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JTL Industries Ltd
Earnings Call Analysis
Q3-2024 Analysis
JTL Industries Ltd
The company is a versatile manufacturer with a product range that includes ERW black Steel tubes and various categories of galvanized pipes, catering to industries like construction, infrastructure, vehicles, water distribution, and energy. With 4 manufacturing plants across India and a total group capacity of 586,000 metric tons, the company is well-positioned to serve a wide-reaching market both domestically and internationally. In the third quarter of FY '24, the company recorded a 76% increase in sales volume compared to the same period last year and achieved a revenue growth of 65% to INR 5,674 million. However, a dip in the sales of a key product—Value-Added Tax (VAT) products—due to scheduled maintenance resulted in reduced EBITDA margins.
Looking forward to FY '24, there's an anticipation of a 35% increase in revenue and a promising upward trajectory for EBITDA margins. In the broader context of the industry, structural steel tubes demand is predicted to surge by 12-13% in the coming years due to government-driven infrastructure initiatives. As the company eyes a capacity expansion to 1 million tons by FY '25 and enhances the product range, a significant capital investment of INR 1,310 crores is planned. A portion, INR 810 crores, will be funded through convertible warrants, and a further INR 500 crores could be raised through a Qualified Institutional Placement (QIP). These moves are expected not just to elevate manufacturing capabilities but also to boost the company's EBITDA per ton.
In terms of capital expenditure (CapEx), the strategy is well-defined, and allocations have been made for additional DFT lines, galvanized steel tubes and pipes, color-coated products, and backward integration projects. The company is on pace, with plans to complete the CapEx for the first 1 million ton before FY '25. This expansion is a critical component of the broader goal to hit 2 million tons of capacity by FY '27, shaving two years off the original target. The commitment to completing these milestones shows the company's progression towards becoming more resilient and competitive.
The company successfully managed a correction in the prices of Hot Rolled Coils (HRC) and adjusted to the recorrection in secondary market prices, which differentiated them from primary market competitors and allowed them to maintain favorable quantity performance in challenging market conditions. As quarter 4 unfolds, there is an observed upward correction in both domestic and international prices, signaling potentially stronger demand and sales for the company's steel products.
The EBITDA per ton performance presents a telling metric for the company's efficiency and profitability. Compared to last year's EBITDA per ton for the 9-month span, which stood at approximately INR 472, the company has significantly improved to close to INR 4,500 this year. This improvement, although variable on a quarter-by-quarter basis, fundamentally displays the strong trajectory of the company's financial health and operational success.
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Ladies and gentlemen, good day, and welcome to the Q3 FY '24 Earnings Conference Call of JTL Industries Limited, hosted by Nuvama Institutional Equities. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Ms. Sneha Talreja from Nuvama Institutional Equities. Thank you, and over to you, ma'am.
Thanks, Michel. Good evening all. On behalf of Nuvama Wealth Management, we welcome you all to the JTL Industries Q3 FY '24 Conference Call. We are joined today by the senior management of JTL Industries represented by Mr. Atul Garg, CFO; Mr. Pranav Singla, Whole-Time Director; Mr. Dhruv Singla, Whole-Time Director. We will now start with the opening remarks from the management, followed by the Q&A.
I would like to first hand over the call to Mr. Pranav Singla for his brief opening remarks. Over to you, Pranav.
Thanks, Sneha. Thanks, Nuvama, for hosting our quarterly earnings call. Good afternoon, everybody. Thank you for joining us today for this conference call. We welcome you all for our Q3 FY '24 earnings call.
Let's begin the call with a brief overview about the company. With a rich history over 3 decades, we have evolved into a fast-growing steel to manufacturing company. We specialize in producing a diverse range of products, including ERW black Steel tubes and pre-galvanized and galvanized pipes, large diameter steel tubes and pipes, hollow structures -- and hollow structures.
We operate through 4 manufacturing facilities located in Punjab, Maharashtra and Chhattisgarh. Out of which, 2 facilities are in Punjab. And as a total group capacity, we stand at a capacity of 5,86,000 metric tons. All our plants have the capacity to produce the VAP product, which is a galvanized pipe under our radar right now, which gives us access to strength and finishing of products.
Additionally, our Chhattisgarh plant is backward integrated and offers us cost synergies and facilitating the procurement of raw materials at competitive prices. At JTL, we have 10 listed brands, offering cumulative of 1,000-plus SKUs. These products find applications across diverse industries such as construction, core infrastructure, heavy vehicles, water distribution, energy and many more. With a network of over 1,000 dealers and distributors, we sectorly serve the entire nation and extend our reach to international markets spanning over 20 countries across 5 continents.
Our exports primarily consist of GI pipes constituting of to approximately 90% of the export mix to earn higher revenues and margins. Moreover, we hold the recognition as a Star Export House by the Government of India.
I'll give you briefly about the financial performance. Regarding our business performance, we experienced a robust demand for our products, resulting in a noteworthy 76% increase in sales volume to 1,00,905 metric tons in quarter 3 FY '24 compared to quarter '23 FY '24 (sic) [ quarter 3 FY '23 ].
On the product perspective, our 9 months sales volume grew by 62%, reaching to a total of 2,10,933 metric tons on a Y-o-Y basis, which also surpassed our FY '23 sales volume of 2,40,000 metric tons. Furthermore, our sale in the value-added product category witnessed a notable increase, growing by 46% from 54,000 metric tons 9 months in last financial year to 81,000 metric tons in 9 months FY '24.
Our revenue grew by 65% to INR 5,674 million in quarter 3 FY '24 and by 46% to INR 15,743 million in 9 months FY '24. It was led by the increase in demand of our product. Our EBITDA grew by 46% to INR 429 million in quarter 3 FY '24 and the 50% to INR 1,154 million in 9 months FY '24, led by increase in scale of operations. However, in Q3 FY '24, our EBITDA margins decreased led by decline in sales of VAT products due to scheduled maintenance of our galvanizing pot. This is a periodic measure taken by us to maintain our product quality and standards.
For FY '24, we expect our revenue to increase by 35% from FY '23 and EBITDA margins shall remain in upper trajectory from what we will witness in this year.
On the industry front, we expect the demand of structural steel tubes to remain strong for the next few years, surging by approximately 12%, 13% backed by robust infrastructure demand, pushed by the government towards construction, oil and gas and water supply.
