Mishra Dhatu Nigam Ltd

NSE:MIDHANI

Earnings Call Transcript 2021-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to MIDHANI's Q4 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 Limited. Thank you, and over to you, sir.

[Abhijit Mitra, Analyst]

Thanks, Stephen, and good afternoon, good evening, good morning to all the participants joining in. We have with us today CMD of Mishra Dhatu Nigam Limited, Mr. Sanjay Kumar Jha, to discuss Q4 FY '21 results. After initial remarks, we'll open it up for Q&A. So without further ado, over to you, Mr. Jha.

[Sanjay Kumar Jha, Chairman & MD]

Yes. Good afternoon, good morning, I don't know, good evening also. Somebody must be joining from the overseas. So friends, it gives me immense pleasure to talk to you after announcing our annual results. And I'm very pleased to say that in spite of, as you know, lot of restrictions, lot of interruptions in our operations due to COVID right from -- in first quarter, there was some disruption coming in the second, third quarter also, your company has done a fantastic performance. And for this, I really congratulate all my investors, stakeholders as well as our very dedicated MIDHANIans. It was not -- possible because of your support. And this has been reflected that in spite of this pandemic, this company has given a sales growth of more than 14%.Also, we had a very good increase as in operating profit. It has almost gone beyond 24%. We also had a best ever PBT. So all these results definitely reflects that this company has done a wonderful job. And coming to that, so this year, we have also declared -- Board of Directors have declared a dividend of 31.32% of PAT and is the highest again by this company.And if you see our financial results, our -- lot of savings has been done in the raw material consumption because of various technological changes in our process that has given us a good advantage of raw material [ side ], and it has also saved a lot of foreign exchange for this country because you know that all raw materials, which we consume, majority of -- part of that, we are importing. So any savings on that part -- those part -- areas has definitely been reflected in the savings by the company -- and of course, the import.So -- and in addition to those areas, whatever I have mentioned, we have also focused very good -- we have got a very good result in area of export because you know that export was a big challenge during this COVID time because the entire globe was affected. Despite of that, I'll say that we have done a good, if you see in terms of percentage, it almost -- it has gone to 86% to 89% higher, but it has doubled from around INR 10 crores from the previous year to INR 19 crores this year.So -- and you know that a lot of restrictions on traveling -- nobody has traveled, nobody has -- just whatever we had managed, it was through our [ commercial ] communication. And that has -- and then converting into the orders and then getting the confidence from the customer. Overseas customer was a big challenge. So I really, again, complement the entire MIDHANI team for doing such a wonderful job.In this process, we have done -- developed a number of new products, which is going to give MIDHANI a good leverage in the future also. And one example I'll tell you about one -- [indiscernible] organization, [ armor steel ], which is being used for the missile penetration test. That is [indiscernible] getting imported earlier. And because of the Ministry of Defense mandate to go for Atmanirbhar in defense production, that has really helped us [ in the nation of ] these products, which includes RHA steel for missile, which is used for -- used in the missile testing. We also made a very good breakthrough in making the titanium slab, which is being used for -- going for [ AMCA ] project, which is advanced multi-combat aircraft, advanced medium combat aircraft, which is being developed by [ DRDO ].We also made some progress in developing [indiscernible] which finds the application in strategic areas. We also made a process development for a [ grade ] called [indiscernible] equivalent to that [indiscernible] [ 115 ], which is being used for [ turbine data ] applications. [indiscernible] told earlier also in our development. This year, we have completed the entire supply. Now we are expected to get the new orders on -- for those requirements, which is being used for overhauling or replacing [ disc ] components or [ arrowing disc ]. So it is called high-pressure compressor disc. And it was -- it is the first time India has developed that type of product, and it is a [ complete imported substitute ].So like that, there are a number of firsts there in this period. And I am sure that with the satisfaction of customer application, MIDHANI is going to have further association in the projects where these developed products are getting used. And we'll be discussing with you and telling you in the -- as we progress in those areas.This year has been very good for defense. See, our presence in defense -- our orders in the defense, which was on the lower side, has gone up in this period. And I'm expecting it is going to increase further. And when I talk about [indiscernible] the defense [indiscernible] aerospace also. So this area, we have a lot of opportunities coming up now. So I'm sure that the type of motivation people have got during this pandemic phase is going to give them the good leverage to [indiscernible] the company in the future and is going to get benefit of that.So I'll just close here my brief -- I mean, insight, or I'll say that overview of this current [indiscernible] last financial year, the FY '21. And I now hand it over to Abhijit for further proceedings.

[Operator]

[Operator Instructions] The first question is from the line of Bhagyesh Kagalkar from HDFC Mutual Fund.

