Electrosteel Castings Ltd
NSE:ELECTCAST
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Electrosteel Castings Ltd
Earnings Call Analysis
Q3-2024 Analysis
Electrosteel Castings Ltd
Electrosteel Castings Limited reported a notable third quarter in FY '24, achieving their highest-ever quarterly EBITDA of INR 429 crores and PAT of INR 263 crores, signaling a strong upward trajectory for the company. This performance is underpinned by an increase in demand largely attributed to key government initiatives like the Jal Jeevan Mission, AMRUT, and irrigation schemes. On the margin front, Electrosteel witnessed impressive EBITDA and PAT margins, peaking at 22.7% and 13.9% respectively. Such a margin expansion suggests a vigorous improvement in the company's profitability and potential for sustained future earnings.
Engagement in pivotal government projects and a substantial order book of 6 lakh tonnes provide Electrosteel with 9 to 10 months of visibility, underpinning a stable revenue stream. With 74.1% of the Jal Jeevan Mission target achieved nationally, Electrosteel expects continuing demand, reflecting the need to connect nearly 5 crore households with tap water. This, coupled with a 16% export share, positions the company well within both domestic and international markets.
Electrosteel has strategically invested INR 340 crores in capital expenditure as part of a larger INR 650 crores expansion plan. The increase in capacity to 9 lakh tonnes per annum by September-October 2025 highlights the company's commitment to maintaining its leadership position and catering to the rising demand driven by increased infrastructure spending.
The company has diligently managed its debt levels, reducing its gross debt to INR 2,100 crores and bringing its net debt down to INR 1,680 crores, reflecting a healthy net debt-to-equity ratio of 0.36:1. Additionally, the adjusted ROCE and ROE stand at an impressive 20.2% and 20%, respectively, which demonstrates strong management effectiveness and financial return stability.
Factors such as economies of scale and operational efficiencies have contributed significantly to the company's formidable profitability, with positive demand tailwinds ensuring sustainability. These elements reinforce the expectations for continued strong performance in upcoming periods.
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Ladies and gentlemen, good day, and welcome to the Q3 and 9 Months FY '24 Earnings Conference Call of Electrosteel Castings Limited. [Operator Instructions]
I now hand the conference over to Mr. Vikash Verma from EY LLP. Please go ahead, sir.
Thank you, Vishal. Good afternoon, everyone. Welcome to the Quarter 3 and 9 Months FY '24 Earnings Call for Electrosteel Castings Limited. On behalf of the company, I would like to express our gratitude to each of you joining the call today. To discuss the performance of the company and to answer the questions, we have with us from the company, Mr. Uddhav Kejriwal, Whole-time Director; Mr. Madhav Kejriwal, Whole-time Director; Mr. Ashutosh Agarwal, Whole-time Director and CFO; and Mr. Gaurav Somani, General Manager, Finance.
Before we begin, I would like to draw your attention to the fact that today's discussion may contain forward-looking statements that are subject to various risks, uncertainties and other factors, which will be beyond management control. We kindly request that you bear in mind there may be uncertainties when interpreting such statements. Please note that this conference is being recorded.
We will now start the session with opening remarks from the management team. Afterwards, we'll open the floor for an interactive Q&A session. I would now like to invite Mr. Madhav Kejriwal to make his opening remarks. Thank you, and over to you, Madhav.
Thank you. A very good afternoon to all, and a warm welcome. Highlighting the company's Q3 FY '24 operational performance, it gives me great pleasure to share with you that we have registered our highest-ever quarterly EBITDA and PAT of INR 429 crores and INR 263 crores, respectively. This was on the back of an income that stood at INR 1,814 crores, led by a strong demand from the domestic markets, owing to the government's Jal Jeevan Mission, AMRUT and irrigation schemes.
Additionally, on the margin front, the company registered its highest-ever EBITDA margin and PAT margin of 22.7% and 13.9%. We will -- we saw our blast furnace in the Khardah unit go under repair and maintenance this quarter, owing to which we will be able to see some benefits in the aforesaid coming quarters. This is -- our balance sheet is stronger now backed by robust performance. We are confident that with support of all the stakeholders, continued performance improvement and focus on the government to provide for India's water requirements, the balance sheet will grow to be much stronger in the coming times.
This will be by a combination of various factors, such as a strong order book, economies of scale and operational efficiencies. This quarter, we were able to sustain our growth momentum with better volumes at our south unit. During the quarter, our pipe volumes stood at 195,000 tonnes. The export share of this was 16%. The government's ambitious JJM project, which was launched for connecting every rural household with tap water connections, has achieved a 74.1% of its national target until date. Over 10.2 crores rural households now have safe access to drinking water. From India's total 19 crores rural households, nearly 14.3 crores households have gotten tap connections.
