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Ratnamani Metals and Tubes Ltd
Earnings Call Analysis
Q4-2024 Analysis
Ratnamani Metals and Tubes Ltd
Ratnamani Metals & Tubes reported an extraordinary performance for FY '24, achieving consolidated revenues exceeding INR 5,100 crores and net profits of approximately INR 600 crores. This marks the company's best-ever results for three consecutive years, primarily driven by strong project demand in India and the MENA region, aided by resurgence in capital expenditure and stable raw material costs.
The company's EBITDA margins aligned closely with management's guidance from the previous year, reflecting a robust product mix and stable input prices. Despite a muted domestic demand for oil and gas transmission and city gas distribution, the company experienced strong traction in water line pipes, industrial supplies, and exports.
Management emphasized an ongoing strategy focused on specialized product investments and improving efficiency through advancements in technology and infrastructure. A significant expansion project is nearing completion, enabling higher diameter pipe production, which aims to enhance Ratnamani’s product offerings and sustainability in growth.
For FY '24, the subsidiary Ravi Technoforge reported INR 258 crores in revenue with an EBITDA margin of about 11%. Looking ahead, the company aspires to boost revenues to between INR 310 crores to INR 330 crores and improve margins to 13%-14% by optimizing operations and reducing manpower costs.
As for future expectations, Ratnamani aims to achieve consolidated revenue of approximately INR 6,000 crores, marking an ambitious growth target of about 16-18% which management confidently believes is feasible given the current macroeconomic framework.
Despite a temporary slowdown in specific segments such as oil and gas, international tenders present opportunities for renewed growth. The company anticipates a rebound in domestic demand within 3 to 4 months, particularly in city gas distribution and heavy wall pipes.
Ratnamani's export strategy remains robust, with over 50% of stainless steel turnover derived from exports. The management is optimistic about growth in the U.S. and Middle East markets, leveraging new capacities and approvals to capitalize on ongoing infrastructure projects.
Management is eyeing continuous investments in both existing and new capacities, particularly in value-added segments, which are expected to yield superior margins compared to standard products. The company has allocated INR 200 crores annually for capital expenditure over the next two years to achieve these objectives.
Ultimately, Ratnamani is committed to ensuring long-term sustainability and value creation, as indicated by their track record of 19% CAGR in revenues and 23% in profits over the past seven years. The growth strategy is built on aligning operational capabilities with enduring market demands and leveraging favorable economic conditions.
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Ladies and gentlemen, good day, and welcome to Ratnamani Metals & Tubes Q4 FY '24 Earnings Conference 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, Yousaf. So good evening to everyone. On behalf of Monarch Networth Capital, we welcome you all for the 4Q FY '24 earnings call of Ratnamani Metals & Tubes.
So we are delighted to host the management of Ratnamani. And from their side, we have Mr. Manoj Sanghvi, who is the Business Head of the Carbon Steel segment. And also Mr. Vimal Katta, who is the CFO.
So without taking much time, I hand over the call to Mr. Manoj Sanghvi for their opening remarks. Thank you, and over to you, Manoj, sir.
Thank you, Sahil. Good afternoon to all the participants. I welcome you all to this call, and hope everyone is doing good. Our results for Q4 and full year of FY '24 have been uploaded on the exchanges and I believe you all had the opportunity to go through the same.
In FY '24, our company has clocked its best ever performance third time in a row with top line and profitability at its historic highs. Consolidated revenues crossing INR 5,100 crores and profits approximately INR 600 crores. The EBITDA margins were broadly in line with our guidance provided last year. EBIT, a bit towards the higher side of the bank due to the product mix and stable input prices.
As you all know, past few months, projects demand has been good in India and MENA region due to the resurgence of CapEx. Soft and stable steel prices over well for our industry, resulting into good demand for water segment, industrial and exports. However, the domestic oil and gas transmission line pipe and city gas distribution business is muted and yet to show signs of pickup. But the business traction in other segments like water line pipes, industrial supplies and access pipes and tubes, continues to remain quite encouraging.
