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Ratnamani Metals and Tubes Ltd
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Good day, ladies and gentlemen, and welcome to the Q2 FY '23 Earnings Conference Call of Ratnamani Metals & Tubes Limited, hosted by Monarch Networth Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sahil Sanghvi from Monarch Networth Capital. Thank you, and over to you, sir.
Hello, thank you, Michelle. So good afternoon to everyone. On behalf of Monarch Networth Capital, we welcome you all for the Ratnamani 2Q FY '23 earnings call. We are delighted to host the management of Ratnamani Metals today. And from their side, we have Mr. Prakash Sanghvi, MD and Chairman; Mr. Manoj Sanghvi, who is the Business Head; and also Mr. Vimal Katta, the Chief Financial Officer.
So without taking in much time, I'll hand over the call to Mr. Manoj Sanghvi for the opening remarks. Thank you, and over to you, sir.
Yes. Thank you, Sahil. Yes. Good afternoon to all the participants. I welcome you all to this call and hope everyone is doing good. Our results for the second quarter of FY '23 have already been uploaded on the exchanges. And I believe everyone has got a chance to go through it.
As you all past few months, prices of steel has been broadly stable, resulting into resurgence of stalled projects. Further decline in the commodities may augur well for the infrastructure demand and more traction may be expected in both CS and SS pipes segment. The developed economies are still facing high inflation, resulting in high interest rate outlook compared to our country, which is still reflecting strong macroeconomic scenario.
Various expansion projects across refineries and process industries are likely to help us maintain the capacity utilization and order flow. The traction for specialty pipes and tubes is visible owing to higher energy prices also.
Since you all are well updated on the various schemes in water pipes and oil and gas transmission lines and opportunities arising thereof, I would like to straight away touch upon the quarterly financial numbers and business update in brief, and then we can take the questions.
So on the operating revenue, it has increased by 26% year-on-year and is marginally down by 8% on a sequential basis. Whereas on EBITDA, there is an increase to INR 154.77 crores from INR 120.50 crores. We are also confident to maintain the guidance of top line of INR 3,800 crores to INR 4,000 crores in the given financial year, with an EBITDA estimate of 15% to 17%.
Our order book as on 1st October 2022 is INR 2,946 crores, which as on 1st November, it's roughly INR 3,200 crores. Our focus is to continue to be the leader in stainless steel specialty products and keep on expanding our existing line of business, both vertically and horizontally. And for the purpose, we have already announced the CapEx of around INR 180 crores in stainless steel cold finishing facilities as highlighted in May 22 call. Also with a view of having carbon steel pipe manufacturing facility in the eastern part of the country, we had announced a CapEx of roughly INR 150 crores.
Both the projects are more or less progressing as projected. However, there might be some delay in CapEx of carbon steel pipe manufacturing facility in the eastern part of India, which is considering the recent order what we received in Rajasthan and some equipments are being shifted over there.
Now with regard to the transaction to acquire majority stake in Ravi Technoforge Private Limited, Rajkot-based company, for which definitive agreements were executed on 5th October 2022, I would like to update you all that the acquisition for the first tranche that is 53% is completed. We have already provided details about the transaction structure on the exchanges. In order to add a new growth driver, both domestically and globally, with a blend of diversification, the company has forayed into this line and have decided to acquire majority stake at RTL.
This will also help us to explore new segments, markets and products. We are well positioned to leverage our managerial, technical and financial capabilities to scale its operation, making it more sustainable and further create long-term value for the shareholders.
To conclude, I would like -- I would once again emphasize that our philosophy has always been to consider any decision on the long-term vision keeping sustainability and value creation in its core. That's all from our side. Now I would like to invite questions, please.
[Operator Instructions] We have the first question from the line of Ashutosh Tiwari from Equirus Securities.
Yes. Am I audible?
Yes.