We opened this quarter with an order book of 6 lakh tonnes, which provides visibility to us for 9 to 10 months. The ongoing CapEx is progressing as planned, thereby maintaining the company's leadership stance. The interim budget of '24-'25 vision of Viksit Bharat by 2047 is poised to spur infrastructure spending, benefiting Electrosteel for varied product applications like continuous safe drinking water, sewage, irrigation and others, which will lead to an increased demand for ductile iron pipes.
Additionally, rise in global water infrastructure spending adds visibility to our order book, making us the preferred partner for key water infrastructure projects, both in the domestic and export markets. Nearly 5 crore households are yet to be connected with drinking tap water under the Jal Jeevan scheme. Additionally, AMRUT 2.0 will continue to drive demand for ductile iron pipes and fitting products in the coming years. There is a growing need for better water infrastructure products in the global market for secure and drinking water as well. Owing to this, we are pretty confident about the future of the organization.
I would now like to hand over the floor to Mr. Ashutosh Agarwal, Whole-time Director and CFO, for taking you through the Electrosteel Castings Q3 FY '24 financial highlights.
Thank you, Madhavji. Good afternoon, and a warm welcome to all the investors present in this conference. I would like to first start with the Q3 performance -- consolidated performance of the company. The ECL total income stood to INR 1,892 crores in this quarter. EBITDA surged by 112% to INR 429 crores in this quarter. EBITDA margin expanded by 1,183 bps year-on-year basis to 22.7%. PAT grew 236% to INR 263 crores in this quarter. PAT margin expanded by 972 bps year-on-year basis to 13.9%.
Now moving to stand-alone performance of the company. Company sold 195,253 tonnes of DI pipes during this quarter. Company's total income was INR 1,814 crores. EBITDA grew by 124% year-on-year basis to INR 412 crores in Q3 2024. EBITDA margin expanded 1,223 bps year-on-year to 22.7%. PAT grew by 286% year-on-year to INR 252 crores (sic) [ INR 256 crores ] in this quarter. PAT margin expanded by 1,016 bps year-on-year to 13.9% during this quarter. Moving to consolidated performance of 9 months. Company's total income was INR 5,542 crores during the 9 months. EBITDA surged by 58% year-on-year to INR 935 crores with EBITDA margin of 16.9%. PAT grew by 126% year-on-year to INR 513 crores, with PAT margin of 9.3%. EPS for 9 months during the financial year was INR 8.59.
Moving to the stand-alone performance up to 9 months. Company sold 5,050 -- 550,886 tonnes of pipe during this 9 months. Company's total income was INR 5,232 crores during this period. EBITDA surged by 58% year-on-year to INR 927 crores with EBITDA margin of 17.7%. PAT grew by 122% year-on-year to INR 517 crores with a PAT margin of 9.9%. EPS was INR 8.67.
Now talking about CapEx plan. ECL has spent INR 340 crores till date for the expansion plan, which is INR 650 crores. Ongoing capacity is in progress. As for the plan, new capacity is expected to be started by September-October 2025, which will take the company to the overall capacity of 9 lakh tonnes per annum. As on 31st March -- 31st December 2023, gross debt of the company came down to INR 2,100 crores and net debt stands to INR 1,680 crores. Company's net debt-to-equity ratio stands to 0.36:1 as on 31st December 2023.
ECL's adjusted ROCE and ROE annualized after adjusting coal mine compensation claimable, which is due to receive and happening in the books of accounts, stands to 20.2% and 20%, respectively, as on December 2023.
Now I'm opening the floor for the question-and-answer session. Thank you, everybody.
[Operator Instructions] The first question is from the line of Vikash Singh from PhillipCapital.
Congratulations on a very good set of numbers. Sir, my first question is regarding our profitability, it is far higher or probably the best-ever EBITDA per tonne. How much is basically sustainable in this and what factors contributed to such a significantly higher profitability? If you give us some info on that?
So I'll answer in 2 parts. I'll start off with what are the factors that have led to this. One of the major factors that have played a key role in this would be the economies of scale and the improvement in the operational efficiencies, along with a little support from a good hedging scenario that we saw for our raw material prices. In terms of sustainability, we are seeing some strong tailwinds from the demand perspective as well and even from our continuous efforts towards operational efficiencies. So I would say that the outlook is strong for the foreseeable future.
And going forward, would we be able to maintain the similar kind of margins? Or it's a very tall expectation, then we should take it as 15,000 tonnes to 18,000 tonne kind of a range. What would you like to guide to us?