[Bhagyesh Kagalkar, Senior Equity Analyst]

I need certain clarifications on the order book, okay? You said that the order position is at [ INR 1,335 crores ]. If you can give us a breakup in defense and space segment-wide, also the [ duration ] of this order book. And third is what is the visibility for the order book from the space program because that has been lagging slightly in the last 1.5 years?

[Sanjay Kumar Jha, Chairman & MD]

First of all, thank you for your very important question. See, whatever we have seen, INR 1,335 crores, I think, is fully here. Precisely now it has, of course, increased to INR 1,445 crores now when I'm talking to you. But I'll say that percentage wise, exact breakup, I'm not having. But what I guess -- that it will be around 60% we'll have from space, still order is there. And in the balance 40%, we are having around 30% -- 35% coming from defense, the rest others.When I say defense, defense also includes even the PSU also. So whatever with [indiscernible] given our results at PSU, some percentage, that PSU also -- most of the PSUs, they buy material for the defense applications only.If I say example like our sister [indiscernible] [ Dynamics Limited ] and even [indiscernible] Limited. So these are the areas where we -- our presence is there. But as you asked for the visibility of the future order book, see one very good development has come that the government has given a guideline that the global tender inquiry has to be stopped, especially if the requirement of -- is less than INR 200 crores. And most of the projects will find that material requirements not be in the range. It will be less than INR 200 crores. So we are getting a lot of interest by our defense companies that they are trying to buy the material from us.So I see, as the new projects are getting sanctioned, I'll tell you one example -- when we had talked about the LCA, our light combat aircraft program as you are already aware that we have got -- [indiscernible] has got a big order on the LCA. And I expect from LCA, we are supposed to get a good amount of orders. We are in process. And a lot of materials already have been realized over the period of past 20 years. So now is the time that we'll -- as the production is going up, we are going to get the order.[ Likely ], there are a number of projects. I'll -- there are some strategic projects, which I cannot talk about the type -- name of the project. For our strategic projects also, now there's [indiscernible] by the government to [indiscernible]. And you know that whatever [indiscernible] of concern [ over ] CapEx, ministry has given a lot of importance on the CapEx for the defense acquisition. And there, they have now declared a lot of reform, which India has to [indiscernible] content has to be on the [ higher ] side. So even the foreign OEM also is supplying the equipment, 40% minimum IC content is there.In addition to that, if the Indian company is bidding for that, 60% IC content is there. So what I would like to mention here is that [ in relation ] of raw material is also a part of that, and that is where MIDHANI has a good opportunity. And we expect that as we progress, [ orders ] also start growing.

[Bhagyesh Kagalkar, Senior Equity Analyst]

Sir, when I meant duration of the orders, it means in the next 2 years, some orders will come. Some areas that we have mentioned, see, the titanium slab [indiscernible] that will be only for the [indiscernible] I suppose, and the high-pressure compressor disc for the jet engines. So that also is a slightly medium or longer duration project?

[Sanjay Kumar Jha, Chairman & MD]

I'll tell you that [ AMCA ], whatever I have mentioned you, you are perfectly right [indiscernible], planned project. So AMCA is not only -- connected to only with this plan. In AMCA, we have a lot of other requirements that are also there. So we are getting those things. And you -- and [indiscernible] AMCA, there is one [indiscernible] project is there. So there also, we are already supplying entities.[ Coming ] to the time scale, the way we are -- we have declared earlier that space is giving us order for 2.5 years type. That type of comfort on order, nobody is giving. Today, even for the missile requirements, if some material has to be given, we get maximum 1 year to supply. Sometimes we have to go supply within 6 months.Like in case of AMCA, order has come and within 2 months, we have supply, the trial quantity. So it does all depend on the project base. And project base, it depends on how quickly. And raw materials, I see normally for any project, project will be decided, but the raw material requirements will be worked out after getting the project sanctioned. And once the raw material -- without raw material, nothing will move on the ground. So any buyer for the raw material, they will see that the time required for getting the raw materials should be as less as possible. So we are in that category, and we are also trying to match with -- coming to their expectations. That's what I can say. So the delivery time and all is -- today is not important. It is how much order you can execute for a given -- this year -- or I say in the month. In that mode, we are working.

[Operator]

The next question is from the line of Jonas Bhutta from Phillip Capital.

[Jonas Hemant Bhutta, Research Analyst]

Congratulations on a great set of numbers. A couple of questions, sir, just carry forward from the previous question. If you can give us a breakup of the sales, the revenue mix that you had for the year 2021 in terms of defense, space and other?And going into FY '22, with the current order book of INR 1,300 crores, INR 1,400 crores, what is the kind of sales target that you would set out for and the new order acquisition target that you have for FY '22? That's my first question, and I'll come back for my second.

