because average equipment value is also changing all the time, right? So the same number of equipment can deliver a higher turnover if your average equipment value goes up, and it's been constantly going up every year. So we are close to full right now, but we will continue to remain close to full with a higher turnover because our average equipment value is going up. Because equipments are all different, at different points in time, different equipment will take up different area under the crane. So it's not as -- when you think of an engineering bay, you've got to think of time under the crane, which is almost 100% right now. And it will be 100%, but deliver a much larger turnover going forward because of the quality of orders that we have already won.
So that's how you should think about capacity. I think the additional stuff that will add to this is the clean room at Odhav. And if we are aiming to start with a INR 500 crore plus opening order balance next year, a big chunk of that will have to be done out of Odhav because there will be a ramp-up that we will see at Kheda. So only towards quarter 3, quarter 4, will we start seeing good levels of utilization, because we'll have to get the qualifications, we'll have to get the customers in, we'll have to sort of get all the approvals in place for various different types of equipment. So that all will take some time. So next year, towards the end of the year is when Kheda will start delivering on its full capacity.
The next question is from the line of Ravi Naredi from Naredi Investments.
Thank you to give me this opportunity. It is good company has good order book, but EBITDA margin reduced by 530 points in 6 months, and reduces to 11.8% from 16.8%. What is your commentary in future?
So the commentary in the future is that margins are going to be back to the previous levels. This was due to a very extraordinary situation that the industry hasn't seen, in at least my memory, where overnight, because of the war situation, prices of metals, sod, and especially in certain categories like nickel-based alloys, it went up by how many percent, Regi, almost 200%?
Almost double.
It more than doubled. So if that situation happens in a span of 10 days, 15 days, it's very difficult to sort of maintain the margins. However, the good news is, as I mentioned earlier, that the new orders that we are winning, after this extraordinary situation has corrected, are back at the old margins. So I would not worry too much about margins as we go forward.
Okay. We will resume this margin by next year, quarter 1, right?
Yes. So it should get very close. Now exact numbers, as the orders get finalized, maybe this question will be answered with the best certainty once you ask me after the Q3 call.
Okay. Understand. And as you said, due to ongoing CapEx at Kheda and working capital requirement, you expect CapEx loan -- how much is the CapEx loan plan? And will you raise debt only or equity is also in pipeline?
So the requirement for funding the working capital and CapEx would be close to around INR 20 crores to INR 25 crores. And we will be taking debt for it.
But we also feel that this will be very temporary in nature. And our objective of being a 0-debt company is still very much in force. This is just a temporary mismatch of cash flow, for which we are taking.
But sometimes it is good, when you take the debt for expansion of company, it is good.
A lot of different people will have different philosophies on that.
No, no, no. It is always good.
I will assure you that we will not stop our growth for want of funds.
Yes. Yes. Instead of raising equity, debt is always cheaper.
Yes, yes, we'll go for debt.
The next question is from the line of Ankur Sanwal from Money Matters.
I wanted to ask that for developing new products, are we going to have any technical assistance from other companies, collaborations for technical know-how for making new products?
Yes. So I'll answer that question. So talking about technology, we are already licensee to Lummus heat transfer for our HELIX heat exchangers, which form a large chunk of our heat exchangers that we manufacture in the current facility. We would like to expand that going forward and be licensee for such similar technologies going forward, so that we can improve our portfolio into these proprietary items, so as to be able to compete better and improve our order book position.
So the focus is there. We are already as a licensee, and going forward, we have more technologies in mind we want to take forward.
The next question is from the line of Bhagwat from Prosperity Wealth Management.
I would like to better understand the decision of Arvind Group to start a separate engineering division. Why not have the new business as an extension of Anup Engineering itself. Is this new engineering division a significantly different business alone?
So I think we are in a very exploratory phase right now. So we have not yet zeroed in on the opportunities. See, right now the bandwidth of Anup team has to be fully utilized to delivering their growth, delivering the right margin, delivering this transformation where exports constitutes a very large part of our order mix, delivering a future where our dependence on petrochemicals and refining is not as high as it is right now, and getting Phase 2, Phase 3, Phase 4 of Kheda off the ground.
