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Mishra Dhatu Nigam Ltd
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Ladies and gentlemen, good day, and welcome to the MIDHANI Limited Q3 FY '21 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abhijit Mitra from ICICI Securities. Thank you, and over to you, sir.
Yes. Thanks, operator, and good afternoon to all the participants and thanks for joining in. Today, we have with us Dr. Sanjay Jha, CMD of Mishra Dhatu Nigam Limited to discuss Q3 FY '21 results conference call. So without further ado, I hand it over to Dr. Jha for his opening remarks. Over to you, Dr. Jha.
Thank you very much for attending this conference call. And I would like to submit here that the last quarter 3 results for this company has been very encouraging because, as you know, from quarter 1 to quarter 2 and quarter 3. Quarter 2 itself, we have a significant jump in our revenue. But quarter 3 also has given a very good results. And we have got almost, I say, 16% higher revenue compared to quarter 2 and quarter 3. VoP also has increased by 25%. We also had a significant jump in our EBITDA. EBITDA has gone to almost 73% from quarter 2, quarter 3. We also had a wonderful [ in regards ] to EBITDA to the sales ratio, which was coming to around 30.5% has gone to 45.5%. PBT also has gone up from -- by almost by 81%, PAT by 87%. So all this trends in performance for the company has been quite encouraging in this quarter, quarter 3. And I'm sure that with the good teamwork and participation of our employees and the stakeholders, we are going to perform still better in our quarter 4 and we have raw material, equipment, everything in place. So with this, I can say that we had a good performance, financial-wise. So that's why also we have [ done 2, 3 ] [indiscernible] just the highlight I also give [ on the product set ]. Products we have made very unique product called titanium slab, which is being used for -- that you might have seen that recently, India has announced that now we are going to have an advanced medium combat aircraft. So [indiscernible] working on that, and we have a very important partner in the development. So MIDHANI has delivered a slab -- titanium slab, which is going for the airplane structure. So the first slab has rolled out, and we are planning to have 6, 7 members in this year and then subsequently growing more and more numbers in the next financial year. In addition to that, we had a very good [ out of ] India [indiscernible] this year. It was in -- from 3rd to 5th February in Bangalore. And there, we've got a lot of visibility in our future business and also you could sign some of the important significant MoUs, I mean, that very important -- one of the important MoUs was from Lockheed Martin. Really one of the, I think, leading aeronautical company of the world. And also, we had a MoU with Hindustan Aeronautics Limited for making the composites and it will be exclusive facility coming up in [indiscernible] for making the [ current carrier ] composites. And in addition to that, a lot of potential we have seen for the export coming from the different customers. And in the area of our competency of super alloys, titanium alloys and also in our future business for additive manufacturing. There, also, we could have a good beginning, I'll say, but those things are the future ones. It will take time for us to establish that facility, but we have gone for certain development at present. And I'm sure that in the future, we'll be also having a certain amount of our business activity coming from the additive manufacturing. So -- and coming to our project side, the progress on our project execution also went well. And I'll be definitely coming to you as in when we start commissioning one by one. And I'm sure that the next financial year FY '22, I am sure that those projects also will be realized and we'll be getting a certain amount of business from those areas also. So with this, I'll just say that it has been good turnaround, I'll say, after this pandemic. And with the confidence the company is moving forward, that's what I can submit here. So I'll be more happy to get the questions from you and then answer it as to my -- best of my knowledge. Thank you.
[Operator Instructions] We have the first question from the line of Bhagyesh Kagalkar from HDFC Mutual Fund.
Sir, congratulations on a good set of numbers as well as what did you sign -- is that MoUs have been signed? How long it takes to actually transform these MoUs and move them into revenues because MoUs have been signed by a lot of participants who have signed.
Very important question. One part, I'll say that 2 MoUs I'd like to mention here. The first one is with HAL. And with HAL, you know that now they have got even the order for 33 aircraft at HAL. In the future, there are a lot of other activities also in the area of aircraft manufacturing. And considering that only we have decided and we are going very fast on aircraft side. Now the time line, I'll be communicating as and when there is the progress. But definitely, our commitment is that as quickly as we can supply those products for our [indiscernible] application. Second MoU I was talking about was Lockheed Martin. And there, we are expecting that it will get very fast in converting to the business. We have already lined up some next week or next fortnight, some of the [ interactive ] meeting with their counterpart sitting in U.S., some in India. So I expect that those things will convert into the business in the next financial year. And we'll be communicating. But the one thing I'd like to now tell you here that in the aeronautical business, the certification and material [ creation ] takes some time. And since they are going to source on the new one, they have to work for a lot of certifications process. So we have -- we are starting very shortly for that process also.