Sir, I think barring minor fluctuation of a few percentage points here and there, I don't think -- I feel that foreseeable future, it seems pretty good.
Understood, sir. Secondly -- sorry, please.
No, no. Please, Vikash ji.
[Foreign Language]
See, I was saying that we have also been planning to -- are planning our raw materials, hedging it according to our order book. As I mentioned, we have a very strong order book of 6 lakh tonnes against 4.5 lakh tonnes last year. So to accommodate for our increased order book and also our expansion in terms of volumes, we are working on efficient utilization of working capital and keeping our raw material inventory at a certain level to maintain margins. So that is an exercise which will help us sustain these sort of profitability and EBITDA margins.
Wonderful, sir. Sir, my second question is regarding this blast furnace realigning. So what kind of the production loss we could experience in the next year? Or there is a possibility that in the later part of the year, we would be able to cope up with this? If you could give us some idea about that.
So the loss of production that we would have -- that we are -- that we've seen due to this would be around 25,000 tonnes. But we've managed to make up for a good percentage of it through an improved performance by our South team. Due to the realigning, we are expecting to increase the capacity of our South -- of our East unit by around 50,000 tonnes. That is the advantage that we are seeing of this for the next -- for this quarter, the remaining 2 months and for the next financial year.
Understood, sir. And sir, we are already running at kind of 8 lakh tonne annualized run rate. So by when we would be able to be reach that 9-plus lakh tonne kind of the annualized run rate?
So pro rata basis, I think mid next financial year, we will hit that target. Maybe be starting quarter 3 next year latest. But so far, everything is going as per the time line. So you can say somewhere around mid quarter 2 of next financial year.
Understood. And just one last question more. Sir, everybody is increasing their capacities tremendously. I know you have kept telling us that market is very buoyant. But do you expect that, since these capabilities have all coming within a stipulated time frame and usually demand increase is a linear curve over the longer time, so we can face any problem in next year or thereafter for a short period of time?
Sir, foreseeable future, to give you a very frank answer, I was not being able to understand how so much material will be able to be supplied by the ductile iron industry. But I think with the capacities coming in, it's only a support to the industry to maintain its stature as the most preferred product to be used in water pipelines. So I look at it more as a support factor than a problem for some time at least.
And the next question is from the line of Radha from B&K Securities.
Many congratulations on good results. Sir, my first question was that so we are the largest exporters of DI pipes from India. And for us, Europe remains a key market. So considering this, I wanted to understand what are the key projects for DI pipes in Europe plus U.K. region? And what kind of opportunity does those projects create for us? Additionally, are there any capacity expansions announced by existing players in these regions?
And third, considering the antidumping duty how competitive are our products as compared to local players like Saint Cobain or other local players or even considering the Chinese share?
So ma'am, a lot of the projects that we are envisaging in the European territory will be a repercussion of the EU funding that has been put in place post the COVID pandemic. There is robust demand in a lot of Eastern European countries and also in France and Italy. In regard to the capacity expansion of our competitors, we are -- there is no indication of any sort of capacity expansion by the local players in Europe. And we see that there is enough place for both them and us to coexist considering the focus of the governments to improve and upgrade their water infrastructure.
In regard to the dumping, we do envisage this to affect our margins marginally. Not a lot, very insignificant amount, because the overall pricing situation over there is such where we have comfortable cushioning against that.
Sir, any highlights on what is the kind of antidumping duty on us versus the Chinese or other countries as well?
Ma'am, against China, we are still at a lower dumping duty than them. There is still a differential of 7% to 8% between our and their dumping duty.
And sir, you mentioned that our products are quite competitive as compared to the local players. So what gives us that edge considering that we are exporting from here and they are manufacturing there. So considering all the logistics costs involved, what gives us this competitive edge over others?
Ma'am energy cost is a big aspect of it, economies of scale is another part of it, labor cost. And also, we tend to operate our plants little more efficiently because we are running at full capacity. They have fluctuating issues due to labor problems, fluctuating energy. And also, I think, overall, slightly less invested in their manufacturing. And I would say we are continuously upgrading our machinery and our processes, which they don't partake in as aggressively as we do.
All right. Sir, secondly, on the Middle East front, so we are given to understand that Middle East is investing a lot in their water projects. So could you explain the demand supply scenario of the entire region of the Middle East countries as a whole? And given these investments by government in the Middle East region, what kind of opportunity is that expected to create for the DI pipes, particularly in the coming 3 to 5 years?
