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Tega Industries Ltd
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Ladies and gentlemen, good day, and welcome to Tega Industries Limited Q3 and 9 Months FY '24 Conference Call organized by Orient Capital. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Bhavya Shah. Thank you, and over to you, sir.
Yes. Thank you, Adi. Welcome -- good evening, everybody, and welcome to Q3 and 9 months FY '24 Earnings Conference Call of Tega Industries. Today on this call, we have with us Mr. Mehul Mohanka, Managing Director and Group CEO; Mr. Syed Imam, Director, Global Project Manager and Head of Sales; and Mr. Sharad Kumar Khaitan, CFO.
Before we proceed with the call, I would like to give a small disclaimer that this conference call may contain certain forward-looking statements, which are based on beliefs, opinion and expectations of the company as of date. A detailed statement has also been given on the company's investor presentation, which has been uploaded on stock exchange. I hope everyone had a chance to go through the results.
Now I would like to hand over the call to Mr. Mehul Mohanka for his opening remarks. Over to you, sir.
Thank you, Bhavesh. Good evening, and welcome to all the participants on the call. On a YTD basis -- December basis, at a group level, we have generated total consolidated revenues of INR 1,004 crores and an EBITDA of INR 195 crores. In the quarter ended 31st December '23, we have reported consolidated revenues of INR 347 crores with an EBITDA of INR 58 crores.
Q3 performance has been impacted due to supply chain challenges arising from the Red Sea crisis and few instances wherein the conversion orders have taken longer-than-expected time lines. There have been shipment delays and higher freight costs in the second fortnight of December, emanating from the raging Red Sea crisis and the ongoing geopolitical tensions in West Asia.
Inventory as at December end went up due to such supply chain issues in quarter 3. However, we are closely monitoring the situation, and we had even planned shipments in advance, but things did not work out as anticipated towards the end of the third quarter. However, we have been able to accelerate the sales in quarter 4 till date, and we are confident of achieving the projected revenue growth on a year-on-year basis as per our earlier estimates.
We are happy to inform that the integration of Tega McNally with Tega is progressing as per our expectations so far. For the 9 months ending December '23, Tega McNally has recorded a revenue of INR 145 crores with an EBITDA of INR 15 crores. It may be noted that for FY '23, Tega McNally had recorded a revenue of INR 183 crores with an adjusted EBITDA of INR 10 crores.
We had earlier made an announcement of a wholly owned subsidiary company entering into an agreement with the largest copper mine in Europe to completely manage the wear product assets of the mines covering all mills and non-mills for a period of 5 years extendable by another year with minimum revenues over the contract period estimated to be at INR 685 crores.
We are pleased to inform you that we have started the maintenance operations effect from 1st January 2024, and it has been a good start for us. We have completed all groundworks, including finalization of designs, et cetera, for the Chile project. And as communicated in our last investor call, we have received most of the regulatory approvals. While few approvals are expected to be received any time, we shall start the project latest by April 2024.
We are pleased to inform that we have also opened a new subsidiary in Peru, which has significant mineral reserves and presents substantial business opportunities in mining for us. We're also delighted to announce that Tega India Limited and Tega Losugen Australia have attained the Great Place to Work certification. This recognition underscores our dedication to cultivating an exceptional workplace environment and thriving corporate culture.
Tega has always recognized the significance of environment, social and governance stewardship. This commitment extends beyond our Indian operations to our global endeavors as we work diligently towards achieving reducing carbon footprint.
Furthermore, we have a strong order book at a group level of INR 673 crores as at December end vis-a-vis an order book of INR 480 crores as on 1st April '23. That is an increase of INR 193 crores, that is 40% during the 9-month period ending 31st December '23. In conclusion, I would like to express our sincere gratitude to all our investors for their unwavering faith in our company.
Thank you all. And now I would like to hand over to Sharad to take you through the financial performance of the company for the period under review.