So there is more than enough to do within Anup for Regi and his team to handle. That is why we've taken Rishi -- I mean we've sort of charged Rishi with looking at opportunities. If they are logical for Anup, they will be transferred to Anup. If they are something that is complementary, but does not belong in Anup, we will do it elsewhere.
So just this scanning the space and thinking strategically about the space is the initiative that Rishi is going to lead, and it is best done by somebody who doesn't have the mandate and compulsion of delivering on the Anup agenda, because we don't want to dilute the focus on Anup. We have to improve our systems and processes, our project execution. We have to go and win new technological tie-ups. We have to gear up for the export market. So we have a big agenda in front of us. That is the logic behind having these separate sort of verticals. One is an exploratory vertical at this point. And once those opportunities become real, if they are adjacent or if they are directly relevant to Anup, of course, we will not build them separately. They will get transferred here.
Okay. So sir, it's a completely different business, not somehow very similar to Anup's business?
Yes. But we might stumble on to some opportunities that might be relevant to Anup. And there, having those preparatory dialogues, getting that from 0 to 1, all that requires a very different type of focus, which is better done separately. And once the opportunity becomes real, it can be housed anywhere. So this will only help Anup, rather than any concern of it creating a parallel organization. Rest assured that we will never do anything to sort of compromise Anup's positioning.
Okay. Sir, if you could give some color on the business model of the new division?
So right now it's only a team of people that's going to scout for strategic opportunities. And those strategic opportunities -- I mean, this team is a week old. So again, I think this question is better asked once the team has sort of articulated its thought process, and since this is an Anup call, we'll discuss how it is relevant to Anup, that is a fair question. And my answer to that is that it will only add opportunities to Anup's quiver of arrows and help it achieve its vision.
Okay. Understood, sir. Second question is like what would be the top line and margin anticipated for FY '23 and FY '24 as a whole?
So as we mentioned in -- as Regi was talking earlier, I think we are going to aspire for that 24% kind of margin on a 25% annualized CAGR growth. I mean, you can easily do the math, right?
Okay. So sir, as previously, we have been guided that Anup will reach INR 400 crores top line. So will that guidance still be there?
So we are guiding now that our visibility is of INR 225 crores in the H2. So that will leave us slightly short of INR 400 crores is what we are feeling as of now. Of course, there will be every effort to do better.
Yes. And sir, from FY '24 Q1 onwards, the margins should improve as we have discussed?
Exactly.
The next question is from the line of Sonal Minhas from Prescient.
I had 2 questions. The first one, I just wanted to understand the price escalation mechanism or the contractual escalation mechanism you have with your clients, because as you mentioned, the prices of raw material went up by 200%. So what gets factored in, what gets passed on? And how are these negotiations happening given the times of turmoil. So I'll just pause here. I just wanted to understand that first.
So there are 2 types of customers. One is tender business, where, unfortunately, the industry is structured in such a way that there is very little opportunity. Once you bid and you are L1, you only have a choice of accepting the order or rejecting it, right?
Then there is very little actually price escalation built in. But that usually doesn't matter because the window between becoming L1 and actually getting the PO is not inordinately long. So only a massive spike in a very short period of time can result in something like this. If you look at Anup's history, we have not faced something like this in the past. And even the world hasn't faced something like this in the past. That said, we tried our very best to go back to customers and request. But contractually, a lot of those provisions don't exist. And when they don't exist, your negotiating power is low. That said, we managed to get some marginal increases here and there. Now...
And that's for Indian as well as international customers or Indian?
No, no, no. This is tender business. So I'm coming to others. Then there is nontender business where it is a one-on-one negotiation where a lot of these mechanisms are built in. Now it so happened that a bulk of our orders that we clicked were very attractive tender orders. So it was just a matter of chance that the percentage of orders, at that point in time, when this escalation was happening, a good chunk of it was this tender business. So there we were rather helpless on cost escalation.
But going forward, we would also like to have a good mix between tenders and sort of negotiated contracts with private companies. So generally, there, like in other standard contracts, there are escalation clauses. Of course, there are caps to all these things. And every cap would have been sort of blown out of the window with the kind of escalation that happened this time around, but it would have been slightly better had those mechanisms been in place. But as I said, because most of those orders were tender orders, we got particularly badly hit.
