United Drilling Tools Limited has informed the Exchange about Transcript of Analysts/Institutional Investor Meet/Con. Call

UNITED DRILLING TOOLS LTD. CIN : L29199DL1985PLC015796 OIL DRILLING EQUIPMENT MANUFACTURING AND SERVICES Phones oe Please Reply to Head Office Fax No. : is -0120-2462675 A-22, Phase-ll, Noida-201305 Distt. Gautam Budh Nagar, From out side Gountty “91-120 Uta Frc bo From out side State -0120 E-mail : ENQUIRY@UDTLTD.COM From New Delhi -0120 Website : WWW.UDTLTD.COM 23/08/2022 UDT/SEC/ 2022-23 / BSE-42-NSE-42 To Listing Compliance Department Department of Corporate Service National Stock Exchange of India Ltd. BSE Limited Exchange Plaza, C-1 Block-G, Phiroze Jeejeebhoy Towers, Bandra Kurla Complex, Bandra (E), Dalal Street, Mumbai- 400001 Mumbai - 400051 Security ID - 522014 Security ID - UNIDT Sub: Transcript of Earning Conference Call dated 17.08.2022 Dear Sir/Ma’am, Pursuant to regulation 30 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, enclosed herewith the transcript of earning conference call on un-audited financial results (standalone and consolidated) for the 1st quarter ended June 30, 2022. This is for your information and record. Thanking You, Yours faithfully For United Drilling Tools Ltd. Company Secretary M. No. F-6079 Regd. Office : 139A, First Floor, Antriksh Bhawan, 22 Kasturba Gandhi Marg, New Delhi - 110 001United Drilling Tools Limited (UNIDT) Q! FY 2023 Earnings Conference Call August 17, 2022 4:00 PM IST UNITED DRILLING TOOLS LTD UNITED DRILLING TOOLS LTD QIFY23 POST RESULT CONFERENCE CALL Management Team Pramod Kumar Gupta - Chairman, Managing Director Dr Kanal Gupta - Whole Time Director Mukesh Mehta - Chief Financial Officer Call Coordinator (x KAPTIFY’ Strategy & Investor Relations Consulting Page 1 of 20 Presentation Moderator: Kanai Gupta: United Drilling Tools Limited (UNIDT) QI FY 2023 Earnings Conference Call August 17, 2022 4:00 PM IST Good afternoon, ladies and gentlemen. 1 welcome you all to the Q1 FY23 Post Earnings Conference Call of United Drilling Tools Limited. Today from the management we have with us Mr. Pramod Kumar Gupta, Chairman and Managing Director; Dr. Kanal Gupta, Executive Director; and Mr. Mukesh Mehta, Chief Financial Officer. As a disclaimer, | would like to inform all of you that this call may contain forward-looking statements, which may exemplify our judgment and further expectations concerning the developments in the business. These forward-looking statements involve risks and uncertainties that may cause actual development and results to differ materially from our expectations. Also, this is a reminder that this call is being recorded. 1 would now request the management to kindly brief the participants a bit about the business, the performance for the current quarter post, which we can open the floor for Q&A. Over to you, sir. Good afternoon to all the participants and we thank you for your time and interest in UDTL. I'd aiso like to thank Kaptify Consulting and Mr. Vinay for organizing this event. We will believe that you all would have preliminary understanding about our business and operations, a brief about United Drilling Tools is that UDT is a global manufacturer of high quality precision engineering products in our stream and oil and gas exploration. It is a single manufacturer of several oi] drilling items such as Wireline Winches, Stabilizers, and large OD mullti-start connectors in India. It's a solution provider with presence in downhole tools, wireline, well service equipment and gas lift equipment. This leads to a 60% market share in the upstream drilling tools and equipment market in India. We have a good pedigree management with four decades of deep indusiry experience for serving in the oil exploration and production sector. The company has four state-of-the-art and technology focused manufacturing facilities across Noida and Gujarat. The company has an integrated value chain from being a stabilizer manufacturer to manufacturing various oilfield drilling and production equipments. Key business highlights are, development of new product lines such as side pocket mandrel, swift connectors, and lynx connectors are under process, which have demand in Indian and overseas market. We are registering Into more and more countries and are getting repeated Page 2 of 20Mukesh Mehta: United Drilling Tools Limited (UNIDT) QI FY 2023 Earnings Conference Cal] August 17, 2022 4:00 PM IST orders from Vietnam and Egypt. Also, we have registered and gotten orders from new companies like Shelf Drilling and Gulfwell. Due to COVID-19 pandemic, Indian PSU's like ONGC were not able to drill a complete number of wells that were planned by them in the last two years. This led to them having surplus quantity and inventory stock, which they are utilizing now and due to waste they have not procured material in this quarter and have deferred their procurement plan till the next quarter. This is a temporary phase as ONGC and Government of India both have announced in the past that they are trying to increase the domestic production in oi! and gas that will lead to drilling of new wells. We have sold products like casing, stabilizer and gas lift equipment to various domestic and global customers, which is 16% more than the Q1 PY '21, '22. We currently have orders in hand INR 70 Crores and in which export is around 10% to 12%. We have submitted INR 200 Crores approximately bid and in