Thank you, Mehul. A very warm welcome to everyone, and thank you for joining the earnings call for Q3 of FY '24 and YTD December '23 performance. For the 9-month period ending 31st December '23, we have generated a total revenue of INR 1,004 crores, up from INR 832 crores same period last year.
Overall, at a group level, on a YTD basis, the revenue from operations has grown by approximately 21%, that is from INR 818 crores last year to INR 989 crores this year. This includes the addition of the Equipment segment, which contributed approximately INR 147 crores. Thus, on a like-to-like basis, the Consumables segment grew by about 3% from INR 818 crores to INR 841 crores.
The overall group EBITDA has grown from INR 182 crores to INR 195 crores in the 9-month period compared to same period last year. For the 9-month period ending 31st December '23, we have achieved an EBITDA of approximately 20% at a group level. There has been a certain onetime expenses during this 9-month period of approximately INR 8 crores, which if adjusted, would have taken the group EBITDA to approximately 21%.
The Consumables business segment achieved an EBITDA of 21% and the Equipment business segment recorded healthy EBITDA margin of 11%. On a quarterly basis, the Q3 total revenues at a group level have been INR 346 crores, up by INR 39 crores from same period last year. However, there's a fall in the operating EBITDA from INR 67 crores to INR 57 crores.
As already updated, Q3 performance of the Consumables business segment vis-a-vis sequential quarter and same period last year was impacted due to the Red Sea crisis, geopolitical tensions in West Asia and customers in few geographies taking longer-than-expected time lines for the conversion orders.
There was significant increase in the shipping costs at the fag-end of the December quarter, which led to delay in few shipments and increased the transit time of shipments as well. The situation has improved. We have been able to make up most of the sales, which had been deferred, and we are on track for achieving a 15% revenue growth on a Y-o-Y basis as per our earlier guidance given.
We have closed -- one more point to be noted here. There has been an incremental increase in the stock of about INR 20 crores over March '23 levels, which has impacted the Q3 revenues by about INR 45 crores to INR 50 crores. With this revenue for Consumables segment for Q3 would have been close to INR 335 crores, resulting in an EBITDA to the tune of 22%.
On a YTD basis, revenues would have been INR 890 crores for the Consumables segment with an EBITDA of 21%. We are closely monitoring the situation, are in constant discussion with our customers, including evaluation of alternate routes if required, such that the customers aren't impacted in any manner. Thank you very much for your attention, and the forum is now open to any questions you may have. Over to you, Bhavesh.
[Operator Instructions] Our first question is from the line of John from Birla Mutual Fund.
Just wanted to sort of dig deeper into the increase in freight rates due to the Red Sea issue. If you, a, can quantify the impact that you saw due to higher freight rates, a; and b, were there sales deferrals? And how much was that? And thirdly, Sharad spoke about some inventory impact of INR 40 crores or INR 45 crores. If you can just elaborate on what that means actually. Those are my first -- that's my first question and then pop on my second one after that.
Yes. To answer your question, the freight levels for the major part of the 9 months ended December '23 were lower than last year because only at the fag end of December, the second fortnight of December, where the freight rates went up. It does not impact us too much because all this increase in freight rates is a pass-through, which we pass on to the customers. So we don't see an impact of these increased rates because it's a pass-through for us. It is then passed on to the customer.
The second part is what I spoke about the increase in inventory. There has been an incremental increase in stock of about INR 20 crores at cost level, which if translated into revenue would have been about INR 45 crores to INR 50 crores. If I add up these revenues to my Q3 performance, my Q3 revenues for the Consumables segment would have been INR 334 crores, INR 335 crores, resulting in an EBITDA of 22%.
For the full 9-month period, the revenues for the Consumables segment, if I would have taken this additional sales of INR 45 crores to INR 50 crores would be to the tune of INR 890 crores with an approximate EBITDA margin of 21%.