Going forward to seize the forthcoming opportunities, we are targeting to reach a total manufacturing capacity of 1 million tons by FY '25 moreover to enhance our manufacturing capabilities, we have plans to implement DFT at Mangaon facility by this quarter itself, which will be towards 1 lakh metric tons.
This initiative will not only enhance our capacity utilization and manufacturing efficiency but we're also open doors to new geographical markets. This will also increase our SKUs by the range of 500 as well. Right now, the SKUs we stand at around 1,000 and post the installment of DFT, we should be standing at 1,500 SKUs. Simultaneously, we are strategically outlining the significant capacity expansion initiative in our Maharashtra through our facility, JTL Tubes Limited, which will further elevate our manufacturing capability, allowing us to broaden our product portfolio and offer an array of products under one roof.
This -- through this capital expenditure, we aim to incorporate additional DFT line, expand the capability to manufacture galvanized steel tubes and pipes, introduce a range of color-coated products and implement backward integration in the facility, which will facilitate the production of 3 galvanizes. In order to meet the desired target, we have proposed to raise a total of INR 1,310 crores through various means. Of this fundraise, we will raise INR 810 crores via fully convertible warrants on preferential basis through promoter and nonpromoter category. The remaining INR 500 crores shall be discussed through QIP route. Post completion of expansion, our VAP products will increase, which will further increase our EBITDA per ton as well. Handing over back to Sneha.
Sir, should we open the floor for the Q&A session?
Sure, sure.
[Operator Instructions] We'll take the first question from the line of Amit Dixit from ICICI Securities.
I have a couple of questions. The first one is around EBITDA per ton, which has come off slightly compared to the last quarter. While in your prepared remarks, you indicated that this was primarily due to lower proportion of value-added sales, mainly because of maintenance activity. Just wanted to understand, do you also -- did you also see in the last quarter some amount of destocking because of anticipated fall in steel prices? Some of your peers have indicated that. If so, has this destocking ended? And are we likely to see a higher growth in sales volume in the coming quarter?
Amitji, thank you for your question. Here, I would like to say that we have witnessed in this quarter our highest ever sales volume of about 1,01,000 tons. And this was -- we didn't face any destocking criteria from the stockist because we are present in both the markets, primary and secondary. So we have a good opportunity to push our materials in either of the markets when the other market is not performing better.
Yes, there were certain problems in the primary market due to channel destocking and the prices being corrected over a period of months in the last quarter. But all in all, we've witnessed that we were able to push out more materials than the previous quarter in the previous year as well. Herein, one key factor I would like to mention for a slight correction in EBITDA per ton is due to the change in our value-added product kitty.
So since we were able to achieve a higher number of volume, our value-added product due to maintenance schedule and -- was affected. And also, since we were able to push out more quantities, our value-added product did not increase in that fashion. So therein, we had certain correction in the overall EBITDA per ton levels, which was not very substantial, but yes, it was present.
Also Amitji, if you look at the value-added product tonnage, so we have a net tonnage increase over the past year -- over the past quarter 3 financial year '23 as well. Last year, in quarter 3, our VAP product was 14,000 metric tons. But this quarter, our VAP was around 19,800 metric tons. So quantum wise, it has increased. But as the company is growing and expanding their SKUs and grabbing the market in the black pipe market as well. So that's why the percentage where it matters, the percentage seems low.
And if you look at the 9 months EBITDA per ton as well, so that somewhere in tune to the last year itself. Last year, our EBITDA per ton of 9 months was around somewhere [ 472 ]. And this year, we are close to INR 4,500. So the exact picture of a company's performance doesn't depend on EBITDA per ton of the quarter. It's more accurate to take the picture of the full year or half yearly. That's a better way to look at the picture. Every quarter, the depend -- rise of EBITDA per ton is very natural and can happen.
Thanks for the elaborate answer. Absolutely appreciate that. The second question is on the expansion plan. So I just wanted to understand if you could first of all, let us know -- you have indicated 4 buckets that is additional DFT line, galv steel tubes and pipes, color coated and the backward integration. If you could break your CapEx into these 4 buckets and also, if you could also highlight some of the milestones that which capacity would be commissioned -- when each capacity would be commissioned so that we get an idea of the overall CapEx plan -- the track of the overall CapEx plan?
So as we mentioned before as well, our entire CapEx for the first 1 million ton will be completed before FY '25. So we are well on track for that. As we mentioned in the last con-call as well that we are expected to receive a DFT this quarter. And apart from that 1 lakh tons of additional machinery facility as well. So that is well on track and should be happening this quarter itself. And the production shall we start -- the production will start to flow for the same in the next quarter of the financial year as well.
And if you talk about the other capacity expansions, which is the DFT which is supposed to come next year as well and apart from that, 1 lakh tons of machine in Maharashtra to complete a 1 million ton, that's well on track, and we shall be completing that before time.
And to discuss about the next expansion that we've planned, so the company had already goes to reach the capacity of 2 million tons by FY '28-FY '29 before. But after the whole fundraise, the management -- the promoters push of money as well, the game plan has changed. And we shall be receiving the capacity of 2 million tons by cutting it to 2 -- by 2 years. So the entire capacity of 2 million tons shall be installed by FY '27. By the end of '27, everything shall be installed and the sector play of everything should be happening in FY '28. So this is a broader picture I can elaborate and tell you that how we're expanding and growing in our network.
Okay. Sure. That's very helpful. I will -- maybe I will get the details off-line in the interest of time and all the best.
The next question is from the line of Bhavin Pande from Athena Investments.
I just wanted to understand the trend of our export volumes and just get a sense of why they have behaved the way they have behaved over -- on a comparison with last quarter as well as the year?
Hello?
Hello? Can you hear me, Pranav?
Yes. So the export volumes, they have an upper shift this quarter as there was so much abundance, demand of the market -- for the production in the domestic market itself. So the company was more focused on circulating the product in the domestic market itself. So net to net, we didn't have an increase in the domestic -- in the export market, and we were well in line of the last year -- last year's numbers. There's more -- the company has been focusing more on the domestic front for the -- for domestic right now.