which export is about 20%. Local approvals for our new upcoming project in Gujarat near Mundra port have been done and it is in construction phase. The future business strategies include increasing registration in international markets, adding footprint in Southeast Asia, Middle East, Russia, and South America, scaling capacities of all product lines, increase product range via organic and inorganic routes, reduce costs of production, and enhance revenue potential profit margins. Now I'd ask Mukesh Mehta ji to please kindly go through the results of Q1 FY '22, '23. Mehta ji, you are on mute sir. Thank you sir, Good afternoon, everyone. turnover in the Q1 '23 is INR 36.99 Crores, which is 16% more than Q1 FY '22 and whereas EBITDA is INR 5.44 Crore and EBITDA margin is 14.70%, whereas in QI FY '22, it was INR 20.20 Crore and EBITDA margin was 63.60%, Profit before tax was is in the current quarter INR 4.42 Crore and in the last year QI FY '22 it was INR 19.33 Crore and PAT is INR 3.12 Crore in QI] FY '23 whereas in the Q] FY '22 it was INR 14.12 Crore. PAT margin is 8.43% in QI '23 and 44.46 % was in QI '22. EPS in Q1 '23 is INR 1.54, whereas in QI '22 it was INR 6.95 . So, the -- there is a dent on our margin, the reason for the reduction in the margin is due to the raw material, which we bought in the last year at high price and our product mix also -- product mix in this quarter we sold the products, which are low margin products and high material costs, Whereas in the Q] FY '22 we sold high margin products, which are winches and connectors, Therefore the profil was Page 3 of 20Kanal Gupta: United Drilling Tools Limited (UNIDT) Q1 FY 2023 Earnings Conference Cal} August 17, 2022 4:00 PM IST more in that quarter. So fixed overheads also have been increased by INR 2 Crore in the quarter one FY '23 comparing quarter one of FY 22, So, I transfer to Dr. Kanal Gupta for question-and-answer session. Thank you, Mr. Mehta. Before the question-and-answer session, I'd like to add a few more points. That, as Mr. Mehta had said that the profits have been reduced since raw material brought in the last year was at higher price. In this quarter, the products that were sold were of low margin profits like gas lift equipment, stabilizers, and casing pipes. There was an increase in raw material price of approximately 30% due to this the impact on our profit was 15%. To establish ourselves in the export market, we had to somewhere compromise with the profit margins in comparison to the profit margins in domestic market as we are a new company in them. This will get better once we get established. Further we have to give some percentage of commission to our overseas sales representative in that. The fixed overheads in QI FY '22, '23 has been increased by INR 2 Crores approx.., which has impacted our margins by approximately 6% in this quarter compared to the last year quarter Q1. We need to hold higher inventory of raw materials since private and export orders have shorter cycle delivery periods of three to four weeks versus the domestic PSU orders, which are about four to six months. We are sitting on high levels of inventory due to the lengthen delivery periods of steel suppliers, which we saw in the past and which was of higher price whereas the new contract of private and global companies that CEBA [Ph] executed at low steel price. The revenue breakup was that 75% was approximately casing pipe, 10% was approximately gas lift valves and mandrels and 15% was stabilizer for the QI FY '22, '23. For only Indian PSU orders, we have an understanding with the steel supphers of a back-to-back firm prices. While this issue is expected to impact our margins for one more quarter, we are in talks with professionals to evaluate options for hedging our steel inventory to mitigate volatilities on account of steel price. We have also seen that the same thing is also impacting other players who are competing with us in this business. I'd now request Vinay ji to start the question-and-answer round, please. Thanks. Page 4 of 20Moderator: Saket Kapoor: Kanal Gupta: Saket Kapoor: Kanal Gupta: Saket Kapoor: Kanal Gupta: United Drilling Tools Limited (UNIDT) Q1 FY 2023 Earnings Conference Call August 17, 2022 4:00 PM IST Sure, Kanal. Anyone who wishes to ask a question may use the option of raise hand. Alternatively, you may unmute and ask your question. Saket ji, please go ahead. Namaskar, Kanal sir. Namaskar sir. Sir, first we would like to understand as being explained to us. We would like to understand the continuity of the factors that that will lead to these margins being the order of the day for the forthcoming quarter [Hindi Language] [0:10:03] as being concluded by the company person, it has been stated that even going forward also, these will be the new margin said because of we trying to get our foot in the export market. So if you could delve more into it, what kind of operating environment are we looking into? And sir when we had this conversation in the fourth quarter, if I'm correct, we were not briefed about the product profile changing in just in one quarter itself. And we were of the view that the margins would be in the same vicinity, as has been the March quarter. So where has been the enormity and how have things changed in just one quarter? So correct me sir where I'm making wrong again. Can you Saket ji, can you please repeat your question sir, again? Sir, my