So congrats on decent numbers. Firstly, on this stainless steel side, especially on export, how are -- what kind of demand scenario we are seeing? Are we, let's say, whatever you talked about 2, 3 years back in terms of export opportunity with this new plant? Is it happening on the same line that we probably are getting more orders on exports and also domestic market is the import restriction happening now. So how should we look at the stainless steel plant utilization level going here on 2, 3 years?
So on your first part, on the export side, we are seeing traction. The order book also, if you see is at the highest level, both for stainless steel as well as carbon steel. So order inflow, both domestically as well as for exports, the inflow is increasing at a gradual pace.
So I mean in what time frame we probably wish to utilize this 20,000 tons hot extrusion facility.
So this year, it is 20% to 30% utilization. And in 3 years, we will be able to utilize maximum capacity.
Two, three years time frame?
Yes, yes.
And will it be a larger one you've done from exports or domestic over here. And we heard initially talked about distributors also we were tapping, so how is that volume increasing if you can employ some color on that?
It will be a mix of both export as well as domestic and also end users and projects as well as distributors.
Okay. Okay. And on domestic side, if you're going to highlight, let's say, which projects are -- especially the ones where we probably are looking at more volumes in both carbon steel and stainless steel.
So for both carbon steel and stainless steel, a lot of oil and gas projects are there. Reliance also recently announced petchem expansion in Dahej for INR 75,000 crores. So there, we -- of course, the design is going on right now. So we expect a good amount of carbon steel process pipes, stainless steel pipes. Then for all LNG expansion, a lot of stainless steel welded pipes will be required. So -- and for carbon steel, of course, oil and gas and other than oil and gas, a lot of traction is seen on the water segment also for Gujarat projects.
Okay. Okay. The last that we had won was Rajasthan, right, or the...
Yes. The last major order what we had, one single order, which was for Rajasthan. So where we are moving one spiral mill. So currently, we are supplying close to 10%, 15% from our plant in Kutch. Balance all will be manufactured in Rajasthan and supplied from there.
Okay. Okay. Okay. And Gujarat also there have some -- some risk were there. There as of now, there is no finalization, is it?
Yes. So there were 3 big projects, which is called Kony yojana. So those -- some quantities will be finalized within this month.
Okay. So I think we have -- a few quarters where you provided the pipeline where how much we have bid for. Can you provide that number how much we have bid for as of now in, say, oil and gas and water and the steel segment also? Bidding that you've done already.
Stainless steel, the quotes are very, very small in nature. So it is very difficult for me to highlight one particular project and say INR 100 crores [Foreign Language] project [Foreign Language]. But yes, carbon steel like Kony itself is 2.5 lakh tons. Then there is Gujarat Water Infrastructure Limited, they have few projects. So all put together, right now, close to 300,000 tons, which is -- which would in number terms would be close to INR 3,000 crores. For water, is under consideration in Gujarat.
And then we have few projects in Rajasthan and Punjab also. So now that we have a mill over there in Rajasthan, we might have some advantage for the projects in Rajasthan also.
So where we have located this mill?
This mill will be near Jodhpur.
Jodhpur. Okay. But Punjab, can you get it? Like with Punjab you talked about.
So there is one project which is coming in Ludhiana, so which is if you see in proximity from Kutch to Ludhiana, for Jodhpur or Phalodi, where this plant will be is much nearer. So our chances of getting better realization as well as the order increases.
Okay. And on the oil and gas side, what kind of projects we have let's say, what we have bid for our pipeline in terms of tons?
Right now, some few projects of IOCL are there. No major big project is there, but there are various small, small projects. CGD requirement is there. IOCL has got 2 projects, one down south and one in the east, which is under bidding. Then there is one line of BPCL, which is there under bidding. So all put together close to between 75,000 tons to 100,000 tons in oil and gas.
Okay. Okay. Just on the water side, historically, water has been low water segment, but because now we're talking about big projects coming up, is it possible that the margins in water can improve or we should not assume the same?
Yes. In such -- maybe it remains difficult a little bit, but with the advantage of geographical location, yes, margins can increase.