Okay. One more question from my side, sir. Regarding the plate mill, which is meant for mill component [indiscernible]. So now what is the schedule? And what are the products that will turn out?
The plate mill, as I told last -- my last interactive also session also, plate mill we are going to commission by July of this year. Already, we have already almost 80 -- more than 80% [indiscernible] work is over. And I am going to take the cold trial, cold trial of this maybe by next month. Because before going for the hot trial, a lot of equipments consist of number of supporting other equipments, many equipments. So we are going to take the trial, cold trial, in the next month. [ Moving ] on time, we are not having that today. Okay.
And what is the CapEx regarding this?
CapEx for the plate mill is around INR 460 crores. And we expect some more investment, maybe near about INR 500 crores.
That's the funded CapEx that you had explained. So hopefully, next year will be how much then, only MIDHANI?
How much MIDHANI [ has given ] in that?
There you explained MIDHANI next year [ will only ] CapEx, FY '22.
MIDHANI CapEx is already we have committed for INR 220 crores, okay?
Sir, regarding the margins, can you guide us how next 2, 3 years will shape up as we grow or comes back on stream? That we'll be getting out of COVID issues soon and other clients will get out of the COVID issue. So how does the picture look like for revenues as well as the margins, at least revenues you can share?
One thing I'd like to submit here that in area of different sector, in fact, COVID has not given the negative impact, where I say that the recent policies announced by the government have given a very positive impact on the defense business. You must be seeing from the different type of media news channels and all, a lot of policy interventions have come and that has given a push for going for [indiscernible]. I mean that we have a lot of what is we have to get on the materials supply side. So MIDHANI is going to play a very vital role in supplying the service materials. And recently, the government also has kept a cap that you cannot go for the [ global tender inquiry ] less than INR 200 crores. So a lot of policy interventions are there, which is going to favor the domestic manufacturer and MIDHANI is also one of them. So I don't see that those things are going to affect us as far as COVID is concerned. Yes, COVID has slightly delayed different contract signings for some time, but now it has picked up. You might have seen that [ urgent ], that part one already has been rolled out yesterday. And it was told that time [indiscernible] [ INR 8,000 ] crores worth of orders being placed on [ orders ] factory for new [indiscernible] has come forward with INR 48,000 crores investment CapEx. So there are a number of equipments, and we'll see many more in the coming days.
[Operator Instructions] The next question is from Abhijit Mitra from ICICI Securities.
Sir, if you can just highlight the breakup of your order book in terms of defense, space and other elements, which includes nuclear and other things you ordered? And also, the execution breakup that we see in this quarter, is the execution more tilted towards space, which is allowing this kind of margin? And what kind of margin trajectory can we expect over the next quarter?
First of all, I would like to tell you that order which we have booked this year so far and that majority of the orders we have got from the different sector [ holder ]. Space order is hardly something around 20% so far. 80% we have got from the defense and aerospace. And some part of some energy also there. So we have got majority of things on the defense. Now coming to the part of the future prospects, which I am seeing, there, also, I see that a lot of orders which have been filed coming up is mainly from the defense and aerospace sector and which is right, mainly due to the -- our focus on defense manufacturing coming up in the country end of this year. Now as far as the execution for this year, you see, last year, we had around 57% around we have done for aerospace. And I expect there'll be some reduction by 10% to 15% in the defense [ power institution ]. And the same number will add up in the defense. Defense will be going around 15% to 20% more than the previous year. And the next FY '22 also, again, aerospace will be slightly lower, and defense will be on the higher side. So it's like [indiscernible], in fact, if you see our '19/'20, we had the maximum [indiscernible] coming from the space. So -- and this way, it is [ distribution is ] like the defense is picking up or [indiscernible]. And since we are -- our turnover also going to increase. Maybe as far as the quantity-wise order, I think the amount of business will be same, but the percentage will come down because [indiscernible] that total turnover will go up.