That said, I think the kind of effort that the team has put in to come to the current levels of margin after the level of escalation that had happened is worthy of nothing other than applause, because they did a lot of hard negotiations, they did a lot of work on design, they did a lot of work on cost and efficiencies to be able to recover significant margins. It were looking much weaker than it's actually landed up.
I appreciate that this is a tough time, but I just want to understand because the commodity prices have been up for the last 6 months, and we've been accumulating our order book since then. So there would have been a time where you could see that the prices are going up. And maybe being L1 during this period or maybe you would have ended up rejecting some orders based on your bids because...
So we did reject a few orders, but then we also have to deliver on the growth agenda. So you can't reject everything. And these are good customers. These are good orders, and this is a short blip in time. So we just have to smile it out and forge our way through a difficult patch. And that said, 20%, if you compare to the overall industry, it's not our Anup great margin. It's a decent margin.
[indiscernible] everyone, I think a lot of people actually. Maybe it's in the top 10 percentile.
You know, it is a bit rich to be rejecting orders and upsetting customers.
And you said you're growing and expanding your exports business. When you compete with certain larger players on the exports market, what are the technical criteria basis which you right now get rejected or you have kind of a lead time to qualify, which you see basically becoming the right for you or getting switched on for you in the next 2, 3 years. So...
So there are 2 things that we have to keep in mind here. Number one, we haven't really even quoted those customers. So there is not a situation where we are getting rejected. It's that we've been full with this set of customers with good margin that there has been not much opportunity to go and -- see, if you go to an export customer, you better be able to deliver, right? So when you are already this full with a very decent margin, and your capacity expansion has not yet fully happened, that's not the time you go and try and get a bunch of people. So that's number one.
Number two, the Odhav facility is constrained from its location perspective also. It's landlocked, and the space is very limited. So a lot of the export customers that require large equipment, et cetera, would not even consider this manufacturing location. So we have not gone to that set of customers also, which we know that if they come and see the facility, they will have the first question around logistics and that will be, before they even look at our systems, processes, and shop floor, it would become a constraint.
So these are the issues of why we have sort of focused on this set of customers, which itself is giving us good bottom line. I think the right question to ask is what will happen after Kheda? And there, I can assure you that any export customer will love the infrastructure that we are putting in place. It's going to be a best-in-class kind of infrastructure.
Yes. Is there a lead time there, sir, because what I understand, especially in your industry, with the export customers, you have a lead time to qualify for taking orders, and it pans out in 2 to 3 years, even then...
Yes, but there is also existing -- so we do have export customers already. We are qualified for a lot of export customers. And those customers can start utilizing the Kheda facility. So while new customers will send their people, they'll do their inspections, they'll get confident about our capability to deliver and then place orders, there are people that already trust us, where we have a 100% track record already. So those people will be quicker to place orders. And part of the INR 536 crores that we already have, there are some orders specifically taken for Kheda, which will start up in Q1. And we don't want Kheda to ramp up beyond a certain pace, because we want to be able to digest the orders that we get and continue our promise of 100% on-time delivery.
So we will take it at the right pace. And Q4 is when the action will start to happen on getting newer customers qualified. I think one of the things where we are very well placed is that Regi has relationships with the best of all customers globally. And they are eager to be able to come to India and have a new supplier. Because today, there are only 2 or 3 people who can service their needs. And the shift away from some of the Southeast Asian and Chinese supply chains is only going to add to that necessity of looking for more options in India.
So we feel very confident with the kind of infrastructure that we are creating with the fact that Regi has known some of these customers whose orders we would want for better part of the last 10 years and has very good relationship, and many of them are excited by Kheda's development. So these 2 factors combined makes us very confident. That said, what we have to do is ensure that Kheda ramps up properly. So we have a lot of work to do. We have to build the team, we have to ensure that our project management from here to the end of quarter 4 is done well, so that there are no additional delays, and we have to ensure that we are taking the right orders at the right time, so that our ramp-up is seamless and we continue the promise of being competitive, delivering 100% on time, and not having any quality issues, which has been our hallmark till now.
So Sonal, just to add to that, whilst we are preparing...
Sorry to interrupt. Actually, the participant is disconnected. Can we move to the next question?
Sure, sure.
The next question is from the line of Rajesh Jain from N.B. Investment.
Sir, it's regarding the tendering and the standard orders that we have received. Is it fair to say that all this tendering business that we receive, it is from the PSU only?
