Mishra Dhatu Nigam Ltd

NSE:MIDHANI

Earnings Call Transcript 2025-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to MIDHANI Limited Q2 FY '25 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Dixit from ICICI Securities. Thank you, and over to you, sir.

[Amit Dixit, analyst]

Yes. Thanks, Manav. Good afternoon, everyone. On behalf of ICICI Securities, I welcome all the participants for MIDHANI Q2 FY '25 Conference Call. At the outset, I would like to thank the management for giving us an opportunity to host this call. From the management, we have with us today Dr. Sanjay Kumar Jha, Chairman and Managing Director; Shri N. Gowri Sankara Rao, Director Finance; and Shri T. Muthukumar, Director P&M; and Mr. Paul Antony, Company Secretary. Without much ado, I would hand over the call to Dr. Jha to take this forward. Thanks, and over to you, sir.

[Sanjay Jha, executive]

First of all, I am extremely thankful for the investors for having so much confidence in MIDHANI. I'm very pleased to be part of this conference call today when we are discussing about the second quarter of FY '25. And this quarter, we have achieved a turnover of INR 262 crores. And that was, in fact, the -- almost more than 60% growth from the quarter 1, but also around 15% higher than the second quarter of FY '24. Subsequently, if the other parameters also have gone up in that like value of production also is on the higher side. We also have the good impact on this -- a good development of the PBT, PAT and everything else on the higher side, which already we have -- financial results have been already published. And I think you must be aware of this.

What I would like to mention some of the highlights in this quarter is we have made very significant contribution, some of our national level programs, which includes supplying the materials for light combat aircraft Mark 2, the Mark 2 is under development, and it is going in the very -- because of MIDHANI's timely supply also, before time supply this program -- project is moving very fast. Also, we have started supplying the materials for the Sukhoi aero engine materials, which is required for India's ambitious program to manufacture the entire engine, including the materials also within the country.

So there also, we have made a very significant contribution by supplying many of the materials as we have received the orders in the interval of 6, 7 months. In product development, I would like to mention here to the investors that your company has made a very important product which is the high-end superalloys Inconel 718. This is one of the most difficult alloys of use in aero engine. And in this alloy, the major challenge is that to make the higher -- bigger diameter with the very less amount of defect tolerance. So we have developed 325 mm diameter, almost more than 12 inch. And this has given a very good quality, we have achieved the level of defect, developed a very high standard that is around 1.2 mm beam surface.

So like that, any other national program also, which includes the various aero engine materials used for DRDO program, which includes ATG Kaveri dry engine and STF, small turbo fan, STF. So like that, there are many other developments and also some of the strategic program, which India is in contribution the strategic program has gone up and that also in large quantity. So not only the technology, in fact, now the volume of production has also gone up and it has been reflected in our progress coming in the second quarter. And we are hoping that similar type of development and growth you'll find in the third and fourth quarter also. So this is the total development.

On the equipment side, we have commissioned a very high capacity secondary melting furnace, which is called Vacuum Arc Remelting, VAR, of very high capacity and that equipment also, we have commissioned fully in this quarter. It has given a very satisfactory result. I think in the future, it will be a very big contributor in our endeavor for Indianization and making this MIDHANI on the higher growth path. We also -- I would like to mention here that in this quarter, export has gone up, and we have achieved almost, if you see in our sales turnover, more than 12% we have achieved from the export. So this is also one of the significant development and there is a good -- we have also a good order book from the export and it is expected to increase further in the coming months.

So with this type of a few things, I would like to -- better, I would like to answer the questions and queries from the -- our investors. Thank you.

[Operator]

Sir, should we start the question-and-answer session?

[Sanjay Jha, executive]

Yes, please.

[Operator]

[Operator Instructions] We have our first question from the line of Amit Dixit from ICICI Securities.

[Amit Dixit, analyst]

By the time the question queue assembles, I would take this opportunity to ask a few questions of my own. The first one, you mentioned that the VAR furnace has been commissioned. Is it that titanium VAR that we're talking about 500 tonnes?

[Sanjay Jha, executive]

Yes, yes. Yes, yes.

