Ratnamani Metals and Tubes Ltd
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Ratnamani Metals and Tubes Ltd
Earnings Call Analysis
Q2-2024 Analysis
Ratnamani Metals and Tubes Ltd
The company's growth narrative continues as they ride the wave of increasing orders, particularly in the water sector. Executives indicated a shift in project setups leading to higher margin profiles and a robust monthly order booking cadence of INR 100 to INR 250 crores in stainless steel projects alone. Amidst a less buoyant oil and gas tendering environment, the company is leveraging water segment demand and foresees a sustained stream of opportunities for the next half-year to nine months.
Expansion efforts are pivoting towards stainless and carbon steel, two of the most promising sectors for the company. They target a 25% to 30% contribution from new products entering varied segments such as water, oil and gas, among others. This diversification in product offerings is structured to maintain overall profitability and cater to an expanding customer base.
Management endeavors to sustain EBITDA margins within the 16% to 18% range, balancing market dynamics. Projections for the upcoming periods remain optimistic, with margins expected to hover around 17% to 18%, spurred by a strong order influx in the water segment. The company is buoyant about potential positive surprises, albeit remaining prudent in its margin guidance.
The company is poised for a substantial uptick in its revenues, projecting between INR 4,500 crores to INR 5,000 crores, indicating an anticipated growth of 10% to 15%. Currently operating at 60% utilization across its diversified segments, there is considerable room for capacity leverage and efficiency gains.
The capital expenditure strategy includes two main projects in stainless and carbon steel, with investments rounding close to INR 250 crores to INR 300 crores and targets set for completion by 2024. Additionally, a joint venture with Technoenergy is poised for an investment of INR 40 crores to INR 50 crores over the next year, illustrating an aggressive growth and expansion strategy.
Collaborations with EPC contractors for substantial projects in Aramco and ADNOC present a promising horizon for the company's growth. Although a customer-wise breakup of the order book won't be disclosed, with 70% related to oil and gas, it is evident that these deals may significantly influence the company's market standing.
Standing strong, the company's current order book is at INR 2,975 crores, with domestic orders making up INR 2,370 crores and the rest attributed to exports. In terms of sectors, 70% of the company's focus is on oil and gas, while the remaining 30% encompasses water applications. There's a clear intent to maintain dominance in existing sectors with keen interest in the booming water segment.
Competitive edges are being further cemented by the vast array of approvals that the company holds across various industries like oil and gas, chemicals, nuclear power, defense, and aerospace. These approvals, which can take several years to procure, coupled with extensive capital investment requirements, create formidable barriers to entry for new market entrants and solidify the company's position in the steel pipes manufacturing landscape.
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Ladies and gentlemen, good day, and welcome to Ratnamani Metals & Tubes Limited Q2 FY '24 Earnings Call 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.
Thank you too Arvind. So good afternoon to everyone. On behalf of Monarch Networth Capital, we welcome you all for the Ratnamani 2Q FY '24 Earnings Call. We are delighted to host the management of Ratnamani Metals & Tubes today. And from their side, we have Mr. Prakash Sanghvi, MD and Chairman; Mr. Manoj Sanghvi, who is the business head for the Carbon Steel segment; and also Mr. Vimal Katta, the Chief Financial Officer.
So without taking much time, I'll hand over the call to Mr. Manoj Sanghvi for the opening remarks. Thank you, and over to you, Manoj, sir.
Yes. Thank you, Sahil. Good afternoon. Good afternoon to everyone. I welcome you all to this call and hope everyone is doing good. Our results for the second quarter of FY '24 have been uploaded on the exchanges. And I believe all of you had the chance to go through it.
Just to give you a brief, our stand-alone Q2 revenues are INR 1,084 crores with EBITDA of INR 252 crores and a net profit of INR 169 crores. Our quarterly revenue has increased 19.9% year-on-year and down marginally by 3.3% on a sequential basis, mainly attributable to softer steel prices. EBITDA has increased from INR 155 crores to INR 253-odd crores on a year-on-year basis, registering growth of 63%. And sequentially, it has increased by 22%.