Yes, largely PSU.
Okay. And just to get an idea, maybe in FY '22 or in H1 FY '23, how much of the revenues are from these L1 type of orders that we have executed?
Yes, predominantly, right now all the refining and pet chem orders are -- so you may say domestic orders are all L1 category orders.
Okay. Fair enough. Sir, second is, in the last call, it was announced that we had received one big order worth more than INR 100 crores from a refinery. So just curious to know, one, was it for heat exchanger? And was it only one heat exchanger or it was more than one?
No, it was 36 heat exchangers.
36 heat exchangers. Okay. Nice to know that, sir. Sir, my next question is, sir, we had a good track record of keeping the debtor days within 100 days. And we know last 2 years things are not normal. But is it possible that we bring it back to 100 days maybe in the current year or next year? Or that 150 days has become the new norm?
So yes, in case of domestic customers, since advances are less, you may see this continuing this way. If we go more in exports, then our debtors days will come down.
So you mean to say till we commission Kheda and concentrate more on exports, till that time the debtor days would remain at the current level?
Yes.
Okay. Sir, regarding Kheda plant, see, we have expansion in 3 phases. So as per the existing plan, when is this third phase expected to complete?
Third phase?
Yes. The third phase, we are expecting to complete by FY '26.
FY '26. Sir, after that, do we have some more space available there?
Yes, Kheda FSI is much higher than what all the 3 plants put together is.
Okay. So that means is it possible to put one more bay?
We can put a total of 7 such bays at Kheda. We are doing 1.5 right now.
In the Phase 1, but for all the 3 phases...
We can do about INR 150 crores.
I know, sir. No, no, what I was asking is, in the 3 phases that you have planned as of now, how many bays we are going to put up?
1.5 bays in first phase.
I know. Phase 2 and Phase 3?
It would be kind of equivalent, maybe 3 and 2.
3 and 2. Agreed. So that means we would be having around, 3+2=5. So another 2 bays we can put up?
7 bays.
Total 7 bays. Okay. Sir, my next question again about the Kheda, see, once it is commercialized with the kind of overage that you would be having there, how much time do you foresee that it will take to breakeven at that place?
Yes. So breakeven at Kheda would be -- so phase wise, we are seeing close to around INR 75 crores as a breakeven point for first phase.
So then going forward, since we'll be adding up the facility in a phased manner, the breakeven point will change.
So this INR 75 crores of revenues, that you can generate in FY '24 itself from Kheda?
Yes. We are targeting that.
And lastly, just wanted to know what would be the interest and depreciation cost for FY '23 and '24, sir?
Of FY '24 or '23?
FY '23.
Yes, FY '23, the interest cost would be just maybe at around INR 50 lakhs to INR 60 lakhs, and the depreciation would be close to around INR 10 crores, INR 11 crores, Kheda will come the next year only. And going forward, in FY '24, we expect interest cost to be INR 2 crores and depreciation to be at INR 20 crores.
Bhavesh, can you circulate the exact numbers, if they...
Sure, sure. I'll be happy to. If you just send across a mail for such questions, we'll be happy to reply to it.
The next question is from the line of Akshay Kothari from Envision Capital.
As there is no response from the current participant, we move to the next question from the line of Anurag Patil from Roha Asset Managers.
Sir, for Kheda Phase 1, how much is the total planned CapEx and how much we have spent till now?
The planned CapEx is INR 115 crores. We have spent around INR 60 crores till date.
Okay. And sir, what are the typical asset turns for this facility?
We are looking at asset turn at good levels at 1.5 to 2 tonnes. Initial phase, it would be 1.5 tonnes, since we are developing a complete facility of Kheda along with it. Going forward, it would be 2 tonnes.
Okay. Okay. And sir, for our existing products, what will be the total domestic addressable market size for us?
It depends on the CapEx cycle. Right now, we are seeing good capacity expansion, both at refining as well as pet chem. So right now, the overall inquiry pipeline, so I mean just to give you a rough idea, our heat rate is close to 18% to 20%.
I think on market size, we can circulate -- we have that data. It's just not handy, so we don't want to talk a wrong number. We will get back to you on that one. We'll make a note of it. I mean it's a very large market.
The next question is from the line of Suhrid Deorah from Paladin Capital.
