MAHSEAMLESNSEQ2 FY2325 October 2022

Maharashtra Seamless Limited

6,218words
136turns
12analyst exchanges
4executives
Management on call
D. P. Jindal
CHAIRMAN, MAHARASHTRA SEAMLESS LIMITED
Saket Jindal
MANAGING DIRECTOR, MAHARASHTRA SEAMLESS LIMITED
Kaushal Bengani
SENIOR MANAGER, INVESTOR RELATIONS, MAHARASHTRA SEAMLESS LIMITED
Vikash Singh
PHILLIPCAPITAL (INDIA) PRIVATE LIMITED
Key numbers — 40 extracted
46%
n the previous quarter improved substantially. On year-on-year basis revenue and profit increased 46% and 86% respectively, quarter-on-quarter basis revenue and profit increased by 6% and 15% respect
86%
evious quarter improved substantially. On year-on-year basis revenue and profit increased 46% and 86% respectively, quarter-on-quarter basis revenue and profit increased by 6% and 15% respectively.
6%
ofit increased 46% and 86% respectively, quarter-on-quarter basis revenue and profit increased by 6% and 15% respectively. In the previous quarter, Maharashtra Seamless has supplied two key value ad
15%
creased 46% and 86% respectively, quarter-on-quarter basis revenue and profit increased by 6% and 15% respectively. In the previous quarter, Maharashtra Seamless has supplied two key value addition
60%
t more orders to be received by us. In United Seamless cylinder pipes and export markets comprise 60% of total dispatches leading to extraordinary margins. As communicated in our earlier call we have
Rs.315 crore
n our earlier call we have also announced a bonus issue of 1:1 and have prepaid long term debt of Rs.315 crore. We have also provided an update on capital expenditure which we will commence shortly. This is i
144 crore
and ICDs have remained consistent in the past six months. Specifically, ICDs have come down from 144 crores to 102 crores. Our liquid investments in the previous quarter have increased by 300 crores. This
102 crore
remained consistent in the past six months. Specifically, ICDs have come down from 144 crores to 102 crores. Our liquid investments in the previous quarter have increased by 300 crores. This is on accou
300 crore
n from 144 crores to 102 crores. Our liquid investments in the previous quarter have increased by 300 crores. This is on account of reduction in working capital and improved operations. Because of an incre
334 crore
e in liquid investments in the previous quarter we’ve become net debt negative to the extent of 334 crores. On account of this liquidity position we have prepaid loan of 315 crores which was also communi
315 crore
gative to the extent of 334 crores. On account of this liquidity position we have prepaid loan of 315 crores which was also communicated in our earlier investor calls. There is only one long term debt in M
852 crore
ase our participation in high value addition segments. We’ve given a capital allocation update of 852 crores at various locations of the company out of which 43 crore is normal replacement expenditure and
Guidance — 20 items
Kaushal Bengani
opening
“As domestic market for subsea pipes is around 70,000 tonnes and the market for drill pipes is 12,000 tonnes, we expect more orders to be received by us.”
Kaushal Bengani
opening
“We have been advised by Price Waterhouse in this regard and we expect this amalgamation to be concluded within this financial year.”
Kaushal Bengani
opening
“And we expect this entire exposure in corporate guarantees and SBLC to reduce fully by September of 2024.”
Kaushal Bengani
opening
“We expect this order book position to Maharashtra Seamless Limited 18 October 2022 continue for entire FY23 and going forward as well.”
Kaushal Bengani
opening
“The target has been revised from 3,50,000 tonnes to 3,65,000 tonnes in Maharashtra Seamless and from 1,20,000 to 105,000 tonnes in United Seamless.”
Kaushal Bengani
opening
“Further, since the US has made consistent draws from its strategic petroleum reserve, in order to contain the rise in crude oil prices we expect that further draws will not happen as the strategic petroleum reserve is at a very low level.”
Kaushal Bengani
opening
“The gas demand is also expected to rise going forward.”