gueslion is regarding the dip in margins, which you have elaborated that because of our getting our foot or getting ourselves recognized in the export market, we need to sacrifice the margin build our brand. So and also you'd point that this is going to continue for at least for one more quarter. So, we would like to understand firstly, the operating environment for the company in the product profile. And since last quarter conversation, ihe inventory buildup was there, but we were not informed about the change in the product mix or there would be a significant change in the margin profile. So, there has been that disconnect that has happened sir, And this I think this quarter also there is a buildup in inventory. So what could be the impact going there sir. These are my points sir. So the first question that you've asked sir till last year, till before last io last year, we were selling mostly to the domestic PSU market. And from last to last year it was around 2%, which was to private and export. Now, last year, we had done around 5% to 6% we actually increased and similarly this year also we are hoping that around 10% Page 5 of 20Saket Kapoor: Kanal Gupta: Mukesh Mehta: Pramod Kumar Gupta Mukesh Mehta: United Drilling Tools Limited (UNIDT) Q] FY 2023 Earnings Conference Cail August 17, 2022 4:00 PM IST to 15% of our total revenue will be through export and private companies. Coming back to the point that last, that the difference is that Oil India and ONGC are the major customers that was there before. And as | stated that because there were Covid impact in last two years, they were not able to drill the complete number of wells, which was planned and they had inventory on stock. So, first this quarter and next quarter, they have stock for that already available and they are utilizing their stock now post that they will not have stock for the casing pipe with connectors and the products that we sell. So now they will be requiring to procure that, which would effect that in the EBITDA margins and the margins we will see improving in after the next quarter. For export also see what has happened is that we had bought the raw material in last year from January to March, because the steel price was high and we were getting the delivery was around seven to 10 months. And because of that, and the orders that we had to execute, which usually the delivery period is for either PSUs or to the private and export is for private and export is three to four weeks, and for PSUs it's four to five months. So we had to keep certain amount in stock so that we can curtail to any orders which will come through that. So, to answer your first question sir, that that is a difference which has happened between the last year quarter Q4 and QI and Q2 right now, but we are hopeful that this is going to improve in the Q3 and Q4 results. Sir when we are procuring order from our customers there is a back- to-back arrangement of raw material or there is a lag effect Do you want to say that there is an inventory mark down because of the correction in steel prices that has resulted in lower margins? Mehta ji, would you like to answer that sir? There is a back-to-back arrangement, but in the last year, there was some volatility of the raw material, lead time of the raw material was also increased. So, inventory was increased and in back-to-back order , price of raw material is firm and sometimes we have the ESCROW arrangement with the vendors also. Mehta, may | answer that? Yes sir, Page 6 of 20Pramod Kumar Gupta: Saket Kapoor: Pramod Kumar Gupta: Kanal Gupta: Pramod Kumar Gupta: Mukesh Mehta: Saket Kapoor: Mukesh Mehta: Saket Kapoor: Mukesh Mehta: Saket Kapoor: Kanal Gupfa: Saket Kapoor: United Drilling Tools Limited (UNIDT) Q1 FY 2023 Earnings Conference Cail August 17, 2022 4:00 PM IST Okay. Sir, we have two types of customers, we have PSU customers like ONGC and Oif India where they give us about six to eight months' time to supply the material. So, in those cases, we have back- to-back arrangements with our steel suppliers. But in case of private customers and export customers, we don't have that arrangement. So, in order to cater them, we have to keep inventory also and supply that without that facility of hedging or back-to-back arrangement. So that is one of the reason why our prices, we have to take a hit in this particular quarter with regard to our profits. Does that answer your question or do | need to? in absolute number sir can you give that number that would have impacted, had this not been an inventory write down, when the steel prices have corrected, we have procured it earlier at the peak of the cycle that this is what the understanding is. So, can you give the effect of the inventory markdown that has happened? i would say | think it was around 15% Mehta ji for saying. Yes, the impact of a profit was 15%. It has impacted our profit about 15%, right? Yes, 50% is the material cost and 30% was the increase in the raw materials that makes about 15% impact on eur EBITDA margin. So 15% is reduced and another 6% by overheads, which have been increase in Q1 23. Sir, current order book is of INR 70 Crores sir, you have mentioned in your opening remarks? Yes, And can you provide the split between PSUs and export and the private sir? INR 10 Crore is the export out of INR 70 Crore. And we have some orders from PSU also. That the breakup between PSU and the private players? ‘That