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Hi-Tech Pipes Ltd
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Ladies and gentlemen, good day, and welcome to Hi-Tech Pipes Limited Q2 FY '25 Earnings Conference Call hosted by PhillipCapital India Private Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Vikash Singh from PhillipCapital India Private Limited. Thank you, and over to you, sir.
Thank you, Shilpa. Good morning, everyone. I welcome you all on Q2 FY '25 Hi-Tech Pipes Earnings Conference Call. On the management side, today, we have with us Mr. Anish Bansal, Full-time Director; Mr. Arvind Bansal, ED and Group CFO; and Mr. Arun Sharma, Company Secretary and Compliance Officer. Without taking any much time, I'll hand it over to Mr. Anish Bansal for his opening remarks. Over to you, sir.
Ladies and gentlemen, good morning, and thank you for joining us today for our Q2 and H1 FY '25 investor conference call. I'm joined on the call with Mr. Arvind Bansal, ED and Group CFO; Mr. Arun Sharma, Company Secretary and Compliance Officer. I'm pleased to report a solid performance this quarter marked by significant achievements and strong financial growth, underscoring the resilience of Hi-Tech Pipes despite the industry's dynamic landscape.
In Q2 FY '25, the company recorded a robust 22.5% increase in total sales volume to 1.23 lakh tonnes compared to 1 lakh tonne in Q2 FY '24. This growth was driven primarily by rising demand for our steel tubes, structural steel products and value-added solutions. Despite a 5.3% decline in revenue from operations due to lower steel prices, we have achieved remarkable profitability in this quarter.
Our profit after tax increased by 72% to INR 18 crores and EBITDA rose by 57.6% on to INR 42.2 crores with a notable 28% increase in EBITDA per tonne, thanks to our focus on valued products and efficient cost management.
For the first half of FY '25, revenue increased by 13% to INR 1,572 crores, PAT surged by remarkable 95% to INR 36 crores, while EBITDA saw 77% increase reaching to INR 85 crores. These results reflect our efforts in improving EBITDA per tonne and operational efficiency. We also made strides in key financial metrics, reducing net working capital days from 63 to 60 days, and improving our debt-to-equity ratio from 0.7x to 0.49x, alongside a strong current ratio of 1.63x and a notable improvement in ROCE from 11% to 15%.
A recent milestone was a successful closure of our QIP amounting to INR 500 crores. This issuance was met with overwhelming interest from marquee qualified institutional buyers showcasing strong confidence in Hi-Tech Pipes growth prospects. The proceeds from the QIP provide us with the capital to execute our strategic initiatives under Hi-Tech 2.0.
Now please let me provide a broad outline of our vision of Hi-Tech 2.0. The launch of Hi-Tech 2.0 marks a transformational phase of Hi-Tech Pipes. This initiative income versus several strategic actions that will drive our growth and solidify our position as a leader in the global steel pipes and tubes industry in the next 3 to 4 years.
Number one, doubling manufacturing capacity. We are set to double our manufacturing capacity from 1 million tonnes to 2 million tonnes. This expansion aligns with our commitment to meet growing demand in sectors like infrastructure, building and construction, renewable energy, among others. Becoming the second largest manufacturer of ERW steel tubes and pipes by increasing capacity, we are on track to become the second largest ERW steel tubes and pipe manufactured further strengthening our critical applications for that.
Aiming for net debt-free status by FY '25 end, we are focused on strengthening our balance sheet with the goal of becoming net debt free by FY '25, which will provide us with greater flexibility to reinvest in growth and enhance shareholder value. Fourth, strengthening brand presence in India and globally, we are expanding our market presence, aiming to establish Hi-Tech Pipes as a trusted brand worldwide through strategic marketing and customer engagement initiatives.
Reducing incremental working capital, our commitment to reducing incremental working capital with streamline operations, enhancing our operational efficiency and supporting growth. Next, focus on value-added products. We are placing a strong emphasis on value-added products, gating to specialized industries like renewable energy and infrastructure, which not only diversifies our portfolio, but also capture higher margins.