Additionally, what has happened is like since the last year, certain dynamics of export has changed. Especially in the last quarter, the problems of the red sea had arisen. Due to that, there was certain stoppages in export shipments. So we faced certain problems in receiving the allotment of containers. That is another reason of a slight dip in our exports of the last month.
Okay. So I'm assuming our export numbers should also be, I think, it will be in the higher growth in the period ahead because of the backlog we had this quarter. Is it safe to assume that?
Yes, we are anticipating in the next quarter since it's the first quarter for the rest of the world and its last quarter for India financial. So everybody is in a positive -- pushes the material in a positive manner. From both the directions, we would anticipate that we should have a certain growth in the next quarter.
Okay. And when we look at our 9-month numbers, our margins have sort of expanded very slightly. So is it because of the efficiency enhancement in our production processes?
Yes, it's because of coming scale as well, you can say that. And moreover, the company's production as -- like the production that we did last year so it was for 9 months. So there's some effective benefits the company sees and it's in that scenario itself.
Okay. And will we see -- as more capacity comes in and our utilization improves, should we see more improvement as the scale improve?
We can expect that. The company is also working on mass capacity right now, like we are fully utilized right now. So it's very hard for me to produce more than this quantity given the capacity that I have right now. So one can say that time will tell how is the capacity expansion and the effective would play out.
Okay. And just last one thing. Could you just help us with the Q-on-Q change in steel prices?
Sorry, can you come again with the question?
Could you help us with the change in steel prices for the quarter, how has the HRC prices behaved?
So in the third quarter, as compared to the previous year, there was a good correction in the prices of HRC and also the secondary market had a recorrection in prices, and the difference between the primary and the secondary also had increased this particular quarter. But again, when -- as I mentioned with the earlier question on Mr. Amit that despite all this, we were able to push on more material because of our prices will go to market and perform -- give a better quantity performance this quarter.
Having been said that, there was a slight correction in the last quarter for HR coils as compared to the Q2 of this year and certain destocking the channels as well. This quarter, quarter 4, we see an upward correction in the prices happening, people are wanting to push up more material, international prices have also corrected to the upward direction. So we believe in the coming months, there should be a good demand and -- of steel and especially ERW pipes.
[Operator Instructions] We'll take the next question from the line of CA Garvit Goyal from Nvest Analytics.
Hello? Am I audible?
Yes, sir. Please proceed.
Congrats for a good set of numbers. You mentioned like we are present in primary market and secondary market both, and that led to improvement in our volumes as compared to our peers. So can you please put some color or give some more understanding on that, like are we using [ Patra ] as a raw material?
Yes, [indiscernible] side, we use skelp as a raw material. So we are prevalent in both the markets, primary and secondary both. So in primary, we use HRC and secondary, we use skelp.
And just...
Yes, To add to that, Garvitji, we are -- we have divided our plants in such a manner that our production gets divided in this manner. Our plants located at Raipur and Mandi work on secondary market basis. Our plants located in Derabassi and Mangaon work on primary market situations.
Understood. And you mentioned like the gap between the primary steel and the secondary steel increased in this quarter. So that -- I think that helped you people to increase the volume, right, on the secondary market, right?
Yes, yes. So the gap keeps on changing on a monthly basis. And at certain points of time, it helps us push the quantity in either of the markets.
And how the scenario will be in Q4? Like how do you look at it?
The gap is still prevalent, and we are anticipating that this -- after the correction -- upward correction in the steel prices of HR coils, this gap would still remain as it is -- as it was in the Q3 levels. So there should be a good demand in both the segments in the quarter 4.
Okay. Got it. And you mentioned like on your CapEx size. So you are mentioning about DFT, you were mentioning about the GI backward integration. So I think all these things the entire new CapEx that you are targeting is towards the value-added price. Is that understanding correct?
To reach capacity of 1 million tons from current 6 lakh tons -- 2 lakh tons is towards value-added products of DFT, 2 lakh tons is of commercial black pipe production. Apart from that, from increasing capacity from 1 million tons to 2 million tons going from -- for backward integrations and forward integrations, those all capacities will be increasing in the value-added segment. So yes, our endeavor is to increase our majority of our capacities in the value-added segment to be able to achieve about 60% of our product profiles of value added.
Understood. And if we look at...
Regarding the next expansion phase in the second million ton, the entire produce would be VAP. So that's something fits as well. The entire produce from the second expansion would be VAP with higher margins.
Understood. And like your current network is around INR 100 crores, right, and capacity we are having around 6 lakhs. So can you help me to understand like this INR 1,300 crores is a huge amount, so how much of it is going to be exactly towards the incremental capacity? And how much is -- how much of it is going to be towards the working capital needs?
So our [ rough lock ] is not INR 100 crores right now. It's somewhere tune to the run of INR 140 crores. And if you talk about the gross going ahead, like the CapEx happening, so we would -- the machineries would be somewhere around INR 850 crores, INR 900 crores for the second expansion. And so the entire gross cost will stand around INR 1,200 crores or close to INR 1,200 crores. And, the company would be expecting a top line of INR 10,000 crores plus on that.
Understood. And you are saying this will get -- it will be completed by the end of FY '27. Is that understanding correct?
Exactly, exactly. So giving a quarter-wise breakup would be very hard because one really doesn't get to know as and when the machine is ready and plan to arrive at the plant. But the broader picture is that everything shall be installed by FY '27 end.
Understood. And how much time -- or how much time will it take to ramp up the things? Like is there any estimation of that?
So it should take around 2, 3 quarters to ramp up everything. And although the effective capacity production in the first quarter of FY '28 should be significant bump as well.
Understood. And what is the overall volume target for FY '24?
For FY '24, we are well on track. So we -- as we mentioned last time in the con-call as well, we are expecting a 30% growth over the H1. So we are well on track for that.
Understood. And in Q4, is it likely the realizations will improve because GI plant schedule maintenance is over and you are saying prices of the steel will also increase, so that will continue to increase in realization?
Yes. As soon as -- the -- top of the per ton, that might increase because our VAP share will be back on track above the levels. But it's really hard to tell about the average realization of a product because it's totally dependent on the HRC and prices of the raw material in the secondary market.
The next question is from the line of Vikash Singh from PhillipCapital.
Am I audible?
Yes, Vikash.