we will have to check and get back to you. And what is the executable period for it? Page 7 of 20Mukesh Mehta: Saket Kapoor: Mukesh Mehta: Saket Kapoor: Mukesh Mehta: Pramod Kumar Gupta: Saket Kapoor: Pramod Kumar Gupta: Moderator: Suhrid Deorah: Pramod kumar Gupta: Kanal Gupta: Pramod Kumar Gupta: Kanal Gupta: Subrid Deorah: Kanal Gupta: United Drilling Tools Limited (UNIDT) Q! FY 2023 Earnings Conference Call August 17, 2022 4:00 PM IST In the current year. And in the current year still 9 months are remaining so this INR 70 Crore will get executed over the period of nine months? Till December. Till December, so coming six months it will pet executed the INR 70 Crores? Yes. Yes, Correct sir. ] will come in the queue sir. Thank you for the answer sir. You're welcome. Anybody else who wishes to ask a question may have the option of raise hand, Suhrid, you can go ahead and unmute yourself and ask your question. Yeah, Hi. So, is it fair to conclude that this quarter's margin compression is due to the fact that you exported more in this quarter and not sold more in the domestic market. And as you go along with your plans, the margins will revert to your previous guidance of 20% plus, PAT margins, right? Kanal. Can | answer? Yeah, go ahead. Yes, Suhrid ji, that is right. But we have sold to private and export in this quarter, more in this quarter and we are hopeful that we will fall back into the margins, which were before in the coming, not in the next quarter, but in the third and fourth quarter of this year, And do you maintain your long-term guidance that INR 500 Crore to INR 600 Crore number, which you've been mentioning for a few years out. Do you see a permanent reduction in margins for that also, or do you think that you can go back to the levels that reached to be yet? We feel thal we can reach to that level, yes. But that was considering a few of the newer products that we were developing, there is a little bit Page 8 of 20Pramod Kumar Gupta: Suhrid Deorah: Pramod Kumar Gupta: Suhrid Deorah: Moderator: Agastya: Pramod Kumar Gupta: Agastya: Kanal Gupta: Agastya: Mukesh Mehta: Agastya: United Drilling Tools Limited (UNIDT) Q1 FY 2023 Earnings Conference Call August 17, 2022 4:00 PM IST time which is being taken for the approvals for those products. So it might get extended by one year or two years, but we are working on it to reach to that level. Yes, the answer is yes for that. Yes, by the time period, which we have mentioned previously, we should reach to that levels. Not only on the revenue, I'm also asking would you be able to maintain the margins also at 20% to 25% profit after tax margins at that revenue run rate of INR 500 Crores, INR 660 Crores? Yes, we are hopeful of that, Thank you. We'll take the next question from Agastya, Agastya you can unmute and ask, Hi, am | audible? Yes. Thank you for the opportunity, sir. Actually, today's commentary was actually very enlightening. There were many things that I did not understand about the nature of your price setting. And so one question so is hedging not possible at all in a normal business cycle for you guys? We are actually in talks with professionals to see how we can do hedging for our steel products right now. So if you were to do hedging, let's say if for how many quarter’s views you will take along, you must have thought about it and how much is the quantum, what kind of steel do you want? Like what is the tonnage that you need to hedge so that you are in a comfortable situation, just Hm trying to understand the scale of the hedging needed? That depends on our requirement. Yes, so I'm talking about let's say, whatever you have done in terms of revenue this quarter, if you had to hedge all of this because value addition is quite a lot in your company, right. Ht is not like you buy steel and sell steel You are not a trader, you are adding a lot of value and your equipment and your margins reflect that, right. You are in steady-state margins. So I'm just wondering, what kind of steel Page 9 of 20Mukesh Mehta: Agastya: Pramod Kumar Gupta: Agastya: Kanal Gupta: Agastya: Kanal Gupta: Agastya: Kanal Gupta: Agastya: Pramod Kumar Gupta: Agastya: United Drilling Tools Limited (UNIDT) Q1 FY 2023 Earnings Conference Call August 17, 2022 4:00 PM IST quantum are you dealing with every year or in a quarter, to what extent you would have to hedge? Tentatively 50% of the orders to be executed. Sir, can you give a tonnage in absolute number, let's say for example 1,000 tons, 10,000 tons, Can you specify tonnage number? Let me answer that, about 10,000 tons. About 10,000 tons, right, that is what | thought around 10,000 tons. Okay, so second question is you said that last year drilling was not enough like whatever was budgeted could not be done by ONGC and Oil India, so when did the drilling activity start this year and you said that another one quarter a very similar thing will happen. But given whatever the backlog was, they will be able to clear all that backlog in terms of drilling and normal demand will immediately pick up, or there will be again a step-by-step increase in demand before they go back to the old trends. See the inventory, which they have that they have till this second quarter, and they will require newer material for the wells that they are going to drill after that. So, we are anticipating that in the next coming third and fourth quarter, there the quantum will be the same as which