Lastly, exploring new markets, applications and geographies. By exploring new product markets and new reasons, we aim to drive sustainable growth and expand our footprint across the nation. I want to highlight the positive momentum created by the government's capital expenditure infrastructure, which is expected to drive demand for steel products and specialty steel pipes and tubes. Hi-Tech is well positioned to capitalize on this growing demand with an enhanced capacity and strong strategic road map in place.
Thank you. We can now have question and answer.
[Operator Instructions] We have first question from the line of [ Masha Rastogi ] from B&K Securities.
Sir, I have a few questions. The inventory level has gone up in the first half as compared to FY '24. Is it because you've stocked up some inventory on the account of lower fees?
So Musa, this inventory increase in line with our new expanded capacities. We have installed our new facility in Gujarat in Sanand Unit II. So with the incremental volumes, incremental sales volumes, so the inventory is also rising, but the incremental volume rise is less than the overall volumes.
Okay. Okay, sir. Sir, I wanted to know how much of the sales mix is coming from dealers and OEMs? And also, can you please tell us how many manufacturing lines do we have currently?
So currently, 62% to 63% is coming from our trade and distribution network and balance 37%, 38% is coming from OEMs, projects and some big corporates like the lines and names. .
And how many manufacturing lines do we currently have?
So currently, we have 6 manufacturing patients and 1 new greenfield there is in pipeline. So by end of this financial year, we'll have 7 manufacturing facilities across India. .
All right. Okay, sir. And sir, within halo sections, we are planning to add high dia pipes. So does this high dia pipe, like 500, have better margins than by 200-millimeter?
Yes, Mushkan. So big sizes will definitely catch a higher EBITDA per tonne. And currently, we are doing up to 250 x 250, but then there are strong plans of increasing this up to 500 x 500 very shortly. .
Sir, how much better, sir, the margins would be?
So in higher sizes, which go like beyond 300 x 300, so there is a minimum EBITDA per tonne in the range of INR 6,000 to INR 7,000 per tonne.
Okay, sir. And sir, one last question. The presentation that you have mentioned has 500-plus dealers and distributors. So further roughly how many fabricators are we connected within India?
So with the 500 dealers and distributors, there are approximately 20,000 fabricators that are attached with the dealers. And going forward, as we increase our production and as we increase our geographies, so this number will go up quite significantly.
The next question is from the line of Neha Talreja from Nuvama.
Just a couple of questions from my end relates to EBITDA per tonne. Now your PPT states that you have done EBITDA per tonne of 3,429 and the interview if I'm not wrong, we heard it out that you had mentioned that there was an inventory loss of about 600 to 700 per tonne. So just wanted to understand that despite inventory losses, have you actually seen improvement in your EBITDA per tonne, if that's the case? Or what are the reasons for same?
So firstly, as you recall, in Q2, the company secured big orders from the renewable energy side. And we predicted this steel price volatility because of the China stress. And in that, in the month of July, so we gathered a lot of fixed price orders. That helped us in mitigating this INR 800, INR 700 inventory loss. And additionally, we did not resort to additional discounts to our dealers and distributors. So that was the main reason that our EBITDA per tonne did not go down significantly.
Additionally, there were like a lot of imports being done by the industry, but then we resisted from the imports. And we had a very limited steel price reduction risk.
So ideally speaking if I understand, in fact, imports came in at a slightly cheaper price, so without resorting for that, your EBITDA per tonne came higher. And also one of the reasons that you mentioned in your interview is that you've got some rebates from the producers out there of HRC, just failing to understand that price is so differentiated when the leader actually reports a much higher significant EBITDA loss than we get those rebates somewhere unable to align it.
So yes. So firstly imports, so at the time of ordering the imports, the prices were cheaper, but then went up in both actually landed in the country, they were higher by INR 2,000 to INR 3,000 per tonne. So there was a big inventory hit imported in that -- when the imports landed in the country. So this was one big impact. So when the -- when we were ordering the imports, they were lucrative. But then finally, when the material landed at the ports, it was quite expensive.