Sir, my first question pertains to when we will be having our 1 million ton capacity by FY '25, what percentage of our product would be in-house or backward integrated? And what percentage it would be at the 2 million ton by FY '27?
Can you please come back with your question? It wasn't clear that much.
Sir, Mr. Vikash Singh's line has been disconnected. In the meanwhile, we'll move on to the next question, which is from the line of Aditya Welekar from Axis Securities.
Good to hear, Pranav, that we are expanding and you will be reaching 2 million ton capacity by FY '27. So just on that front, what will be our ballpark utilization for FY '27 assuming that we reach 2 million ton by FY '27?
So the effective utilization on the 2 million tons, it's very easy to give that year -- for FY '28 50% because that's very easy target to give. Obviously, we aim to increase it as soon as possible as the capacity is installed. But as you know, the production ticks up -- ramping up every quarter-on-quarter, so it's very easy to say that effective production of 2 million tons would be happen 50% in FY '28.
50% in FY '28. Okay.
Exactly.
Okay. Okay. And what is your target internally for EBITDA per ton by that time? So if you can just throw some -- a large number, means not a very precise number, but your [indiscernible] number EBITDA per ton by FY '27 and '28?
So we are expecting, as we closed last year around INR 5,000 EBITDA per ton. So our projection for FY '28 is a 50% bump over that for the FY '28 numbers. As a value-added product, [ CapEx ] would be expanding, the number should be tuning to the range of that.
Understood. And on the CapEx scheduling, so when will our CapEx kick in to the max from which year, means for FY '25, it's understood that we will -- our CapEx is on schedule. But for the next phase of expansion of 2 million ton -- additional 1 million ton, what will be the CapEx profiling?
So it's already undergone process, which is happening to the fact that a part of machinery for the second million ton has also arrived in our Maharashtra unit. So the machine is coming as and when every quarter, every half yearly and the effective installation of everything should be happening, again, as I mentioned, by FY '27 end. So it's the mix of actual machinery, which is happening in the second capacity -- second million ton of capacity is also coming well in time before that. So it's a mix of everything and coming as and when by the quarter-on-quarter.
So by end of FY '27, we can assume majority of our INR 1,300 crore CapEx will be over?
Majority -- the entire will be over.
The entire will be over. Okay. Lastly, of our demand perspective, means, it's good that we are expanding, and we have a demand visibility, but we can see that sometimes traders push back and there is a destocking in the system. So from that perspective, do you see that our demand visibility is there, then we have an additional 1 million ton capacity. So effectively, when we have 2 million tons of capacity by FY '27, '28, at that time, because the competitors are also growing their capacity, so from that perspective, will there be any impact from demand side?
Yes. To answer that, I would simply say that we are not expanding our capacities in the time ranges or SKUs that we are currently producing. So currently, if we are producing a range from half existing tenancies, we are bringing in DFT structure, we are bringing in higher dia, higher sized, higher dia pipes. Then for supporting the forward/backward integration, we are bringing in the pre-galvanizing line and then venturing into CRM process as well.
So our product -- we are increasing our SKUs, our product line, our product profile. So we don't have to bag only the present dealer network, we are able to expand the dealer network to the persons in the different market segment as well. So that is more of the motive behind the bond realization coming in the next 2 years.
So if we were only expanding in the commercial black pipe production, that would have entailed that we would be having this such a problem, as you mentioned, of a demand being stagnant for our product. But since we are increasing SKUs, increasing product profile, we hardly see that happen.
Understood, understood. So our market condition reports are happening parallelly whatever new SKUs we will produce that also [indiscernible] happen for that also with that?
And correcting myself again, so the capacity that -- the utilization I mentioned for '28, apologies, that was '27 itself. In '28, we shall be at the level 65% of the desired capacity and not 50%. The 50% target was for FY '27. And FY '28, we shall be operating at 65% levels minimum.
'27, 60% and...
No, no. In '28, 65% level. And in FY '27, 50% level.
The next question is from the line of [ Onkar Ghugardare from Shree Investments ].
My question is regarding the EBITDA margin since you are mentioning that you will be reaching a capacity of 2 million tons in FY '27 and utilizing around 1 million ton by FY '27 and around 65% of 2 million by FY '28. So given the EBITDA margins, which are currently standing at around 7.5% and you are telling that EBITDA per ton would be around INR 7,500, so can we expect the margins to a double digits by then?
And honestly to give exact picture of the margins is very hard because the net average realization keeps varying every quarter and every year, as we have seen in the past kind as well. But it's very safe to say that definitely we will be entering double digits. But to give a exact number on the percentage is very hard. I can definitely give a close by number on EBITDA per ton, which I've mentioned, but giving exact percentage is very hard.
Yes. But at least, can we start assuming that you will be doing around low double-digit margins -- EBITDA margins of 3, 4 years down the line?
Yes. Yes, we can that.
Okay. And since in that 2 million capacity, what is your ballpark estimate of exports and imports since, I guess, export will be higher EBITDA margin business as compared to the domestic one?
No, we -- it's nothing that wherein in margins in exports and domestic today. But I think right now, we are operating at 10% of the total sales in export market. Going down the line, we are reaching -- when we're reaching capacity of 2 million tons and on back clocking the 10% volume would be somewhere around 5x from what we're doing right now. So it's very safe for me to say that we'll be in the 10% bracket for exports down the line as well.
So you don't expect any significant jump from export as a percentage?
So it can be from 10% to 12% or 15%. But as you -- as I'm saying that the quantum in metric ton is increasing as well. So -- and the demand is itself against -- in the domestic market itself. So there is no stress about we're exporting that much, and I'd rather sell in the domestic market.
Okay. The next question is on the -- whatever is currently going on is going right for the sector in terms of CapEx, government push and everything. So in the next 3, 4 years, since you are bullish on the sector as well as obviously on the company itself, what can go wrong with this?
So the bigger push that you're saying for 3, 4 years, we are actually bullish for the next 3, 4 decades. And if you talk about what can go wrong, probably the machinery getting delayed by a quarter, that's something that maybe answering all or more than that, there's nothing that I'm hearing right now.
You don't foresee any risk to the business apart from the delays in getting machinery et cetera?
It's hard to -- it's wrong to say, but in a scenario of pandemic as well, the sales picked up. So it's really hard to say that what bad can happen and how -- what can happen.