they were procuring in the last earlier years. Okay, okay. So it's just a deferment. The activity levels have not dropped? No, no, no, The activity levels we are getting to know that they are probably going to increase also. Right, right, right. Meaning the old trend which was going it will revert back to that old trend? Yes. And Pramod ji, just a clarification, when you said 10,000 tons, that was for a quarter or that is for an year? No, that is for the whole year, That is for the whole year. Okay. Thank you very much sir. Thank you very much sir, Page 10 of 20Moderator: Kanal Gupta: Moderator: Kanal Gupta: Moderator: VP Rajesh: Kanal Gupta: VP Rajesh: United Drilling Tools Limited (UNIDT) Q1 FY 2023 Earnings Conference Call August 17, 2022 4:00 PM IST Thanks, Agastya. Sir one question which I would Itke to ask is, if you can give us some direction on what is happening on the international business side, where are we in terms of all the tie-ups that we did with the marketing sales agents? So initially we started with Vietnam, Egypt and Libya. So, we are petting repeated orders from Egypt and Vietnam and Libya actually because of COVID till last month only, they had closed all operation which they started. So, we are discussing to go in Libya also with our sales representative over there. With respect to UAE and Kuwait, we are in the process of getting our products approved and we do have a few smaller orders which we are execuling, but eventually in the next I think six months, we should see an influx of orders from their that side also plus we are getting ourselves registered into newer regions also and finding more sales representatives who can sell our products there. For order book today, how much is domestic business and how much of that is PSU? That } need to check in and give, but we out of INR 70 Crores around INR 10 Crores is exports and around INR 60 Crores is domestic, which is both PSU and private that ] need to check how much it is. So, what is what? Okay. Anybody else who wishes to ask a question, kindly raise hand or you may use the option of unmute. Yes, hi, VP Rajesh, here. With respect to the international clients, what kind of demand are you seeing given that the oil prices have corrected in the last three, four months? See | think the oil prices at anything above $50 a barrel, it's a good market for our prices, because most of the world, let's say Middle East, the cost of taking out crude oil is very less, it's like around $15 to $20. So anything above that is profit for them. And for even in let's say Vietnam, or Russia or South America, the cost is not more than $45 to $50 a barrel. So if the oil prices are al $70, $80, we'll see that this trend is going to be there and the activity will be good for at least the next two, three years, it will be that we see. Okay, thank you. And the second question is that, when do you think you can hit this INR 500 Crore revenue target that we were just — talking about carlicr? Page 11 of 26Kanal Gupta: Pramod Kumar Gupta: VP Rajesh: Pramod Kumar Gupta: VP Rajesh: Pramod Kumar Gupta: VP Rajesh: Pramod Kumar Gupta: Moderator: Saket Kapoor: Kanal Gupta: Saket Kapoor: Kanal Gupta: Saket Kapoor: Kanal Gupta: United Drilling Tools Limited (UNIDT) QE FY 2023 Earnings Conference Call August 17, 2022 4:00 PM IST Around, sit will you like to answer this? Yeah, | would say around 25, 26 year. So four year, so three years basically, you're saying that we can get to 500. Yes, please. And in that how much will be international versus domestic? My approximation is that that 20% should be export and 80% should be domestic and in domestic private players as well as PSUs. Right, okay. All right. Thank you. That's all | have for now. Okay. You are welcome. Thanks VP. We will take the next question from Saket. Yeah sir, Sir, if you could give us the breakup of the product profile in revenue terms, you mentioned about connectors and other. So, with the ascending order, if you could give for the last year, which are the products that contribute to the revenue profile and total number of products sir? We have five major products, which is connectors, casing pipe with connectors, winches, stabilizers, and gas lift equipment. So they have - - there are various sub products which are -- there are various sizes, various types in that. And the more profitable products which are there are the connectors and winches and then after that will come the casing pipes and the stabilizers and the gas lift equipment, which is there. Sir for casing. Yeah sir, please you were saying something?. No, no I was asking that I hope you . } answered your question. Sir for casing pipes, we do the job work part, bul we are not manufacturing pipes. Se, we are sourcing pipes and doing some job work there and then, some giving to our clients and what is the scope of work? No actually, when | say casing pipe, it is casing pipe with connectors that is the main product which is there. So, the casing pipe is there's a bare pipe, which we procure, we manufacture the connectors Page 12 of 20Saket Kapoor: Kanal Gupta: Pramod Kumar Gupta: Saket Kapoor: Pramod Kumar Gupta: Saket Kapoor: Pramod Kumar Gupta: Saket Kapoor: Pramod Kumar Gupta: Saket Kapoor: Pramod Kumar Gupta: Saket Kapoor: Mukesh Mehta: Saket Kapoor: United Drilling Tools Limited (UNIDT) Q1 FY 2023 Earnings Conference Call August 17, 2022 4:00 PM IST ourselves, and then we have to weld