Secondly, yes, there has been support from the steel mills. They have seen the market conditions, and they have given support to many players.
Understood. Understood. Lastly, if I may ask what is percentage of your revenues that you're getting through the solar projects actively?
So currently, it is 10%, and I think going forward, we'll take this up surely with our new capacities. .
Understood. One last one, if I can squeeze in, what would be your regional mix, can we share the number of cost...
So Sneha, can you repeat that? .
Can you please share your regional revenue mix with us?
So it is around 40% is coming from the north. And 35% from the West and Central India. And 25% is coming from the south. .
[Operator Instructions] We have next question from the line of Pallav Agarwal from Antique Stock Broking.
Yes, sir. Just a question on your volume guidance because our first half volumes have been very good. So what sort of volume and EBITDA guidance do we have for FY '25?
So basically, in the first half, we have done approximately 2.5 lakh tonnes of sales volume, 2.45 million to be precise. And we are sticking to our guidance of 500,000 tonnes, 0.5 million tonnes for this financial year. And with the new capacities that are coming at the end of this quarter or end of this financial year, so we'll have a jump in FY '26. So with the current capacity in hand of 1.75 million tonnes, we are -- we'll be doing about 500,000 tonnes of sales volume for this financial year comfortably.
Okay. And what about the EBITDA per tonne has been gradually improving. So with the higher value-added proportion are being targeted. So I think first half average EBITDA per tonne is probably around INR 3,000 -- close to INR 3,500 per tonne. So what sort of trajectory can we look at going ahead?
You know that our focus is towards value-added products, and we have developed various new products in the renewable energy side in railways, in telecom sector. And that process is going on continuously. And our internal target is to take this share from 36%, 37% currency to 50% in the next 1.5 to 2 years, and the new capacities that are coming up are focused towards value-add products.
And I think this EBITDA by tonne will be growing significantly, there will be gradual improvement every year. And in the next 1.5 to 2 years, it will be reaching a good -- there will be a good growth in that direction.
Sure. Just on this acquisition, if you could just explain acquisition in terms of what was actual cash flow paid for this and what is broadly the rationale... .
Sorry, can you repeat that?
Yes, I just wanted to know on the acquisition of [Technical Difficulty] I think Hi-Tech mentioned in the press release. So I just want to understand, so what is the actual cash consideration. So it is just we paid up share capital or there was some premium paid for acquiring Hi-Tech Global Steels Private Limited.
Yes, yes. So this company, we have acquired this company. It's a 100% subsidiary. And the new projects -- new plants edits for the new plants that will be taken care. Yes, there's no payment -- there's no payment. It's on paid up to capital only.
So this INR 1 lakh.
Yes, yes, yes.
We have next question from the line of Radha from B&K Securities.
Sir, in this quarter, if I see the purchase of stock in trade number. Last quarter, that was INR 99 crores in this quarter, it is INR 7 crores. So please help me understand what is the purchase of stock in trade. Is this the trading in HR coil that we're doing every quarter?
So these are the pipes that we had outsourced from the market when the capacity was less. But now with our new capacities and we not need to do that. So I think that is overbid.
Sir, your annual report mentions that it is completely HR Coil, that's why I'm wondering...
So there is some rejections or some odd sizes that come in, so it is pertaining to that only. .
Okay. Sir, if I remove this purchase of stock in trade and see the gross profit ex of the purchase of stock in trade, which we entered this quarter, you have not done. So the gross profit per tonne, I mean your realizations are down 20% on a Q-o-Q basis. And your raw material cost, excess stock in trade purchase is down 10%. So ideally, what I understand is the inventory loss could have been much higher for this quarter. But I'm unable to understand the numbers, so please help me with this.
So basically, the inventory loss that came in. Of course, electricity prices go down. So we had incremental loss, but then overall blended of course, this scenario was very evident in the month of July because when the international steel prices are going down. So in that situation, we purposely and strategically we took a loss of fixed price orders especially from the renewable energy side, you must have seen our announcement earlier, the company secured is the biggest ever order from the solar side.
