Mishra Dhatu Nigam Ltd

NSE:MIDHANI

Earnings Call Transcript 2024-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to MIDHANI's Q4 FY '24 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]

Good afternoon, everyone. At the outset, I would like to thank the management for giving us an opportunity to host the call.

From the management today, we have Dr. Sanjay Kumar Jha, Chairman and Managing Director; Mr. N. Gowri Sankara Rao, Director Finance; and Mr. T. Muthukumar, Director [indiscernible]. Without much ado, I would invite Dr. Jha for opening remarks post which we will open the floor for an interactive Q&A. Over to you, sir.

[Sanjay Jha, executive]

Good afternoon, all the investors, my colleagues sitting here, director finance, director [indiscernible] marketing, AGM marketing, and company secretary, Mr. Paul. We are very happy to join for this conference call. And I would like to put some of the highlights, which we have -- already -- financial [indiscernible] are already available with you. So I'll not dwell into that, but I'll try to see some of the highlights that have been very crucial for this company for FY '23/'24.

First of all, you might have seen that we had almost -- our sales turnover has gone almost 23% increases there from the previous year. I think this increase in a year-over-year basis is the highest for the MIDHANI.

Earlier this type of increase we have not seen. In addition, and that also in the year when we had a lot of turmoil in the global supply chain, which has really affected our supply of raw material.

As far as the price is concerned, at the same time, your company also has seen a lot of change in the product portfolio, which is basically mainly [indiscernible] and there, we had almost a INR 2.5 [indiscernible] volume wise production. And there, the requirement of this costly raw materials are there, which is totally dependent on the international supply chain.

In addition to that, for this year, also, we have seen that our task was to how to reduce our inventory that is work in progress. So that is a drastic cut from the last year to this year. If you see the last year, it was almost around INR 230 crores. And this year, we have brought it down to INR 75 -- around INR 75 crores.

That segment also, we had a lot of work, and it is also effected/impacted our P&L results and also that was reflected in the terms of PAT and EBITDA. And in addition to that, this year -- but there are a lot of new things we have done. In fact, this year, our export has gone from almost 3x from the previous year to this year in terms of the export, not taking into account the deemed export.

Earlier, the company has also sold a deemed export component. So we have not taken the deemed export and total export from the overseas. It has increased from year-on-year basis to almost 3x. This is 1 highlight. And also, we have made a lot of inroads in the supply chain of international aerospace companies.

So this is the one good sign not only our space. In fact, many of our materials are now has a place in the European market. Also, some of the things have gone to the Middle East also. And in the U.S. also, we have seen -- given some material. So that has given MIDHANI a lot of space for its future growth and future business as further.

The aerospace and [indiscernible] material is consigned from the overseas market. And also some of the lines we have made for the health care industry also. And another 1 is for [indiscernible]. So your company has made endorse in these sectors, and I'm seeing the impact will be in the future once once we -- we'll be increasing our volume coming from this area.

And this year also, we have seen that almost 88 -- almost INR 78 crores worth of CapEx also. We have spent. And many new facilities have been commissioned and something already going to be completed in the coming days. So with this type of our performance and all, I would like to thank all the investor and shareholders keeping faith on us. But I'm trying to tell you that probably your EBITDA and all will not be so attractive, but I think because -- basically the turning point for your company -- because the company has changed its position itself from a very protected market to the open market, and that is a good sign for that.

And protected market when I say if you see the space order book today, it's hardly around 12% and our impact turnover last year '23/'24, net sales contribution is hardly in the tune of 15% of [indiscernible].

So with this type of environment, we are trying to find out the new areas where we can have our business in the future.

So with [indiscernible] this small production, that will be better -- good for me and I'm eager to get the questions coming from the audience.

[Operator]

[Operator Instructions]

We'll go for the first question from the line of Mr. Amit Dixit from the ICCI Securities.

[Amit Dixit, analyst]

So the first question is on -- if I look at the value of production during fourth quarter, then it has gone down compared to -- if I compare Y-o-Y. Now this is something unusual in case of MIDHANI. So could you explain what led to this decline?

[Sanjay Jha, executive]

Yes, it's not the decline, in fact, there is a correction. As I've mentioned that our -- earlier in the fourth quarter, we used to create a lot of work in progress at different [indiscernible]. And that is to be built up in our inventory -- and that, in fact, you see that's why I've told that if you see the last year -- last year, our inventory was seen in our balance sheet as almost of around INR 230 crores -- INR 228 crores. And increased, not only that is an increase. And this year, it increased only INR 75 crores.