Okay. Just one clarification. So what kind of sales per ton -- I mean, totally ton, you would have been doing by FY '24, around 4 lakh tons?
So in this year itself, as I mentioned, we'll be clocking 50% growth over H1. So if you calculate that, we'll be closing somewhere around 3.4, 3.5 lakh tons.
Okay. And this INR 1,310 crores of expansion, this is only after 1 million -- this is for 1 million to 2 million tons capacity expansion, right?
That's right.
This is nothing to do with -- from 5 86 to 1 million?
That's right.
We'll take the next question from the line of Vikash Singh from PhillipCapital.
Sorry, I got dropped out. Sir, my question is the same that currently, if I believe that we have roughly 1 60 kt of our own coil in 5 50 kt production, which is closer to 30% of the capacity. How this metrics is changing at a 1 million ton and 2 million ton of your capacity?
Vikash, going down the line, we won't be expanding in the coil segment, and this will remain to this particular capacity itself. Whatever expansions that we're doing in the company is basically happening in HRC.
Yes, there is a part of it which is happening in the secondary market as well, but the majority of it is happening in HRC, so that it won't really help us expanding anything in this segment as our major [indiscernible] would be HRC and not [ scale ] that we make at the Raipur facility.
Okay. So just related to this, when we're talking about the mega capacity and backward integration into that, we would be putting an HRC mill in there? So basically, we would be [indiscernible] subsuming the margins of HRC rollout also in our product mix?
No, we won't be engaging in any of those activities. We won't be entering the segment of making HRC.
What kind of backward integration then you were talking about in that 1 million tonne mega plant? You said that there would be a backward integration also. So if you could just give us a little bit...
Yes. We're doing some forward/backward integrations, but forward/backward integrations we meant in the product profile that will be increased. Currently, what I'm making is really 2 products, the commercial black pipe and the value-added galvanized pipe.
By doing the backward integration of making a color -- sorry, pre-coated coil, I would be adding another SKU of pre-galvanized pipes by segment. The pre-galvanized coil can be used for seat manufacturing. So yes, so -- and certain other specialty products. So this is the backward and forward integrations that we're talking about.
Understood, sir. And sir, just one last thing. I don't know if any previous participant has asked. So our capacity, if you look at the industry capacity, it might go up by 3, 3.5 million tonnes in the next 2 to 3 years. Do you expect the demand to catch up in the same pace or there would be some [ dull ] period which we experienced -- which most of the people would experience?
And how do you foresee the new product that 1 million tonne, which you are expanding? As of now given the market situation, what is the range of the products which we are going to introduce the EBITDA per tonne in those range of products?
So to answer your thing in one simple way, so right now, my sales mix is as such in which the government share is only 20%. And if I just sell to the government itself right now as well, I don't have enough capacity. Obviously, I have maintained my ecosystem in such a way that I have to serve the domestic market as well, export market as well and the government as well, so I have a mix of everything, and I maintain that -- and I want to maintain that in the future as well.
But to answer your question in a simple way, like even if I just sell to the government as well, my capacity would be fully utilized. So the market is that strong and that bullish.
And if you talk about some reforms that are happening everywhere in Maharashtra, especially the scaffoldings that are used for construction activities and right now, they have the black pipes going down the line, the government, as we hear, is introducing to install galvanized pipes as they increase the life of the pipe and anything that is happening in warehousing is just galvanized pipes itself as well and bigger [ DFT ] structures, which segment we are entering and more than expanding the current products, we are expanding our SKUs. So we would be becoming a one-stop solution.
Right now, the edge that we get, which shows in our volumes, is that we're prevalent in both primary and secondary market, both of them. So same dealer is the same customer for both the products. And when will -- when I'll have my primary material, secondary material plus the supplement SKU that I'm adding, I'll become a further one-stop solution for all the products.
So all these things give us confidence in expanding and plus the -- even the export market has opted for a [ China-less ] model. So again, that -- all those things just add up and give us boost to add capacity.
Understood. And present margin for those future products which you wanted to increase, what is the ballpark range?
Can you come up again?
So the galvanized products which you are going to use, including sheet and color-coated sheet, what could be the present EBITDA per tonne in those products basically? Just wanted to understand the shift in the EBITDA per tonne, which can happen because of these production.
So there's a tune of 9,000 to 11,000 and -- what we see right now, the margin profile on those items.
We'll take the next question from the line of [Indiscernible] from RA Investments.
Can you hear me?
Yes, ma'am, please proceed.
I, first, wanted to ask, what's the capacity utilization be for the quarter?
So I think net -- we are working on capacity utilization now of 65%, and that's the math that one can perform in this industry.
All right. And I also wanted to know about the steel price. I think there was a margin pressure because of the volatility in it. So we see the stability in that for now?
Yes, in this quarter, we are expecting the steel price to be stable. And in fact, they are on our [ first ] trajectory. So they're more of a stable and going upwards.
Okay. And the last question is that we were given a target that should be like a 30% volume growth in the [ second ] half of the financial year. So are we in line with that?
Performance for this quarter speaks for itself, and we are well in line for that.
We'll take the next question from the line of Vikas Mistry from Moonshot Ventures.
Sir, what gives you so much confidence that you are increasing your capacity by 4x and you think that you will be utilizing 65% of that capacity and even EBITDA margins should be as high as [ 7,500 ]? This is in the context that every industry player is increasing the capacity by quite a much.
Vikas, I think I just answered this question -- one previous question by Vikash. But to answer your question about EBITDA per tonne, as I'm adding my [ QP ] products in [ second ] million tonnes, which is just VAP of 11,000, 12,000 range. And if you do simple math of the entire VAP product of that around 11,000 and the current levels of 5,000, the levels come much higher than [ 7,500 ], but still I'm maintaining a low ballmark figure of INR [ 7,500 ] per, EBITDA, tonne.
Okay. Sir, another question is the time [ perplex ] that you announced a INR 1,300 crores CapEx 3 years before that and we are already having land with us. So we think that capacity for DFT lines can be put in 18 to 20 months. So why we are so early for the CapEx?
If you can come back -- can you repeat your question? It was not clear to me.