And last one is Ravi Technoforge side, can you provide some color that how we probably are looking at go to next 2- to 4-year period? And what kind of margin improvement or cost-cutting opportunity exist over there?
So right now, at Ravi, the sales revenue for last year was close to INR 280 crores with an EBITDA margin of close to 14%. So we plan in next 2 to 3 years to have a revenue of INR 500 crores to INR 600 crores. And improving EBITDA margin by 200 basis points, approximately 2% close to 16%. And which -- with the strength of Ratnamani and with the infusion done by Ratnamani, it seems to be possible.
Okay, okay. And what would the mix of side export and domestic for them as of now?
30% is the export and 70% is domestic. But if you see the final bearing, which is manufactured, maybe it is total export is 60%.
[Operator Instructions] We have the next question from the line of Hiren Kumar Thakur Lal Desai from -- an Individual Investor.
Congratulations on a good set of numbers, sir. The question is the oil prices are remaining firm. So can we assume that all the investments that were being planned in refining and everywhere where our products go are continuing? That's my first question.
Yes. Thank you. So yes, with oil price remaining at this level, of course, there -- we have seen that new projects are being announced. Not only that but the old projects, which were stalled, revival is seen again. Now question is whether it takes 6 months or 12 months for them to complete the feed and then float the first MTO .
Okay. Sir, the second question is related to export opportunities. So as we -- most of us are aware, the energy prices are rising in Europe, et cetera. And some kind of restrictions in China. Are we getting some improvement in terms of export opportunity? And if yes, are we sort of ready to use them in terms of capacity?
Yes. So we are seeing benefits of that. In the last call also, I had mentioned that some orders which were being manufactured in Russia or Ukraine are being diverted to other countries. Similar one order for carbon steel, we had received. Similar for stainless steel also, a lot of orders from Europe or other geographies, we have started receiving.
Okay. So I mean, what kind of a difference that can make, I mean, in terms of our growth opportunity?
Difficult to say, but yes, of course, it -- our margins can improve because right now, we -- this is a new market -- additional market which has opened up, right? So because of constraints from supply from Ukraine or Russia to Europe. So this -- yes. So we have more opportunities now where in Europe earlier, some customers who were buying from these markets have, in turn, came to us. And once they experience the quality, the product and the services, and we have had repeated customers. So once they place an order with us, we feel that, again, if those markets start -- still some percentage of customers will remain with us.
Okay. That's good to know. And any effect in terms of China restrictions being there in China?
No. As such, we have no major raw material or anything coming from China. So there is no major impact to us.
And not much of a threat in terms of imports from China, right?
No, not much of a threat also. And in between stainless steel, antidumping is already recommended. So as soon as the Finance Ministry approved, the further threat will be curtailed.
[Operator Instructions] We have the next question from the line of Manoj Bahety from Carnelian Asset Management.
Sir, 2, 3 questions from my side. One is, as you just mentioned that right now, your hot extrusion is operating at around 20% to 30% capacity utilization. And in your overall product mix also, I believe that SS proportion is small. And as we move ahead, it can be inched up. So just wanted to understand that as we -- as the capacity utilization of hot extrusion moves up and as the composition of SS will keep on going up. So can we expect a steady increase in EBITDA margins going forward? And if you can help us that what that range would be -- in fact, if you can also explain that what is the difference between margins on pure SS and hot extrusion vis-à-vis others. So that will be helpful, sir.
That product-to-product margin is very difficult to annualized because within stainless steel also, you would have some products where margins are low. And some products will go to defense or other aerospace sector, where margins will be very, very high. So on the margins, it is very difficult.
On a broader picture, yes, the revenues for stainless steel will go up. We have -- with the existing capacity, we have potential to go 1,500, 1600 -- up to INR 1,500 crores, INR 1,600 crores. And eventually in the next 2 years, when there is optimum utilization of capacities for extrusion, we will reach there. But at the same time, because we will have distribution market, we will have projects, we will -- so the blended margin will remain around at 15% to 17% EBITDA level.