Understood. Just a follow-up on that. Because we've been able to manage gross margins for the quarter, it's largely a higher fixed cost and other expenses that sort of eaten into the margins. So you're saying that the freight cost actually didn't really impact. So the INR 80 crores other expense does not include any, as in whatever freight cost was there was already realized from the customers, that will happen with a lag.
Yes. If the sales would have crystallized, which has got crystallized in Q4, if the sales would have come in because the fixed cost remains fixed as it is and it is there in my P&L. If the additional revenues would have come in, the entire margins would have been a pass-through and would have impacted my EBITDA.
Sure. My second question was on the sales guidance. Because if I heard you right, you said you are on track to meet the 15% sales target, but I thought that was higher, right? It was about 20% plus?
No, we always give a guidance of 15% for the Consumables segment and the equipment segment, we have always retained the target of under guidance of 15-odd percent.
But you've already done 21% in 9 months. So do you expect sales growth to decelerate in Q4?
No, no. What you have seen this 9 months period, it also includes the revenue from the McNally, which was not there corresponding last 9 months.
Got it. And my third question and final question was to understand the prospects. So if at all, either Mehul or Mr. Imam can speak about the number of mines that we are working with for conversions, et cetera, because you also mentioned that mine conversion is taking slightly longer. How do we get some confidence on slightly medium-term growth outlook in terms of conversion? So if any granular data or elaboration on that will help.
So, in general, when we are talking about 15% growth, we are looking at our overall -- all segments working on that factor only. So in fact, if you look at one of the major orders that we've got, which is going to impact the growth for the next 5 years from the mines in Europe. I mean, we have said total in the next 5 years, we have the total contract is 685. So that's going to sit on that. That is the biggest conversion that has happened.
In the meantime, we are working on to increase the market share across all territories, both with our mill and non-mill product. And we are on track and the percentage increase this year as well as the full impact of the increase in the European mines that will come into play next year will be felt on the revenue growth.
[Operator Instructions] Our next question is from the line of Jinesh from Niveshaay.
I have a couple of questions. The first one is, I missed the previous analyst question. What led to the drop in margins in Consumable business? Like are we expecting them to recover at similar previous levels?
Pardon. Please, can you repeat your question?
Yes. What led to the drop in margins in Consumable business? And are we expecting them to recover to similar levels?
So like we have already informed, there has been a little deferment of the Q3 sales. We retain our projections, our guidance what we gave for a 15% revenue growth and maintain an EBITDA margin of 20% to 22% for the full year basis. There has not been any decline in my gross margins per se as such.
And the next question is, when was the smart products introduced and do all our products have those features? Like, how has been the initial response from the customers? And what other customizations have provided to give us the edge over our competitors?
Sir, we have not been able to hear you properly. Can you please repeat your question?
Yes. Sir, my question is, when was the smart products features introduced? And do all our products have these features? And how has been the initial response from our customers? Like, what other customizations have provided us the edge over our competitors?
So smart product is a product in the testing phase now. It is going -- it was in the R&D phase. Now it has moved to commercial testing at customer places where we are getting -- the response from the customers are pretty good because they are looking at something to take connected information from the product into the control room.
So this is the first -- I think we -- once we get the results over the testing of 3 to 6 months, then only the smart product will be introduced commercially. So it's not been introduced commercially even now because it's in the testing phases, the last stages, which is the beta stages of testing.
And the next question is, what would be the 9-month FY '24 bifurcation of revenue from our products between copper and gold mining? Like, are these products different for like copper and mining?
No, no. You're talking about -- see, copper and gold, as we have said, 75% of liner requirement comes from copper and gold. And that will continue to be there because, again, the growth in the production in copper as well as gold, both from declining grade and the production is going to increase in the next few years also. So we look at copper and gold continue to have the predominant this thing in our database.
And the next question is, there has been increase in copper mining activities due to renewables and EV. How is the traction from these activities in the form of more inquiries or customer conversion?