[Amit Dixit, analyst]

Okay. So when it was commissioned, sir? And when we will -- when you expect it to be ramped to the full capacity?

[Sanjay Jha, executive]

Sir, already, when I was talking about the commissioning, commissioning means we have to take a certain number of trial melts. So those things we have completed. And now the furnace is in continuous operation, and we have sufficient load now that we are trying to extract from this furnace as much as possible in next -- in the coming months.

[Amit Dixit, analyst]

Okay. Sir, continuing on the furnace side, some of the peers like CTC Industries, for example, they are also going to commission their own VAR very soon, Kalyani Steels has also planned for commissioning a titanium VAR furnace again. So don't you see the competition intensifying in this particular segment?

[Sanjay Jha, executive]

Yes, it's true. In fact, if there is a increase in capacity, demand also is increasing, because you know in titanium as of now, as per my understanding, it will take another 3 to 4 years for these people who are already entering in this field to establish and we have a totally established line. So -- and our order book also for titanium is very good. So I am not saying that there will not be a challenge. But we have technology for all the products because if somebody is going in titanium, they have to go for round, they have to go for flats. They have to go for this cast product. And MIDHANI we have the all varieties of products available with us.

So we are not -- we are sure that we'll be able to do a lot of value addition in our melting, because melting is the first stage. After that, we have to go for forging, then we have to go for rolling, you have to go for some time ring-rolling. We have to go for tube-making, you have to go for wire making. So everything is already we are having it in-house. So we have all the ecosystem, and we're able to compete in the market as far as MIDHANI is concerned. And market is totally not limited today to India, we have many requirements coming from the foreign countries also, foreign OEMs. So if they are coming up, they will also get the market segment and competition. Already, we are in the competition for many other products also, so that we have to work in that direction only.

[Amit Dixit, analyst]

Okay, sir. Great. Manav, please move on to the next participant.

[Operator]

[Operator Instructions] The next question is from the line of [ Amit Kumar ], an Individual Investor.

[Unknown Attendee]

Sir, I have 2 questions. First is, would you like to provide some guidance for the H2 and next 2 financial years, FY '26 and '27? And the second is, sir, what would be the market size of the products we are making in India and in the world? And what is our market share? These are my 2 questions.

[Sanjay Jha, executive]

You are talking about our financial results for -- expected for next 2 years, if I understand correctly. We are targeting, our aim is to grow in double digit, and that will be almost in the range of 20%. So that growth we are planning and it is expected to be in this financial year also and next also. So that part we have planned. Coming to the market share, I am not talking about the India. If I'm taking the entire world market, in fact, India, India is doing only serving today not more than 5% of the international requirements. I'm talking only about the aerospace. If you see the aerospace sector itself, India is having -- serving less than 5%, I would say, today. So we have the ample opportunity even if you grow, make to 10% to 15% also, not only MIDHANI, like MIDHANI, we need 3, 4 companies in parallel.

So there's no means lack of, say, the market potential in this sector. I'm just talking about the nickel-based alloys, titanium-based alloys. But one advantage which MIDHANI has got that we have a complete technology and know-how under one roof. We are not depending on melting to somebody. We are not melting -- depending forging to some other company. We are not depending on the machining. We are not depending on the castings. So everything is entire -- rolling, we have the -- titanium rolling is a unique titanium rolling today, very -- I think maybe 1 and 2 company in the world, they are doing. So recently, we are also trying to see that how we can get the slab from outside and we can roll in MIDHANI and we can supply them in the form of the plates and people are approaching to us for that purpose also.

So what I'd like to say that this type of facility, which we are having for titanium, if somebody has to develop, like just now you have mentioned about a company or any -- for that matter, any other company, it takes time and then also -- and even if they develop also, they also have the market available. We are also having our market availability there. So these things are going to be a very good time, I'll say, for the Indian industry. So India and the industry is going to see a very good time as far as the mixed material is concerned. And today, the production is very less. As I said, hardly, I'll say less than 2% of the requirement in the world we are producing. So we have a good opportunity.

[Unknown Attendee]

And sir, what is the market size in terms of value in INR or dollar terms if you could provide in India and global?