And that helped us in selling through this period. And we knew whatever prices, fixed-price orders will have in the month of July. So it will help us in sailing through this period.
Yes, considering all the solar, so on a blended basis only, so that includes the solar type number. So blended basis realization, I can see that it has fallen by INR 13 per kg on a Q-o-Q basis. And like you mentioned that this quarter, there was no stock in trade. So if we remove the stock in trade, so I can see the gross profit per metric tonne has fallen by INR 7 per kg. So that should include a higher inventory loss?
Actually, we need to calculate this growth prorate considering this raw material cost, changing inventory and stock and purchase of stock in trade. If we consider all this and if you compare on quarter-to-quarter basis or year-on-year basis, our actual inventory loss is in the range of INR 600 to INR 700 only, and that has been mitigated by various factors, which has been mentioned by Anish Bansal ji. I think you are not considering the change in inventory in your calculation. It might be, so.
Yes, yes, sir. Ex of -- I am just excluding the purchase of stock in trade, which as per annual report was mentioned that it is HR Coil trading that has been done. So if you remove this on the basis of the products where we are doing the value addition, ex of the traded material. So there, I can see a higher drop in gross profit per tonne. So I just wanted to understand these, sir?
Actually, this trading, as Anish Bansal Ji has mentioned, this is only a temporary phenomena. On account of the non-availability of capacity at that time. Now we have already added the capacity now, capacity is now available. Now we are not focusing on the trading volume. We are just focusing on the manufacturing volume to increase our capacity utilization. To explain you the number, we can connect with you separately also. .
All right, sir. So secondly, from the industry perspective, but today, the market size in India is 9 million to 10 million tonnes and Hi-Tech is having a product portfolio of all 4 products that is missile follow systems, GI as well as BP cater to this market. So can you help me understand how is the market decided in terms of these products, like roughly what percentage of total markets would be MS versus hollow versus GI and DP?
Out of this total capacity of 8 million to 9 million tonnes, around 50% to 60% market is for the hollow sections. And around 20% market is for the GP pipes, around 20% market is for galvanized pipes. And the rest is for, say, your col-rolled pipes, HR pipes and all that.
All right, sir. Sir, you mentioned to the previous participant, you gave your sales mix region wise. So from the industry perspective, if you can give that how is the industry divided between North, East, West and South Asia. And going forward, where are the supply gaps that you can see? And where do you want to focus more?
Yes. Currently, our sense is 80% of the demand is coming from the north, west and the southern market and 20% is coming from the eastern side. And going forward, we see a strong potential in the North, West and South states. So we'll be growing organically in just through our ground to note. .
All right, sir. The third question is that, again to a previous participant, you mentioned that in terms of pipe dia, if we increase the pipe dia beyond 200 x 300 mm, so there is an EBITDA per tonne of INR 6,000 to INR 7,000. So I wanted to know the same number for below 300 x 300.
So that is ranging from like a product to product size to size. So you can take a ballpark between INR 3,000 to INR 5,000 per tonne depending on a specific site. .
That this huge delta between -- if you increase the pipe dia. So sir, when do we plan to launch this 300 x 300 or 500 x 400 mm?
So we are working there. So 1.5 years, we should be there. .
All right. Last question to a previous participant, if I heard correctly, you mentioned something about the telecom sector demand. So please could you elaborate at this point?
So as you know, there's a lot of 5G deployment that is going on in the country. And after Vodafone Idea, they becoming active now, so their CapEx was missing from last 2 to 3 years. But now they are also in CapEx mode and a lot of new tower deployment is going to happen in the next 1.5 years. So our focus is there. And I think this sector will be big demand drivers for the sector.
I suppose the line from Mr. has been disconnected. We will proceed with the next question from the line of Amit Vora from [indiscernible] Consultants.
Just wanted to understand how are we spreading our brand spend over the next 2 years? What are we doing and working on this?