Due to favorable product mix and few special jobs, our EBITDA margin has also expanded by 6% on a year-on-year basis and 4.8% on a sequential basis. On the half year basis, our revenues witnessed 16% growth to INR 2,204 crores and EBITDA of INR 460 crores as compared to INR 294 crores in H1 FY '23.
For H1 FY '24, our net profit is INR 305 crores compared to INR 185 crores in FY '23. During the quarter, in spite of inflationary pressures felt on operating cost, we have been able to improve our profit margin due to better product mix. However, as we move forward in FY '24, we may see some line pipes orders for oil and gas as well as water and hence, we continue to expect our annualized EBITDA margins broadly in the range of 16% to 18% under normal business conditions as guided during our earlier calls.
Orders on hand as on 1st October is INR 2,979 crores. To add a new growth driver, both domestically and globally, our company has forayed into pipe spooling and auxiliary products business through a joint venture with Technoenergy, Switzerland, a group based out of Switzerland having more than 100-plus years of experience in manufacturing of pipe spools, hangers, support systems and other auxiliary products. As informed through the exchanges, RMTL had 51% in this JV and 49% is with Technoenergy. The JV company will cater to oil and gas, thermal and nuclear power plants and other allied industries, which will open new avenues for our company.
And in future, we expect to see good traction in core energy segment and other critical applications in various industrial segments. This will also help us deepen our customer base by expanding the product basket. We expect this entity to start commercial operation in next 3 to 6 months.
That's all from our side. Now I would like to invite questions from the participants. Thanks.
[Operator Instructions] The first question is from the line of Ashutosh Tiwari from Equirus Securities.
Congrats on a good set of numbers. Firstly, on the export side, I think when we have basically commissioning this extrusion facility one of the aspects was that you wanted to go into higher diameter and more related products, which can be supplied in core markets. So where are we in that journey? I mean, obviously, our export order book has been increasing over the last 1 year to your perspective. So just can you give some color on that?
So currently, the extrusion, what was installed last year, the ramping up of capacity and approvals is going on. It's an ongoing process. So yes, we are seeing more and more traction, both domestically and exports. And going forward, as we have more approvals, the utilization levels will be much better. For trial purposes, we have as I said all the complete size range up to 10 inches and all grades we have tested and successfully all the trials are successful and few commercial export orders also, we have executed for various grades.
Okay. So that means that going ahead, I think on the export side, we would definitely see more orders coming like -- when all this product gets commercialized?
Yes, yes. As informed earlier, we are seeing a good amount of traction for special grades also.
Okay. Special grade means like more nickel grades or these are in terms of applications they are different?
Related to stainless steel only, but high alloy grades.
High alloy grades. Okay. Okay. So -- and these would be comparatively better margin than earlier grades that you're making?
Yes, margins would definitely be better. But quants would not be as the normal grade.
Okay, okay. But yes, I mean, directionally, I think the margin profile or the value addition profile should improve for us in SS segment.
Yes. Overall, the SSCS our aim is to improve the margins wherever possible. And for this particular stainless steel, where you're doing high grades, of course, the margin is going to be high.
Okay. And I remember that even in the LSAW segment, we had got an approval from Saudi Aramco earlier, right? So even LSAW segment, which are mainly catering to maybe domestic market earlier more added product, there also with this new mill, I think we are now entering into more product areas?
So for LSAW, Saudi Aramco, we have got the approval. However, we have not yet executed any orders for them. Going forward, yes, we are going to receive orders from them. So it might help us in future.
Okay. Okay. Okay. But domestic side, we have got approvals from everyone for LSAW plant.
Sorry?
On the domestic side, domestic customer base, we have received approval for...
Yes. Yes. We've received approvals from almost everyone now.
Okay. And in terms of the current order book that we have around INR 2,900 crores you mentioned, what proportion would you get from water-related orders?
Water, rough I can say about 30%.
30% of this INR 2,900 crores.
