Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- The company's treasury improved significantly, reaching INR2,203 crore as of June 30, 2024, and generated substantial returns.
- The order book increased from INR1,754 crore to INR1,812 crore, indicating a strong demand environment.
- No ICDs to unrelated entities or corporate guarantees are outstanding, resolving a major concern from previous years.
- Dividend for FY24 was quadrupled compared to FY22, showing a commitment to shareholder returns.
- The seamless pipe market remains buoyant, driven by strong demand in the capital goods and oil and gas sectors.
Negative Points
- EBITDA fell by 54% to INR126 crore, and EPS fell by 40%, indicating a significant decline in profitability.
- Sales realization fell due to increased competition, lower raw material prices, and dumping from Chinese manufacturers.
- A preventive maintenance shutdown in one of the mills led to a production loss of around 15,000 tonnes.
- High-value orders were not dispatched due to the shutdown, leading to an inventory markdown and impacting earnings.
- Exports have been slow for more than a year, with no significant revival in key markets like the US and Canada.
Q & A Highlights
Q: Can you elaborate on the markdown on inventory mentioned earlier?
A: At the start of the quarter, we had high-value orders backed by inventory purchased for those orders. Due to a preventive maintenance shutdown, these orders were not dispatched, and raw material prices fell during the quarter. Consequently, we had to mark down the inventory to comply with accounting standards. This markdown will be nullified once the orders are dispatched in subsequent quarters.
Q: What was the production loss due to the shutdown?
A: The production loss was around 15,000 tonnes. However, we managed to finish and dispatch quite a bit of work-in-progress inventory during this period.
Q: What is the execution period for the drilling pipes in the order book?
A: The execution period for drilling pipes is very long.
Q: Is the margin profile better for cylinder pipes compared to other products?
A: Yes, cylinder pipes are high-value addition products, and their margin profile is better than regular pipes. We aim to increase the contribution of value-added pipes as a percentage of total dispatches.
Q: Do you expect pricing pressure to continue for the rest of the year?
A: While I cannot comment on raw material pricing, I do not expect the selling price to fall significantly from current levels.
Q: What percentage of the order book is usually hedged with raw material?
A: Almost the entire order book is hedged with raw material, with an insignificant portion kept open.
Q: What is the market size in the US and Canada for seamless pipes, and are there any opportunities in the Saudi region?
A: We do not export to the Middle East. The market size in the US and Canada is very large, but exports have not revived for us.
Q: Can you give weightage to the three reasons for the EBITDA drop?
A: All three factors—fall in sales realization, preventive maintenance shutdown, and inventory markdown—had equal weightage in impacting our EBITDA.
Q: What is the status of the Telangana unit CapEx and the hot mill upgrade?
A: The Telangana finishing line is expected to be completed by December 2025. The hot mill upgrade will only happen once the Telangana unit is fully operational to compensate for the loss of production during the upgrade.
Q: What was the average drop in raw material prices this quarter?
A: The drop was significant enough to reduce our EBITDA per tonne from INR22,000 to INR9,000.
Q: What is the status of the buyback?
A: There is no update on the buyback. We have quadrupled the dividend payout for FY24 compared to FY22, but no further updates on dividends or buyback for the current financial year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