Actually, copper mine production has not increased this year. There has been quite a few problems, especially in Chile, which is a climatic problem. In Peru, they had some social problem. And in Panama, one of the biggest mine Panama Cobre, which went into onstream had closed down. So copper increased in the second half of the calendar year in '23.
And overall, copper 1% has growth in the mine production. But copper total production has increased by 4%, 4.5% because of the late start next year in the second half. And I think from next year onwards, we'll start seeing much more traction. A couple of other mines are coming into onstream. So that will also be increased in the production as well as our demand for our goods.
Correct. The next question is like there is a cost-plus formula that passes the inflation to our customers with a reasonable lag. So what is that lag time approximately? And do we have the same arrangements with all our customers?
Yes, 1 to 2 quarters. And if you see our gross margin over the years, you will find our gross margin continues to track what we -- on a similar range. And if you see that we still maintain it. So with a lag of 1 or 2 quarters, depending upon the contract level, we are able to pass on our price increases.
Okay. And sir, do we have gained market share in mill liner business over the years? And what's our current market share?
See, the market, you have to see it like this. The copper and gold as well as the liner market is growing at 5%. We are growing at 15%. So we are only growing because we are gaining the market share.
Okay. Got it. Sir, competitors have high services revenue, but Tega does not have. So any specific reason for the same? Like, how are you looking to provide them?
No. Again, competitors, who are you looking at in this service segment?
Sir, I'll need to check out with my analyst. Okay, I'll get back to you on that.
I'll tell you, I mean, if you are looking at Metso and FLSmidth, et cetera, the problem is that they have a whole range of CapEx equipment. So one we are looking at when we have got McNally, a long-term intention is that also. So for the CapEx, they have a lot of service segment over there, okay?
But if you look at like-to-like our product line, then you will not find people with that high service content. But at the same time, now when we are looking at it, we'll be building up the service content going forward.
Yes. And sir, like are the products installed by Tega only? Or like is that a part of overall contract for extra revenue charge?
No, no. That's why I said, most of the products that are going in, the installation is done by the customer, except for the project we got in the Europe now with the large listing where the service is a big component over there also. So that is where -- how we are going to go forward.
Yes. And sir, I missed the initial questions asked by an analyst. How has the freight cost affected us due to Red Sea or the Israel war? And what's the current status as of now?
The freight cost for the 9 months or for Q3 hasn't impacted as such because these rates increased in the second fortnight of December. What has happened is certain shipments have got delayed, which has now been crystallized in Q4. And any increase in the freight cost, we pass on that to the customer as per our terms and conditions. So it will not have any bearing on our P&L.
[Operator Instructions] Our next question is from the line of Kunal from B&K Securities.
My first question is pertaining to the mill liners. You did mention that you've been growing faster than the market and essentially means that you're gaining market share. So this gain in market share is largely from local players? Or -- if you can share some insight into who are the key players from where you're winning market share and in which markets?
We are gaining market share globally, okay? So when we are gaining market share globally, we are against all the major global market share players like Metso, okay? So -- Elecmetal or Bradken who are in the steel liner and others on our product line, okay? So our market share is mainly -- gain is from international global players.
Sure, sir. And sir, my second question is pertaining to one of the reasons you did mention about there is some customer -- delay in customer conversions. So if you can talk a little bit more about what are the key reasons in terms of this delay in customer conversion? It is more external specific? Or is it that certain discussions are taking longer time or product approval is taking longer than expected?
No, no. It was what we were discussing for the impact on quarter 3, okay? What has happened is some of the orders which has come in has come in a little later than the total life cycle that we were there. And again, it's not a very big substantial number. As Sharad pointed out, the impact was an inventory going up by INR 20 crores, okay? So that is where it has happened, and those things have come in now. So it's not a question that it is stuck in there. We are saying that it took us a little longer than we had anticipated.
Okay. It was just that it didn't come in Q3.
Correct.
That's a timing issue. And in Q4 till date, we have been able to make up most of those. And hence, we have reiterated that we keep our guidance of full year retained as it is what we gave last time.