Yes. What about existing order book, Mr. Jha? If you can sort of break it up, the existing order book of INR 1,600 crores into space, defense and others?
INR 1,600 crores we have -- today also, we have around 60%, we have some best case. And coming out -- coming from the defense, the balance, we have around 30%. 30% to 35% is there coming from the defense sector. And rest of the things like we have 10% to 15% around the energy sector.
Okay. And regarding Q3 execution, the bump up in margins or the increase in margins, is this because of execution of any particular project or any particular customer? Or, I mean, how do you sort of explain this?
For Q3, our margin has gone up mainly because of the reason -- 2 reasons, mainly that raw material prices have come down, not all. If you see that cobalt price has come down. Cobalt was trading at the lower price. Even though nickel has increased, but the cobalt was trading at the lower price, it didn't help in our raw material cost. That is factor number one. Factor two, whatever scrap we are using for our internal, that means, production, internal scrap for our reservation in our system, that scrap quantum we have increased. No, it has not been increased just like that because there was some process improvement we could do in our equipments, [indiscernible] to the equipment facilities, then coming to that process modification, some trials. So basically, the R&D has gone into that. And that has given a good impact on our raw material part, raw material savings has been significant in this quarter. And that has given a big boost there as far as the margin is concerned.
And going forward, this inflation on the raw material side, you feel it will have an impact on the margins?
Yes, definitely. Raw material is a very vital one. But as we have taken the [ minutes ] now in this quarter 3, I am very much confident that we will be able to maintain the same ratio the way we are doing, then that impact is not going to affect us much. So that is going to be a good [ modifying factor ] in the raw material side. But as you said, we don't know what is going to have the impact on the raw material because the market is controlled by very [ bigger guys ]. Chinese, they are controlling the raw material prices around. But, of course, India, also, we are trying to do [ in a nice -- ] do the nice [ emulating now ]. A lot of programs coming. As I have told earlier, recycling of the scrap and going for a process where we can recover precious metals from the scrap, those programs are going on.
Okay. Okay. I have other questions but I'll come back in queue.
The next question is from the line of [indiscernible] from [indiscernible] Investment.
Sir, typically in LCA on the prototypes, which we have been working on or submitted, what is the intensity of MIDHANI components which have gone until now? And this MoU is over and above the supply that you have to LCAs or this is built within that?
In LCA, we have supplied 4, 5 different grades of steel. We have supplied some titanium alloys. We have supplied some of those nickel base alloys. So I see that those things, we are going to get the good quantity coming to us. And the quantity by the -- per aircraft, I'm still waiting for that, what we will have value. It will not be the right time for me to say that, unless we convert, really get the orders in our hands. But we are working towards that. But whatever we have done in the past, how quickly we can demonstrate that we are maintaining the same level of quality, we are maintaining the same level of our processing because once you -- the sectors are very, very sensitive for the process and quality aspects. So still discussions are going on with them. And they are also going very fast on those procurement side. So I hope that we'll get a good business. And also, we are trying to find out that whatever they are importing assets today, can we substitute some of the grades so that we can further increase our participation in manufacturing of LCAs as far as [ emulation ] is concerned.
Right. Sir, theoretically, what could be the addressable opportunity for LCA? I'm not saying this is what you will get. But for the opportunity...
Opportunity, I believe that opportunity, definitely, if you see that material part as the major part is that aluminum is used heavily in LCA, also use the composites. Those 2 things, we are not having as of now. But as far as nickel, alloys, titanium and steels are concerned, I see around basically forming around 10% to 15% of their total material requirement as far as the cost is concerned, price is concerned. Each aircraft, I don't have an exact figure to tell you. And I'll comment here that because it's not appropriate for me to give the figure, which is not correct.
Sure, sure, sure. Second is on the space program, while we have communicated that defense will take up residence over space in the next 2, 3 years. But in terms of the space program and scheduled launches, how do you see the traction maybe 2, 3 years down the line, just in terms of programs?