I've been tracking the company for a couple of years. And the question that's always in my mind is really on the demand side. I've not been able to get a grip on what is driving the confidence for new expansion, because the existing facility, I believe, can do about INR 500 crores of turnover, which has not yet been achieved. And it seems to me that the revenue is still mostly concentrated with heat exchangers and the refining sector. So could you just -- maybe this has been answered earlier today, I'm not sure, but could you just help me understand at a high level how you're thinking about it?
I'm not sure I fully understand the question. So if I were to rephrase it, I think what you're asking is that why haven't we been able to achieve INR 500 crores in order of when we say the capacity is at 500. Is that the question?
Yes. That's the first part, and the related part is that, we've not been able to hit that, and most of the revenues are coming from heat exchangers and refining, and there's a lot of emphasis of cost on the new facility at Kheda. So how are you guys thinking about it?
I have been saying refining and petrochemical, specifically, is here to stay for the next 10 years despite all the focus on renewables. So it's not a sunset category by any means. That's what our analysis of the industry says. So while it is important to start building newer sort of avenues for diversifying our segmentation of where we get our orders from, oil and refinery, we have an excellent track record. We have very good relationship with customers and it's here to stay. So that's not a concern area.
Now coming back to the first part of the question, INR 500 crores is a recent development. So we have been adding capacity at Odhav every year. The way you have to think about it is that our average equipment value 2 years ago was, I think, in the INR 1 crore range. Now it is INR 2.7 crores on this order book. So while we were doing between 150 to 200 process equipment pieces, we are still doing those 150 to 200. So we are utilizing the full capacity, but the turnover is going up because the average value per equipment is going from INR 1 crores to INR 2.7 crores, right? So that is a gradual process because we added the heavy bay last year; this year, the clean room is coming up.
So all these things will allow us to get higher average equipment value. We'll still continue to do that 150 to 200 equipment from Odhav. Does that clarify it?
Mr. Deorah, we can confirm hearing [indiscernible].
Your voice is cutting out.
Sir, it seems like we lost the connection for Mr. Deorah. We'll move to the next question from the line of Saket Kapoor from Kapoor Company.
This is -- some of the things, the low-margin order bookings will get exhausted by Q4 of the financial year. And we would be trying to return to our previous EBITDA margin of 25% in terms of the orders which we are booking currently and going ahead. This should be the sum and substance in terms of the margin profile. And going ahead...
With one correction. The lower margin orders, which is still industry-leading. But you are right. I'm just being a little facetious here, sorry.
Sir, come again. Sir, I missed the point you were trying to make.
No, no. I just said, yes, you are correct. But the low margin that you're talking about is still a good margin.
It's a good margin, but it was not historically the one which we used to post. That was my read. Sir, I should have corrected that.
No, no, no, no, I'm just joking.
Yes, not an issue sir. And secondly, sir, coming to the new growth will come only from the Kheda contribution going ahead. So that...
No. I would not say that. I think until we reach INR 500 crores, I think Odhav will stabilize at INR 500 crores. Is that correct, Regi? You would like to answer that question?
So Kheda, with the current capacity that we've built in and the product portfolio that we are looking at going forward, we have a fair -- Odhav would be to the tune of INR 500 crores. And beyond that is where Kheda will chip in. And in the first year, we are looking at INR 75 crores to INR 100 crores turnover from Kheda with the 1.5 bay commissioning that's going to happen in Q4.
But the revenue is going to kick only for FY '24, and not for this year?
We're talking about FY '24 only.
That's correct.
And it will take some time to also go to INR 500 crores in Odhav. So both those things will happen parallelly, Kheda will start and Odhav will start going from the current level to INR 500 crores, that is also in process.
Sir, when I look at your capital work in progress, there is an increase from INR 30 crores to INR 50 crores. That is totally in terms of the money going through the Kheda capacity?
Yes, yes. All CWIP, I mean, 95% plus is all about Kheda.
Okay. And when we look at the other current assets, that have gone up from INR 13 crores to INR 33 crores. So what would this -- could you explain to us the reason for the same?
The current assets?
Yes, other current assets was INR 13 crores for 31st March and now it has gone up to INR 33.3 crores.
Okay. Just a minute, I'll get back to you on this.