[Sanjay Jha, executive]

Very difficult to tell with, right, the figure, but I will -- some time I'll share with you. And also, we may have to update the data also because this data, what I'm talking in the percentage terms maybe 3, 4 years back when we have studied. So we will give that input to you.

[Unknown Attendee]

And China, does China have bigger market size in India? If yes, then how many times does it have?

[Sanjay Jha, executive]

China, yes, definitely. China has grown in this segment in the big way, but one advantage which we are having in our country that we have -- our systems are having highly flexible we can make the standard European as well. We can make the Russian as well and we can make -- follow the other current standards. So that type of our systems are late here, but how much they are serving today, they are serving today to the many big companies, but they are all looking towards China Plus One, since the China Plus One policy, India has got a very good opportunity. That's what I can tell you at this juncture.

[Unknown Attendee]

And who are our major competitors in India?

[Sanjay Jha, executive]

In India, as you have mentioned already, some have -- already have started that some companies are already coming forward in this area. But I -- tactically, how much they have gone to aerospace, I think aerospace contribution is negligible from them so far as of today.

[Operator]

[Operator Instructions] We have our next question from the line of Amit Dixit from ICICI Securities.

[Amit Dixit, analyst]

Yes, sir, we'll wait for question queue to assemble. Meanwhile, just few questions. So you mentioned about titanium that we have integrated capacity under one roof. Just wanted to understand what is our casting and -- casting capacity in titanium and superalloy?

[Sanjay Jha, executive]

Yes. So titanium, we have investment casting. The furnace capacity is 300 kg. And we can make the size of around 1 meter diameter, 1 to 1.2 meter diameter casting we can make. And that defines basically the casting capacity. Tonnage-wise, if you see, it will be -- mostly casting is sold as per the complications of that casting design. So it is every -- if the furnace can be utilized every day, we can make 300 kg, but all the castings will not be of the same size, same tonnage means weight. So weight is not the constraint. It is the size and thickness of the casting. So like right now, we are trying to develop a casting of 6 mm thickness, 7 mm thickness so that type of technical challenge we are doing.

But our idea is to make the castings for naval requirement now, naval and then also for certain requirements also have come for nuclear power plants because -- see, so nuclear power plant requires titanium castings for putting in their walls. So that type of requirements are there. But our capacity today it is sufficient to meet the requirement from the -- our domestic industry. And we are trying to see that how we can integrate with the international and that export market also by aligning with the major aerospace companies. So there, we need certain upgradation in our facilities or some sort of a system development. So on that area, the various level of auditing and its improvements are going on.

[Amit Dixit, analyst]

Okay. Sir, if I heard you saying correct, it is 3 tonnes per annum.

[Sanjay Jha, executive]

300 kg is a single size, single melt and that can convert -- you can convert that every day if you take around even take it a 1 casting also. It will be in -- tonnage wise, may not be very high, but it would be around 4 to 5 tonnes in a month.

[Amit Dixit, analyst]

And how about superalloys, sir?

[Sanjay Jha, executive]

Superalloy investment casting a very small size furnace at present and that we are doing exclusive for ISRO requirement, resource program. So -- and which is used for their cryo and semi-cryo engine. So that requirements we are meeting now with our superalloys casting. But there is a plan to enhance it to the higher capacity. But right now, it is very niche and highly specific to a program of ISRO.

[Operator]

We have our next question from the line of Vikas Gupta from Wealth Guardian Services.

[Vikas Gupta, analyst]

Sir, my first question is about the margin. So margins have recovered during the quarter. So can you just give us the guidance for H2 and the next year?

[Sanjay Jha, executive]

Yes. H2 margin also, we expect in the similar lines. Maybe it can improve also, but it will be in the similar line because -- why it maybe slightly on the improved side because this has seen the impact of Q1 also. Q1 also has been -- was very low. So we are hopeful that this will continue. And as you know, your sales turnover increases, it will have a positive impact on various parameters, which includes even this margin on the profit also. So we will be seeing that improvement only.

[Vikas Gupta, analyst]

So for the next year, FY '26? Is it the same, margin side?