it. After welding it becomes one product. So and that is the main product which is there. So, it's not job work actually, it's a complete fabrication and manufacturing of that complete product, which is there. So we include | think so MSL also Maharashtra Seamless in our client profile. So, | think so, in that case we are just contractor when we are putting this fabrication work for connectors to get casing pipe, this is how the our scope of work involves, See the bare pipe is people cannot sel! the bare pipe itself. We have to weld the connector to it then only it can be sold and that is also above 18 inch and above the pipes which are there. We procure the pipe from not only MSL, but Jindal Saw, Welspun and Man Industries. And then it is the selling happening to the PSUs. This is how there, I just wanted to understand the ecosystem how it works? Yes, yes and then we sell it to the PSUs, the upstream companies like ONGC, Oil India, Cairn Oi like that, Reliance. And sir, if we have the breakup of the cost of raw materials in percentage terms, what are the key raw materials? Key raw materials are basically connectors and pipes. For connectors the key raw material is the forgings. Sir, ] meant to say that INR 33 Crore line item for the expenses, what constitute this, the major components? You mean for this quarter? Yeah for this quarter, for the year as a whole also you can provide if it is not for one quarter? Approximately the pipes constitute 55% of the cost and the connectors constitute 45%. Okay. And sir, there is also an increase in the finance costs for this quarter what explains? Temporarily, we have taken the Joan from the banks. To be explained more further sir? Page 13 of 20Pramod Kumar Gupta: Mukesh Mehta: Saket Kapoor: Mukesh Mehta: Saket Kapoor: Mukesh Mehta: Saket Kapoor: Mukesh Mehta: Saket Kapoor: Mukesh Mehta: Pramod Kumar Gupta: Kanal Gupta: Pramod Kumar Gupta: United Drilling Tools Limited (UNIDT) Q1 FY 2023 Earnings Conference Call August 17, 2022 4:00 PM IST Mehta ji, please explain why it ts so’? Temporarily we utilize our cash credit limit from bank. This is for some period that's why their interest cost has increased. This is not a regular feature. Okay, but what has led to this temporary withdrawal I mean currently what is that we have I think so, we are a net cash company. Because our inventory level has increased, we are going for overseas market, so we have to keep the inventory. Okay. So therefore. What is the kind of inventory you tell. Can you repeat? Sir Please repeat as I've interrupted you, sorry. Actually our inventory level has increased. So, we have to utilize our credit cash credit facility from banks. Kanal can you explain that why otherwise then | will explain? Please you explain [Hindi Language] [0:34:20]. Actually, like it has been explained. See how because we are trying to make a foray in export markets and private players, And usually they require their products to be delivered in a period of four to six weeks or maximum two months. And it takes us around four to five months to manufacture our products. That is why we have to keep a lot of our products in semi-finish stays, so that we can finish that in within that time period and supply to them. And this is done not only by us, but most of the companies who are in the similar line of business. And so therefore, certain amount of funds were tied up in our inventory. That's what Mr. Mehta is trying to explain. And in this particular quarter for certain orders, we had to wlilize our cash credit Jimit for certain period. That's why there were certain additional finance costs. Page 14 of 20Saket Kapoor: Mukesh Mehta: Saket Kapoor: Mukesh Mehta: Saket Kapoor: Kanal Gupta: Moderator: Suhrid Deorah: Kanal Gupta: Pramod Kumar Gupta: Kanal Gupta: Suhrid Deorah: Kanal Gupta: Suhrid Deorah: Kanal Gupta: United Drilling Tools Limited (UNIDT) QE FY 2023 Earnings Conference Call August 17, 2022 4:00 PM IST Sir, what is the value of inventory as on 30th June? How much amount involved? It's INR 121 CR. Okay, and what is the cash balance? We have around INR 4 CR FDRs in hand. Okay sir. Okay sir. Thank you. You're welcome. Thanks Saket. We'll take the next question from Suhrid. Hi, sir. So following-up to some previous questions i asked. In the quarter four call, you mentioned that the order, the inquiry pipeline was very strong. And the benefit of that should be seen in quarter one. So | was wondering if you're seeing any change in the demand environment in the last three, four months? Actually, Suhrid ji, what has happened is that they were three four projects in which we were expecting an order, bul because of global inflation, those projects have been postponed right now, which we are hopeful will come in the next quarters. So that is something that we have seen because of the global inflation. Sorry. Plus the PSUs also, you can explain that? And plus also, as | stated earlier, that the PSUs also, we were hoping that their procurement will start from the April month for this year, but that also got deferred because of the inventory, which they have. Okay, so is it fair to say again, I think you mentioned this earlier, but it just said that it's not a cancellation of the order pipeline or it's not that there's weakness is just a poslponement? Yes. And you had also mentioned in the previous quarter that about INR 15 Crores of revenue has got deferred from Q4 to QI. So, this