Our next question is from the line of Alisha from Envision Capital.
Sir, just a quick clarification. For the equipment business, the 9-month revenue is INR 147 crores, correct?
Yes.
Then our Consumables business would have barely registered a 3% growth, and we're still talking of a 15% growth for both the divisions?
Yes, ma'am. Because like I told you earlier also, ma'am, the deferment which has happened in Q3, that's got an impact of about INR 45 crores to INR 50 crores. If I factor all of that, then on a YTD basis, I am pretty safe with about 10% revenue growth on a YTD December basis over last year. And with our projections, we are very confident because anyways, we have -- January has gone by, and we have booked almost all of the sales lost. We are confident of retaining our full year numbers and estimates. And to add to it, we will have a healthy order book, which will help us meet our expected targets.
So coming to the order book of INR 673 crores, this is Consumables plus Equipment?
Yes, ma'am. We gave -- for the entire order book for the group is what we quote ma'am.
INR 673 crores?
Yes.
Okay. And just now coming to the Equipment business. It did INR 183 crores of full of last year, though I know we consolidated only for 5 weeks. And we're expecting this business also to grow at 15%. So again, the ask for Q4 will be significantly higher. Is that looking achievable?
Yes, ma'am. both for the Consumables segment and the Equipment business, we will be able to have the numbers in place because even in the Equipment business, we have a very healthy order book that should help us get to the targets and estimates what we have given earlier.
Okay. And is it possible to share how much is the order book for equipment of the INR 673 crores?
Ma'am, we generally compare this order book at a group level because the industry is the same where we supply our products, either it's Consumables or Equipment. So we don't want to give the split at this moment. But what I can assure you is that it's a healthy order book, both on the Consumable side and the Equipment business side. And even if you see traditionally, Q4 has always been the best quarter for us in any financial year.
Understood. Perfect. Okay. And this INR 673 crores will be executable over 4, 5 months?
Ma'am, for the Consumable business, it's about 4 to 5 months, except for some long-term contracts. And for the Equipment business, it's about 8 to 9 months sort of time period, what we see.
Okay. And just one last question, an update on the CapEx that we had proposed to do.
Ma'am, that CapEx is in -- like Mehul told in his opening remarks, we are on track for our project, ma'am. Most of the compliances has been received. A few are in pipeline, and we expect the construction to start anytime in April.
We were expecting this CapEx to come on stream in H1 of FY '25 originally?
Ma'am, the construction will start in April '24 and the production will start from April '25.
Okay. I'm just trying to check, has there been a delay in time lines. Because I believe the earlier time line was mid of this -- mid of next financial year, FY '25 is when this due plant is supposed to start in Chile.
Ma'am, even in the last investor call, we spoke about construction starting in FY '24-'25 and the production starting in FY '25-'26.
Okay. So what is the current capacity utilization?
The current capacity utilization is around 60-odd percent ma'am. 60% to 65% is our capacity utilization.
This is on nameplate, right? So is this the peak? Because I do know that we can't go beyond 65%, 70%.
65% is the capacity utilization. So in a particular month or this thing, it goes in. What we do is we continue adding capacity once we start going up to 70% in any of our this thing. So as it is this expansion and all are being done because of this.
So when we are talking about overall capacity utilization in a particular month with this thing, it can go as much as 80% or 85%, okay? It's not a nameplate only capacity. So we can actually do 85%, 90% on that.
Our next question is from the line of Amit from PL Capital.
My first question is on the guidance, which we are providing for this year and next year, roughly about 15%. Just wanted to understand how much volumes you are factoring in, in that? And second thing, if you can provide color on volumes growth in mill liner and non-mill liner for first 9 months, that would be helpful.
Sir, we don't give this breakup of bifurcation between liners and non-liners because of confidentiality reasons. As far as your first question is concerned, we are expecting a growth of about 15% for the -- revenue growth of about 15% for the full year. 3%, 4% will be contributed from the exchange gain and the remaining 10% to 12% will come from volume as well as price gain.