I totally did not give -- space results are not going to go down. It is only some sort of delay because of this pandemic for short time. And so they have changed their policy now. They are looking for private participation in their launches so that commercially, it will be more viable, more competitive. So some restructuring will be there for some time, then it is at the same line. That's what I see, other than the government program. So as you rightly told that, that sector also is going to see a good growth in the future because India has mastered the technology for the space launches and all. Only today, the cost and the delivery is very important. So I see that both these are going to be rationalized in the next couple of years. And then this is going to be a good change. So MIDHANI is also well-poised for that type of challenges. There will be some [ consent variations ]. As for the low margin, we have to go for a competitive type of products, maybe materials also have changed. So a lot of scope is there in the improvement in the space sector. And we are able to participate wherever it is possible.
Okay. My third -- go ahead, sir.
Today, we are well in there, all the programs, which they have already designed their -- started. We are part of that.
All right. Sir, my third question is on the marine. We have seen significant buildup in submarines and [ which for again, the new ] manufacturer would be in the marine segment in defense as well. We don't seem to have significant presence over there. Is our addressable market in the marine segment lower than what should have been? Or that segment doesn't really require much materials from us?
Yes. I'll say the marine sector is very important one for us. But we are basically participating in the strategic area of the marine sector. When I talk to the strategic one, it is the [ strategic ] defense for the country. And that's why we never say that we are participating in which program. The program is not revealed and not told. In fact, the strategic program, I would say, for the country, we are already there in marine. Now coming to the area where it is open like the program, which is already been going on in the [ different other ] business where the majority of the steels are required, all the requirement is there. There, MIDHANI is not there mainly because we are not having that type of steel manufacturing. It is basically suited for either the big steel plant, rolling mill having the [ steel customer base ] rolling along. They are there having that. But we are on the [indiscernible] program, already we are there in the [indiscernible].
The next question is from Rakesh Roy from Indsec Securities.
Yes. Sir, my first question is regarding to your titanium slabs. Second, the market size of this slab, titanium slab, apart from your government or the advanced [ medium ] combat aircraft.
Apart from that, we are also supplying the rail slab for [indiscernible]. The [indiscernible] project also requires further amount of titanium structural components, which can be applied for taking our time in the space. So we are also providing the input to them. I am not told that, but this is also the part of development, which already we have done. And I think it has been already communicated earlier by the various method of our media in [indiscernible]. And so it is there, and we are sure that the [indiscernible] get commissioned. We'll be in the better position to capture some more market in the supplying the titanium slabs and place either in the country or even for export also.
Understood. Sir, we are the only player in India or any other also making the same titanium slabs?
Titanium, right now, India, nobody is making other than MIDHANI because the titanium technology itself, we are having only one place that we have the technology for making [ the alloys ] on. But as the demand is growing in the country, probably some more players will join. But at present, we are the only manufacturer in the country.
The next question is from the line of [indiscernible] who's an individual investor.
I congratulate the management for the excellent set of numbers. I have one request and one question. My question is that what is the reason for the other expenses to be so low for this year compared to the last quarter of last year? And my request is can the transcripts of the conference call be published by the company website?
Transcript of the webcast, can we publish or not, I am not the right person to tell. It will be filed by our company [ to the industry ], we'll be putting that. But what I will say that at, time and again, what are the queries people ask, it will be coming in our different media interactions, either from the Twitter or some other websites. But with that, I can take you your request and I'll ask -- I'll find out the facility. Second part is that we had other cost. Other cost also, this year, you know that because of this pandemic, we had a substantial amount of savings as per the tour and travels are concerned. And it is not only for us, for many companies they have. In addition to that, we also had some good savings as far as -- which I have already have told. And the other is the slightly some amount of saving on the -- in other site that is the cost of the power and all. But the significant impact is from the raw material results. In our cost of production, raw material component plays a very vital role, a major one. So whatever you see here that has a big reflection on your financial balances.
[Operator Instructions] The next question is from the line of Abhijit Mitra from ICICI Securities.
Just to continue with the previous line of questions. If you can sort of give some updates on the Rohtak plant, the spring plant as well. I think we have had some update from you on the Wide Plate Mill site. So if you can also sort of add to that based on the Rohtak plant and the spring plant, the CapEx, which has been committed and the date of commissioning that you see.