[Sanjay Kumar Jha, Chairman & MD]

First of all, this year 2021, our sales breakup is, we have supplied around 42% for space. Defense has been around 26% plus around 10% more. So around 36% has gone to the defense. Then we have also done 2% exports, very negligible. And energy is 3%. So -- and if you compare the same thing for the energy area, it was 10% in the previous year. That was in '19/'20 year -- '19/'20. So it is changing in that category. And space also, it was there earlier. 57% was there in '19/'20. Now it is 42%.So that type of fluctuation will be there. And as somebody has -- I think you have pointed out about the space. Space going down, somebody has -- I'm not -- I think by you. But I would like to tell you that if the space is going down, it is not the ISRO. Now they are also going for some sort of approach where they are going to give this type of satellite launch [ retail ] manufacturing to the private sector. So there also, we are trying to enter in the private sector when they are coming up with -- initially, they are going for the [ 5 PSLV ].So here, MIDHANI is leading in that. So we are going to get that type of orders in that area. So it is not totally over, but the [ quantum ] which we got in the first -- I mean, in '18/'19 and '19/'20 was, of course, bigger for the long term, but it is a continuous flow -- is there from the space also. But the defense has picked up in between. And I will tell you that in the future, you'll find that our defense area, the sales will go. And it will -- may -- it will over -- I mean, take the space sales also.And what was your next question? You talked about -- what is the visibility for the next year, that means '21/'22?

[Jonas Hemant Bhutta, Research Analyst]

Yes.

[Sanjay Kumar Jha, Chairman & MD]

'21/'22, I see our sales will be more or less in the same structure the way I have shown here for the space, defense and PSU and export and energy. So in this case to -- slightly, the PSU percentage will go up because PSUs when we are talking, PSU includes everything, even the defense also, even the energy also. And -- so both have the combined one in that. So that percentage will be going up.So overall, you'll find that distribution will be same. Space will be occupying around 30%. And we'll have another 40% in defense and rest will be export and others. This will be, I think, distribution when we are talking about that. But defense is a one part I would say it is -- a lot of area is there, which includes aerospace. And aerospace is picking up. Aerospace is picking up.And the one example is that the last year, we have made the highest turnover in super alloys, nickel-based alloys. Nickel-based alloys are mainly used in [ aero Indian ] application or a aerospace application. So it has been on the higher side. And of course, some part of export also, it has gone. So we have a mixed bag of orders.Recently, we have got the order from the railway also. [ Railway XL ], a trial order we have got. And we are trying to execute percentage. That may not be very high, but it's again a new one -- new area where we are going to [indiscernible] earlier, now they are -- especially importing. So there also, we are working.So like that, we have so many things. And more than that, this year, we are going to start our [ wide treatment ], a very important equipment, which I think we are discussing with the investors from so long. And one -- I think I hope when I interact with you in the next time, I'll be giving you some figure that -- what type of business I'm going to do with that facility. But it is on the verge of now getting -- commissioning going on in that area.

[Jonas Hemant Bhutta, Research Analyst]

Sir, the revenue mix, we understand, will remain the same, but will the revenues grow? As you've done about INR 815 crores in '21, what could that be for '22, sir?

[Sanjay Kumar Jha, Chairman & MD]

Yes, revenue growth is [ just there ] definitely. I am telling you that we are targeting not less than INR 900 crores to INR 950 crores next year. So that will mean it is possible to reach to that level as we -- and but, of course, I'll tell you one -- some sort of the slowness is there. Again, second wave. Second wave has disturbed our first quarter, which I was not expecting, all of us not expected. But this has really affected our first quarter again, the wave we had in the last year.But how quickly we can come back to the normal condition -- and then I hope the wave we've seen -- the third wave is not there, then, definitely, the performance will be better. Except that, if those things are normal, then I don't see any problem in the growth in current financial year also.

[Jonas Hemant Bhutta, Research Analyst]

Understood. Sir, my second question was on the CapEx program. So you had targeted about INR 250 crores, INR 270 crores of CapEx in FY '21. We eventually ended up doing about INR 150 crores, INR 160 crores. What is our target for the next financial year? And within your sales target of this INR 900 crores, INR 950 crores, are you including any contribution from the [ spring ] plant or the Rohtak plant or from that -- the bulletproof jacket venture? That is my last question.