INR 37 Crores has been reported that includes INR 15 Crore which is rolled over, So, is there another reason why execution in this quarter has been so low? Sorry, can you please repeat your question? Page 15 of 20Suhrid Deorah: Kanal Gupta: Suhrid Deorah: Pramod Kumar Gupta: Kanal Gupta: Pramod Kumar Gupta: Suhrid Deorah: Pramod Kumar Gupta: Subrid Deorah: Pramod Kumar Gupta: Kanal Gupta: Pramod Kumar Gupta: United Drilling Tools Limited (UNIDT) QI FY 2023 Earnings Conference Call August 17, 2022 4:00 PM IST Yeah, in the previous quarters call, you had mentioned that about INR 15 Crores of revenue has got deferred from Q4 to QI, which means from last year to this year. Yes. So, if that is the case, then this quarter the total revenue was INR 37 Crores, which means INR 15 Crores is roll over from previous quarter, which means new quarter execution or current quarter execution has been quite low at INR 22 Crores. Kanal, can | explain? Yes, please you answer I think when it was mentioned in the last quarter, that INR 15 Crores will be rolled over from last quarter to this quarter. That may be there because of we have to really check on that piece, but primarily the amount which has been executed is what is indicated there, So, but the major impact has come, because the oil companies have stopped their purchases in these two quarters and that is why we are having such a situation and then we have to sell to private customers or to exports at a high cost inventory at lower prices. That is why our profit margins are less. Okay and last question is that you were earlier guided that FY '23 should also be a INR 250 Crores kind of revenue. Is that guidance still in place or would you like to revise that? For the whole year, this year. Yes for the current financial year? For the current financial year. Yeah, actually because of this delay in the procurement by the PSUs, I think we have revised our top-line, Kanal what is that? Because of that, and plus we were expecting clearances of two of our products that which we had developed. We had added that also in the top-line, which we had quoted earlier, which is going to take which should probably be added up in the next year. So, now the current revised is around 20% to 25% increase in the CAGR we will see. So that will come around INR 200 Crores, that is INR 205 Crores. Page 16 of 20Suhrid Deorah: Pramod Kumar Gupta: Moderator: Raja Panda: Kanal Gupta: Raja Panda: Kanal Gupta: Raja Panda: Kanal Gupta: Raja Panda: Kana}i Gupta: Raja Panda: Kanal Gupta: Pramod Kumar Gupta: United Drilling Tools Limited (UNIDT) Q1 FY 2023 Earnings Conference Call August 17, 2022 4:00 PM IST Okay, thank you. You're welcome. Thanks, Suhrid. We'll take the next question from Raja. Raja you can unmute and ask. We will move forward. Yeah, can you hear me? Yes, yes, Mr. Raja. Okay, so my question is currently, what is the breakup between private and public sector customers for us? Right now, the overall market is around about INR 250 Crores is for oi! PSUs and around INR 150 Crores is for private. Okay, and in our revenue, what is the share roughly? We have around 50% to 60% market share for the oil PSUs, for the private it is increasing. No, ] mean, in the last Q3 call, I think we said that in PSU, roughly 6,000 to 7,000 is the order book for connectors and we own 100% of that. | mean, we supply 100% of that, isn’t that right? We can supply 100% because we have the capacity to supply or whatever is the requirement in India, yes. Okay. No, I'm saying say like last year, our revenue was INR 175 Crores, 65% of that we said is casing and connectors, right. So that's roughly125 Cr so out of INR 125 Crores, 1 think we gave somewhere that okay INR 60 Crores is the connectors market and the rest INR 60 Crores, INR 65 Crores can be attributed to the pipes. Is that figure correct or I have some mistake in the understanding? Sir, will you like to answer? Kanal, let me answer that, | think those numbers are a little bit, | think the connectors were and ]'m just telling from my memory, around INR 35 Crores to INR 40 Crores and balance was casing pipes. And there were wireline winches and stabilizers and gas lift valves. The other products were also sold, which must be around 25% to 30%. So, | think that should answer your question, that connectors were around INR 35 Crores to INR 40 Crores. Page 17 of 20Raja Panda: Pramod Kumar Gupta: Raja Panda: Kanal Gupta: Raja Panda: Kanal Gupta: Raja Panda: Kanal Gupta: United Drilling Tools Limited (UNIDT) QO1 FY 2023 Earnings Conference Call August 17, 2022 4:00 PM IST Okay, sir. Actually what | was driving al is when we look at export market, will it be economically feasible to send the pipes and the connectors or are we looking to mainly sell the connectors in the export market? That was the question, | was actually coming to? Right. Actually it depends upon the customers, certain customers ask for only connectors, and they have the facility to procure the pipes and weld it in their country. But some customers don't have that so they buy directly the pipes. So we sell both. Okay, okay. And sir, talking from a customer point of view, so if I'm into this oi! things, then the cost of these connectors and pipes would be very miniscule compared to the overall cost of running the operations, right. So my question is, what would be the point for me to consider if I'm trying to change the vendor for this critical