Sure. And on the copper mine in Chile, where we got the INR 685 crores contract, what is the delivery duration of this contract?
Sir, it's not in Chile, it is in Europe.
This is in Europe. Okay. So what's the delivery time line?
Sir, it's a CPT service contract, and the contract is for 5 years, extendable for another 1 year.
Okay. And lastly on...
Billing will start from January.
Billing will start from January. And so we are going to realize this in FY '25 itself?
We have already started the billing from January '24. So it's a monthly invoicing, what we will do to the end customer.
Okay. And lastly, I wanted to understand on any new product developments, just like DynaPrime has been contributing from past 4, 5 years. Any new product development which has advanced and can come up in next 2, 3 years, if you would like to highlight on that front?
So there are a number of new product projects which we are working in. R&D is working in a number of new projects, and these are in the process of patenting, okay? We are looking at both digitalized projects and other products. So it is difficult for us to give the ideas about what products we are working on now. Because once the patent process is over, then we will announce those products.
And sir, one more thing on inventory. Was it -- like INR 20 crores you mentioned the cost of inventory. Was it because of no offtake from the customer? Or is it because of the Red Sea that was not delivered? Anything you want to give more color on inventory?
Sir this INR 20 crores inventory, which has risen, it's for two reasons I mentioned earlier. One is for the supply chain issues, which we faced at the December end period. And there were even a few cases where the customers picked up the inventory late actually.
Our next question is from the line of Raj Shah from Marcellus Investment Managers.
So my first question was regarding the guidance. Sorry, but I have some confusion over here. You said it is 15% revenue growth. Now I have a question whether this is consumable -- F '23 consumable business, that is organic 15% growth or you are considering the McNally acquisition as well within the...
No, no. It's an organic 15% growth we are giving.
Got it. Got it. So if my understanding is correct, that implies that in Q4, you are expecting INR 510 crores, INR 515 crores worth of consumable sales?
Yes.
Got it. Got it. Now second question was regarding the order book. If you can just help us understand to what extent is this -- is the order book attributable to the long-term contract that we won in Europe?
The major part of the order book, what we see is for -- for Consumable business, we see 5 to 6 months of expected delivery. A very small portion of that is for the long-term contract.
So I mean, is it fair to say that since you've started billing from January, it is just for the quarter or 3 months, not for the entire year that you have booked in the order book?
A little more than the quarter, but not much actually.
Got it. Got it. And can you share order book numbers between Consumables and Equipment?
We track it on a console level because we serve the same industry. So we keep it at a group level, the order book number.
Okay. Got it. Lastly, if Mr. Mehul can share some thoughts on how the integration of McNally is going on? Are the sales teams have been integrated or not? If you can just share your thoughts.
Yes, sure. From an integration perspective, we have a certain milestone-based plan. And those plans include not only an org structure, structuring, including some process changes, improvement in cost of manufacturing, upgrading the equipment spend on processes in terms of IT-enabled processes as well as improving the quality of the products and investing in upgradation of technology of the product.
So all of those actions are in place. And I had earlier said that it's going to be a 24-month walk to be able to get all of that implemented, and we are right in the midst of it, and it's tracking as per expectation.
Okay. Okay. So after taking over, I mean, there are no surprises that we should expect, right, in terms of...
No. In fact, if you actually look at it, I mean, based on our results, we've improved the EBITDA margins as well. So from the time when we've acquired the business, not only has the revenue beginning to trend up, even the margin profile has improved and the margin percentages have improved. So that's reflective of the improvements in the operation.
Our next question is from the line of Mehul, an individual investor.
Congratulations on good set of numbers. Actually, all my questions have been answered.
As there are no further questions from the participants, I now hand the conference over to management for the closing comments.
Thank you very much for your attention, and we look forward to meet you and interact with you again in the next investor call. Thank you very much.
Thank you. On behalf of Tega Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.