When we begin the financial year, our orders on hand were approximately INR 2,300 crores. During FY '24, we have continued to push our strategy to invest in more specialized products and improving efficiency and utilization, with focus on technology and infrastructure to remain well ahead of the curve. Our well calculated and judicious capital allocation in CapEx and investment, resulting in a very strong balance sheet to lead to next level.
We are at the fag end to commission our new expansion project of circular for pipes for higher diameter and 18 meters invent, having thickness of 250 meter. This will further enhance our product basket for specialized application. We are quite confident that our growth will be more sustainable with the product locate and approvals we have. Best in segment facilities with benchmark qualities, operating and financial leverage, we enjoy.
Now regarding our subsidiary, Ravi Technoforge Private Limited, which has clocked total revenue of INR 258-odd crores, with an approximate EBITDA margins of 11% and a net profit of INR 6.7 crores. The first phase of CapEx for reorganization of 2 small facilities to the mother facility has been completed. We are also putting up some more automation and value addition facilities.
For our cooling business, we have started commercial supplies for basic hangers and support systems. We expect our pipe spool supplies to commence by August, September of this year. We are expecting the top line of -- we are expecting a top line growth of mid-teens for RMTL on stand-alone and even on consolidated basis. Even the margins are expected to remain in line with the variation of 2 percentage points. The present macro look conducive for maintaining our long-term growth and margin prospects. That's all from our side.
Now I would like to invite questions from the participants.
[Operator Instructions]
First question is from the line of Dhananjai Bagrodia from ASK.
Congratulations on good numbers in a tough time. Any volume guidance in terms of how we're looking at for the rest of the year? And I know it's up 2 quarters, but any volume guidance on this?
Can you be a little slow, I cannot...
I said congratulations on a good set in a tough moment like this, environment. I wanted to ask you, any volume guidance going ahead for the year, what we're looking at in terms of numbers?
So as informed in my earlier remarks, we are expecting a consolidated revenue of close to INR 6,000 crores.
In terms of volume breakup -- on how we differentiate CS and SS.
Between 10% to 15% growth.
Okay, on overall basis?
Yes.
Basically our product portfolio is such where volumes only sums up tonnage will not be the right thing to monitor. So we monitor value addition also. And the volume [indiscernible]. Product is such where basically benchmarking is in terms of tonnage, no doubt. But there are other factors of this. So usually we prefer giving guidance in terms of amounts in crores, instead of volume only.
Next question is from the line of Radha from B&K Securities.
Congratulations on good performance. Sir, just a bit of clarity. You mentioned INR 6,000 crores revenue target consolidated that is for the bearings and the steel pipe for FY '25?
Yes, it includes all our subsidiaries and the parent.
All right. Sir, secondly, a bit of clarity on the capacities that we have on this stainless steel. So I understand that we have around 50,000 tonnes of capacity overall in stainless steel. So the breakup of taxes in cold-finish we have 10,000 tonnes, 30,000 for hot-finish for which favorable capacity outside is 20,000 tonnes and another 20,000 tonnes on the welded side. So just wanted to understand whether this data point is correct? And secondly, if you could give a breakup of all the utilization of all the segments for the carbon steel as well as the stainless steel for FY '24?
The capacities what we mentioned are correct for stainless steel. Utilization level on an average is 60% to 70%.
So this is including stainless steel as well as carbon steel?
Yes. Some products in carbon steel maybe 50%, 55%, some are close to 80%. Similarly in stainless steel also. So it varies from, say, it is between 60% to 70%.
It's a segment-wise breakup?
Segment-wise breakup will be difficult because we had a good parallels of coping, induction and in stainless steel we have welded seamless cold-finish, hot-finish, [indiscernible]. So on an average, I can tell you.
Okay. Sir, also this entire 50,000 tonnes capacity of stainless steel is operational or any part of the production line is yet to start operations?
Entire thing is operational. We have one expansion or capacity enhancement going on, which is roughly 1,200 to 1,500 tonnes. That will be operational by middle of this year.
Okay. This is on the stainless steel, welded or stainless side?
Stainless.
Understood. So secondly, in the steel pipes business, the current cost drop, we can do about INR 6,000 crores, INR 6,200 crores revenue, what I understand. So that gives a headroom for another 25% growth from here on. So on the basis of this, are there any CapEx plans for us for the next 2 to 3 years?