See close to 30% would be water related.
Okay. This somewhere lower a year back, right?
Yes.
Okay. And is the water order margins, what is the different from oil and gas-related orders? Or is also -- there's some validation over here also.
So in the normal course, the margins for water segment are less than oil and gas. But some orders, better margins if like we are executing on one order in Rajasthan, where we are -- we have moved the whole setup at site. So there, the margins are a little bit better than the normal course order.
Okay. Okay. And generally, lastly, how is the -- I mean, the orders that we're bidding for, how is that pipeline looking like? Is basically new order, the tenders are coming up are lower now? Or still we see buoyancy in the new projects coming up?
So if I break it between carbon steel and stainless steel, carbon steel for oil and gas, we are seeing less number of tenders coming up. But water demand is booming. So that segment is going to remain for next 6 months to 9 months, that segment, we will have a good amount of orders. And stainless steel regularly, our strike rate remains still the same, close to between INR 100 crores, INR 250 crores order booking per month.
The next question is from the line of Yash Goenka from Awriga Capital Advisors.
Am I audible, sir?
Yes.
To exclude...
Sir, sorry to interrupt. But the line for you is not very clear. May I request you to please use the handset while you're speaking.
Is it better?
Yes, this is much better, sir. Please go ahead.
Okay. So there are talks of setting up a stainless steel plant for backward integration, it's higher order business, which has lower margin, higher working capital. What shall be the ROCE for the company? And what ROCE level does the company intend to operate at?
I missed the first part of the question. So...
The talks of you setting up a stainless steel plant?
Stainless steel plant?
Yes.
Okay.
And with you having a higher proportion of sales to water pipe businesses, which has lower margin, higher working capital requirements. So what does it get to a ROCE and what it shall be going forward? And what does the company intend to operate at?
See, at the company level because we are expanding both in stainless steel and carbon steel, right? So at the company level and some products would go to water, some for oil and gas, some for other segments. So broadly at the company level between 25% to 30% is what we aim for.
The next question is from the line of Vikash Singh from PhillipCapital.
Congratulations on very good set of numbers. Sir, I just wanted to understand about your guidance. You have always been conservative at 16% to 18% kind of the EBITDA margin. Given that the first half was pretty good, so would you like to revise it? And how do you see this growth in the FY '25?
Vikash, Vimal Katta, this side. See, basically, as we have been talking the 16% to 18% range is for the longer-term sustainable range, okay, based on the product mix and everything. In a particular reporting period, it may be a quarter, half year or a year, it may move towards more positive towards 18% or in case of adverse market situation, it may move towards 16% sort of thing.
So plus minus 1%, we have been talking this year entire year, we should be in that 17%, 18% range sort of thing. This is our expectation going forward. As Manoj ji has already said, a few more orders in water segments are expected and blended, we should be nearer to that range only. Positive surprises are possible. We'll definitely try our best, but to be practical that 17%, 18% range should be there. Yes.
Understood, sir. Sir, my second question pertains to the market and the order book. In 4Q, you were talking about the market being a little bit dull, but we have seen a very good order book addition. So how we should read this situation? Or what is the bid pipeline going forward, if you could give us some insight.
As stated previously, we are seeing good demand for the water pipes in the carbon steel segment. And stainless steel also, our order book remains strong. We are almost booking close to INR 125 crores to INR 150 crores every month. And the carbon steel, one big order in water segment or oil and gas segment can change the order book. Although oil and gas seems to be dull at the moment, but still, there are good amount of water projects in Gujarat itself and a few export projects also we are bidding. So...
Understood. Sir, is this possible for us to further improve our export percentage in order book, we are currently at 20%?
Yes, yes. Right now...
So what is the peak level you are expecting? Because from other companies' perspective, what I learned that the export market is pretty good at this point of time.
Yes. Right now for oil and gas export market, especially in Middle East is very good. So we are also hoping to receive -- and we are already receiving some orders and we are hopeful that we will -- going forward also, we are going to receive a few more.
