Hi-Tech Pipes Ltd

NSE:HITECH

Earnings Call Analysis

Hi-Tech Pipes Reports Strong Q3 Growth

Hi-Tech Pipes, in an ambitious stride inspired by India's development goals, reported significant growth for Q3 ending December 31, 2023. The company's turnover rose over 10% to INR 630 crores, with sales volume up 8% to 98,473 tonnes despite the dip in global steel prices. EBITDA and profit after tax also grew by more than 12% and 10%, respectively, underscoring operational efficiency. With the government's investment in infrastructure and a projected rise in steel consumption, Hi-Tech Pipes is on track to reach a capacity of 1 million tonnes by 2025. The company has increased its value-added products from 26% to 31%, aligning with a goal to exceed 50% by FY '26, notably with ongoing prestigious projects. The new Sanand Unit 2 is in trial production, focusing on solar and oil and gas sectors. A confident management anticipates the best-ever performance in the coming quarter, driven by steel price stabilization and new capacities.

Company Vision and Opportunities

At the Q3 FY '24 conference call for Hi-Tech Pipes Limited, management outlined the company's alignment with the Indian government's ambitious 'Viksit Bharat' vision for the nation's 100th anniversary of independence. This vision, particularly the national infrastructure pipeline proposing INR 1.1 lakh crore in world-class infrastructure investments, offers numerous opportunities for industries such as construction and infrastructure. Hi-Tech Pipes plans to seize these opportunities to expand, with a goal of achieving 1 million tonnes of installed capacity by 2025. Highlighting the quarter, they discussed contributions to significant national projects like the Sardar Vallabhbhai Olympic Sports Enclave and the Surat Diamond Bourse.

Financial Performance Snapshot

Despite a global decline in steel prices, Hi-Tech Pipes managed to increase its Q3 turnover by over 10% year-on-year to INR 630 crores and its sales volume by 8% to approximately 98,473 tonnes. The 9-month performance also impressed, showing a 20% increase in turnover to INR 2,018 crores and a 14% rise in sales volume to nearly 2.80 lakh tonnes. EBITDA grew by over 12% in Q3 to INR 31.57 crores and by more than 17% over 9 months to nearly INR 80 crores. Most notably, Profit After Tax (PAT) surged over 50% to INR 32.81 crores during the 9 months.

Positive Outlook for Upcoming Quarter

Hi-Tech Pipes anticipates further improvements in the upcoming quarter, buoyed by the stabilization of steel prices and expected dealer restocking. The introduction of new steel product varieties and the forthcoming capabilities of the Sanand Unit 2 facility heighten the company's confidence in achieving their 'best-ever quarterly performance'.

Emphasis on Value-Added Products

The company emphasized its focus on increasing the proportion of value-added products within its portfolio. This segment has grown from 26% in FY '23 to 31% in Q3 FY '24, with management aiming to raise this to over 50% by FY '26. Value-added products encompass various enhanced finishes, like galvanized coatings and specialized SKUs, including solar trackers and pipes for the Jal Jeevan Mission. Most value-added capacities are expected to be part of the new projects at Sanand and will predominantly cater to this segment, with EBITDA per tonne for these products ranging from INR 4,000 to INR 5,000, significantly higher than the company's blended average.

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to Hi-Tech Pipes Limited Q3 FY '24 Results Conference Call hosted by Antique Stockbroking Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Pallav Agarwal from Antique Stockbroking Limited. Thank you, and over to you, sir.

[Pallav Agarwal, analyst]

Yes. Thank you, Nirav, and good afternoon, everyone, and a warm welcome to the third quarter results call of Hi-Tech Pipes Limited. We have the senior management of the company represented by Mr. Anish Bansal, Whole-Time Director; and Mr. Arvind Bansal, Executive Director and CFO, with us on the call today.

So I would now like to hand over the call to Mr. Anish Bansal for his opening remarks. Over to you, sir.

[Anish Bansal, executive]

Good afternoon, and welcome, everyone, in our Q3 ended 31 December 2023 Earnings Conference Call. I am joined on by Mr. Arvind Kumar Bansal, ED and Group CFO; Mr. Arun Sharma, Company Secretary of the company. I hope everyone has had a chance to go through our results and investor presentation uploaded on the exchange.