There are 2, 3 things in the working. So as and when the time is right, we will -- or once they pass the liquid test, we will inform you.
So, sir, can you explain INR 200 crores on an average CapEx for next 2 years per year?
It will mostly depend upon which sort of CapEx we are going to finalize. So debottlenecking and normal CapEx of roughly INR 100, INR 125 will continue. And the margin CapEx we had based on the call, which management may take to continue to be growth, which may take another 3 to 6 months' time.
Sir, there was an actual plant in [indiscernible] for which I think we had INR 170 crores CapEx allocated. So that will come in this year?
Yes. It will come in this year, but EBITDA end of this year.
Okay. Sir, lastly, if you could highlight a bit on the demand scenario on both the carbon steel and the stainless steel business. Because I can see in the order book, the exports demand for stainless steel has shot up in this quarter. So if you could just highlight on the demand scenario?
Demand for stainless steel, like we are month-on-month -- we were booking close -- between INR 120 crores to INR 150 crores. So we have seen in the last quarter or so, push from Middle East, Europe as well as India. So our order booking month-on-month has increased, which is now surpassing INR 150 crores every month.
So that is order to order or project to project in stainless steel will be difficult to inform because there are various small orders as well as medium-size orders.
Whereas if we see carbon steel, the demand for industrial pipes is quite good, including the heavy wall fitness pipe. However, line pipes, as I informed in my opening remarks, is muted at the moment, not many domestic tenders we are seeing, but we are seeing a lot of international tenders for oil and gas.
If we see city gas distribution, which is normally ERW pipe, there also demand is -- at the moment, it is slow. But it's a cycle. And we feel that in another 3 to 4 months, demand should pick up.
Sir, what is causing this good demand in the export market on the stainless steel side?
Stainless steel, carbon steel, both majority of the demand if we see is right now in the Middle East. So Saudi Aramco, SABIC, which is in the Kingdom of Saudi Arabia and ADNOC in Abu Dhabi, Qatar, they are all in expansion mode. So that is what is driving the demand in the oil and gas segment.
Sir, I think last year, we got an approval on the LSAW from Saudi Aramco. So does this include the order book, it includes the orders from those approvals that we have got?
No, not yet.
Next question is from the line of Vikash Singh from PhillipCapital.
Sir, my question pertains to the sharp increase in the SS segment and especially on the export side. So just wanted to understand which are the geographies where we have managed to make inflows? And is it just a temporary or you expect that this kind of the inflows or the strong orders to continue on the export side?
There was a capacity increase in stainless steel division. The new extrusion, which came up in '21, '22. So the capacity utilization is better and we are able to reach for other products, of course, we were already present, but with supplies now to Europe, U.S., Middle East and the utilization of extrusion has started getting better. That is the reason we see good revenue in stainless steel division.
Understood. So this is supposed to continue because we have the new capacities in place?
Yes.
Is that correct assumption?
Yes, as the utilization gets better, of course, the revenues will be better.
So overall utilization levels for the [indiscernible] would have been right now, how much percentage?
Yes, 35% to 40%.
Understood, sir. Sir, my second question pertains to carbon steel segment division. We have seen the kind of the order booking having diluted or slowed down. So just wanted to understand, this is more related to the election and that's why new orders are not coming or there is some structural softness you are seeing in terms of granting new orders?
Yes. One of the reasons we can say election, but that is not the only reason. Normally, we see it is a little cyclic business. So sometimes, there are huge projects and projects come together, whereas sometimes you have a situation where -- but a few projects are under planning. So in another 6 to 8 months, we should see them, projects.
Okay, sir. And sir, in our order mix, oil versus water, how that takes us right now?
Of the total order book?
Yes, sir, of the total order book.
Of the total order book, I think 25% -- 20%, I think, close to 20%.
Understood, sir. Sir, in terms of Ravi Technoforge, I believe that this year, we need to buy one more tranche of the equity at a particular valuation. So just wanted to understand, have we came to that valuation? Or if you could disclose the price at which you would be bank [indiscernible]?