Sir, actually, we already have increased our capacity from 6 million tonnes to -- 6,000 million -- 6,000 to 1 million tonnes. But now we announced a CapEx to 1 million to 2 million tonnes. But DFT lines does not take more than 20 months to be deployed, and we already have land for that capacity expansion. So why we are so early in raising this INR [ 1,300 ] crores?
I'm still not getting your question, but I'll answer it some way that so basically from 1 million tonnes to -- from 2 lakh tonnes of capacity to reach the capacity of 1 million tonnes, we took about 4 years some together. So we'll be doing this record-breaking expansion of 1 million tonnes in 2 years.
And out of this, DFT would be coming this quarter itself as well and next year, similarly this time as well, the second leg of DFT. And there's not much DFT coming in the second part of the expansion. But yes, everything isn't well in line for that. There is more -- there are a lot more products than DFT which is coming [ second ] million tonnes.
I think, Vikas, you are mistaken. You mistook that capacity from 1 million tons to 2 million tons will be solely DFT. That is not going to be DFT. That is going to be -- as what we said, certain forward/backward integrations for enhancing the current productivity. And a part of it, we'll be using DFT, but the entirety of that will not be DFT.
You're right to say that DFT can be deployed in 18 going months. That's why by the end of this quarter, we'll be starting to get a first DFT line and that will be up and running by the end of first quarter of next year. So that's the target of that particular machinery.
Okay. Okay. My last question is working capital cycle. If we are entering into value-added products, then by FY '27, how much we could cash that capital cycle?
So if you see the trend of the company, so basically, we've been expanding the dealer network and which will be the [ debtor ] days just to the tune of 7 to 8 days. Earlier when the company was JTL, was just 1 plant in Derabassi, which was fully serving the government sector, where the [ debtor ] days was a little higher.
But now as a mix of all 4 plants, we are a majority of producing into the dealer network more than 50%. Our [ debtor ] days net average has come down significantly. So if you see the trend, we've already come down from 75 days of working capital to around 58, 56 already in the half yearly.
And when you go down the line -- and this is without trade financings. And when you go down the line when I'm expanding by more network in the dealer network, I expect my working capital days to come down to the tune of 40 days by the end of next financial year and subsequently reducing them as and when -- as the year proceeds.
That's great to hear. My last question is that what are the SKUs we are adding in value-added products, whether size of that will be how much and whether they are rectangular or hollow section tubes? And can you explain a bit on that?
So I'm already in rectangular, hollow section and [indiscernible] that you mentioned. The products that I'm entering is color-coated segment, and I'll be adding pre-galvanized lines and some [ HRC ] process as well.
So the -- there will be ample number of SKUs. A detailed list of SKUs shall be out very soon. But to the tune of -- the company shall be having SKUs to the tune of [ 4,000 ] post the entire expansion of FY '27.
Congrats for that heavy -- massive CapEx announcement.
Thank you.
We'll take the next question from the line of Mahek Talati from YellowJersey Investment Advisors.
Congratulations on the good set of numbers. So a couple of questions. So if we see our EBITDA per tonne trajectory, it has been on a downside for the last 2 to 3 quarters. And then new capacity which we are heading of the new 4 lakh tonnes, around 2 lakh tonnes is coming in the black pipe, which is a commodity segment. So how will this help in further improvement of EBITDA per tonne?
So out of the 4 lakh tonnes of capacity that we're adding this year and next year for the pipe itself, so out of that, 2 lakh tonnes is DFT. So DFT is although black in nature, but commands EBITDA per tonne of around 9,000 levels. So that product -- produce is solely included in VAP.
And to answer your question about my trajectory of EBITDA per tonne going down every quarter, so if you look at the 9-month picture, as I mentioned earlier as well, it's well in line. Like last year, 9 months, my EBITDA per tonne was INR 4,700. And this year, it's INR 4,500.
So as expanding and reaching my produce of black pipes in the domestic market itself as well and grabbing the market share, so this much of INR 200 fluctuation is something the company can tolerate as well for a quarter -- like for a growth period. The company's aim to increase EBITDA per tone well impact is well intact as we -- whatever we are adding in the future is VAP. So INR 200 up/down quarter doesn't really effect.
Understood. And is galvanized pipe part of value-added or a commodity product?
The value-added product includes galvanized pipes. Anything above which is commanding EBITDA per tonne of around INR 7,000, INR 8,000-plus is the product which I included in my VAP [ kitty ]. That's the difference. I don't include any product, which is higher than EBITDA of INR 5,000 -- like any product, which is higher than INR 5,000, I have [ galvanized ] the figure to INR 7,500. That's where I included the products in VAP.
Okay. And if you could provide a broad range of EBITDA per tone for our commodity as well as VAP -- for our commodity and VAP products currently, like for the 9 months FY '24? Broader range, like where are we in terms of EBITDA per tonne?
For the black pipe, EBITDA per tonne is around INR 2,000, INR 2,500 range. And for the galvanized pipe, which is the VAP segment, it's around INR 7,500 range. So the [ blended ] stands around INR 4,500, INR 4,600.
[Operator Instructions] We'll take the next question from the line of Aniruddha Kekatpure from JM Financial.
Pranav and Dhruv, congratulations on a good set of numbers. Can you just kind of help in terms of for '26 and '27, how will this capacity move from -- tentatively from 1 million to 2 million? And what will be the kind of CapEx which will be required for '26, '27?
Aniruddha, to answer your question, so it's very hard for us to tell in which quarter, which particular machinery would be coming...
No, no, on an annual basis.
Yes. So on an annual basis, by FY '25, we should be clocking -- we should be reaching the capacity of 1 million tonnes plus because now that we have announced secondary as well. So earlier, the plan was the company shall be using around INR 250 crores to INR 300 crores by FY '25 for the CapEx.
But now, the things have changed and the scenario has changed, and the company should be having the capacity of tune around 1 million plus, 2 lakh tons, 3 lakh tons. And the entire CapEx for FY '26 -- till FY '26 should be around INR 450 crores, INR 500 crores. And the subsequent CapEx of around INR 650 crores to [indiscernible] crores will be happening in -- by FY '27.
Okay. And how -- by '26, what will be the capacity from 1 million to -- where should it reach? What are the plans?
So in FY '26, the capacity should be reaching around 1.4, 1.3 lakh tonnes. And like it's again, a very hard question for me to answer because the machinery can come well and before as well because it's already been ordered and orders are being placed as well. So we're expecting the machinery should come early, but I'm just giving you a ballpark figure of 1.4 lakh tonnes.