Now let me take you through our financial highlights and the vision of the company going forward. As you are all aware that the government of India has taken the vision of Viksit Bharat on the 100th anniversary of its independence. This is a very ambitious vision, and it opens up a lot of opportunities for every industry, particularly infrastructure and construction sector.

The national infrastructure pipeline for FY '25 is a first of its kind, all of government's exercise to provide world-class infrastructure to citizens and improving their quality of life. Under this policy, an investment of INR 1.1 lakh crores is expected for the development of world-class infrastructure in near future.

Steel consumption is also expected to increase from current 120 million tonnes to 250 million tonnes by 2030. And the same goes for tubes and pipes sector as well. Your company also took this challenge as an opportunity. And it is certain to achieve the vision of 1 million tonnes installed capacity by 2025.

The focus of the company to increase proportion of its value-added products is also yielding positive results. And it has increased from 26% in FY '23 to 31% in Q3 FY '24 and 29% in 9 months FY '24. We have the vision to increase this share to more than 50% by FY '26.

During the quarter, the company has applied its material to many upcoming prestigious projects of the country, including Sardar Vallabhbhai Olympic Sports Enclave at Ahmedabad; Surat Diamond Bourse, the world's largest building at Surat; high-speed rail corridor for Mumbai and Ahmedabad bullet train project; and Jal Jeevan Mission across several states in India.

Sanand Unit 2 Phase 1 project of the company is also in the final stages of commissioning and trial production. This project is equipped for manufacturing high-end pipes for solar tractors and has got approval from various solar tractor manufacturers of the world. Phase 2 will be focused towards the oil and gas sector with highly specialized surface coatings.

Now coming to the quarterly performance. The turnover of the company has increased from INR 569 crores in Q3 FY '23 to INR 630 crores in Q3 FY '24, an increase of more than 10%. Sales volume has also increased from 91,232 tonnes to 98,473 tonnes, an increase of 8%. This has been achieved in spite of global challenges of steel prices decline.

The EBITDA of the company has increased from INR 28 crores in Q3 FY '23 to INR 31.57 crores in Q3 FY '24, an increase of more than 12%. Profit after tax of the company has increased from INR 13.02 crores in Q3 FY '23 to INR 14.33 crores in Q3 FY '24, an increase of more than 10%.

During the 9 months, the turnover of the company has increased from INR 1,683 crores in Q3 FY '23 to INR 2,018 crores in Q3 FY '24, an increase of 20%. Similarly, sales volume has also increased from 2.48 lakh tonnes to 2.80 lakh tonnes, an increase of 14%. This again has been achieved in spite of global challenges of declining steel prices.

The EBITDA of the company has increased from INR 61 crores in Q3 FY '23 to almost INR 80 crores in Q3 FY '24, an increase of more than 17%. The PAT of the company has increased from INR 21.84 crores in Q3 FY '23 to INR 32.81 crores in Q3 FY '24, an increase of more than 50%.

The outlook for the coming quarter. With the steel prices stabilizing and the restocking by dealers and distributors expected from this month. Along with the rich basket of steel products and the new facilities at Sanand Unit 2, we are very confident that all these positive factors will pave the way for achieving the best-ever quarterly performance for the upcoming quarter.

Now we may discuss over question and answers.

[Operator]

[Operator Instructions] The first question is from the line of Ritwik Sheth from One Up Financial Consultants.

[Ritwik Sheth, analyst]

Sir, a few questions from my end. Firstly, in the press release, you have mentioned that by FY '26, you target to reach 50% value-added products for the total volume, which is right now close to 30% on our volume run rate of about 1 lakh tonne per quarter.

So when FY '26, probably we will be doing much higher volumes from current levels because of the new capacity coming up. So can you highlight and give us a rough -- what is the incremental volume application and which sectors? What are the product portfolio going from this 30% on current capacity and then 50% of the higher capacity?

[Anish Bansal, executive]

Yes, Ritwik. So here, all the upcoming capacity in Sanand and wherever we will be putting up the fresh capacity, this is all focused towards value-added products. So there will be like galvanized -- there will be different kind of coatings on this. There will be different SKUs, such as like solar trackers.