Understood, sir. Sir, just one question on Ravi Technoforge. We were due to buy some more stake depending on some milestones, given the performance doesn't seem to be improving at this point of time. What happens to the valuation part or is -- or there would be a delay in buying the remaining stake? Or will it be valued at a much lower price depending on the milestones? So I just want some clarity in case if we don't reach the milestone, then what happens?
So second tranche is fixed buyout at a multiple of EBITDA. So which is at the end of FY '24's results.
The next question is from the line of Manish Ostwal from Nirmal Bang Securities.
I have only one question on the geopolitics things happening in the Middle East. So how are you addressing...
Sorry to interrupt, Manish. I think you are a little too close to the mic.
Okay. Am I -- now it is better?
This is slightly, yes.
Yes. Sir, my question on the Middle East geopolitical crisis. So how are you seeing the demand situation developing for our product in the export market?
See, in Middle East, especially everybody is expanding, be it Saudi Arabia, be it Abu Dhabi, be it Qatar. So these markets, in spite of geopolitical situations are going very strong. Europe at the moment is a little slow and U.S. also a little slow, but still for stainless steel, tubes and pipes, we are finding good demand from there.
[Operator Instructions] The next question is from the line of Noel Vaz from Union Asset Management.
Yes, I just wanted to just confirm one thing. If we're looking at the overall growth prospects of the company, how should we look at it? And what is the current utilization?
On an average -- see, this year, we would be anywhere between INR 4,500 crores to INR 5,000 crores. So on an average, 10% to 15% growth can be expected.
And in terms of current utilization levels, where are we at right now?
So current utilization for different segments, it is a different percentage. But on an average, you can consider 60% utilization.
We have the next question from the line of Dhiraj Dave from Samvad Financial Services.
Congratulations on good set of numbers. My one question is more about basically this Ravi Technoforge. What is the kind of expected ROCE or return which we expect? And what is the management thought process because we see that we are getting into related lines through acquisition or promoting subsidiary or acquisition or JVs. So how should -- rather than specifically to a quarter, how do you see your things get shaped out in next 3 to 5 years? And what would be kind of CapEx? And what is typical your thought process, if you can give us some color on it.
So this particular product which goes to the bearing industry, our idea is to scale up from here. And in next 2 to 3 years, we want to do INR 500-plus crores of bearing rings and other auto products, which is from the forging industry. And we have already -- we are investing from the Ravi Technoforge balance sheet only. Except for the initial investment, what Ratnamani did, everything is being managed from RTL's cash flow.
Okay. And basically, what would be kind of CapEx we should be looking at as you have suggested approximately 60...
Right now, ongoing CapEx is between INR 40 crores to INR 50 crores.
This would be for Ravi Technoforge?
Yes.
And for Ratnamani as a group total, basically, we are also talking of that Swiss JV. So we would be setting up a new capacity or is it a trading...
Ratnamani close to INR 250 crores to INR 300 crores, where we have 2 major projects, one for carbon steel, one for stainless steel, which are ongoing.
Okay. And when this project will get over? This is normal capacity...
Stainless steel by June of 2024 and carbon steel, where we are setting up a new plant by September of 2024.
September '24. Okay. And basically, any thought on capital allocation since this year, particularly, we may see at least whatever 6 months fingers crossed if same thing happens, what is your plan for capital allocation or distribution of cash?
Yes. Can you repeat it, please?
Capital allocation...
So basically, what would be your dividend distribution? Would be -- should we expect some improvement in dividend payout for a year or we like to manage stable...
See, basically, at the gross level, it is closer to 20% of profit. That should continue, where company has a lot of growth plans because we are not going to rest with existing capacities, we should be in a position to reach closer to INR 6,000 crores. And we have to look beyond that.
So there are -- team is working on various growth opportunities. And at the appropriate time, we'll be sharing those details also. So part of CapEx and incremental working capital requirements will be made from internal accruals only. So one can look forward to closer to 20% of profit being distributed.
The next question is from the line of Radha from B&K Securities.