Ma'am, the major market in the Middle East would be Saudi Arabia at the moment, we are seeing some good pull also coming in from Kuwait and Oman. UAE and Qatar remain to be stable markets, but they are very niche markets requiring specialized production. Fortunately, we are one of the only manufacturers from India who is able to cater to that need. We are quite optimistic regarding Saudi Arabia at this point. I think we can add a bit of, I would say, approximately another improvement of 5% to 7% in our overall volumes to Saudi Arabia going forward progressively.
Although that market does have players in it as well, but there is a lot and enough for everybody. And going to the fact that we've been established players, we've been there for many years. Once -- we are the first choice beyond the indigenous manufacturers.
Sir, in our previous PPTS, one of the presentations we have mentioned that -- we are expecting that Indian market is expected to grow at 11% to 13% CAGR for DI pipes. So given that we are seeing a lot of push in the Middle East region, so in the near to medium term, is it such that Middle East is expected to grow at a higher rate as compared to the growth rate expected in India? Or would it be in a similar range?
I think it will be slightly lesser, ma'am. It's a geographically smaller country, and even in terms of population, distribution, it's not as it is in India. So owing to that, the growth will be slightly slower. But yes, at the same time, it will probably be at #2 in terms of growth rate. Close to India, but slightly lower.
So 11% to 13% for India would be correct and maybe 9% to 10% for Middle East?
Yes, 8% to 10% for Middle East, yes.
Sir, you mentioned that we are one of the only players exporting there. So could you also explain how competitive are we as compared to local players in the Middle East and our key USP in that market?
And our?
Our key USP in that market?
Well, ma'am, I'll answer the other way around. Our USP is that we have a pretty high functioning warehouse in Bahrain with also fabrication facilities, which helps us give confidence to the customers of effective delivery. In terms of quality, since we've been an established player for many years, there is no issue with the customer on that front. So that is our -- these are our 2 main USPs.
In terms of preference over local manufacturers, they are a bit of a protectionist nation, so I wouldn't say that there is a preference over local manufacturers. But I would say there's an equal footing with local manufacturers, that we are allowed.
Sir, preference, actually, given the raw material dynamics of India, iron ore and coking coal, considering that dynamics of India versus the Middle East, so do we have any advantage over the cost of production of players in DI pipes of Middle East?
I'm taking into consideration the small import duty that is available and the slight protectional measures that some tenders come out with, wherein a price differential is allowed to the local manufacturers, they somewhat end up at the same level. There's no real price advantage per se or not the entirety of the Middle East or Saudi Arabia, when we talk about UAE, Qatar, Kuwait, Oman, over there, we have a reasonable advantage on pricing because they don't have these said duties.
Okay. Sir, recently, Middle East has announced -- actually, Saudi Arabia has announced this $80 billion project for water infrastructure desalination project. So wanted to understand that how much of this would be allocated to DI? So in India, if a project is announced, usually, we assume around 20% of the project cost to be allocated to DI. Could we take a similar number for Middle East region?
Ma'am, this is an exercise that our team is doing. I don't want to give you the wrong number. I think maybe offline once we have that number, we can communicate the same to you.
Okay, sir. Sir, lastly, one question. Currently, our exports is around 1.2 lakh tonnes. So you mentioned that our export mix was Middle East...
Radha, can you come in the queue for followup question. [Operator Instructions] The next question is from the line of Sailesh Raja from B&K Securities.
Sir, this question you have already answered, but I still need more clarity. So historically, DI pipes used to make, say, INR 9 to INR 10 EBITDA. Now industry -- Electrosteel are doing INR 16 to INR 18 range. So in this incremental INR 6, INR 8, can you give rough breakup of this incremental benefit that we are getting? How much is because of scale? How much is because of the process improvement? How much is because of a raw material benefit? And because of favorable dynamics benefit, how much we are getting? Because the industry, say in next 1 year time, they're adding 1 million tonnes of capacity actually. So do you still think this kind of EBITDA is sustainable? I need to understand, sir.
So sir, I'm sorry, just one correction I would like to make. Historically, DI has seen around INR 11 to INR 12 of EBITDA. The bad year, yes, you're correct, it was around INR 9 to INR 10. But at a long-term average, it's around INR 12 -- INR 12,000 rather per tonne. And if you -- I think in terms of raw material, that probably contributes to 2% to 3% of the entire improvement portion of the EBITDA margins. A big chunk of it is to do with better economies of scale and the demand pull that is there.
Okay. Could you please talk about the -- today's rejection rate in DI pipes for us 2, 3 years back, what was the rejection rate and how much it is now? What are the initiatives that we are taking to reduce the rejection rates?
Rejection rates?
Yes, profit/loss.
You mean in terms of manufacturing?
Yes, yes, correct, sir.