The solar torque tube that we have launched recently, we have got a very good response for this and similarly, the galvanized pipes for Jal Jeevan Mission, so all these new capacities and, of course, oil and gas also in future. So all these fresh capacities that are coming up are focused only towards value-added products.

[Ritwik Sheth, analyst]

Okay. So basically, when we go from 5,80,000 towards 10 lakh tonnes, this 4,20,000 will be majority, more than 75%, 80%, will be -- the capacity will itself be towards value-added products, right?

[Anish Bansal, executive]

Absolutely, absolutely. And also, the roofing business that the company ventured very recently, this is also again a value-added product, the color-coated roofing sheet.

[Ritwik Sheth, analyst]

Right, right. Okay. And sir, you mentioned solar torque tubes. So that I believe is coming from Sanand, the current which is getting built. So when can we expect commercial sales from the solar for that application?

[Anish Bansal, executive]

So from this quarter itself.

[Ritwik Sheth, analyst]

Okay, from Q4 itself.

[Anish Bansal, executive]

Yes.

[Ritwik Sheth, analyst]

Sure, sure. Okay. And sir, this -- what -- can you give a color on the EBITDA per tonne for these value-added versus our blended EBITDA per tonne of about INR 3,200 currently? Would it be meaningfully higher, closer to...

[Anish Bansal, executive]

So Ritwik, the EBITDA per tonne for the value-added products ranges from INR 4,000 to INR 5,000 per tonne on a 12-month average basis.

[Ritwik Sheth, analyst]

Sure, sir. Okay, okay, sir. And sir, second question is on the working capital. We are in the range of 45 to 48 days currently. So is there any scope of reduction from current levels, from 45 to 48 days? What are we targeting over the next 2 to 3 years once we get in the higher capacity? If you can throw some light on, it will be helpful.

[Anish Bansal, executive]

So Ritwik, as you will have noticed, even last 2 to 3 years, we have bring down this net working capital days from even like 70, 75 days to now 45 days. And I'm sure with the new capacities and new SKUs and more of our marketing penetration, so this should come down.

We are focused on this, and we want to like have the best possible efficiencies in terms of working capital. So we'll try to bring it down. So our internal target is to bring it to 30 to 35 days. So let's see how and when it happens.

[Ritwik Sheth, analyst]

Sure, sure. And so for this huge jump in capacity from -- in the next 15 months, are we looking to add any distributor, dealers from the current base? How is it right now and how we target to take it over the next 2 years?

[Anish Bansal, executive]

Ritwik, I think there will be an increase of about 20%, 25% in terms of our dealers and distributors over the next 15 months. And we are engaging a lot with our distribution channel partners on a very active basis. And we'll be expanding this once our Sanand Unit 2 comes up.

[Ritwik Sheth, analyst]

Right, right. And what is the current base, sir?

[Anish Bansal, executive]

So currently, we are at around 400 dealers and distributors.

[Ritwik Sheth, analyst]

Okay, sure. And sir, one last question from my end. What will be the CapEx for FY '25?

[Anish Bansal, executive]

FY '25 CapEx will be around INR 100 crores. It's a ballpark figure. It may vary like by 10%, 15%.

[Ritwik Sheth, analyst]

Okay. And then this will be -- to reach like 50,000 to 10 lakh tonnes, right?

[Anish Bansal, executive]

Yes.

[Ritwik Sheth, analyst]

Okay. And this will be coming in brownfield, existing...

[Anish Bansal, executive]

Yes, yes, that is correct.

[Operator]

[Operator Instructions] The next question is from the line of Vikash Singh from Phillip Capital.

[Vikash Singh, analyst]

Sir, I just wanted to understand, since our -- most of the capacity is now commissioned, what kind of volume growth we are invoicing in FY '25 and then FY '26?

[Anish Bansal, executive]

I'm expecting at least a 20%, 25% jump in the net sales volume. Q3, this capacity of 1.5 lakh tonnes, this will be on stream in this quarter itself. So basically, we'll have a room of expanding our sales volume by 80,000 to 1 lakh tonnes for next -- for the upcoming year.