components, which may not be a very huge cost difference from wherever I'm buying it like? See the competitors that we have in this product line, they are either from U.S. or U.K. and the cost difference will be around about 15% to 20% again from us to there, because their overheads are very high and jabor is also very high over there. So, when we are selling to them, it will be feasible for them to buy from us with cost point of view plus secondarily you know we would short the delivery because these are all big giants and they have back-to-back orders and their delivery is jong delivery periods, they have given. So, if there is any person whose project is there and they want to do their project fast then we can get that order from them by reducing the delivery period. Right, so prompt delivery could be one of the reasons, but this...? Yes, so that is why we have kept inventory and stock so that if anybody is there then we can give that material to them in lesser time. Right, right. But this cost part this 15% to 90% cost differential when the customer looks at it from his overall cost of running the operations point of view, this may not make a huge differences, is that understanding, right, | mean it may not be even in decimal percentage for...? lt depends because see it is divided into two parts, the cost is divided into two parts. One is the CapEx cost and one is the OplEx cost of doing it. So, when we look at the overall cost yes of drilling a well it will be around what 4% to 5% will be the range of which the pipes are Page 18 of 20 Raja Panda: Moderator: Riya Mehta: Kanal Gupta: Riya Mehta: Pramod Kumar Gupta: Kanal Gupta: Pramod Kumar Gupta: Riya Mehta: Pramod Kumar Gupta: Riya Mehta: Pramod Kumar Gupta: Riya Mehta: United Drilling Tools Limited (UNIDT) QI FY 2023 Earnings Conference Call August 17, 2022 4:00 PM IST used which we manufacture and supply. So, any place and a lot of these people there are integrated projects where the service companies come in and so wherever they will save cost, they will try to do that. Right, right. Thank you. Thank you so much. We take the next question from Riya Mehta. Riya you can unmute and ask your question. Helio? Hi, Riya. First question would be in regards to the raw material prices, so we're looking at commodity softening overall, are you seeing any decrease in the prices on the pipes from vendors? And do we benefit the other way around like when because of our business model where we procure the inventory for a longer period of time and our execution cycle is faster, so do we benefit the other way around when the commodity prices reduce? Do | answer that? Yes, please go ahead. Yes ma'am, it happens sometimes that it benefits to us if the things go other way around. Okay, are we seeing anything like that happening? It could happen that since the prices keeps on going down. Sometimes it happens that we get an order at a particular, when the steel prices are higher. So we also quote a higher price, but later on when the prices start softening so our prices are the same fo the oil PSUs, but we can buy it at a cheaper price, yes. Are you seeing something like this happening in the current or the next quarter with the softening of the commodity prices? l wouldn't say in the next quarter, but during the year it could happen, yes please. Okay, and my second question would be the order book. Could you give us the breakup of the product wise? Like what part would be connectors, what would be casing pipes and the other three equipments? Page 19 of 20Pramod Kumar Gupta: Riya Mehta: Pramod Kumar Gupta: Riya Mehta: Pramod Kumar Gupta: Moderator: Kanal Gupta: Pramod Kumar Gupta: Moderator: Pramod Kumar Gupta: United Drilling Tools Limited (UNIDT) QI FY 2023 Earnings Conference Call August 17, 2022 4:00 PM IST Well, we'll have to check and then we can send you the information. Even in a percentage wise is also fine. I just want a broad sense? Out of INR 70 Crores, I think around INR 30 Crores to INR 35 crores will be casing pipes. And around INR 20 Crores is wireline winches and the balance is stabilizers and gas lift valves. Okay, okay. I think that's it from my side. Thank you. Okay. You're welcome. Thank you, sir. I think that brings us to the end of the question-and- answers. Sir would you like to give any closing comments before we end this conference call? Sir will you like to go ahead? Yeah, well I wish to thank everybody for participating in this con call -- conference call. And I would just like to mention that that this particular quarter is not the end of the line, it happens in the business sometimes, you lose, sometimes you win. And so this has happened, but we are looking for a very good future in the later on, during this year, and in the years coming by. We are developing some new products. We are making tie-ups in the international markets. And even in Indian -- with Indian Oil PSUs also, we have checked and seen that their drilling programs are now becoming bigger and bigger. So combining all these things, we feel that that United Drilling has a good future. And we should do better in the quarters and years coming. Thank you very much. Thank you so much sir. And I thank all the participants for joining on the call. And I would like to thank the management for giving us the time for the call. This brings us to the end of the conference call. Thank you so much, Thank you. Thank you. Page 20 of 20