So that is a very fluctuating situation. As you know, we make pipes for all sorts of markets. So it varies over time depending on what material we are making on dias, et cetera, et cetera. So this is a complicated answer to really give you a single number. But it's in the lower single digits.
Okay. Okay. Yes, any improvement you are seeing, sir, in 2 years back, how much it was? Now, how much it is? Any improvement you are seeing?
Yes, definitely. I think there is a substantial improvement from what it was earlier because there's better machinery, more advanced machinery that we have put in. And as you pick up on certain tonnages and the machine picks up on certain paces, and your manpower also gets more skilled, so those factors are leading to improved rejection rates by a good margin.
Okay. Okay. Sir, will you please talk about this -- the gasket project, how much you are investing, what is the payback that we are expecting?
This is Uddhav here. So for the rubber gasket project, I don't think it would be prudent to say anything much beyond the fact that, at present, we have only envisaged to produce enough for substituting the gasket purchasing that we are doing for supplies along with our orders. In addition to that, yes, we are at an advanced stage of contemplating how we can utilize this opportunity to do more or better or different, and do other value-added products also.
But since that has not yet been crystallized 100%, it would not be right to speak about that. But yes, this gasket project will definitely take care of the entire buying that we are doing, and it will be now our own gaskets that will be used in totality after this comes into production.
And the next question is from the line of Pinaki Banerjee from AUM Capital Private Limited.
Sir, actually, in this quarter, actually the top line was absolutely fact, given the fact -- absolutely flat, given the fact that there was a planned shutdown at our Khardah plant. And we had primarily got the advantages of low raw material costs and the lower finance cost. So sir, considering how much top line numbers are you expecting to report for FY '24? And just now you mentioned that you have about -- got an order book of 6 lakh tonnes. So what is the growth you are expecting in the FY '25?
What is the...
What is the growth percentage you are expecting in FY '25, given the order book you have in hand?
The growth of what -- which...
In terms of top line.
In terms of top line. So sir, I -- this year, we're going to end with around...
So sir, good afternoon. as you are already aware from whatever details we have shared in public domain and also in clarifications on this call, we did have a shutdown for maintenance and improvement in our Khardah plant for -- in the third quarter. In spite of that, we are expecting that we will be closing this financial year with definitely an EBITDA margin of around 18%, if not better.
Okay. And sir, how much -- in sales, how much top line you're expecting?
And going forward, the growth percentage that you are talking about, I'm sure next financial year, that is '24, '25, we will see additional capacity coming upstream with our capacity increase going through in the southern side of the operations. Also, Eastern side will be performing to full and improved efficiency after the activities that we have undertaken during the shutdown. So in terms of EBITDA margin, I feel that we should be showing an improvement of a couple of percentage points over the EBITDA margin at which we closed this year.
Keeping in mind the vagaries and the cyclical fluctuations in raw material, I think it would be more prudent to see on a conservative basis, that if we close this financial year around 18%, if not better marginally, then definitely another 2%, 2.5%, we should be seeing improvement in the next financial year, if not more, keeping in mind the other uncertainties in this business.
Sir, next question is that see the general elections are coming and, most probably, if you see when the time gets over, will -- half of Q1 FY '25 will already be gone. So are you expecting any slowdown in the intake of new orders or in execution?
Not at all, sir. I think, unfortunately, due to the COVID-19 situation and also major fluctuations, last year beginning of raw material prices, there was a slight slowdown in the overall progress of Jal Jeevan Mission. Also, since it's a state plus center initiative, there were certain states which were not able to back up the requirements. From capital perspective, I think there is enough pending for them to really push through the entire election period as well.
Okay. Just another, just can you break up the revenue into 4 regions, and what percentage comes from the Eastern, Northern or Western and Southern region, if possible?
Sir, [Foreign Language]. As you know, projects [Foreign Language].
Okay. Okay.
Main markets I can say North, East and South are our main markets in terms of overall revenue. We are slightly lower on the Western market.
And the next questions from the line of Rajesh Bandari from Nakoda Engineers.
Congratulations for the excellent results. Sir, [Foreign Language]?
Sir, as my brother was mentioning, we are very optimistic about the future in terms of both demand and improvements from our end on volume terms or efficiencies, which will help on the costing front. So the raw material support that we have gotten, which I mentioned is probably to the effect of 3% or 4%. That should be able to be overcome by the higher margins and economies of scale. Seeing that certain uncertainties are difficult to predict on a long-term basis. So I would say that I would maybe discount it by a few percentage points and say that, that would be pretty sustainable for the foreseeable future.