[Vikash Singh, analyst]

Okay. And by when we are expecting 1 million tonne capacity to commission and the volume growth for that?

[Anish Bansal, executive]

So by end of FY '25.

[Vikash Singh, analyst]

Okay. So FY '26, again another 1 lakh to 1,25,000 tonnes.

[Anish Bansal, executive]

Yes, sir.

[Vikash Singh, analyst]

Understood, sir. Sir, we have already seen some improvement in our EBITDA per tonne. So by FY '25, our volume value-added sales mix plus the targeted EBITDA per tonne, if you could give us that number, it would be really helpful.

[Anish Bansal, executive]

Vikash, it will be on the trajectory for sure. So our internal target is -- it matches your expectations. But I just want to keep fingers crossed. There is an election year also. So there will be 1 or 2 months, maybe the markets may not be as good as we expected.

But definitely, the one thing I can assure you that the EBITDA per tonne will be rising because of the initiatives that we have taken in the last 2 to 3 years. So all the markets, geographies, SKUs, our product verticals, everything is aligned for a much higher EBITDA per tonne.

[Vikash Singh, analyst]

Understood. And sir, second question, in terms of value addition, so in terms of capacity of 1 million tonnes by FY '25, what is it the value-added capacity in the mix?

[Anish Bansal, executive]

Sir, almost, you can say the value-added capacity will be around 60%.

[Vikash Singh, analyst]

Understood. So that would also help in our EBITDA per tonne. Sir, just one last question. Some of our competitors have been -- had a very aggressive plan basically. So just wanted to understand, are we in [ same boat ] to announce further capacity expansion beyond 1 million tonne because that kind of the visibility is already there? And by when we can expect something from you?

[Anish Bansal, executive]

So Vikash, we are not going to stop at 1 million tonnes. But we want to go step-by-step. So 1 million tonnes itself is almost like a doubling of the production volume. So we'll be going step-by-step. And we have done a lot of our homework for the further capacity expansion. And it will happen in due course, but we want to go one-by-one.

[Operator]

Next question is from the line of Dhyey Desai from Niveshaay Investments.

[Dhyey Desai, analyst]

I just had this question that we are focused a lot on the infrastructure and construction sectors. So considering that this is an election year, do we expect any lag of a quarter or 2 in our demand? Or how do we expect demand growth in FY '25 as a whole?

[Anish Bansal, executive]

So basically, currently, as I can see, we are having a decent order book for infrastructure and construction sector. So that will be pulled off until March end comfortably. And within these next 2 to 3 months, I am sure our marketing team can make enough orders that will sail us through Q1.

[Dhyey Desai, analyst]

Sir, can you just guide me on the order book in terms of volume?

[Anish Bansal, executive]

This volume currently that we are having the order book is suffice for March numbers. It isn't -- I cannot give you the exact number, but it is in excess of 25,000 tonnes.

[Dhyey Desai, analyst]

Okay, got it. Also, I wanted to understand how is the revenue per tonne and EBITDA per tonne for the color-coated sheets or color-coated coils?

[Anish Bansal, executive]

So EBITDA per tonne for color-coated coils is [ in excess ] of INR 4,000 per tonne.

[Dhyey Desai, analyst]

Okay. And what is your revenue per tonne, like considering there are stable steel prices?

[Anish Bansal, executive]

So typical will be around INR 75,000 per tonne for color-coated.

[Operator]

[Operator Instructions] The next question is from the line of Akash Singhania from AART Ventures.

[Akash Singhania, analyst]

Anish, I have two questions. First, capacity, as you mentioned, we'll have around 1 million tonne of capacity by next year FY '25 end. Then let's say, post the commissioning of this capacity in FY '26, what is the tentative utilization we can have? And what could be the peak utilization or volumes we can have from 1 million tonne capacity?

[Anish Bansal, executive]

So sir, peak utilization across our sector is around 70%. And by FY '26, I think we shall have all this capacity up and running. But even then, I would say like 60% is a very safe assumption because of this election year also. But for FY '26, I think we'll have good amount of volumes in our hands.