So this is the type we wanted and it was a lot of -- from the investor also, that why your inventories are going -- picking up. So if you see that we are trying to see that our inventory should come down. And this is the correction, I definitely say this year is almost a correction, which we have done. And in fact, has not seen very high because we have done 23% growth in our turnover. And also, we have also reduced some of our like cost of the fuel has been reduced.

Even though raw material costs has been very high, there is a surge in certain critical raw material. In spite of that, we have tried to make balance. So, I will say that all the corrections were started this year and that's why the result is like this. But we are sure that this action, which we have taken this year is going to be given a good results in the coming years. So only this year, we have to take that type of [indiscernible] healthy for the company because our money is not locked so much and so that we are able to have that investment.

[Amit Dixit, analyst]

The next question is on order book. So if you look at the order book also and if I compare it from Q4 onwards, Q4 FY '23 onwards, then for the first time actually it has gone down, compared to last quarter. Last quarter, it was INR 1,762 crores, this year it was INR 1,579 crores. So is it due to the pre-election run that we didn't get orders? Or what is the outlook on orders inflow for FY '25?

[Sanjay Jha, executive]

Order inflow indications are very good. In fact, today, when I'm talking to you, we have INR 1,767 crores is our order book position. And also, we have the expected order book is almost in the tune of INR 1,150 crores. So order book is not the issue today. We have in -- that is lined up properly. So we'll be communicating to you as and when we are receiving orders, that way in the healthy condition.

[Amit Dixit, analyst]

So before get it correctly, the order book position is INR 1,767 crores at the moment and apart from that....

[Sanjay Jha, executive]

The expected order inflow is INR 1,150 crores.

[Amit Dixit, analyst]

So what would be -- then on the guidance for revenue for this year FY '23 revenue growth [indiscernible] ?

[Sanjay Jha, executive]

Our target which we have set for this year is, of course, very high. But I'm not committed on that. But we are expecting, definitely, the growth will be 20%, 25% revenue this year.

[Amit Dixit, analyst]

One thing that we have seen over the years that -- not over the year [indiscernible] this quarter or in this year or last few quarters, the margins were declining progressively, but now we have seen a good increase in margin Q-o-Q, which is around 560 bps. So what has led to this increase. Is it the change in product mix or something else?

[Sanjay Jha, executive]

The margin is mainly -- as I have told you that we have -- in last quarter, we have seen that our [indiscernible] should not be very high. We have tried to convert all our inventory into the working -- inventory into the sales. That was our first state so that the raw material consumption has come down. And also the price also has cooled down in the quarter 4. Probably prices have now reduced drastically.

So that impact will be seen in this year because that benefit will get in this year. For the last year, there was so erratic up to Q1, Q2, Q3. It has really affected a lot in our performance as far as this profitability is concerned.

[Amit Dixit, analyst]

Sir, if you can provide a breakup between super alloys, titanium and specialty steel for revenue and order book, that would be great.

[Sanjay Jha, executive]

First of all, I would like to mention about the sales. Sales, we have done this year super alloys 20%. It is coming to around INR 217 crores -- INR 218 crores. And titanium alloys, we have done 14%, which is coming to around INR 149 crores. We have also done the maraging steel, which is our time product has been 34%. So there is reduction. It was -- previously, it was 47%. And that used to be very high in our entire performance. Super alloys was only 10% in this year. So this year, it has gone to 20%, even though our growth has been 23%. So you can make it -- make out that is almost -- it has crossed more than 120% and 130%. And also, we have the specialist special steel that is coming to 24%. And others is around 8%. So this is the distribution of the sales in FY '23/'24. And you also asked about the order book?

[Amit Dixit, analyst]

Yes sir.

[Sanjay Jha, executive]

The order book if you see today, we have [indiscernible] almost 78%. And space is only 12% and exports around 5% and balance orders coming to the 5%. This is order book, which I have told INR 1,767 crores. Am I clear?

[Amit Dixit, analyst]

Yes, -- so what I see is that essentially the decreased share of titanium maybe because space component is low. So margins you expect to be in this bracket only, 20 to -- I mean say it has improved to 19.8%. But going ahead, will it be like at this level only? Or we will see margins going back to the levels that we have seen earlier, about 25%?

[Sanjay Jha, executive]

I see it will not be -- see, if you see EBITDA to sales ratio, it may not be exceeding. This year, we have got around 21%. So it is 21, right?

So it will be maybe crossing coming to touching the 25 max. I don't see it will go to 30, 35, in that range, which we have seen earlier. So it is going to that, but it definitely -- there will be a plus side because if you see the fourth quarter, fourth quarter has given indications already.

So we will try to maintain that level as far as the profitability is concerned. And in addition to that, [indiscernible] because of our [indiscernible] earlier, our finance cost and all is very high last year. So even as compared to FY '22/'23, almost INR 8 crores is extra amount we have paid only for the finance cost.