So we have just concluded the board meetings for the subsidiary and RMTL. Based on the audited numbers and the agreement we have, the second tranche will be bought. Number and all, is still under working. So because -- still, if there are any adjustments to be done so that will happen by 30th June.
Okay, sir. And sir, just lastly, we are also doing the downstream or the value addition in the SS segment. So what percentage of the value addition facilities have already come and what is funding?
So first phase of investments for the spool division is already done. We have received some orders also. As we start the supply, which is from August, September and the value addition was 15% to 20%.
Okay. So currently, it's 15% to 20% of the value addition, which has already been done for the incremental capacity which we have committed last year.
No, it is not for the incremental capacity, both existing as well as incremental.
Okay. And till what percentage we can take it up to?
For spool and hangers, there'll be some products which will be bought from outside, some the parent will supply to the subsidiary, and there will be further value addition of 15% to 20%, and it will be supplied to the end customer.
[Operator Instructions]
Next question is from the line of Aditya Welekar from Axis Securities.
Sir, what is the quantum of the order book? I have joined slightly late, I have missed that.
As on 1st May, it's close to INR 2,400 crores.
Okay. And you have spoken about oil and gas demand outlook. Any color on water-related sales product outlook?
Water, there are a few projects in the western part of the country, there are a few in the central part, which is [indiscernible], there are some in North UP. So water, yes, still, there is demand.
Okay. And what is the split of this order book in terms of oil and gas, water and in terms of carbon and stainless steel?
Roughly 70-30, I would say. 70% is carbon steel, 30% is stainless steel. And of that 70%, you can say, 20% to 25% is water.
Okay. And if we want to take a slightly longer-term view, say, by FY '26, '27, how do you think that is oil and gas demand in Middle East will pan out? Any -- if you have any indication on that?
So right now, the kind of projects going on, the demand for -- I mean we see there will be good demand until minimum 2030 because a lot of projects have been announced simultaneously in Saudi, in Abu Dhabi, UAE, which is -- then you have Qatar and India being quite [indiscernible] to these nations. So our chance will always be better.
Okay. And any inorganic acquisition plans you have?
Nothing, as of the chat.
The next question is from the line of Dhiraj from Nivesh Investments Advisers.
Sir, would it be possible to give a rough estimate about the EBITDA contribution from the stainless steel or alloy steel segment?
Overall, they have been number one. All put together, it is this.
Got it. Also, sir, I wanted to understand related to the specialized tubes that we make are -- so I -- so there were some reports that the hydrogen CapEx has started in the U.S.A. and the demand for such tubes -- there is a significant demand for such tubes. So would there be any guidance, EBITDA guidance, revenue guidance or any order book guidance for that segment?
For hydrogen pipe, CS, there are few projects have been announced in the U.S., in the Europe. But still, those are on trial basis, no major pipeline or anything is announced yet. So how the trial goes on -- of course, the pipes what they are buying for oil or gas, should be hydrogen-compliant. That's what some European nations have started. But the pipeline per se for hydrogen, still, it will take some time.
Correct, sir. Sir, talking about tubes, which are used in applications like heat exchangers, duplex, super duplex models. So what would be an approximate per tonne revenue or EBITDA that we might be earning, if it is possible for the vendor?
What size, what quantities, so many parameters, so many factors, will govern the price per tonne. It's not a commodity, right? Difficult to say.
Next question is from the line of Mr. Sahil Sanghvi from Monarch Networth Capital.
Congratulations, sir, for meeting your guidance also and maintaining your margins also. My first question is on Ravi Technoforge. Sir, I mean, the revenue growth has been poor on backend. So can you just highlight the factors which were responsible for the poor performance in Ravi and also the margins didn't really pan out as you expected. So one on the factors. And how are we looking on this business in FY '25? What is the plan? What are we working on?
So 2 reasons, I would say. See, there has been a volume growth of roughly 10%. However, the steel prices were a little soft one which actually the revenue growth, what we were projecting or thinking could not be achieved. Second, because of disturbances in Europe, our domestic share has increased. However, export has gone down a little bit, which, again, in this year, we feel that it shall pick up.