[Sanjay Jha, executive]

FY '26, again, the product mix is very important. Many orders which we are expected now is coming from -- we have a mixed bag of orders, which include coming from either high margin and low margin. So we are trying to see that we should try to -- since our volumes is increasing, I think percentage-wise we will remain in the similar terms as far as the percentage is concerned.

[Vikas Gupta, analyst]

Okay. And sir, I just wanted to understand about the revenue guidance that you gave, what is the figure for H2?

[Sanjay Jha, executive]

H2, you're telling the figures?

[Vikas Gupta, analyst]

Yes. I mean figure or percentage what's your guidance on that?

[Sanjay Jha, executive]

Similar, whatever we have achieved in the Q2 will remain. It will be similar.

[Vikas Gupta, analyst]

Okay. And sir, any CapEx plan for next year or next 2 years?

[Sanjay Jha, executive]

Sir, CapEx plan already this year, we have for INR 60 crores. And next year and next to next also, we are having a plan, but it depends on the ability of the fund and all we'll decide. But possibility is there to add it further, but our idea is just to see that how effectively we can utilize that whatever CapEx we have now put in this -- our operation. And mainly -- main focus today is basically the modernization of our old facility, which has been installed and commissioned in the '80s. So those things we are trying to modernize now with various options available like either going for the new equipment or even revamping the old facility and then going just modernizing. So these type of programs but it will be -- CapEx will be almost in the similar range, and maybe around INR 100 crores will be there.

[Vikas Gupta, analyst]

Okay. And sir, my last question is about the export numbers. So what -- how much was the export revenue for this quarter and for H1?

[Sanjay Jha, executive]

H1, we have achieved -- we have -- almost our export was around INR 49 crores. And we are planning to achieve in the similar range, maybe that more -- slightly on the higher side because we have around INR 60 crores order is available. So that we have to execute in this financial year. So we'll be touching around INR 100 crores plus, it will be going to around INR 100 crores, INR 110 crores.

[Operator]

[Operator Instructions] The next question is from the line of [ Neha Joshi ], an Individual Investor.

[Unknown Attendee]

May I know about any progress on Rolls-Royce or GE or Pratt & Whitney orders?

[Sanjay Jha, executive]

Yes. Whatever export, you have seen the figure of around INR 50 crores, INR 49 crores precisely. All these supplies mainly have gone to GE and also Pratt & Whitney, some supply has gone to Rolls-Royce also. So it is a mixed type total means like supply has gone to these type of companies only. And we are also now working out to have a long-term contract with Pratt & Whitney and also for many other similar type of aero engine manufacturing companies.

[Operator]

[Operator Instructions] The next question is from the line of Amit Dixit from ICICI Securities.

[Amit Dixit, analyst]

Sir, one of the things that you saw in this quarter or in this half year, I should say that the inventory increase has been much lower compared to H1 FY '24. In the last call, you highlighted that the objective is to control the VOP and to tell whatever we can produce. So just wanted to understand that VOP is also down we are seeing. So what specific steps we have taken in that direction because this is a very positive thing, I mean coming in MIDHANI now.

[Sanjay Jha, executive]

Yes. One, it has been -- as I told you from last, I think, a few quarters that our main focus is to cut down the inventory. On -- in this endeavor, we have taken a number of steps. Like first one is that how to reduce the -- our generation of our scraps or rather I'll say an improved yield. And second point is that whatever we generate the scrap, how we can best do the recycle. So you can see our recycling percentage of the scrap also has gone up. At the same time, we also work in such a way that we should try to supply the products in a very short cycle time. So cycle time reduction also is the one area which we have tried to do and we have put a lot of effort in this direction.

And raw material also inventory has come down because, first of all, the prices of the raw material has been on the lower side in this quarter also. And at the same time, we have made our procurement in such a way that we should not build up a large amount of raw material inventory. So these are the various measures which we have taken up, and it is giving a good result. And I'm sure our -- this year itself, we have a target that our VOP and sales should have -- almost should match that type of steps we have taken. And as I told, there was some impact in the first quarter because of that, because we wanted to control the inventory of WIP right from the last quarter of the last financial year only. So -- but now we are -- things are -- we are streamlining. So you will see a better impact -- better result now in the coming days.