Okay. Okay. And sir, where are we right now, as you mentioned that SS will ultimately move to INR 1,500 crores, INR 1,600 crores over the next 2 years, where are we right now?
Where are we as a group...
In terms of SS, you cited INR 1,500 crores, INR 1,600 crores. What is the current number, sir?
This year of our revenue 30% to 35% will be SS.
30% to 35% will be SS. So broadly around INR 1,100 crores, INR 1,200 crores is SS, right?
Yes. Yes.
Which will move up to INR 1,500 crores, INR 1,600 crores. So big delta will come with the capacity utilization of hot extrusion which will ultimately be -- means to some extent, mitigated by increase in the project-based revenue. That's what you are mentioning, right, sir?
No, I could not understand your question.
So you mentioned that whatever margin expansion, which will happen because of the scale off of hot extrusion and because of the increased proportion of SS, that will be, to some extent, neutralized by a higher proportion of project revenue, which will be lower margin. Is my understanding correct?
No, no, no. So we have 2 major capacity utilization, which will happen in next 2 years. One is stainless steel extrusion, another is LSAW line pipes or project pipes.
Right, right, right.
Okay. So stainless steel, of course, within stainless steel also because to utilize capacity -- optimum capacity of extrusion, you will have to supply 2 projects directly to the end user, where margins will be reasonably good. But you have to alternatively also supply to distribution network, where margins might not be as good as we supply to the end user.
Okay. And then we have LSAW line pipes and project pipes. So there also line pipe margins are a little different than what it is in the project pipes. So blended, both put together, we can achieve 15% to 17%.
15% to 17%. Right, sir. And my second question is, is there a scope of extending hot extrusion to some other product segments also? Like right now, we are doing only for pipes and all. So is it possible to use this capacity for some other products also?
No. It can be used for pipes only. But yes, pipes, then by adding certain equipment, we can explore another market. So that is -- that study is going on right now.
Okay. Okay. And sir, last...
Like exploration market, we've seen that these pipes go, but there is further investment and equipments we need to add.
Okay. Okay. But mainly, it will be into pipes only or other products also. Like exploration, again, it will be pipes only, right?
It is all pipes only.
It will be only pipes, right?
Yes.
Okay. Okay. And sir, I have one another question, which is mainly on the CapEx part. So I think the current capacity, we will be able to utilize in next 1 year. So if you can talk about like future expansion, capital allocation, organic, inorganic. So looking at the kind of opportunities we are seeing across various segments. So some perspective on that would be helpful, sir.
As already informed in my opening remarks, 2 major expansion is already planned. One is for stainless steel cold finishing. Another is for spiral-welded pipe plant along with coating in the eastern part of India. So these 2 together is roughly INR 300 crores to INR 350 crores. And then, of course, we have -- in organic, we have invested in Ravi. Already INR 50 crores have been pumped in to the company. So that will also be utilized for expansion over there. Yes.
But sir looking at the kind of cash flows which we are making. Don't you think that this INR 300 crores, INR 350 crores, INR 50 crores is too small, right? Looking at the 25:50 -- means, now the quantum of free cash flows which we are generating.
So we are working on various things, various organic opportunities, various greenfield projects backward, forward. So as and when the time is right, we will let you know.
[Operator Instructions] We have the next question from the line of Abhishek Ghosh from DSP Mutual Fund.
Sir, just first question is this INR 300 crores, INR 350 crores of 2 projects that you spoken about that the spiral pipe and cold finished on the SS part of it. What can be the asset turns over there?
Sir, could you hear the question? Hello?
[Technical Difficulty]
Ladies and gentlemen, the line of the management has been connected back. Sir, kindly proceed. Mr. Ghosh, will you please repeat your question.
Yes, so I'll just repeat my question. So for this 2 projects that you are doing in terms of the spiral plant in the east and the cold finished facility for the SS part of it, for which you said INR 300 crores to INR 350 crores will be the CapEx. What should be the broad asset turn that one should assume from these 2 projects whenever they kind of stabilize and get to optimal utilization?