And going forward for this year, we have a sales target of roughly between INR 310 crores to INR 330 crores. And on the margin, of course, with the revenues being where it was with no such growth, margins were just above the double-digit figure. I mean, just close to 11%. But going forward, as the revenues increase, plus with the optimization reduction in manpower, things what we are doing, we feel that 13% to 14% in this year should be possible.
Right. And my second question is regarding the spooling business. What kind of CapEx has been done? As in we've spent anything on the -- on this business? What -- if you can give me that number?
Yes. So till date, Phase 1, INR 16 crores of CapEx is done.
Okay. And what kind of optimum revenue can we generate on this CapEx?
Funded CapEx will be there. Overall first stage should be closer to extreme. So that should give a turnover a little bit closer to [indiscernible]. Then margin profile will be similar. EBITDA margin should be in that range, [indiscernible].
Not immediately because once we are -- maybe we will be manufacturing more [indiscernible] and hangars for the oil and gas industry. Our eventual aim would be, of course, oil and gas to get the volumes, but some part of it to go the nuclear industrial. So when you have that approval in place, maybe 1 year, 1.5 years down the line, then those margins shift, you will see.
Next question is from the line of Nitesh Dutt from Burman Capital.
I have a question on the stainless steel seamless export side. So I just want to understand how much of revenue for FY '24 came from exports to Europe for both seamless and welded on stainless steel?
Break up geographical reason why I don't have a -- and we don't share with geography what we did. In case of stainless steel, more than 50% of turnover came from direct digital exports. And at blended levels, more than 20% of turnover came from exports, both standard system and carbonistic combined together. And export businesses, see, in case of stainless steel, it is a regular business. And we have been trying to add more geographies. And in case of carbon steel, it is opportunity-driven. So wherever opportunities are there, we try to [indiscernible] we capitalize.
Sir, on the stainless steel side in Europe, can there be a bigger opportunity over the coming few months, that some competitors have been hinting at it, because of the European company is not being competitive and also potentially the ADT getting extended on the Chinese import. So any perspective on that?
See, as indicated earlier, as our utilization and we start making more and more critical grades, definitely, the revenues will go up, not only Europe but Middle East, U.S., all the regions.
And sir, finally, for FY '24 or latest quarter, is it possible for you to give a revenue breakup in terms of seamless, welded on stainless steel and carbon steel and other segments?
No. That revenue breakup is not what we share. What we did in seamless, whether welded, overall, we have achieved -- the numbers are already there of what we have achieved.
Just one more question, sir, if I can squeeze in. I just wanted to understand on domestic capacity front, right, at least on the seamless side, from competitors have been coming up with new capacities, you are also expanding capacities slightly. So do you think there is enough domestic demand at least to absorb the incremental capacity? Yes, that's the question.
Yes. See, capacities in stainless steel is increasing, but by what process is important. We have always -- and we are -- we have put up the capacity with a process called extrusion, whereas whatever capacity coming in the country, which is [indiscernible]. The acceptability of where extrusion is required, [indiscernible] is not acceptable. So it's a different segment altogether. But for that particular segment, yes, the capacity is increasing, where we supply excluded the pipes also.
Sir, for your relevant manufacturing process extrusion, right, the 30,000 tonnes of sellable capacity on seamless side, against that, any idea on what kind of demand would be there right now in India?
All put together, maybe close to 80,000 to 100,000 tonnes.
Are you including the [indiscernible] and extrusion both or only extrusion?
Yes. Both combined. 80 to 100.
[Operator Instructions]
The next question is from the line of Mr. Vikash Singh from PhillipCapital.
Sir, I just want to understand since our mix of [indiscernible] SS pipes basically turned from 25% in the order book to 34%. Can we safely assume that the next 2 to 3 quarters of our margin should be on a [indiscernible] than the usual guidance that you make?
So our guidance still remains same, which is between 16% to 18% because in longer run, where the demand for oil and gas pipes in the carbon steel is muted. So more and more order booking will happen in water segment, where margins are quite competitive. Whereas on the other end, so we are -- that means we are going a little slow in carbon steel. If you see, normally, our order booking in carbon steel would be closer to INR 2,500 crores alone. So both put together, saying 16% to 18%, we can -- what we can say it can be on the higher side. But our guidance would be 16% to 18%.