[Amit Dixit, analyst]

The basic data based question, that what is the kind of order inflow do we expect in FY '25 and what is the end year order book that you are expecting?

[Sanjay Jha, executive]

Yes. I think so far, we have booked up to October, more than INR 1,000 crores, INR 1,000 crores plus, we have already booked the order. And we are expected to book around not less than INR 600 crores in the months to come for this financial year, FY '25. So that will build up our -- and if you are doing our sales turnover also around INR 1,300 crores, INR 1,300 crores, INR 1,400 crores this year, definitely, we'll have more than INR 2,000 crores our order book at the end of this financial year. And as I told rightly that today, the market is good, provided you can produce the material and supply in short time. The short delivery is a requirement of the -- the need of the hour. And probably it is suiting to the industry also, and it is good for our inventory position also. So we are trying to take the orders from short delivery period. And many orders we are trying to now take because -- or not -- people are not giving because moment you see that your lead time is more, so that orders are not coming. But I am sure that as we are improving our -- increasing our capacity, efficiency, order book will not be the issue.

[Amit Dixit, analyst]

Okay. Sir, in terms of current order book, is it possible to provide the split in terms of sector and in terms of product?

[Sanjay Jha, executive]

You want a breakup?

[Amit Dixit, analyst]

Yes, sir, breakup.

[Sanjay Jha, executive]

Breakup figure, I'll ask my Marketing Director, DPM who is sitting there to give the order breakup as far as the sector-wise answer. So he'll give the breakup, but maximum order today, we are running from the defense. And when I say defense, defense, we have the 2 types, aero and the naval. Put together it is almost, I'll say, 70% to 80%, we have the order book from these 2 segments only and rest others. Space is very less today. I think hardly, we have 10% to 15% in the space. But expected to -- indications are there that things are going to come, but not now [indiscernible].

[Amit Dixit, analyst]

And sir, in terms of material split between titanium, superalloys and special steel?

[Sanjay Jha, executive]

That breakup, I'm not having here right now. But reasonably, we have -- both the things are very good. Titanium order book is very -- reasonably very good now. And we have to execute, a lot of things are under process, some effect has come because of a problem in the supply chain of the -- some of the master alloys, which we are trying to resolve. But order book for titanium is -- must be around INR 600 crores to INR 700 crores, INR 600 crores at least.

[Amit Dixit, analyst]

Okay. Okay. And sir, is it possible to provide the contribution from Wide Plate Mill and Armor factory revenue contribution?

[Sanjay Jha, executive]

Yes. Yes. Armor -- Wide Plate Mill contribution is less in this quarter or, say, the first quarter also, Q1 and Q2, mainly because the plate required for ISRO, almost we have -- order we have completed. So that was coming in the big way in the last -- earlier FY '23 and '24. But we are trying to now develop some of the products which are recently, we have made one product for BHEL turbine blades. So those things are expected, but they are all coming not in the very high volume. Technologically, they are very challenging, but not high volume. So it is going to increase further. Then also we have some product we have made for -- titanium plates for ISRO. So those things are already going on. So we are hopeful to get some more orders. And in this process, we are -- we have made good progress in getting some tie-up with AVISMA-VSMPO for rolling of titanium slabs using our plate mills. So that type of work is going on. I think we'll be having this year around INR 150 crores to -- INR 150 crores with the Wide Plate Mill, INR 150 crores, I'll say, is conservative one. It may increase more also [indiscernible].

[Amit Dixit, analyst]

Okay. And Armor factory?

[Sanjay Jha, executive]

Armor this year is going, but we had some backlog things which we wanted to do some value addition because of some technological challenges we have faced in the jackets. So that supply is going on. But since it is the first time so a lot of testing, trials is going on, on that product. So far, we have supplied around maybe INR 6 crores, INR 7 crores worth. And some orders are from Jammu, J&K Police for vehicles. So vehicle development also, there are a number of developments they have told to do for the first time. So I'm expecting that also. So this quarter, quarter 3 and quarter 4, we'll get the same figure, but we will not -- our idea is to cross INR 100 crores, but this full year, it will be in the lower side because of that type of development. But we are participating in the very big, big tenders, let us see how we can solve this.