[Sanjay Kumar Jha, Chairman & MD]

Yes. In fact, CapEx, which you have seen this year, and CapEx -- most of the CapEx, our -- depends on how we can get our equipment on right time and most of the equipment was imported. So there was a delay in the delivery. Some of the equipments could -- it was not possible to get in India, not -- inspection was not possible. We had a very high-value equipment. We cannot go and inspect. So these are the conditions which has done by a lot of [indiscernible]. Otherwise, our plans were very much in place to reach the CapEx target of INR 230 crores.In fact, we have given the [indiscernible] we have cut down to INR 210 crores. But as you will see that for the next year, FY '21/'22 also, I will say scenario is not very bright because we have started with, again, a lag of almost 3 months. Initial first quarter got a lot of disturbance, again, in the supply chain side.Equipments were not loaded on the ship. We could not able to receive the equipments early. Something has come now, work is going on, but then people on the -- down the line got affected with the COVID and you know that manpower -- the projects, any project basically, there's manpower-intensive work. And there, you need a reasonably good number of people available and most of them are coming from the outside or another state. So it has disrupted -- there's a disruption in that. But we are trying, but I hope that now the next -- we will not see the next wave of COVID, then we will be able to reach that target. And this year also, [ incidentally ], we have kept the target of INR 210 crores only.But if the things are going to be in the right direction, we'll be able to achieve. Coming from [indiscernible] as I said, Rohtak. Rohtak is for armor. Armor already -- from last year -- this year, '20/'21, we have got a good business on the armor. So some part I'll say the consumption has come from the Rohtak plant also. So even the product has not -- this plant has not been commissioned. But still, we did some work there because we received some time critical equipments in this lockdown time also, and we could commission that. So that has helped us in getting order of around -- could be near -- around INR 10 crores to INR 15 crores worth of order [indiscernible] using that facility.So -- and now also, visibility of the order is there. So I'll be telling you that -- what is the level. But right now, we have around INR 20 crores, INR 25 crores worth of orders there from armor. And our people are already stationed there and commissioning [indiscernible] in full swing. I expect that by September, we'll be able to commission that facility provided we should get the support from the government -- local government, but our people are there, they are working there with that.So it is possible there from maybe this year also to get around INR 25 crores, INR 30 crores order for the armor. And spring, incidentally, what has happened, the railway has got slightly on the slower path. I cannot give you the figure how much I get the order. But at least, we are trying -- the trial order now so that we can prove our line that everything is on that.And there, the problem is that we have 2, 3 equipments, which has come from the overseas. And we are not able to commission it because, again, the [ permit ] issue is there with foreigners. So we are going to sort it out by -- maybe by July, I think it will be over, the maximum by August, then that plant also will start. The exact figure is not available, but I expect it will take off in this year.

[Operator]

The next question is from the line of Himanshu Upadhyay from PGIM.

[Himanshu Upadhyay, PMS Portfolio Manager]

My question was, we are trying to get more exports also. How lengthy is the process of getting [ in panel ] or getting the product approval on exports side with the various defense and space companies or whatever the markets we are trying to work on? So can you elaborate the time line or -- it takes to get approval in those customers?

[Sanjay Kumar Jha, Chairman & MD]

[indiscernible] see what is happening outside. If you have to supply in -- for the defense and aerospace, the certification process is very complex. So what we are doing directly, we are not supplying to any aerospace or defense agencies. We are supplying to some of the dealers, our stockist. So that based on our [ test result ], they sell to the outside. In addition to that, we are also trying to see that whether we can do some business with the oil and gas industry. So there, this approval [indiscernible] able to do that. So there are various means where we are seeing that -- how the export can be developed.One example I tell you, recently, we have got one order from Airbus only for conducting their testing. So I say [indiscernible] export only, but I'm not giving the material to anybody. Other -- their material is coming, I'm testing and [indiscernible]. So like that one we have supplied, one product to -- I mean, U.K. -- one university for doing some [indiscernible]. So like that, our defense products, we are supplying and getting it approved.So -- and there is one another example, we have one MOU also, and we are supplying to lot of [ castings ] of super alloys to a company who is involved in the automobile industry. And quality is good, very good quality is there. So like that, we have a different type of visibility there in the export. And we also try to -- now trying to get the [ NatCat ] certification. NatCat is a very important part. Unless you have a NatCat, you cannot enter in the aerospace international companies as a supplier of material. So that also, we are going ahead with the certification process. And I'm sure by this year-end, that certification also will be over. So that will give us again [indiscernible].

[Himanshu Upadhyay, PMS Portfolio Manager]

Would it be right to say that for next 2 years, the CapEx, what we have done already, the facilities which are coming up also, our growth will depend majorly on the domestic market only? Exports for the next 2 to 3 years remains an exploratory market only. Would that be the right assumption?

[Sanjay Kumar Jha, Chairman & MD]

I don't see that. I'll tell you one example, I'll tell you. Today, I was discussing with some of our marketing person. There is -- a lot of demand is there for higher with place of [indiscernible]And the plant which we are setting up Wide Plate Mill is capable to produce that [ plate ]. If I have to, I'm able to position that, I'm able to capture that market overseas, I can do this export very well. Though export is already -- the product -- and whatever we are, as I said, for [ automobiles ] company, their requirement is today, they want some material around 10, 20 tonnes per month. Because of capacity concern, I'm not able to give 20 tonnes, I'm giving 5 tonnes only per month. So if I can enhance my capacity, which I'm doing now, immediately, I can increase my output 4x. So there are various challenges in the defense, depending on the customers and all. So we are working towards that. So both will growth, domestic consumption also is going to grow, as you know very well with the defense [indiscernible] program and as well as export also is going to have a very good opportunity [ I will welcome ] which for which [indiscernible]

[Operator]

The next question is from the line of Abhijit Mitra from ICICI Securities.