Because basically in any reporting quarter, we may see a situation where in water pipes may contribute higher to the top line and the profitability may seem to be better. But blended is at the end of the year, that 16% to 18% range will be there because whatever is going to be loss in margins because of water contributing higher. That may get offsetted with better utilization of capacity in process pipes.
Understood, sir. Sir, my second question pertains to the competition. We have heard from some of the competitor that now the time for taking the approval, especially for the oil and gas has shrunk. So just wanted your view that is it still that the time period is very longer or it has actually shrunken, if it become much easier to take the approvals?
It depends from area to area, customer to customer. Maybe we talk about Aramco, the time taken is much more than it was. But if you take example of [indiscernible] in India, yes, the time taken has shrunk. So to generalize that it has shrunk, is not right.
Understood, sir. And sir, just one last question on [indiscernible]. In terms of exports, given today, the elevated cost of exports because of the petty factors, is the net margins in export is still higher than the domestic or is it vice versa?
At par, almost.
Okay. Even after the increased cost of the export and insurance, it's at par?
No, it is generally a pass-through.
Next follow-up question is from the line of Radha from B&K Securities.
So any plans on expanding the -- or converting -- I wanted to say the hot-finish to the cold-finish because the margins of cold-finish are given to understand that they are better than the hot-finish. And also, could you highlight on what could be the average margin difference between the two?
So to answer your first question, yes, there is a small expansion of capacity happening in the cold-finish facility. So once we utilize that, then maybe we will plan another phase of cold-finishing expansion. On the second, margin breakup for hot-finish and cold-finish, we would not be sharing.
Radha, basically, capacities are [indiscernible]. So hot-finish will remain hot-finish. Cold-finish, newer capacities need to be added, one thing. Second thing is, cold-finishing will have a better margin because further processing is done on the hot-finish material. So it is right.
The 1,200 to 1,500 tonnes of CapEx you mentioned, that was on the cold-finish side.
Yes.
Sir, I understand that we cannot speak on the margins on hot-finish versus cold-finish. So just wanted to understand that difference in margins between the two.
See, cold-finish will have a better margin because we see this further process over the hot-finish material. So definitely cold-finish will have margin improving.
But then the volume will be less, right? So it is -- the process is also more...
4% to 5% better margin, sir?
It depends upon the product to product and order to order. It can be better than 5% also.
Next follow-up question is from the line of Nitesh Dutt from Burman Capital.
I have a follow-up question on stainless steel welded side. So we have a capacity of roughly 20,000 tonnes, I guess, sellable capacity. So I want to understand, in terms of capacity, what percentage of market share would we have right now? And also, I was reading recently that the Indian government had initiated an ATD investigation last year. So in case that is favorable, can this be a big opportunity as well in terms of future expansion?
The ATD investigation was on stainless steel seamless pipes. Not on welded pipe.
Not on the welded pipe. I might be wrong, but I read it somewhere. Initiated in 2020.
Welded pipes, what we manufacture is not for the structural or architectural purpose. So if I remove that market, we would be close to 20% of the demand in India.
So basically 100,000 tonnes of demand again. And what would be the imports out of that 100,000?
Not much.
[Operator Instructions]
As there are no further questions from the participants, I would now like to hand the conference over to Mr. Sahil Sanghvi from Monarch Networth Capital for the closing comments.
Yes. I just would like to thank the management for answering all the questions, and also thank you for the participant to join the call. Manoj sir, Vimal sir, would you like to give any closing comments?
Thank you, Sahil. Yes. So with great emphasis, I again would like to highlight that our philosophy has always been to consider any decision on long-term setting sustainability and value creation in its core. The number of last 7 years support the same, wherein we have grown our revenues and profits at the CAGR of 19% and 23%, respectively.
We thank you all for participating in our earnings call and appreciate the patience in hearing. We wish you all the great time ahead. Thanks.
Thank you. On behalf of Monarch Networth Capital, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.