[Amit Dixit, analyst]

Okay. Sir, are we also going to participate in this FICV development for this -- the AoN has been issued. So do we also have some stake there?

[Sanjay Jha, executive]

Yes, FICV, the armor side, we have -- people have approached to us. So since we are doing the armoring for the tanks now, that is for MBT Arjun so this -- for this vehicle also the armor requirements, they will be coming to us, and we are -- we will be participating in that because we have the technology for armoring for the tanks. And similar thing with some modifications will be utilized for FICV also.

[Amit Dixit, analyst]

Is it possible to quantify the opportunity for this, a broad range?

[Sanjay Jha, executive]

Not -- very difficult to say at this juncture because it is in the discussion stage. So right now, how they are going to deal with that and some place probably the technology part also whether they are sure for using the same technology or not, I am not sure. But initial indications are that similar type of armor they are going to utilize in the FICV also. So let's see how it is going to be out in the future. Very difficult to pinpoint at this stage.

[Amit Dixit, analyst]

Sir, the last one from my side. What will be the scrap recycling percentage in H1? And how has it changed from FY '24?

[Sanjay Jha, executive]

The scrap recycling, I think our DPM will put something.

[Thulasiraman Muthukumar, executive]

Sir, this scrap recycling we have gone in a long way. That is the reason why you could able to see in the last fourth quarter, our virgin consumption has come down compared to previous quarter. It was about 60% and the scrap consumption has gone to about 40%. Now we are identifying every grade whenever we process what is the possibility of using the scrap. And since our superalloy consumption is more and that too mostly we need to use it for aero, where there is a restriction that we cannot use any scrap. So we have to use only 100% virgin material. But however, non-aero grades, we are trying to use more and more scrap recycling.

And we are planning that in the coming quarters also, our scrap consumption, that is reuse of our internal scrap, it will be about 40% and the virgin material will be 60% compared to what it was said earlier about 70% was virgin material and 30% -- 20% to 30% was the scrap. So we'll continue to do that. We are putting a lot of effort. In addition to this, we are also identifying a lot of scrap material, which cannot be reused at MIDHANI that we are putting it for action. We are putting it for action. That is also compared to earlier years, our sales through action in stores has gone up. So all efforts are there to liquidate the scrap and the reusage of the scrap, okay? Thank you.

[Amit Dixit, analyst]

Sir, is this scrap consumption also there in titanium or is it only for superalloy?

[Thulasiraman Muthukumar, executive]

No, no, titanium we cannot be able to use scrap. This can be used only in the steel and the superalloy.

[Operator]

As there are no further questions from the participants, I now hand the conference over to management for closing comments. Over to you, sir.

[Sanjay Jha, executive]

Okay. I will now ask Director of Finance to give the closing remarks then we can...

[Gowri Narmsetti, executive]

Thank you, sir. In the closing remarks, I would like to mention that year -- compared to year '23-'24, '24-'25 is an opportunity year where our exports have gone up. And also what I see, though there is a reduction in the turnover and the margins in the first quarter, second quarter of FY '25 has shown a good improvement, and we achieved INR 262 crores turnover, which is our best. And also, as our CMD, DPM explained, regarding the control, to control the inventory, we have not gone for a higher production both we are matching and our VOP is INR 268 crores and our sales is INR 262 crores. And by using the more plant reverse, even our profitability has gone up. And we are at 22% EBITDA now for the second quarter because of the first quarter, it is reduced.

However, we are expecting third and fourth quarter, it will further improve. And as rightly told, because of the new VAR introduction, the commissioning, the titanium production will go up compared to the last year, only we did in the first half, 7% now it has gone to 10%. Whenever the company goes more titanium, the margins is also good, and we can achieve. And as far as exports are concerned, we have orders. We will execute with the new companies. That is our side and hope that quarter 3 and quarter 4 will be the bright years. And on this, I extend my thanks to -- on behalf of MIDHANI, my thanks to all the esteemed investors for their confidence on MIDHANI. And in MIDHANI we have a bright future. I also thank ICICI for arranging this conference call. Thank you.

[Operator]

Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.