[Abhijit Mitra, Analyst]

I have a few questions which have come from the client side, just relaying it out. So with the 14% top line growth and our shift in execution because from 50% space, it's now 40% space. The gross margin -- sorry, the EBITDA margin has still increased by almost 250 bps. And this was made possible by a reduction in employee expense and other expense significantly despite such a growth in top line. How much sustainable is it?

[Sanjay Kumar Jha, Chairman & MD]

Yes, it's quite sustainable, I'll tell you. It is not only employee expenditure, if you see our raw material also. Raw material consumption has been reduced drastically. If I compare with my VoP and raw material consumption, even though in the VoP, we have a reduction of around I'll say -- I'll just see the data, it is around 20% we have reduction in the VoP. But if you see in the raw material side, we have a reduction of more than -- almost around 50%. So the reason behind that, we have done a lot of process change and modifications that is going to help us in the future. And then improving the yield, those things are support when you are talking about producing, improving your efficiency and converting in terms of the EBITDA margin and all. So I think they are -- but I'll tell you that it depends on the -- as the exporting is going up, the market is highly competitive, probably we'll be not having that much margin. If you have to go for plate -- Wide Plate Mill operations, the margin may not be so much high in those products. But then the [indiscernible] will be on the higher side. So [ this part ], the industry has to balance, depending on that market condition.

[Abhijit Mitra, Analyst]

Okay. Okay. So what would be your guidance as you sort of look at maintaining this margin [ next ] year or the INR 900 crores to INR 950 crores top line? Or it would be lower than...

[Sanjay Kumar Jha, Chairman & MD]

I will say we will be definitely having around INR 950 crores. And the margin side, maybe slightly on the lower side because there, the product mix is going in the low while the market is highly competitive. So I can't predict as such, but there will be some stress on the margin over there, Abhijit. But at the end of the day, what is your total figure is very important. So -- and the company has to grow. So this is the one part we have to take that because the convention that earlier that only space has a high margin and defense is only having the high margin, others are not having. May not be true, it depends on the project too, project like what is your potential and where you are able to prove that you are exclusive on that product. I feel, I think, that is a main challenge. And MIDHANI has that type of potential.

[Abhijit Mitra, Analyst]

Right, right. The next question is that when will the INR 500 crores plus capital work in progress get capitalized and commence operations? How will revenue build up on this block, which is expected to have 2x asset return on peak asset utilization? Essentially, I think what he's asking is that your capital work in progress of INR 500 crores, which is there, when will it get commissioned and commence operations? And what is the expected revenue from this asset, which will get commissioned? Yes.

[Sanjay Kumar Jha, Chairman & MD]

Our -- the [indiscernible] out of INR 500 crores there is INR 460 crores Wide Plate Mill, which I have already mentioned that we are going to start commissioning trials from month of August. So that fully it will get commissioned by -- we are targeting October. So by October '21, I expect that fully it will be commissioned. So the initial 1 and 2 months has to take place for recognizing the different grades of material. And then after that, it will get fully commissioned. So I expect in the last quarter of current financial year or maybe third also partly, we'll get some business from that facility. That is from INR 460 crores. The balance, we talked about the armor. Armor also, I said it will be commissioned in the month of -- we are trying maximum by December '21 because we had some clearance issue and all. So those things are going up. But of course, we are not -- we are still doing the business from that even in spite of not getting fully commissioned also, we'll get the business from there. And I expect, again, in the last quarter, we'll have -- we'll get the business from that facility. Third part is the spring. The spring also we expect by December end, it should start working. But there, only the one problem is that customer being the only one railway and their requirements has to be seen. And with the changed scenario, how much they need the production of course and all, I do not know how they are going to use their CapEx and all. But there also, you have to look for some export market. But its export takes some time to get certified. So I expect there are also some figures there, that figure I cannot tell you right now. So this is a nutshell that all 3 products are running. In addition to that, [ a lot of ] -- we have the augmentation work is going on. And where we are now adding 1 8-tonne [indiscernible] in melting, which is going for primary melting, that will also get commissioned in month of October. And we also have one more equipment like [indiscernible] furnace is there, which is used for melting of titanium. That facility also is going to be commissioned by that early next year. So like that, these are the projects which we are going to have. And as we progress and as we get the business, we will inform you. But this is where one thing -- but today, I'll tell you on the Wide Plate Mill, already I have received 1 order of for INR 4.8 crores recently, as we have booked the order now. And the [ railway ] also has shown the interest that the moment this mill is ready, they are willing to take almost 10,000 tonnes plates per annum. So [ we have that ] visibility is there than we have for armor steel. We are already rolling our margin steel in the Steel Authority of India. Their [ Orkla ] steel plant [indiscernible] steel plant. So those things are going to roll in-house. So we'll be saving there also our cost of we are -- whatever we are paying for [ job work ]. So this is the type of visibility that's there for the Wide Plate Mill. So we are -- and banking on that success of that project very well is very high. Our banking is -- expectations are very high. But let's see how we are able to [ come ] because it's all high-tech area where you have a lot of challenges out there in the initial phase of its commissioning and all. So we are working towards that, it was a challenging time for us.