[Foreign Language] nobody can even imagine [Foreign Language]. Of course, [Foreign Language] improve. [Foreign Language] 7 lakh tonnes to 9 lakh tonnes [Foreign Language] capacity expansion, I'm little confused the FY '25. [Foreign Language] FY '26 [Foreign Language]?
So the pro rata production would kick in '25 in the sense of a monthly production, capable of going up to 9 lakh tonnes, you will see in FY '25 mid. But of course, since it's coming midyear, we will not be able to take advantage of it for the entire financial year. So the -- that kick in, in FY '26 as a whole.
[Foreign Language] In one of the last investor meet, we were told the March quarter generally is far better than the other quarters. So this year, also, we can expect it will be better than the third quarter?
Sir, because of the robust demand that phenomena of March quarter being better it's kind of now omnipresent throughout the financial year. So it won't -- I don't see there will be as much as there will be that jump.
Now all quarters are like March quarter, okay. [Foreign Language]
Can you come in the queue for the follow-up question?
The next question is from the line of Ajay Sharma from Maybank.
Actually, I wanted to ask, I mean, the coking coal prices have been going up recently. So I mean how do you expect that to impact your profitability going forward? How much inventory do you carry normally?
So on the coking coal front, there are some points that we need to look into. For the quarter that has gone by, that is the October to December period, we have seen drastic fluctuations in the prices of the coal, which is very reflective in the fluctuation in the dominating index, number one. Number two, all the categories of coal that are purchased are largely determinant or a percentage factor of this prime main index.
Now keeping this in mind, we also have to balance in terms of the inventory management and also of how invested we are in the inventory on one side, and also on the other side, we have to take pragmatic decisions, keeping in mind the way the market is behaving. And largely so because, quite a few times, the market, the way it behaves, there is large -- there is in the complete absence of any logic or rationale to what is happening also at times.
So what we have tried to do this time is we take conscious, calculated and smaller calls at different stages whenever we have felt that there is some sort of a correction or a dip, keeping in mind our ultimate selling price and our working, we feel that this has kind of worked for us in this quarter. It may not necessarily work always. But yes, this time, in this quarter and also the lingering effect of this would continue in the last quarter of the financial year. So yes, to that extent, I think we have been able to kind of ride this curve of very, very drastic fluctuations.
Okay. And typically, how much inventory would you keep for the raw material?
So we try to work on the basis of across all categories on an average of about 100 to 120 days of inventory. However, between each category, it may slightly fluctuate depending upon how sure we are of the next parcel and also how we see the market behaving.
Okay. All right. And other question on the production, right? So your volumes, you said was hit by about 25,000 tonnes because of the relining maintenance.
So just to add another angle to it...
Please complete [Foreign Language] questions, sir. Sorry.
No, no. So I was wondering in Q4, should you be able to do 220,000 tonnes? I mean, just add the 25,000 tonnes which you lost in terms of production and volumes?
Sir, a bit of the capital shutdown was -- came into the first month of the quarter as well. But saying that, we are going to be coming out of the shutdown with higher production due to the improvements that we have made. And of course, in the South unit, we are seeing it getting better and better. So it will be difficult to give you an exact number, but the tonnage will be close to what you are mentioning, yes.
Also just to add that we have not exactly lost so much production. Because before we went into shutdown, we were operating at a higher efficiency level because of which, before going the shutdown, we were able to actually do a little bit more than what we would have been done in ordinary course. So keeping that in mind, maybe the loss of production would be lesser than 20,000 tonnes. And I think that already we could say is more than made up in totality with higher output from the other units. So in totality, yes, the loss of production would be very negligible when we close the year also.
Right, right, right. So your -- I mean, you said 50,000 tonnes increase in capacity, is it after the relining from the Eastern unit?
Annually, yes, please.
Okay. So your overall capacity, does it become 950,000 tonnes after the expansion? Or would you say still 9 lakh tonnes?
It will -- as I said, sir, in the past conferences as well, it will -- the rated installed capacity will be around 9 lakh tonnes. And with debottlenecking, we will fall somewhere between 9 lakh tonnes to 9.5 lakh tonnes, something in the middle of that.
Okay. Okay. So it's fair to assume for the new capacity, you can do like 70% utilization or what in the next year -- the coming year?
The next coming year, sir, if the passes of any use of example, I would say that we would probably end up with close to 100%, if not at least 95%.
And the next is from the line of Koushik Sekhar from Vermilion Value Advisors LLP.
Just want to understand what is the amount of sales you are getting from the Irrigation segment currently or for the 9 months? And whether the government is going slow on irrigation because the projects on the drinking water are going on and whether this is affecting their plans for improving the irrigation using piping?
So could you repeat the last part of the question, please?