Many congratulations on good results. Sir my first question was, in first half, what was the total mix from water segment?
Very difficult to give you a precise number, but we can -- I can work on that and then will get back to you. One second. So between INR 150 crores to INR 200 crores.
From the volume perspective, I asked?
Volume...
Volume normally, we don't share. And value wise, this figure of roughly INR 150 crores to INR 200 crores for the 6 months.
Actually, why I asked it because you said 30% of order book from water segment, so just wanted to understand during the first half, based on the execution whether it could be lower than 30%?
See the order book -- yes, first half, it has been lower. Of the order book, we have 30%, but some of it is going to go for the next financial year also.
Okay, sir. Sir, secondly, so L&T has won multiple orders with Saudi Aramco and also some hydrocarbon projects with multiple Middle East companies. So could you please elaborate on the business opportunities with L&T?
Yes. So 2 or 3 EPC contractors. They've got big jobs in Aramco as well as in ADNOC, which is Abu Dhabi National Oil Company. So most of it has just been awarded. So the design part -- so we will see inquiries coming from latter part of this year or early next year.
Sir, currently, out of the total order book, how much of the orders are from L&T?
That customer wise breakup, we do not have and we would not like to share.
Okay, sir. And sir, thirdly, my third question was that, could you please share some insight on this JV with [ Tech ]? How much would you expect to invest and what kind of margins can we make, what would be the source of CapEx -- funding the CapEx, if any, for this and margin profiles and ROCE profile?
So this company has recently formed with 51% being RMTL and 49% Technoenergy. The total investment plan is INR 40 crores to INR 50 crores in the next 6 to 12 months. And so part of the capital, what Ratnamani will bring in and another part will be brought in by another partner. And balance, we will have to see whether we will go for any debt or any other instrument.
For us, it could be INR 20 crores.
Yes. INR 25 crores to INR 30 crores for us.
Okay, sir. And sir, just thirdly, have you done any bill discount in this quarter?
No.
No, no. See, in case in respect of one of the orders being executed by Ratnamani, it is under RPA arrangement. So those invoices have been discounted and payment has been received by the company. And that is the reason the finance cost has been a little higher.
So sir, I asked because our receivable rate has come down. So on that basis I had asked...
No, it is there. So both things are -- if we look at the figure, receivables have come down and there has been an increase in finance costs, which is related to bills discounted in respect of one of the orders. It is an arrangement under order itself. Their interest cost has been inbuilt in our pricing and documents are discounted by the customer itself under bill discounting facility, suppliers bill discounting facility.
Okay, sir. Sir, I wanted to understand, will we continue with these kind of receivable deals?
See, difficult to say because order to order based on the arrangement it may change. Because it is in respect of one of the order only and because the company has been cash surplus, usually, we don't go for even eligible discounting because there is a negative carry. Whatever returns we get from our investment are much lower than their discounting costs. So that is the result on any reporting period and one may see higher receivables also, but for this one order.
And sir, could you quantify the amount of the bill discounting that we have done in first half?
See, that will be roughly [ 140 cr ] sort of thing.
Okay, sir. Sir, last question was on the Ravi Technoforge front. So actually, there is a Y-o-Y degrowth in first half in Ravi Technoforge. So both in the revenue and EBITDA front. So previously, we have been guided that we wanted to achieve INR 300 crores revenue in Ravi Technoforge. So are we still on track with this guidance or is there any revision?
If we see with the corresponding last year, I mean, there is no degrowth, but there is no growth. Against INR 120 crores, we did the sales of INR 124 crores. An EBITDA of INR 12.2 crores against that, we did INR 12.6 crores. Yes, because the major reason here is the exports have shrunk and our share in the domestic industry has increased because of the current geopolitical situation. But going forward, in the second half, things look to be better. And from hereon, from the last year's number, we see that there'll be 10% to 15% of growth.
But more impact has been there that of commodity prices coming down compared to what they were last year. So some impact of that thing is also there because realizations are directly linked to the commodity prices.