1.5 to 2x.
1.5 to 2x. And you believe what will be the broad time lines for these projects to get commissioned?
Stainless steel by end of next financial year. And carbon steel, we will update you in another 3 to 6 months, the time line because that might get a little delayed considering what is happening in Rajasthan right now.
Okay. And the margin profile will be similar to what you make -- what you usually do for the current business, 15% to 17%. Would that be the right assumption?
Both put together, yes. But if you say carbon steel alone, may be less because it is only spiral welded pipes, right, so.
Correct, correct. Okay. Okay. And sir, just one more thing. You've guided for about INR 3,800 crores to INR 4,000 crores of revenue in FY '23. That is already factoring in the sharp decline in steel prices that we have seen, is it?
Yes. That is after factoring in the decline in steel.
Okay. And from there on, is it fair to assume that on a volume front because one doesn't know how the commodity prices behave, but a 10% kind of volume growth, given the ramp-up of SS facility and the line pipe facility that you have put up, 10% to 15% of volume growth, is it a fair assumption to make from -- on FY '23 levels?
Yes. Our target is always close to 15%. 15% to 20%, but with the base increasing now 10% to 15%, yes, we can consider.
Okay. Okay. Sir, the other thing is your export as a proportion, if I just broadly look at the order is broadly hovers around anything in the region of 15% to 20%. But what is happening around the globe in terms of given the higher energy prices and realignment of pipeline CapEx. Do you think this export, which is 15% to 20% of overall order backlog can see meaningful shift? Or is it likely to remain in this range only? Any thoughts, sir?
It would remain close to 20 -- 25% at max.
Okay. So you're seeing traction both in exports and domestic?
What we think is until and unless one major project for carbon steel, if you receive, then you can see a major shift. But then a majority of our exports is for stainless steel. And at times for a few projects, we get carbon steel. Okay. Okay.
Sir, but your exports margins, are they meaningfully different from that you get in domestic because of the rupee depreciation and other things, do you enjoy better margins there?
No, no. Margins are similar only. And as per the policy hedge or a natural hedge whichever is there -- is already there. So we are not playing on the currency risk or gain.
Okay. So margins are similar. It's just that it gives you more of operating leverage and more diversification from the domestic market.
Yes.
Okay. Okay. Okay. And sir, I had a question on cash flows, but I think you've already referred to that.
We have the next question from the line of Sahil Sanghvi from Monarch Network Capital.
So sir, what would be the CapEx target to be spent this year and the next year, if you can guide me on that?
Close to INR 100 crores, INR 120 crores this year.
I'm sorry to interrupt. Sir, can you please repeat that because we couldn't hear you properly.
Yes, close to INR 125 crores this year.
This year. And next year will be similar or?
Yes, INR 150 crores to INR 175 crores next year.
And the acquisition for Ravi, the spending for that will be separate, right, over and above this?
Yes, that will be over and above this.
[Operator Instructions] We have the next question from the line of Sailesh Raja from B&K Securities.
[Audio Gap] Particular pipe. So usually, the water-based...
Mr. Sailesh Raja, sorry to interrupt. Can you please repeat the question?
Yes. Can you hear me?
Yes, we can.
No, after 3 years, we started taking more water-based helical SAW pipe orders. So of the total order book value of INR 3,200 crores. So currently, what is the contribution coming from water-based projects? And also, how is the margins in this particular project? Usually, the water-based helical SAW margins are low actually because it will be a bad pipe and will be sub 10% margin. Are you still confident of maintaining that blended EBITDA of 17%, sir? Overall?
Right now, our water order book would be close to INR 900-odd crores. And this is spread over until the end of next financial year. So of course, the margins are a little -- not maybe close to 17%. But yes, on a blended level, we will still be able to maintain 15% to 17%.
Okay. So how is the working capital cycle here?
Working capital cycle is longer here because the contractor -- the -- what do you say, the contractor -- the payment terms is 180 days from the date of billing.