Those things I have seen that we have really controlled that side. Reduction will be there. So overall, the performance will be better once we are going for this year, '24/'25.

[Amit Dixit, analyst]

And sir, we also know that we are [indiscernible] our capacity for titanium-based alloys, but the order book doesn't suggest that we would be -- we are getting a great deal of orders for titanium alloys. So how does it match? Are you targeting good for exports? Or are you targeting this for maybe the development that would come particularly in case of aerospace?

[Sanjay Jha, executive]

You have rightly pointed out, in fact, many titanium orders coming from the export source, we are not taking because of our constant and the capacity and -- not only capacity, raw material also is one factor. So we are trying to see that how this can -- the gap can be filled up.

But today in our order book, we have almost INR 350 crores of orders from titanium alloy only. But that is a very high volume. In fact, INR 350 crores if we are able to complete this much order, that itself will be a big achievement for the company.

That INR 350 crores is a quite -- it's almost -- it will load our entire facility for [indiscernible]. So order book position for titanium is very, very good I will say. I think this is our highest figure we have got for titanium order book and expectations are good from the international market. And some of the orders already lined up, which I have shown that INR 1,150 crores are going to get the order. There also will have some percentage of titanium coming again, adding to our requirements. So it will be -- titanium has a very good potential this yea.

[Amit Dixit, analyst]

Sir, you highlighted in the prepared remarks that we have made [indiscernible] in the supply chain of international aerospace companies. So is it possible to further explain this particularly where we have made growth and what kind of -- where we are and when can we start supplying the other material?

[Sanjay Jha, executive]

What I'll tell you, in our -- this customer, normally, we are not getting -- giving the details about where we are here today. But just to give you some idea that where we have started working -- some example I'll give you. Probably higher to sale. Like you see the aerospace coming like Aero Engine manufacturers in India. Like in abroad, like India, we are -- also we are started. So like one example, the Kaveri Dry Engine. So Kaveri Dry Engine is the one area where MIDHANI material has been used for all the components.

And now this engine has to be applied for making a certain number of strategic equipment. So we are hopeful that, that will get materialized and we'll get a good amount of orders may be from that. Again, part of the Kaveri Engine itself,

Now Kaveri Engine also programmed, has taken further step. So from there also, the already 5 Indian equivalent material we have supplied. So we are expecting that if those things are getting qualified, there also I'm going to get the material.

Our [indiscernible] program, which is running in the country for -- there also, we are going to develop the material for 110-kilonewton engine. It is for our domestic program. In addition to that Shakti engine, which is coming for that requirement coming from the HAL, there also we are supplying submaterial. There are various programs where already we are giving the materials for our domestic program. So considering that our expertise now also we have done a lot of work we are doing for the Indians that coming from the outside, like our aircraft, which is a Russian origin aircraft. Now they are also -- we are trying to see how we can Indianize certain materials for that segment also.

So we are working for that also that how we can give the aeroengine materials for our domestic, but aircraft has been supplied from the Russian origin. And for overseas market, if you take about this, like GE Healthcare already we have supplied. Now we are qualify or material for their product also. [indiscernible] also we are discussing. So there are many avenues. I can -- all details we cannot give you at this answer, but it is a regular way. And I will give you the break up where we have supplied, but it is -- that information is not in the business interest of the company. Because when we work with them, we have some sort of a nondisclosure act in it. And that way, international company they operate.

So this was only I can share with you. But I will say we are moving in the right direction. And many things first, we have done so far, either the certification, then the grades which are very difficult to make those things already, we have made qualify, they have tested, they are using now and we'll be getting good inflows there. Only thing is that how much we can address with our capacity. Capacity concerns are there in certain areas. With that buildup we are doing now, regularly.

[Amit Dixit, analyst]

No, I appreciate that. Just a point here, now GE 414 in all probability, HAL and the GE will together manufacture it in India. So do we have -- will we also have some kind of -- we'll be the supply chain for that particular engine or we are thinking of developing some parts for that?

[Sanjay Jha, executive]

Our effort is in this direction only. So without adding or without waiting for that facility to come here, we have started working with in advance that our things -- material things can get qualified in their system. So as you have rightly told when it is coming to India, start manufacturing. [indiscernible] has opportunity to get aligned with them. So I see it's a good possibility that [indiscernible] will be on of the suppliers for the materials for that program.

[Amit Dixit, analyst]

Sir, what would be the revenue that we booked in this year from [indiscernible] factory and [indiscernible] and how much do you expect it to be in this year, FY '25?

[Sanjay Jha, executive]

[indiscernible] we have armor today, order book is almost INR 140 crores of order book. And one recently an order has come from armor. And we are seeing that those things can be increased further. But for [indiscernible] total order book position.