Whether the government is going slow on using DI pipes for irrigation because the market is already tight for drinking water usage? The CapEx project for drinking water are themselves running quite tight, so are they slowing down on the irrigation?
Sir, the overall percentage of the irrigation in the demand scenario today would be 15%. And the government is -- I don't see the government really wanting to substitute ductile iron pipes, owing to its superior performance. As mentioned, there was a bit of an over-demand scenario, which was momentary. Going forward also, there is a slight gap between demand and supply, but I think the quality of the product is such that things are getting a little delayed, but the preference is still ductile iron.
And with the industry capacity growing, we are able to meet up the requirements. This is the reason why I was mentioning earlier in the conference call that I look at this as a support rather than a problem. Yes.
So actually, my question is that because the supply situation is tight and they want to complete the drinking water on a timely basis, are they just pushing the irrigation projects a little out in time? That was the question.
So there is a bit of a balancing act going on, yes. You see the capital available with -- irrigation is largely a state subject. There's not a lot of center support on that front. There's a lot of outside agency supports like the ADB and KFW, et cetera. But since the first thing to be met is drinking water, states are wanting to flow their funds towards that first as priority and then into irrigation. There are some exceptions to this, of course, but that nitty-gritty varies from state to state. But largely, there is a preference towards drinking water over irrigation, yes.
So would it be right to say that their potential for irrigation would be much more improved if it is possible to supply more pipes to that sector in the coming years, not now but over 3 to 5 years?
Most definitely, sir. I think as we are moving towards the situation of fluctuating climate and India being a very disproportionate country in terms of water availability, pipe irrigation will become more and more the need. Right now, we are looking at new pipelines, but we haven't even scratched the surface on converting the existing canal-based irrigation pipelines to pipe. So this is the reason why there's such a positive outlook, sir, because there are so many avenues, which are yet to even start getting explored in the demand scenario. That the slowdown of 1 over the next 2, 3 years, we'll see a bring up of the other.
And sir, are you seeing any projects where repurposing wastewater for industry by moving them around? Are there any projects in which you have -- company has participated to supply?
Repurposing water, sir, our south plant, the water that is used there is a repurpose water as well. So [Foreign Language]. So I think the best example to give would be for that, we are using the base water from Tirupati in our Kalahasti plant. So one example is that. There are a lot of these projects now being envisaged, a few of them have come up in states like Odissa. But AMRUT is seeing the use of this logic a lot more. So although there is not an abundant use case for what you are mentioning, going forward, I'm quite optimistic on us being a more circular economy from the water perspective.
My last question is that now that you are...
May I request you to come in the queue for follow-up questions. [Operator Instructions] The next question is from the line of Saloni Hemnani from Molecule Ventures PMS.
I was late to join in, so I might have a couple of questions that might be repetitive.
No problem.
Yes. Sir, my first question is regarding the realization of DI pipes. What sort of realization trend are we seeing that is shifting for us -- for the future, sir?
Ma'am, keeping in mind that both the demand scenario and the supply scenario seems to be progressively growing, I think stability is the right word to be used for the foreseeable future in terms of realization.
Okay. Okay. Makes sense, sir. Sir, regarding the volumes of -- for the next upcoming quarter. I had a question because in the last call when I asked this, we were basically saying that we will be targeting around 7.15 lakh tonnes of volumes in this year. But if you see, despite the shutdown that we took in quarter 1 and quarter 3, we have been able to do phenomenally well in production numbers. So any particular quarterly run rate that are we looking at?
So the reason behind this is -- so we kind of worked out internally and realized that even with the shutdown -- because of the shutdown, say, in quarter 1 and now that we've taken the shutdown right now, the overall gain will be far greater than the short-term loss. So we are seeing better results than what we had personally envisaged. Our team is performing very well. The advantages of operational efficiencies are kicking in even greater than what we expected.
With regard to run rate, ma'am, I think for the first 2 quarters, we will be running at a pro rata of what would be close to, say -- just a second, I'll help you out with the exact number. We will be seeing around a rate of close to, say, 8 lakh tonnes per annum for the first 2 quarters. This is a pro rata I'm saying, it will be for that. And subsequently, it will be a pro rata run rate of annualized 9 lakh tonnes.
That's amazing, sir. Sir, a follow-up on this would be, because given the realization and the RM softening of the order, huge jump in our margins. You know this is the operating leverage kicking in as well as the realizations being in our favor.
Your voice is very muffled. Could you please repeat the last -- the question, please?
Am I audible now, sir?
Much better.