[Abhijit Mitra, Analyst]

Just to add one question here. This Wide Plate Mill was customer-financed and customer-funded. So the customers are not putting any orders as of now?

[Sanjay Kumar Jha, Chairman & MD]

Yes. As I said, for customer, 1 order is the plates which we are giving to -- armor steel giving to the [ armor ] factories. Already for armor factories, we are making the armor steel elsewhere. So that's impacting basically right now. So that is the one part. And certain project starts a strategic project of defense, so there also, I am expecting some orders coming from the stakeholder who has funded this equipment. But there is no certainty that -- I don't want to depend on their orders and then plan my business for this facility. So right from the beginning, our philosophy has been that plan the business based on the market condition. So our people are very much on that job.

[Operator]

The next question is from the line of Anuj Sharma from M3 Investment.

[Anuj Sharma, Fund Manager]

I have a few questions. One is you said government is discouraging global tenders for up to INR 400 crores. If I were to look at the market price today, what would be the market size for which tenders would be raised below INR 400 crores?

[Sanjay Kumar Jha, Chairman & MD]

Okay. First of all, government is discouraging the tender less than INR 200 crores, Anuj, less than INR 200 crore. Beyond INR 200 crores, you can go for global tender. So that's one correction I want to make. Second part, what is the market size for that is the total -- you see the Indian market is mainly for -- if you see for the defense requirement, I think there is potential of, as far as MIDHANI is concerned, we'll be having around not less than INR 500 crores to INR 600 crores worth of orders, potential is there. How much you can able to take from that category [indiscernible], it is possible, as far that category is concerned. In addition to that, of course, we have normal commercial sectors where you can, let's say, like railway. Railway also -- they also have the same system, like what I said, global tender. So because of that, railway has already given a trial order of 400 numbers of [ XL ] to MIDHANI. Now if I prove that 400 [ XLs ] I can supply and that's also on the right quality, definitely in the future tender, I can grab the full quantity. These are the potentials of that, and we can go ahead. As far as the other products are concerned, defense products are basically cyclic in nature. Production will [ now ] be running [ continuously ]. One product will be over, second will be there. So you have to target. And materials, one advantage is that when a lot of common grades are there, which will be used from product to product. It is not that defense has a [ certain ] material, space has a different material. A lot of commonality is there between those orders of -- or license or technology where they use the material technology. So we have that advantage. MIDHANI has to see in that type of business, which [ area is going to take off ].

[Anuj Sharma, Fund Manager]

Sure. And this INR 500 crores to INR 600 crores, which I think defense is an increment to what you are already doing?

[Sanjay Kumar Jha, Chairman & MD]

Yes, yes.

[Anuj Sharma, Fund Manager]

It has incremental opportunities. Right. Okay. My second question is on the space program, while you said defense is seeing more traction, but space program is generally a long-term program. So based on the current launch schedule which is there, what is the potential you think from space in the next 3 to 5 years because these will be determined and we would have a fair visibility on that?

[Sanjay Kumar Jha, Chairman & MD]

Today, I cannot tell about their policy, how they are going to project for next 3 to 5 years. But what -- as a material supplier, I see the potential in the space material is for next 2 years. I'm not going beyond that. In the next 2 years, whatever the orders now we are holding, we have to execute and complete. And in between also, some orders will be flowing. As I said, now the defense -- space has started a program where they are going to give the satellite launch to a private player. And there, we have got some interest by the private industry that they are going -- coming forward to join with MIDHANI and then bid for that rocket launching systems in space. So we are very much a part of that. How that type of work will grow in the country, what will be their cost advantage because, normally, you say the space launch is highly cost competitive area. So -- and most of the satellites which India is launching is coming from the overseas. So unless you are having a low cost, you cannot attract the people coming from the outside. So this is -- I think there is a potential growth in that sector I see. But it may take some time, as you said, next 5 years down the line, it is possible that, that industry will grow, potentially will be enormous in that area. As I said, MIDHANI being the only company today which has all the materials certified for the space application can get advantage. But then some new player also can come by that time for the space material productions. So basically, this [indiscernible] highly challenging, and nobody can predict what will happen for the next 5 years. But the company has to orient itself that they have to think in advance, they have to produce certain grades in advance and then get ready to capture those markets. So we are working our R&D[ setup ] this year. We have launched almost half a dozen grades, new grades already we have developed and we have produced and launched in the country. And I see there -- from there, I can get some revenue in the future. So there are a number of areas, the growth -- and MIDHANI's advantage is that we have a very good R&D setup, and R&D team is there. They are continuously working and taking [ newer ] challenges in the materials development.