And if we see the production per se, then it has gone up by 6% in the first half.
Y-o-Y, first half Y-o-Y versus first half FY '23. So actually, sir, actually, on the previous call, you mentioned that revenue from Ravi Technoforge was INR 240 crores in FY '23. And so that -- and we have the 3Q, 4Q numbers. So that implies that first half FY '23 revenue must have been INR 136 crores. So basis that there is a 10% degrowth. So you're saying volumes have grown 6% Y-o-Y. So realizations would be down 16% Y-o-Y?
Yes. Yes, yes, your understanding is correct.
Sir, this is entirely due to commodity?
Yes. Yes. Entirely due to commodity steel price, which has gone down.
Plus some impact of degrowth in exports as Manoj ji has already shared and it is mainly because of geopolitical issues, whatever is happening in Europe that has impacted demand from European bearing manufacturers.
Sir, by when do we expect to go back to FY '22 margin levels in Ravi Technoforge, a 13%, 14% EBITDA margin that we had done?
We will be close to that by the end of this year.
By 4Q FY '24?
Yes.
The next question is from the line of Vinamra Hirawat from JM Financial.
Firstly, congrats on a good set of numbers. My question was many steel players now are getting into steel pipes and other downstream products. So what are differentiating factors for Ratnamani?
Yes, see, a lot of players are investing in the manufacturing of stainless steel as well as carbon steel pipes, but the kind of approvals, the kind of range, the kind of facilities what we have, it will take time for them to create and catch up. So that is -- and the number of approvals what we have is also very wide. The geography what we have covered.
What do you mean by number of approvals, sorry?
Number of approvals from the oil and gas companies, chemical companies, nuclear power plants and defense, aerospace. So those approvals, those are all 6 months, 12 months, 2 years process. And the kind of capital investment required to have maybe capacities like -- capacities and range like us at this point in one go, would not justify it.
Makes sense. Okay.
Vinamra, does that answer your question?
Yes.
[Operator Instructions] The next question is from the line of [ Pujan Shah ] from [ PS Ventures].
Initially, I missed the order book of ours and the sector specific. So can you just give us a broad idea of...
Can you please be a little loud, I'm unable to ... .
Am I audible now?
Yes.
Yes. So can you just provide me with the order book size and the sector-wise order book because I missed the initial call?
So our order book stands currently at INR 2,975 crores, of which domestic is INR 2,370 crores, and balance is exports.
Okay. And sector-wise oil and gas end?
Sector-wise breakup we are not giving anymore.
Major will be oil and gas. Right now also, you can say almost 70% should be oil and gas and related fields, power sector and continuous process industry, roughly 30% might be from water application.
Okay. So in the initial phases as we have witnessed from the last few quarters, we have been witnessing the oil and gas has been booming and as well as the water segment. So are you seeing any upcoming new sectors has been getting into traction like we are getting newly into engaging into new sectors specific to that? Or we are -- the order book is growing on that -- already on this same sectors.
No, as of now, no new sectors have been added. But yes, within the sector, there can be plus and minus. Water, of course, as I informed earlier is one area which is booming at the moment in various states. So that is one area. Oil and gas is a little slow on the line pipes side. But on the process side, it is still okay.
[Operator Instructions] The next question is from the line of Radha from B&K Securities.
Sir, could you tell me the export sales mix from Ravi Technoforge in first half?
One second. Exports are 30% in first half.
It was -- and how much was it in first half FY '23?
38% to 40%.
[Operator Instructions] We have no further questions. I would now like to hand the conference over to Mr. Sahil Sanghvi for closing comments. Over to you, sir.
Yes. Thank you. Thank you. I would just like to thank all the participants for attending the earnings call, and having patience of hearing me out. Just thank the management also for answering all the questions patiently. Manoj sir, would you like to give any closing comments?
Yes, Sahil. So we thank you all for participating in the earnings call and hearing us patiently. I would also like to wish everyone a great festival time ahead. Thank you.
Thank you, sir.
On behalf of Monarch Networth Capital, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.