Yes. Sir, my question was regarding the operating leverage kicking in and giving us around 20 -- more than 20% margins, what would be the sustainable -- because we have already mentioned that at sustainable level, we look at 15% to 17% margin. So going forward, do we stick to the same number? Or are we revising it?
Ma'am, this is a long-term number. I think in the short to medium term, we should see slightly better margins.
Any ballpark figures for that, sir?
[Foreign Language] it wouldn't be right for me to give you an exact number.
Understandable, sir.
See, I'm positive that it will remain on the higher end, a little north of what the long term is.
Sure. Just one last question from my side as I know we are limited to 2 to 3 questions. So the CapEx done on the Srikalahasthi unit, as we have planned around INR 260 crores were spent and INR 200 crores was planned to be spent in H2. So how much have you spent in that? And is the time line -- are we speaking to the time line? Will we be able to achieve that?
It will be maintained, ma'am. We've spent around INR 340 crores as on quarter 3 end. So we are pretty much on that.
And the next question is from the line of Bharat Sheth from Quest Investment Advisors Private Limited.
Congratulations, sir, on excellent performance. I have only one question is the kind of demand that we are envisaging not only India, but even Middle East and some of the European market that you have given the commentary. So what is our long term, I mean, say, 5 years kind of growth plan? Because once we -- I believe we'll be reaching full capacity utilization somewhere in mid FY '26. So beyond that, what exactly are we doing to grow our sales?
Sir, there is a good amount of attention being drawn towards our value-added profile. One of the products that we have seen substantial growth in is our fittings and castings unit, which is a high value product. In fact, we're envisaging almost 20% growth in that in the next financial year. So that is one area of concentration for us. We are looking at increasing our product basket on the value-added front as well by starting to get into other products within the water infrastructure gambit.
So yes, this is our -- once we establish ourselves at a certain level in ductile iron pipes, we will then work on getting to even better position on our fittings and other value-added product portfolio. Apart from that, sir, we're keeping our ears close to the ground for any opportunities that come our way.
So currently, value-added is how much as a percentage of our top line and where do you like to, over next 3 years, will see that?
Value-added products would may -- is contributing around 10% of our total revenue right now. For the immediate future, it will be in this range only.
Okay. So I mean, I wanted to understand our 3-year to 5-year kind of a growth plan.
So sir, because of the increase in ductile iron pipes total capacity, the percentage contribution of value-added will remain similar. But on absolute terms, as I mentioned, there is an immediate impact of -- growth of 20% the next financial year itself. After that, we are expecting to grow that at a rate of 7% to 10% and take it forward beyond that, looking at the market scenario. In regard to new products, I think it won't be correct for me to really give you anything right now because there's nothing concrete, but there are things that we are planning.
And the next question is from the line of Subash from Value Investments.
Congratulations on the good numbers. I just have one question on your CapEx plan. So I see that the total CapEx plan that you planned is INR 650 crores, right? And out of that, INR 340 crores has already been spent. I assume this is for Phase 1, and I'm sorry if I missed this in the earlier calls. So could you tell us if this Phase 1 plan is already executed and if it's contributing to the top line?
Thank you. This is a Phase 2 now that we've entered in terms of our CapEx spending. The Phase 1 has already come into effect in terms of volumes and reached 100% utilization for the same.
Okay. Because in the presentation, I see that the total capacity is 680,000 tonnes even for FY '24 estimated. So is it still 680,000 tonnes or has it gone up more than that?
So we are expecting to close the year at around 7.4 lakh tonnes.
And my last question is after the Phase 2 is completed, you said it would be -- it would come into effect in FY -- starting off FY '26, right? So would it have complete 100% utilization? Or will it take some 6 months' time to get 100% utilization?
I'm quite optimistic seeing our trend is going to pass that we will get to 100% capacity utilization very, very quickly.
Okay very quickly, meaning -- I mean, since it gets closed in FY '25 mid, so you said it would come into effect by FY '26. So we can expect it to be 100% utilized by FY '26, right?
Yes, sir. Maybe even slightly earlier.
Okay. Great. And it's wonderful to say that your cash profit is increasing and your long-term debt as guided is decreasing, almost 46% decrease from last year. That's wonderful to see.
Thank you so much. We appreciate it.
Due to time constraint, this will be the last question. Now I hand the conference to the management for closing remarks.
I would like to thank everybody for taking out their valuable time for attending the call and hearing us patiently and for your continued interest in our company. With the support of all our stakeholders, we have been growing consistently and, at the same time, strengthening our balance sheet. We are well positioned to be benefiting from the growing water infra spending in the domestic and export markets. If you have any other further queries, please feel free to reach out to our E&Y IR team. Thank you very much.
On behalf of Electrosteel Castings Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you.