So assuming it's 1.3 by '26, so by '27 from 1.3, it will move to 2?
Exactly. Because it's the very [ phased ] by expansion which is happening. So I'm expected the machinery should be reaching much before than that. But to give you a ballpark figure, 1.4 is the easy number to say that I'll be having in FY '26.
Okay. And where -- largely, which brand? Will it -- everything will be at Mangaon?
Yes, everything will be happening at Mangaon. Only the expansion from this particular CapEx which is going on for reaching a capacity of 1 million tonne, 2 lakh tonnes is going in Raipur. Other than that, my entire capacity addition is happening in Mangaon. So solely, Mangaon would be at a capacity of 1.4 million tonnes down the line.
Got it. So 1.4 million tonnes will be at Mangaon and the rest -- okay.
The benefit that I get from Mangaon is that I'm just next to [indiscernible], which is my main raw material supplier. So anything close to my raw material suppliers gives a lot of benefit. Also, I'm in close proximately to [indiscernible] port, from where I can add time for better pricing at port for all the dealers as well, my coil, for exporting, for -- and same can be done for the export as well.
And what's the capacity at Raipur, if 1.4 will be at Mangaon then?
Raipur capacity would be total of 3 lakh tonnes down the line. This is only for pipes. Apart from that, obviously, we have a capacity for coils as well over there.
The next question is from the line of Prathamesh Dhiwar from Tiger Assets.
Am I audible?
Yes, sir. Please proceed.
Sir, just wanted to know that you have given guidance of INR 7,500 EBITDA per tonne. At what time this -- you will achieve this INR 7,500?
Can you please come up again?
You have -- I think you have given guidance of INR 7,500 EBITDA per tonne. So I just wanted to know, by when you're going to reach this EBITDA per tonne?
So in FY '28, I should be crossing INR 7,000 mark. And subsequently, I should be reaching INR 7,500 mark by the later quarters of FY '28 itself. So to begin the year of FY '28, I should be in this range. But I shall be definitely ending my year with this range of INR 7,500.
Okay. Okay. Now I just wanted to know about the industry. What's the current demand? Like how many million tonnes are needed for the year?
So the ERW pipe segment itself is around 13 million tonnes, 14 million tonnes and -- which is growing at a rapid rate of around 12%, 13% every year. So that's the market demand we can talk about. And other than that, you know how the government is pushing its capital towards Jal Jeevan Mission and infra projects and railway stations and airports.
So all these are our target customers and where our pipes will be used. So this is at 2027 as India is a growing economy. So it's very -- we are very glad to be part of the growing economy story and serving the demand as well.
Okay. I think you have told 13 million to 14 million, right?
Sorry?
Industry, you have told 13 million to 14 million, right, for the year?
Yes. It's -- which is growing -- so 14 million was previous year and -- which is growing at a rate of 12%, 13% every year.
Okay. Okay. And sir, where we stand at the market share? How much market share do we have currently? And going forward, how much it will be?
So we are close to around 9% market share right now. And going down the line, we should be capturing more than 20% market share.
20% -- by when, sir, are you looking for the 20%?
So we should be doubling up our market share as we double our capacity, which will happen in the year or 2 years. And after that, it's -- by FY '25, we should be around 15%, 16%. And by FY '28, we should be around 25% market share.
Okay. Okay. Got it. And sir, for coming quarter, any guidance for the realization per tonne?
Again, I can give a guidance for my sales tonnage, which would be similar to what I clocked this quarter itself. But average realization is totally dependant on prices. I really can't comment on that.
The next question is from the line of Arpit Shah from Stallion Asset Management.
Hello?
Sir, please proceed. yes.
Just wanted to understand whether the Raipur facility is a primary facility or a secondary facility? Or is it a mix of both?
So all the facilities are fungible. They can either be primary or secondary, both. But to talk about the Raipur facility, as we are one step backward integrated over there, we procure billets and roll our own narrowed coils over there. So it is a secondary facility.
Currently, it is a secondary facility. But going forward, where you are increasing our capacities at Raipur plant, we'll be bringing in the DFT at the Raipur plant as well. So -- and with the onset of DFT and certain higher [ tier ] pipes, so we'll be producing those sections in a primary produce market as well.
Got it. Can you help me with volume at Raipur facility this quarter?
This quarter...
Can you come up again?
The Raipur facility volumes this quarter?
I'll have to check the exact number, but basically at the tune of 65%. It's the standard across all the 4 plants.
So that number we've got 25,000 tonnes this quarter? Or how would that number look like?
No, that would be the tune of 15,000 to 18,000 tonns.
15,000 to 18,000 tonnes. Okay. Got it. And I just wanted to understand, since we have about 600,000 tonnes of capacity and we are almost speaking at, let's say, 100,000 capacity on a quarterly basis, so the whole DFT change that peak capacity utilization from -- let's say, from 65% to 80%?
We should be clocking from [ 65% to 75% ]. That's the math one can do. But I'd rather like to give a target of 65% because in [ duct steel ] as well, we are well in line to double the volume from 4x the volume of what we're doing right now.
Got it. And do you -- by any chance, do you have the mix of the primary and the secondary you did this quarter?
In this, the secondary would be slightly higher than primary.
But what Y-o-Y volumes for, let's say, primary and secondary -- let's say primary -- what about -- would primary be flat or would primary also see some growth Y-o-Y basis?
Can you just come back again? I don't understand it clear.
Yes. Would primary has growth on a Y-o-Y basis?
Yes, the primary was more stagnant on Y-o-Y and the increase happened majorly in the secondary.
We'll take the next question from the line of Harsh Vasa from SBI Capital Securities.
Am I audible?
Yes.
Yes, sir.
Sir, my first question was that like we have been guided for 40% of value-added products for FY '24. But like as of now 9 months, we've reached at 30%. So what kind of value-added product sales volume do we expect for Q4, right? Will it be equal to commercial land value-added, will be in the range of 50 -- so 50% or something?