[Akash Singhania, analyst]

Okay. And my second question was on the recent [indiscernible] impact, which you had given and you have given a target EBITDA for FY '26. Actually, it was a bit unclear to me. Was it INR 250 crores or INR 450 crores? So can you just reiterate that, the target which you have put for our company for FY '26?

[Anish Bansal, executive]

That is INR 250 crores, FY '26, yes.

[Akash Singhania, analyst]

Okay. So just to break down this INR 250 crores, like as per my math, even if we do 6 lakh tonnes into INR 3,000 EBITDA per tonne, it goes to INR 180 crores. So where would my calculation or math go wrong? Like if you could just guide...

[Anish Bansal, executive]

FY '26, we are targeting a higher EBITDA per tonne. Currently, we are at INR 3,100, INR 3,000 to INR 3,100.

[Akash Singhania, analyst]

INR 3,500 per tonne, I think, would be a reasonable assumption.

[Anish Bansal, executive]

For FY '25, it's INR 3,500. And for FY '26, we are targeting INR 4,000 per tonne. Because by that time, we'll have all the oil and gas and the expanded capacity of color-coated roofing also and expanded capacity of the galvanized steel pipes also.

[Akash Singhania, analyst]

Okay. So these value-added products, out of 1 million tonnes, what will be the total capacity for value-added products?

[Anish Bansal, executive]

Almost 6 lakh tonnes.

[Akash Singhania, analyst]

6 lakh tonnes will be the total, okay.

[Operator]

Next question is from the line of Ronald from Sharekhan.

[Ronald Siyoni, analyst]

Sir, congratulations on good set of numbers. Now for FY '24, we had set a target of 4.25 lakh to 4.5 lakh. So are we on track or there will be a little bit lower sales volume in Q4? Because Q4 is very strong, but a few months have also seen lower demand. So in terms of that, and you also said that around INR 4,000 EBITDA per tonne, we can achieve by Q4. So we should be around INR 3,200, INR 3,500 here or we should go for INR 4,000 EBITDA per tonne from Q4 itself?

[Anish Bansal, executive]

So Ronald, so basically, this year, so far, we have done a sales volume of about 2,85,000 tonnes. And we are very confident of achieving like 4 lakh tonne-plus volume for this financial year. And EBITDA per tonne, we are just waiting for the steel prices to bottom out. I think this should happen by end of this month or maximum by next month. So once this settles down, our EBITDA per tonne will start rising. Because there will be no like any inventory loss occurring because of the softening prices.

[Ronald Siyoni, analyst]

Okay. And this INR 3,200, does it have inventory loss also or this is a normalized EBITDA per tonne?

[Anish Bansal, executive]

Yes, it has a little bit.

[Ronald Siyoni, analyst]

Okay. So your normalized is still higher than INR 3,000?

[Anish Bansal, executive]

Yes, sir.

[Ronald Siyoni, analyst]

Okay, great. And on this, for FY '25, you had around 5 lakh tonne-plus target. So that stays, right?

[Anish Bansal, executive]

Yes, absolutely, yes.

[Ronald Siyoni, analyst]

Okay. And if you can, lastly, guide upon that UP government, where you had some land parcels and due diligence was going on. So still, this is the status quo or there is some new development on that site?

[Anish Bansal, executive]

Yes, sir, hopefully, there is positive development there. And hopefully, once we get the final intimation from the government, we will soon be announcing. But that project is on, and we are very, very optimistic and keen on that project. So it is on track. And hopefully, we should have good news very soon.

[Ronald Siyoni, analyst]

And that is over and above 1 million, right?

[Anish Bansal, executive]

No, no, that will be part of this 1 million tonne.

[Operator]

[Operator Instructions] Next question is from the line of Aadesh Mehta from Motilal Oswal.

[Aadesh Mehta, analyst]

I just wanted to understand this INR 3,200 EBITDA per tonne, how much of inventory loss would be there for this quarter, sir?

[Anish Bansal, executive]

So there will be about INR 200 to INR 300 per tonne on a full 3-month average.

[Aadesh Mehta, analyst]

Full quarter basis, okay, okay. So basically...