Right. And employee cost has also gone down, sir. If we compare last year number, we had an employee cost expense of INR 7 crores, and this time it is INR 5 crores. So what explains the reduction in the cost there?
So there is a lot of -- I think when you look at the -- there is a part of employee cost that is also variable. And because we've had a low Q1, that's why that expense is also lower. That will correct once we are back to full capacity.
Okay. And sir, just to get an understanding, what should be the ideal package for Mr. Dsouza, as a CEO, the industry levels, or because of his expertise and his experience? If you could give some more color to that.
So I think, Regi comes with some of the best industry credentials. So whatever package we will do now and going forward will be concomitant with his capabilities.
The next question is from the line of Ankit Babel from Subhkam Ventures.
My first question is, as you mentioned, Bhavesh bhai mentioned that the breakeven point in the Kheda capacity is around INR 75 crores. And since you people are expecting a revenue of around INR 75 crores to INR 100 crores from Kheda in FY '24. So I believe that -- then in that case, how are you going to achieve your 24%, 25% margins for the company as a whole, because this INR 75 crore to INR 100 crore revenue might not have that margins.
Yes. So at overall levels, what we are seeing is about INR 100 crores from Kheda and INR 400 crores from here. So INR 400 crores at Odhav will be at the normal level. And INR 100 crores will be generating about the same level. So fixed cost over at Kheda, we are estimating close to around INR 15 crores to start with.
See, this doesn't -- I mean, it's very difficult to predict all this quarter-to-quarter. I think we should look at -- I mean, the broad guidance that we are talking about here is, barring the mismatches of the execution ramp up, so quarter-to-quarter, there may be variations in this. But overall, if you look at 3, 4 quarters combined, and if you look at the end of the scale-up process, we should land at that 24%.
I understand, sir, I'm not talking about quarter-to-quarter, I'm talking about the FY '24 full year. So in that year, only a INR 400 crore revenue might generate a 24%, 25% margin, which is the Odhav, and this INR 100 crores from Kheda might do hardly, what single digit, I don't know. So overall, I mean, how are you going to manage the margins at those levels. Or in case you would like to tell me that Odhav would do a 27%, 28%, which also you people have done historically. So just wanted your view on that.
Yes. So we are talking about the consolidated margins. The individual margins will be worked out accordingly.
No. So are you saying that the Odhav has the capacity to do 27%, 28% kind of margins?
No. So I think you are right in saying that maybe the consolidated margins for the next year are likely to be slightly lower. But we have to bear in mind that we have overall booking orders at 24%, even if you look at Kheda. So I mean when we talk at 24%, we've already made some assumptions around Kheda. Now anything that is an execution related...
That I understand, yes.
That may actually happen. So it's very difficult to sit right now and tell you that everything is going to go absolutely to plan. And what we have planned is almost 100% going to materialize. So yes, you are right, it may go lower because of some execution-related things. But I think we have to allow for all of that in the ramp-up of any enterprise. But at the order level, with Kheda costs factored in, we feel that we are taking orders at 23%, 24%, 25%.
Yes. I was just trying to understand the mathematics. That's okay, sir, I understand.
We'll get back to you once we freeze up the budget for the next year.
Okay. And how come a lower Q1 revenue impact your employee cost in Q2, sir, I didn't get that.
Pardon?
How come a lower revenue in Q1 impact your 2Q employee cost?
No, employee cost is the variable component, which has been identified based on the KPIs, which has not been disbursed based on Q1 performance. So it will be disbursed as and when it accrues, it gets factored in the salary cost.
Okay.
Okay. So I mean I stand corrected. The main reason for which the employee cost has come down is not because of the variable component. There must be some factor of that because of Q1, but you are actually talking about Q2 numbers. So in Q2, normally, Q2 is when we pay out variables. This year, the variables got a little delayed. You will see it coming in Q3.
Just, the question which one of the participants asked about the increase in current assets, I mean, this is because of increment -- the vendor advances which we have paid, for which the material is going to come in H2. So that was one answer which we haven't given so. Yes, that's it. Thank you.
As there are no further questions, I would now like to turn the conference over to Mr. Punit Lalbhai for closing comments. Over to you, sir.
Thank you very much for being on the call. Look forward to seeing you all next quarter.
Thank you. Ladies and gentlemen, on behalf of The Anup Engineering Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.