Yes. Rohtak, we are already have started installing the equipment there. So out of 7 equipments, 3 equipments have already come on place. One equipment also started working, and I'm very happy to inform you that we did some business also using that equipment this year. And we have exited recently. And there is [ decisions ] order for MPV, that is for mine production vehicle which was needed for our line of control requirement at our [indiscernible] process. So that, we have done through this using the equipment we have bought recently. And other equipment also are coming, we are getting one autoclave from Turkey and also we are getting some -- so there are a lot of activities going on there. We have already stationed our people there. We have [ PBMs ] already stationed there, having 2, 3 managers working under him. Then, we have the [ workman ], which is progressing well, and I'm sure the complete facility we are trying to -- planning to inaugurate by end of April. So let's see that I'll be able to do that as well as some of those strategic clearances that are required. So those things also, we are working with the state government. This is progressing well. And then coming to the spring plant. The spring plant also, we have commented the full trial is over. And this month -- and I am going to take the hot trial [indiscernible] spring will rollout from the plant. Only, if there are some issues with the RDSO Certification. You know that RDSO Certification requires some complication in stuff [indiscernible]. Our team is interacting and working with them. So I am hopeful that, that plant also starts giving production. [ At the moment, we received ] a trial order from the railway. So I'm already -- put our people for getting a trial order without waiting for the approval from the RDSO. So let's see that how we can quickly and I'll be, of course, speaking to our stakeholders as and when this get commissioned. But right now, it is moving online. And despite of that the orders have to come because we had 3 equipments coming from abroad. Another 4 equipments, 3 from [indiscernible] and 1 [ spring making machine ]. So the last bit of [ orders ] are starting from 19th. And I'm sure that this can then will complete the job and then go. They had a tough time in coming to India. So we are managing that. And in fact, white bit also, we have some team coming from the Germany. They are also there on place, now they are working. So good [indiscernible] there. Let's see when we quickly we can complete the activities.
The next question is from the line of Anuj from M3 Investment.
Just wanted to [ think ] in terms of R&D. How do you track your R&D in terms of efficiencies? What are the variables for you to track whether the company has evolved in terms of R&D, whether it's number of new products introduced in a year or whatever? But how do you drive the R&D of this company, R&D efficiency?
So normally, MIDHANI R&D applied one, that we have to first take it so. We are not interested [ when you take the IPR ] and getting that [indiscernible] and based on that we can evaluate our R&D. So our R&D, this even need for the customer, need for the market. So I'll tell you one example, recently we have just exported in this pandemic time and a grade called [ 9 25 ] was required by some -- of this oil and gas industry. And we have done the first time. So there, we need some product development with our team in the process without using that much -- the cost in material. It was done in very short time because of our team's experience and we have started executing the order. So that type of activity. Another one [ that our team has seen ] that is being used for testing of the missile and all. It was also getting imported. Our team has worked very fast, and we have developed the properties thus far. And then we have got the order for that. So like that, our people are working in the different activities, and there, we have to convert their knowledge and the [ product ] in a short time. So that is one. Second aspect of R&D, so let's say that I'm doing for the [indiscernible] alloy. [indiscernible] alloy future for all your biomedical applications and all. This is a long term work; it cannot be done overnight. So there, one team is working for [indiscernible] alloy. One team is working, let's say, for making that artificial intelligence, he has to work for the alloy designing by artificial intelligence with the [ formation ] of [ IDS, Madras ] and adding some sort of our local [indiscernible]. So that team is there. So there is a variety of activities going on in our R&D, right? And we are trying to maximize their output by [ getting the support, ] collaboration, combine our internal support, [ DMR ] is there. So that is your [indiscernible].
Yes. That was very helpful. So one more question, sir, and my last one is government of India has been pretty aggressive in terms of exports for defense companies and have set ambitious targets for us. Is it a challenging aspect for us to have 20%, 30% of our revenues coming from exports?
Yes, I'm very happy to inform you that this year, in spite of the pandemic, I'm expecting that my company is going to have an export of -- growth of around not less than 60% to 70% from the previous years. Of course, the base is less as of today. So -- but definitely it's coming on the higher side. But then, going to the 1.5x, 1.7x in 1 year, but also losing almost 6 months in the pandemic. And they are wonderful - I have seen the growth for this year. So I'm very much excited and very much see the positive about the export and the future for my company. And similar case for, say, for the defense, like [indiscernible] can export. So Ministry is giving a lot of importance for that type of activities. But things are going on. If tomorrow [indiscernible] [ exported going for the export ], we have the advantage. [indiscernible] has already becoming material there if that are going for the exports we are having our role there in that.