Okay. Okay. Okay. Sir, my second question, in Ravi Technoforge, any further CapEx we need to reprise it to achieve that INR 500 crores, INR 600 crores turnover?
No. For achieving INR 500 crores, no further CapEx is required. But beyond that, yes, we will have to have additional CapEx.
And do we supply to all MNC companies, like SKF, Schaeffler, Timken?
Yes. SKF, Schaeffler, Timken, NBC, NRB, Nachi. And we are in talks with [ XR ]. So yes, all major -- all top bearing manufacturers are the customers.
Okay. No how much of revenue comes from these MNCs?
75%.
75% comes from 3 or 4 top bearing manufacturers.
Okay. Sir, any plans to add more products, sir, in this company?
Yes. Work is in progress. We will update once it is shaped out.
We have the next question from the line of Vikash Singh from PhillipCapital.
Sir, I just wanted to understand, our bid book at this point of time. And if you could give us some color on our order book has been increasing much faster than peer. So going forward, what contributed to it? And how do you see this to move going forward?
Sorry, can you repeat your question, please?
So firstly, I wanted to understand your bid book at this point of time. And second question was that our order book addition has been faster than some of the peer. So just wanted to understand is it because everybody got the same CS segment I'm talking about, same kind of product. So what contributed to it? Are we taking a little bit of margin hit in order to execute more volumes? Or things are different, if you could give us some insights into it.
No. Margin hit, we are not taking. We are trying to improve [Technical Difficulty]
Sorry to interrupt. Sir, on the management side, your voice is breaking. Can you please repeat the last line what you were trying to say?
Yes. What I meant to say is there is no margin hit that is being taken. But we are trying to play on our strengths like we had one mill, which could go to Orissa, right? But then we had opportunity in Rajasthan and thereby, the freight, which would have been cost for anybody else has been converted partially into our margin.
Mr. Singh, any further questions?
I have actually lost the last part of the conversation actually -- and the bid book is still pending then what kind of the bid book we are holding right now in the carbon steel segment?
Bid book. So bid book, I already clarified in the first question itself, that close to INR 3,000 crores are under bidding in -- under bidding in water segment, INR 1,000 crores, INR 1,500 crores in oil and gas segment, domestic. And there are some international projects which are also under bidding.
Understood, sir. Sir, one more thing regarding one of your international competitor, Tubacex, which has posted one of the best results since inception. So just wanted to understand, is that -- basically, is it a company-specific phenomena? Or globally, the demand has been now picking up pretty fast, and we would also eventually get benefit from it?
Stainless steel [Technical Difficulty]
Sir, your voice is breaking.
Can you hear me?
Yes, we can hear you now.
So for stainless steel, yes, there is -- we are seeing increased demand, which is also reflected in the order book. So if you see the order book is also at the highest level, close to INR 3,200 crores. And for the last 5, 6 months, it has been over INR 3,000 crores, in spite of a lot of dispatches happening. So yes, the order inflow has increased.
[Operator Instructions] As that was the last question for today, I would now like to hand the conference over to Mr. Sahil Sanghvi for closing comments.
Yes. Thank you. Thank you, all. We would like to thank the management for basically answering all the questions and also all the participants for joining the call. Manoj sir, would you like to give any closing comments?
Yes, yes. I would like to thank all the participants for attending the earnings call and having the patience of hearing me out. So [Technical Difficulty]
Sir, I'm sorry to interrupt, sir, your voice is breaking. Can you please repeat the last line what you said?
[Technical Difficulty] thanks everyone for attending it, and I wanted to request the organizer that if we can have this call every 6 months, there is more value add which the investor will find. Otherwise, it is like repeating because a lot of things don't change in 3 months, more or less. So it's better and more updates can be -- that's what the management feels, but it can still be discussed. And any questions from the investors can always be entertained by e-mail also. Thank you.
Thank you.
Thank you. On behalf of Monarch Networth Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.