And so we should be reaching the previous VAP maximum. So our highest VAP products, this was around 49,000 mark, I think, in quarter 2 or I think I quarter 1, I'm not really sure, but we should be crossing that figure in this quarter. That's what the company's goal is as the maintenance is also over now. And if we reach that, we should be somewhere in the range of 35%, 36% of the total VAP sales. Not exactly 40%, but yes, towards 30%, 40%, around 36%, 35%.
Okay. Okay. And if I could just squeeze in one more question. Actually, I just [ found ] out on CapEx, what was the CapEx which you had guided for FY '25, '26 and '27?
So the CapEx for those years, so it's going to happen in the yearly phased manner, quarterly based manner. So the exact picture is very difficult to say. But to answer your question, by FY '27, everything should be installed with a gross block of around INR [ 1,200 ] crores. And on that, we should be clocking a top line of INR 10,000 crores.
We'll take the next question from the line of Darshil Pandya from Finterest Capital.
My question is already answered.
We'll take the next question from the line of Omkar [ Kookardaray ] from Shree Investments.
So this INR 10,000 crore top line you are saying is after considering the 65% of 2 million tonnes, right?
Yes.
Okay. Another thing is that what kind of ROCE and ROE you will be targeting since you are currently doing upwards of 30%, what kind of targets you have after 3, 4 years after assuming all this capacity expansion?
So exact calculations are not out because it's really hard for me to pinpoint as and when the capacity is added every quarter. But what brief calculations that we have done right now, so all of them should be to the tune of 27% to 32%.
Yes. So somewhere in the 30% kind of range you're expecting, right?
Exactly, exactly, exactly.
Which is currently what it is, right? 30%?
Exactly, exactly.
Okay. Another question is that it would b interesting to know from the promoters, so that the conversion of warrants you are target -- you are doing at around INR 2.70 per share, and by the time you announced, the share price was around 13%, 14% less. So I mean what gives promoter the confidence to pump more money at a higher valuation?
So actually to answer your question, it was much higher than it was 13%. The floor price that was at that time was INR [ 200 ]. But the promoters are looking at the [ threefold ] valuation of the company and -- which seemingly shows, and we put the money on that. So that's what the promoters are confident about. And that's why the INR 60 premium was happily given by the promoters.
Okay. So the promoters basically expect the valuation of company at that time, they thought that it was cheaper and the valuation should have been higher, right?
No, it's forward -- I put the money as a forward valuation, not at the current valuation. It's the forward valuation, calculation around that and put money according to that.
Okay. Okay. All right. And just one thing is that what kind of equity dilution that -- 1 million to 2 million capacity will happen at that time, what kind of equity dilution will take this?
I'll have to see that. I haven't really calculated those things.
Okay. All right. Any ballpark number you have?
I anything -- I think there is around INR 17 crores [ shares ] of the company right now. And going down the line, INR 3 crores, INR 4 cores shares have been added. So I really don't know how this calculates, myself. So I'll probably ask my team to do it calculate and probably revert to you.
The next question is from the line of Rahil Shah from Crown Capital.
Hello? Hello? Am I audible?
Yes, sir. Please proceed.
Is it -- sir, you mentioned you will be functioning at the new capacity of 1 million tonnes in FY '25? Or you'll be reaching at that capacity at some point in FY '25? Just for clarification.
I'll be reaching the capacity marked by FY '25. And although the second expansion is also undergoing and happening at the same time as well, so the capacity would be standing maybe at -- a little slightly higher than that, but the volume should be well in line of around 60% to 1.2 million tonnes.
So that is end of FY '25 or during like the course of FY '25?
During, during, during.
During. Okay. And it's fair to say you'll be...
So I'll be actually doing a 35% growth in the next year itself as well, if you look at the...
Yes, that's what I was getting at. Okay. And any outlook on the margins as well? Will it again stay in the same region or you see some expansion there?
As DFT is coming and fully VAP, so my margins shall be expanding.
Any -- like any general number one can...
Very hard for me to say a number right now. Once the DFT is in a place and I see how it's working, I'll be in a better picture to give the exact number.
But surely an increment over there?
Surely an increment. We should expect, to be honest, 15% increment. 1-5% increment. 1-5%.
The next question is from the line of CA Garvit Goyal from Nvest Analytics.
Just to get the visibility on revenue, can you share any ballpark number for FY '25 and FY '26 for top line?
I can tell you for the volumes top line. Again, it's not in my hand, it's totally in HRC's relation. So -- but the volumes would be again 35%, 40% growth in FY '25.
Okay. And for FY '26, any visibility?
Again, a 35%, 40% growth.
Okay. For next 2 to 3 years, we are going to witness a decent growth.
No. In FY ''28, I'll grow to the tune of 40%, 45%.
The next question is from the line of Sumit Joshi, an individual Investor.
Can you hear me?
Yes, sir. Please proceed.
First of all, congratulations to the management for the great set of numbers. And my question is, are we working in the research and development, creating any new product portfolio for our future growth in upcoming 3 to 4 years?
So I think I've been repeating this several times in the call that my entire expansion what I'm doing is just expanding our product. I'm not expanding my current product, I'm expanding my SKUs of products. So from 1,000 SKUs, I'll be reaching 4,000 SKUs by FY '28. So the whole scenario was just expanding products.
The next question is from the line of Omkar [ Kookardaray ] from Shree Investments.
Just wanted to confirm whether from 1 million to 2 million capacity expansion in that entire thing will be value-added product, which will be around INR 11,000 to INR 12,000, right?
INR 9,000 to INR 11,000.
Okay, INR 9,000 to INR 11,000. Entire thing will be value-added products?
Yes.
Okay. And from current FY '24, 3.3 to 3.4 million tonnes, so you will be doing in the next 4 years by FY '28, that means around upwards of 13 lakh tonnes, right? So that is around 4x the current FY '24, right?
Yes.
So this is bare minimum 65% capacity utilization you are talking about or like you can go higher also?
Yes, it's safe number to say -- for me to say.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for the closing remarks. Over to you, sir.
Thanks, Nuvama. Thanks, everybody, for coming in and joining us for the conference call of the company for quarter 3. I would like to express my sincere appreciation to all the shareholders, employees, customers and partners. Your trust and dedication have been instrumental in our journey so far, and we're excited to embark on the road ahead together. Thank you, everybody.
Thank you, members of the management. Ladies and gentlemen, on behalf of Nuvama Institutional Equities, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.