So yes, we are strongly focusing on brand creation for Hi-Tech Pipes and a lot of work is in progress in the same direction. And very shortly, I think we'll have good news for the markets for our tubes and pipes segment. The company will come out with a big branding and marketing initiative.
Any ballpark number on what is the amount that you're going to spend over the next couple of years on that?
So it is still work in progress. I think in a couple of months, we'll have a clear indication of what our total advertisement and branding spend will be.
All right. One last question. Do we change any of our guidance? Sorry, I have missed that in case you have mentioned this. After the Q2 numbers and the first half numbers, are we revising our guidance?
So currently, we are maintaining our guidance. I think we should reach there comfortably without -- because if we have done like we have seen through H1 despite of the challenges from the election, monsoon and the China stress, but H2 looks certainly promising.
[Operator Instructions] We have a question from the line of Vikash Singh from PhillipCapital.
I have a few questions regarding the overall market size. Basically, if you look at the -- along with you and the top 4, 5 players are adding closer to 5 million tonnes of the capacity in the next few years. So how we should look at the demand side and which are the pockets do you expect it to outperform in the segments?
So sir, currently, the market size is 10 million tonnes. And we see this market growing by 15% per annum. And with the new applications like solar -- and in the building and construction, there are new kind of tubes and pipes equipment that is down. So all in all, I think this segment, this market will be growing by at least 15% over and year.
So that should take care of the additional capacity?
Absolutely, absolutely. So we are adding capacity from a perspective of 6- to 7-year vision. And once it is done, we are thoroughly confident of utilizing the same.
Understood that. Sir, India is basically adding a huge SRP capacities and considering that pipe segment as a whole of the steel demand being 10%, they are the kind of loan [indiscernible] So as we expect from the company side to already get some based on the MOU -- we are signing MOUs, which are on more favorable terms in terms of working capital, if you could give us some insights into it.
Yes, sir. HRC is -- definitely the capacity of HRC is rising now. And like going forward, the availability is hard. I think if the availability of HRC is higher than the consumption can also be higher. And if consumption is higher, then definitely we'll have room for new applications, new substitutions. So we are fairly confident that new supplies, so new product innovation will be taking place, where we can certainly have the edge.
In terms of procurement, you said that you're already getting some rebates. Can we expect that the appliances rebates to go up further or we have already achieved our desired result?
Sir, basically, like Steel Authority of India being the leader in the space right now. So they are working -- they -- all these mills, they do not want to encourage imports. And they have aligned their prices with the global markets. So when ports, they want to discourage the imports and to discourage imports, they are balancing their price level. So they take a call depending on the market situation, Q2 was a bit abnormal. So they are proactive and they are taking decisions accordingly.
Understood. Sir, just lastly, on the fixed price percentage of our total sales. So what would -- what it would be currently in terms of order book position then?
Sir, approximately, out of our monthly sales volumes. So all our OEMs projects, so they are on fixed prices.
Okay. And that would be broadly 20%, 25%?
25%.
We have next question from the line of Ronald Siyoni. [Operator Instructions] We are taking the question from the line of Ronald Siyoni from Sharekhan Limited.
Yes. Sir, I had a question with respect to your upcoming CapEx. So have you decided the mix of brownfield and greenfield CapEx for the next 1 million tonnes?
Yes. So yes, that is work in progress. So Central India is one where we are missing right now and the eastern part where we are still not there, there's no manufacturing facility. We'll certainly covering these territories and also strengthening our current northern, western and southern markets.
Okay. So it will be more of a broad-based?
Yes, absolutely.
And about this fixed price contract, sir, you continue to undertake fixed price contracts because if -- and also how margins going ahead, if the trend reverses. So is it a regular phenomenon or it was just 1 one-off phenomenon during Q2, which had ended your margins?
Yes. When it comes to fixed price contract, so we factored in some degree of like steel price volatile factors at before taking the orders. So for the Q3, we are -- I think we are more or less -- we have covered whatever steel price hike that may be there.