[Anuj Sharma, Fund Manager]

Yes. Yes, in fact, my third question was on the same lines on R&D. Every year, you introduce a number of materials, and you mentioned that in your annual report as well. Any target you have that every year where you should have this much revenue from the newer products or which were introduced in the past year? Any benchmark you keep for new product in production or [ basically the efficacy ] of new products?

[Sanjay Kumar Jha, Chairman & MD]

See, normally, our marketing team will be saying that, overall, what is the defense program, future program, space program, that is one way of getting between the development. This -- and more than that also, the users who are going to design the equipment, let's say, I'll give you one example. The -- you must have heard about ASTRA missile, ASTRA.

[Anuj Sharma, Fund Manager]

Yes.

[Sanjay Kumar Jha, Chairman & MD]

ASTRA is the one missile which India has already developed, we have claimed, but now we have to make in the production [indiscernible] and supply. In ASTRA, this year, we have developed the entire material required for that [ project itself ]. Now the ASTRA program is there in the country, it's coming in a big way. Some materials will start flowing from MIDHANI. Either way, there is [indiscernible], [ some missile program is there ]. Now there also, we are attached right from the beginning. So if there is some development, production is [ still a little weak in that ]. [indiscernible], already you know, we have supplied a lot of materials in [indiscernible] is being now equipment or the missile that we exported also. So we are very much attached to that. So these are the various areas where we have continuously working about how we can get attached to the defense programs, supply their materials with the required properties, required qualification. And if those things are already tested and certified, tomorrow, you have the potential or business to join with customer. As the programs have more in the future, requirements are going to go up. That's what I can say.

[Anuj Sharma, Fund Manager]

And if I may ask...

[Operator]

[Operator Instructions] The next question is from the line of [indiscernible] from [indiscernible]

[Unknown Analyst]

Sir, as you said that [indiscernible] program and [indiscernible] program is [ coming ], so my question -- I have two questions. First of all, if we'll see the LCA program. So total program cost is roughly INR 48,000 crores to INR 50,000 crores in the next 10, 15 years maybe. So can you please tell me, in percentage type, how much percentage are you expecting over the period of time from this program? And another, my second question is like you are one of the company who has a lot of known strength in these titanium alloys. So -- but then if I see India, India has a lot of titanium reserves. So if there are a lot of requirement is going on -- going forward, so what will restrict other companies who are not coming in this area? So maybe you have some competitors going ahead. So I just want to have a clarification on this.

[Sanjay Kumar Jha, Chairman & MD]

First of all, a very important part about -- so the last one is about titanium. The first one I'll answer first. You have talked about the percentage of materials required for this LCA. Now this Light Combat Aircraft, if you see the material requirement, it depends on what are the activities the country is doing. One thing you have to agree that the entire LCA program, engine is still imported. You know that [ our own ] engine is powered by the engine from [ GE ], I think, if I remember. Now in case of raw material, engine is very important, highest costliest area is the engine. So since engine is made somewhere else and we are only supporting the structural part, so quantity of the material requirement is very less. Otherwise, normally for aircraft industries, you see -- when we say normally, I don't know yet the value, but what is my understanding, around 20% to 30% cost will go for the materials whatever they use. In case of LCA, now the major part engine is from the outside. So I expect every aircraft, as we have seen the material which MIDHANI is producing, we will have around INR 25 crores to INR 30 crores, INR 25 crores of material required from [ engine is concerned ] and where we are there. So if they take from us, then we'll have that much per aircraft. Now they have a [indiscernible] plan to manufacture, I think, 10 to 15 to, say, around 10 aircraft maybe per annum. So that will be the tune of some materials requirement around [ INR 200 crores ] per annum. So how much the price depends on [indiscernible] But we have a very good [ business ] and...

[Operator]

Sir, sorry to interrupt, but your voice is breaking up, sir.

[Sanjay Kumar Jha, Chairman & MD]

Yes. Now it's clear?

[Operator]

Yes, sir.