[indiscernible]

[Amit Dixit, analyst]

And this is to be [indiscernible] over how many years?

[Sanjay Jha, executive]

That update is very quickly in 6 months. Trying to see. But in fact, that is not sufficient, in fact, we have to load more and more. We are looking for the opportunity orders. This is limited to very -- that quantity is very less for as far as the capacity is concerned. We have seen that how we can load it further from the other sectors. Whatever I have [indiscernible] they are all high-value materials. So that's why you find that even if our utilization is very less for the [indiscernible] segment. It will contribute so much revenue for the company.

[Amit Dixit, analyst]

Okay. And what was the revenue we booked from both these facilities in FY '24?

[Sanjay Jha, executive]

FY '24, what we booked earlier?

[Amit Dixit, analyst]

What we booked from the revenue contribution from both these facilities?

[Sanjay Jha, executive]

[indiscernible] INR 235 crores from [indiscernible] INR 21 crores from [indiscernible].

[Amit Dixit, analyst]

So from INR 21 crores, we expect to go to INR 140 crores around. That is the size of [indiscernible].

[Sanjay Jha, executive]

Whatever the order book, this will be executed in almost 2 years. [indiscernible].

[Amit Dixit, analyst]

Okay, wonderful. And I just wanted to understand because in inventory, I thought that we had some constraints in the [indiscernible] inventory, but we have managed to bring it significantly down. So what has changed? And what would be the outlook going ahead as far as the inventory is concerned? How many days inventory you would like to keep [indiscernible] what are the measures that we've taken over the year?

[Sanjay Jha, executive]

First of all, what we are trying to see that our BOP and our sales also to match. We should not try to build up the inventory year-on-year basis. That is our first target as far as -- whatever inventory already we are carrying -- so our idea is that how we can utilize it like suppose we have the scrap -- quantities in contributing in a big way. So we are seeing that how we can utilize our scrap for our internal processing.

And at the same time, whatever scrap we can not use will be trying to dispose it off. So already, we have made a scrap disposal policy. And on that, we are working. Last year, we had a fairly good amount of success, but we are trying to build up this year that how we can reduce it further.

[Amit Dixit, analyst]

So what would be the quantum of customer advances in the book?

[Sanjay Jha, executive]

Customers also in our system. So this year, we have 339 crores -- [indiscernible] So as of today, we may be having around INR 350 crores to INR 400 crores.

[Amit Dixit, analyst]

Earlier, there's also media article suggesting that we are also involved by one of the ordinance factories for supplying material for this hurdle NBT. So any [indiscernible] to it or it's just some media article floating around?

[Sanjay Jha, executive]

Yes, we have communicated to investors that we have received the order of around INR 130 crores, which has been already given the communication also. And that order already it has come. Now we are trying to execute that order, which I have told [indiscernible] that is mainly for the [indiscernible] only.

[Amit Dixit, analyst]

And similarly, there has been [indiscernible] 156 numbers and [indiscernible]. So will we be involved there as well for [indiscernible] ?

[Sanjay Jha, executive]

Yes, already it's a continuous effort. LCA, we are supplying that whatever the requirement is there for the materials. But there LCA engine is from outside only, major requirement of super alloy and titanium is used for the aero engine. So that is still they are depending on the engine from the GE. But whatever is coming to the non-engine side, MIDHANI is supplying regularly those grades. And we are also -- as I told that they have a Russian [indiscernible] there for that engine, we are giving a lot of -- developments are going on now.

[Amit Dixit, analyst]

That is from my side. [indiscernible], you may now pass it on to the management for any closing remarks.

[Operator]

Ladies and gentlemen, as there are no further questions. I would now like to hand the conference over to the management for the closing comments.

[Sanjay Jha, executive]

So it is a very good conversation and already you have covered all the aspects which we required from the company point of view. And I really look forward for your valuable inputs, corrections and suggestions.

We are trying to do some of the corrections which have been already discussed a number of times, but there are a lot of challenges also. And if challenge, the opportunity also is there. So your company is working towards that.

And I am sure that type of the facility and the team we are having, it's really possible to achieve goal we have set. And this year is very remarkable for the company because we have crossed the psychological barrier of 4 figures. We have crossed the INR 1,000 crores in this year. So this year has been very significant. Nevertheless, it is not reflected in the terms of the profit, but I am sure that as we start progressing, that area also we will address. And we will have a very good performance and opportunity to invest and work on with this company.

But I select this area is very challenging. We are getting a lot of requests on the different companies for supplying the materials, but the only thing is -- challange is that, the conversion time is very less. So we've to see that how we can accommodate all these requirements [indiscernible].

[Operator]

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