Okay. So post Q2, how has been the trend in terms of demand and also the spreads, are they still at around INR 2 to INR 3 per kg or has there been movement in the spreads also about the HRC prices. So these things if you can highlight post, how has been the situation?
So I think the steel prices should move in a tight band from here. So like in Q2, there were like a lot of imports, all the mid have taken that into cognizance and they believe the port should not come in India and a lot of restructuring update have resorted to that? And I think the prices should move in a tight steel prices.
And on the spreads, how are they currently? .
Spread in terms of...
Primary and secondary?
So there is a gap of around INR 2,000 to INR 3,000 per tonne between primary and secondary currently.
It's still there. It's not increased, right?
Yes, it is stable there. And I think the secondary steel prices will definitely be like INR 2 to INR 3 cheaper. Otherwise, there is no incentive for anybody to buy. So this is it. And I think it should be like this going forward. But this is a sustainable difference between primary and secondary.
[Operator Instructions] We have a question from the line of Muskaan Rastogi from B&K Securities. .
Sir, from the China checks, we found that this 1, 2 days small functions like managers, confidences, mostly secondary steel is used because of the cost difference. So, let's say, primary market is 100 and secondary is 100, with the same spread of INR 5 to INR 7 per kg, how do you see the conversion happening from this under the secondary in the future? And how will it narrow down?
So Muskaan, earlier, there was a price gap of INR 12 to INR 14 per kg if we go back like 6 to 7 months previously. And that spread has come down to INR 2 to INR 3 kg right now. I think within this gap, definitely primary players will definitely have an edge over the secondary players. And this -- we are seeing a strong momentum coming from this side -- from the distribution -- paid and distribution side. And it is only accelerating the shift from secondary to primary. .
How much conversion will happen? If you can give number?
It is very hard to quantify in terms of, but then like overall, we are seeing a lot of shift that is happening from secondary to primary in a lot of markets.
Okay. Sir, just a rebate that you're getting that you mentioned, is it a policy that a supplier give? Or is it because of the sharp decline like a one-off rebate that we got, the suppliers case? So let's say, like if there is a steep decline in the steel prices like INR 2,000 or INR 3,000 per month, and like we're seeing a lot of correction has been happening. So will we continue to get the release or how is it?
So HRC Steel Authority of India Limited, the prices are governed by them for the entire nation. And these -- like the Steel Authority, they have taken the imports in the cognizance and they have corrected their prices in line with international prices. So whatever imports that has happened, the people have not made any money imports.
While they were cheaper at the time of ordering, but then when the deal actually hit the port, there was no gain there. So the mills are working with the international prices, international prices in line. And they are taking the decisions depending on the market dynamics.
Okay. Okay, sir. Sir, in telecom sector that you mentioned in the previous participant, what pipes are you using there? And what is the opportunity size, if you could give?
So these are high tensile steel tubes and different grades of steel are being used and different sizes are there. And this -- there has been a shift from anglo steel telecom towers to tubular steel towers in the last 5, 6 years, and this is accelerating now the shift. And we see a strong demand coming from 5G deployment. .
What is the opportunity size, sir?
So in India, we are poised, we are adding approximately 50,000 tonnes -- 50,000 towers every year. So this means approximately like 500,000 tonnes of steel tubes and pipes. .
We have a question -- sorry -- ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Vikash Singh for closing comments.
on behalf of PhillipCapital, I would like to thank Hi-Tech management for giving us the opportunity to host the con call. Now I hand over to Anish, sir for his closing remarks.
Our focus on innovation and efficient operations and market diversification positions us as a forward thinking leader. We remain adaptive to market trends, seizing opportunities to meet the evolving needs of our customers with advanced team solutions. As we move forward, we are confident that our strategic initiatives will drive sustainable growth, value creation and reinforce our leadership in the steel manufacturing industry. Thank you for your continued trust and support in Hi-Tech Pipes. We look forward to delivering consistent and sustainable growth for our stakeholders. Thank you.
On behalf of PhillipCapital India Private Limited, that concludes this conference call. Thank you for joining us. You may now disconnect your lines.