Okay. But sir, any target, let's say, 3 years, 5 years down the line that this percentage could be...
Yes, yes, target is there. We have targeted in this year INR 35,000 crores by 2024. So I guess money is there. So [ $5 billion ]...
No, sir. MIDHANI targets. MIDHANI targets...
Yes, MIDHANI targets also in the multiplying in the similar way. With all you see today, if I have to go from, let's say, 12,000, 13,000 exports to 25,000 for the next 3, 4 years, so definitely, it is going to be almost 3x. We have to also grow [indiscernible], we have to grow more than that.
The next question is from the line of Rohit Ohri from Progressive Share.
Sir, coming back to the question of the previous participant for the export. Sir, what should be our exports today currently as a percentage of revenue?
It was -- last year it was only 1%, 1.25%, I think. [indiscernible] 1.5%, 1.3%. This year, I'm expecting it will be not less than 2.5%, something like that. So we'll be going for that. So that way it is great. I'll tell you that it was almost nil. 2 years back, if you ask export, I don't know export, there's no export as such.
Okay. Okay. Sir, of these 101 negative impact is imports that we have. Sir, how many products or how many of these can MIDHANI play a role with?
Exact numbers what is there, I am not [indiscernible], but we have a lot of things already, we are part of that in their manufacturing. But LG also is part of that. Even you have this [ tank ] also part of that. So there already, MIDHANI is having some stake in that as far as our material part is concerned. So we have, Rohit.
Sir, next question, any developments in terms of orders that you have received for [indiscernible]?
Yes, [indiscernible], I'm getting a good response. This year, I think I'll be having order for the -- around 4,000, 5,000 numbers. But [indiscernible] facility once it is installed, I'll be getting 10,000, 15,000 products [indiscernible].
So sir, you mentioned about 3 on 7 equipment, which are in place in Rohtak's. So the 3 equipments which have come are related to [indiscernible]?
Yes, partly [indiscernible] deals. Both in terms -- certain equipments are common for [indiscernible] something for the other ballistic components also.
Sir, related to [indiscernible] only, are there any more competitors who can come and grab the business for us, maybe international players or maybe in India itself? I'm sure the government will not go for the international one, but they must be having some competitive prices, right?
Yes, you are right there. In fact, bulletproof jackets [indiscernible] you say [indiscernible]. Look, that is being manufactured by so many companies in India. And they are all supplying today or you know that for armed forces, they are supplying. And it all depends what is the requirement by the armed forces because it is important. We have -- our product is lighter and it has a higher amount of protection level, but then cost is on the higher side. So definitely, that part, depending on the requirements, [indiscernible] forces, armed forces, they'll take decisions. But there is a big room for that, say, a lot of facility is there so a lot of sales. I am approaching to the highly secured region. So I think we have to close now in the [ fourth time ].
Yes, sir. So just one last question. Sir, any talks or any developments from DIPAM side for divestment?
I guess, [indiscernible] figure. Yes. What is that?
Sir, I was asking if any talks or developments for divestment from DIPAM side. Have they approached to or your team related to this?
Since they have -- I think I have -- I'm also seeing from the media all day that [indiscernible] sector, they are not going to have. I don't know what [indiscernible]. So far, we've not received anything from DIPAM. Except that, 10% is their [indiscernible]. So that will be coming shortly.
We'll take that as the last question. I would now like to hand the conference back to Dr. Sanjay Jha for closing comments.
Yes. It was very nice interaction with you all, even though I was traveling, and I'm going to some other event, but very nice to have interaction with you. And every time I interact, I get some sort of motivation and energy to do something more. So I'm hopeful that once I come to the end of Q4 results, I'll be in a better position to talk to you and give you very good information, news about the performance of the company. That's what I can hope. And then I really thank all the stakeholders for their interest in our company, even in a critical pandemic situation. And now I think we can do with a more better, I think, confidence in MIDHANI -- a better confidence with MIDHANI. Thank you very much.
Thank you very much. On behalf of ICICI Securities Limited, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.