[Anish Bansal, executive]

And we anticipated that this will happen. And we procured like fixed price orders in the month of September and October. So that helped us in insulating ourselves from this price decrease.

[Aadesh Mehta, analyst]

Right. So basically, if there was no inventory loss, our EBITDA per tonne would have been INR 3,400 or INR 3,500.

[Anish Bansal, executive]

Yes, sir.

[Aadesh Mehta, analyst]

And what is the run rate for December, sir, if you have that handy?

[Anish Bansal, executive]

Run rate, like volume?

[Aadesh Mehta, analyst]

Not volume, the EBITDA per tonne run rate.

[Anish Bansal, executive]

It was in the same range.

[Aadesh Mehta, analyst]

At around INR 3,500, INR 3,600. And...

[Anish Bansal, executive]

But then the inventory deduction is calculated for 3 months. So it is difficult to quantify the monthly thing.

[Operator]

Next question is from the line of [ Sriram ], individual investor.

[Unknown Attendee]

Sir, one question. How much would be the -- what would be the split between pipes and non-pipes, like you have color-coated coils and [indiscernible]?

[Anish Bansal, executive]

Sir, 70% is steel pipe and 30% is other products, which includes the color-coated and engineering products.

[Operator]

[Operator Instructions] Next question is from the line of [ Vaibhav Kapoor ], individual investor.

[Unknown Attendee]

Yes, sir, I mean, you'll about 31...

[Operator]

Vaibhav, sorry to interrupt you, you're sounding distant. Can you please speak to the handset?

[Unknown Attendee]

Is it better now?

[Operator]

Yes.

[Unknown Attendee]

You'll have about 31 lakh-odd share volume spending for conversion. Can you just give me the last date for the conversion of all these volumes?

[Anish Bansal, executive]

It is around September 2024.

[Unknown Attendee]

Okay. So September 2024 would be the last date which [indiscernible] only.

[Anish Bansal, executive]

Yes, sir.

[Unknown Attendee]

Okay. And second, just on your working capital days, could you give me the breakup of the three components for the working capital that we see?

[Anish Bansal, executive]

Yes, Arvindji will give you.

[Arvind Bansal, executive]

Our inventory days is around 47 days. I'm telling you the numbers on 31 March 2023. Inventory is 47 days, debtors is 28 days...

[Unknown Attendee]

Do you have the number handy?

[Arvind Bansal, executive]

I can tell you the H1 number. For H1 number...

[Unknown Attendee]

Yes, actually, numbers would also be fine. If you don't give the date, that's fine.

[Arvind Bansal, executive]

H1, our inventory is 32 days, debtors is 39 days, our creditors is 20 days. And overall working capital is around 50 days. Let me remind also, this quarter also...

[Unknown Attendee]

[indiscernible] of the numbers.

[Arvind Bansal, executive]

It's similar for this quarter also.

[Unknown Attendee]

Okay, okay. So it's 32 days, 35 days and....

[Arvind Bansal, executive]

20 days.

[Unknown Attendee]

23.?

[Arvind Bansal, executive]

20 days for creditors.

[Unknown Attendee]

Creditors. And is there any possibility to increase the creditor days? Or that equation doesn't work out? When you increase the test period, do you think you have to...

[Arvind Bansal, executive]

Overall, this will happen with the volumes. As we have greater volumes than when we become good buyers of like in bulk, so definitely, there is negotiation over there. So I'm expecting in next financial year, we should have a considerable improvement in net working capital days further.

[Unknown Attendee]

So if you increase this right now, currently, if you negotiate for 40 days, it will not be -- it will not work out?

[Arvind Bansal, executive]

No, no, no. For 40 days, the [ statements ], generally they work on an advanced basis. But then in some extraordinary -- in cases where the relationships are quite strong and they are time-tested. So in that event, there is some relaxation. It is not available to every company in this sector.

[Operator]

Thank you very much. As there are no further questions, I now hand the conference over to the management for closing comments.

[Anish Bansal, executive]

I would like to thank everyone on the call for taking out time for the discussions. Please feel free to connect for any other further queries. Thank you.

[Operator]

Thank you very much. On behalf of Antique Stockbroking Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.