[Sanjay Kumar Jha, Chairman & MD]

So in addition to that, you have talked about titanium. So titanium, even though India is having a lot of reserves of titanium ores as of now in the country, but right now, we are not having a technology or not having the production capacity for making the titanium sponge. Sponge, we are buying still from the outside. We are importing. So sponge to making alloy, MIDHANI is expertise is that sponge we buy, and we do the value addition by different alloying, different combination of metals. We process, we make the components and then we do the value addition, and that is where we are exclusive in countries. Now if you say that others are going to enter in that area, yes, it is possible. But then today, the business potential is not very attractive because unless -- since we are having a lot of facilities where we do even a steel also, titanium also, superalloy also, we are able to maintain our...[Technical Difficulty]

[Operator]

We request all the participants to please stay connected while we reconnect the management. Ladies and gentlemen, we have the line for the management reconnected. Thank you, and over to you, sir.

[Sanjay Kumar Jha, Chairman & MD]

Yes. So what we are talking about, the titanium, so titanium business had its [indiscernible] production today in the country. And since we are doing exclusively that alloying and making different grades, and today, the raw material is called the sponge, we are still depending on the outside overseas because in India, even though we have a lot of resources, but the type of scale up, you need a very high capacity sponge-making facility plant, then only is it economical. Otherwise, already, we have 1 sponge-making facility in Kerala that is called KMML, which has been already [ selected ] with the support of the space, they are not able to compete with the international market because their scale of operation is very less. So people have to come and wait for maybe our consumption of titanium. If it grows in country, then one day it will be economically viable for other players to enter and make titanium sponge using titanium raw materials, which is available evidently in the country.

[Operator]

Ladies and gentlemen, due to paucity of time, we take one last question from the line of [ Bodhisattva ], an individual investor.

[Unknown Attendee]

I congratulate the management for the excellent set of numbers. Sir, I have a question regarding this Bhabha Kavach or the bulletproof jacket. Now in a previous conference call, you had mentioned that if the Rohtak plant becomes fully operational, the company will be able to supply about 30,000 jackets in full production. Now given the price per jacket of around INR 1 lakh, that translates to about a revenue of INR 300 crores. Now sir, my question is, is this a distinct possibility once the Rohtak plant comes fully operational? And one more question, if I can please ask is, sir, what is quantity of disruption, which happened due to the second wave?

[Sanjay Kumar Jha, Chairman & MD]

First, you talked about the Rohtak facility and armor production, the bulletproof jacket. Bulletproof jacket production was what we have indicated, the capacity. Yes, capacity, we can reach to 30,000 definitely, and provided we should get the order of that much quantity, plant can do -- produce. And the cost, whatever you have mentioned is a very like some rough estimates you have made. But today, the cost is the one part, which is the only problem with the Bhabha Kavach because the quality which we supply, the raw material is huge. There, the cost reduction possibility is very limited. So we have kept the price at that level. And its important, it has been recognized slowly by the users. And as we establish this facility, I'm sure we'll be able to capture the good market, maybe 10,000 at the beginning. Right now also we are having the order for 5,000 jackets, which we are executing now [ without ] support of fully -- full support of Rohtak. But when the Rohtak is there, we'll enhance that capacity also. But we are not looking only for the Indian market. Overseas also, it is possible to export and outside. That also, we have a lot of this work we are doing with our investee in the different countries, especially in the African countries and all. So let's see how it is going to unfold in the market. But first, I have to demonstrate my capability and also the capacity, then only I can comment on these orders and once the order is coming, I will fully see that. Second part, you have talked about the effect of COVID second wave. In fact, I will say that more -- this wave has given the more impact compared to the last year, which we got a disruption of around 45 days lockdown. Because here, this time, we are not having fully lockdown also, and we had a lot of suffering for the people, which all of us are aware. So psychologically, by -- their motivation-wise, by virtue of a lot of incident happening around, people have very difficult times. So it took some time for them to recover that and they are recovering. So I say that this quarter, impact of second wave will be seen in the performance. But the way it was last time, we have come back. Similar level, again, we have to restart in the second quarter also because I know that last time, people were already sitting at home and in the complete lockdown situation. And they were trying to plan their work, they were trying to convert their energy and not having so much incidents around. So when they came and they joined, they worked with a lot of dedication and they have very much good effort, and we've got the results. This year, still to be seen I'll tell you, but we are hopeful, we are not having a pessimistic view. But optimistically, I feel that, definitely, they will do better than the previous year.

[Operator]

I now hand the conference over to the management for their closing comments. Over to you, sir.

[Sanjay Kumar Jha, Chairman & MD]

Okay. What I said that we had a very good cost optimization. And once again, I thank all the investors for [indiscernible] space in MIDHANI's system. And I am sure that with your [ respect ] support and customer support and the employees' commitment and dedication, we will be serving this nation and customers and stakeholders, respectively, investors in the future. Thank you very much.

[Operator]

Thank you. Ladies and gentlemen, on behalf of ICICI Securities Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.