Bhavin Chheda
qa
“So, can you elaborate more the need for this big CAPEX of 850 crores whether there would be increase in capacity also or it will lead to more value-added products and what kind of value addition will be there which will require this big CAPEX?”
D P Jindal
qa
“Certainly, it will add some capacity, because the new mill will be faster and of course better quality and better yield.”
Pratiksha Daftari
qa
“Just wanted to understand if you could elaborate on the timelines on this CAPEX plan that what CAPEX we are going to undertake first, or is it going to go simultaneously and when do we expect completion of this?”
Risks & concerns — 5 flagged
You mean to say the operating leverage was not available and that impacted but even when there is a huge decline was there any inventory drawdown or high-cost raw materials which impacted the number?
— Hetal Gada
And sir one more question wanted to understand like your order book if I see from Q1-to-Q2 it has remained quite high, but there is a decline in value term.
— Hetal Gada
So, because there has been a decline in steel prices that also could have affected but I just wanted to get a sense from you whether on volume terms the numbers are on a higher trajectory or what have impacted the order book value?
— Hetal Gada
So, in that respect, are you also witnessing any slowdown Maharashtra Seamless Limited 18 October 2022 in demand?
— Vishal Rampuria
Yes, so ERW pipe margins were very low at around Rs.1000 a tonne in this quarter historically they have been higher but they have remained volatile.
— Bhavin Chheda
Q&A — 12 exchanges
Q
Sir, few questions first on the CAPEX plans of this 850 odd crores. Sir this is a big number which we are planning over the next three years and if I see the breakup, this 350 crores is for hot mill upgrade. And, you have given the estimated turnover increase overall from this CAPEX of close to 1900 odd crores. So, can you elaborate more the need for this big CAPEX of 850 crores whether there would be increase in capacity also or it will lead to more value-added products and what kind of value addition will be there which will require this big CAPEX? Maharashtra Seamless Limited 18 October 202
D P Jindal
In Nagothane 14-inch mill, this mill design is very old and after that a lot of technological development is there. Like, we have in Hyderabad, United Seamless which is latest one. So, at one time we have to replace one of the machine in 14 inch mill that is we call it PQF or MPM mill, and that is capital intensive. So, this would be the replacement of existing mill it won’t lead to additional capacity Mr. Jindal? Certainly, it will add some capacity, because the new mill will be faster and of course better quality and better yield. Sure. So, very well understood sir obviously it is upgradatio
Q
Just wanted to understand if you could elaborate on the timelines on this CAPEX plan that what CAPEX we are going to undertake first, or is it going to go simultaneously and when do we expect completion of this?
Kaushal Bengani
We’ll undertake the CAPEX plans over a period of two to three years. The two projects which will get priority is heat treatment and finishing facilities at United Seamless, so that we can immediately ramp up our capacity utilization. The second project would be the cold drawn pipe mill which we want to set up in Mangaon. Okay and this USTPL finishing line would take how much time approximately? Once it starts, it will take one year to complete. And we have already started certain portion. Started placing orders. And we’ve identified vendors and we are in the process of obtaining inquiries and
Q
So, I precisely have two questions. So, the first one is I would like to understand how you see for H2 that is the second half of this fiscal, how you see the demand and the second question is which we saw that is a liquid investment, the liquid mutual funds schemes which we have invested. So, the numbers have gone very high it is probably up 10x so what do you think of this amount is this for working capital or is this some something for preparing the debt or something, if you can please give me an idea.
Saket Jindal
So, the next six months we expecting to maintain the profitability and the production level. And there’s a good demand and also in export, the Canadian market has opened up and in US we are maintaining our export. So, export is promising, plus in domestic the oil sector especially, as we mentioned the subsea pipelines and also the demand for cylinder pipes so all that will remain. So, we expecting to maintain the results EBITDA in the next six months. And second question was the mutual funds. So, we have funds extra, which as we just mentioned, can be deployed either in CAPEX or any other dive
Q
Sir, I would like to ask you one very specific question, you have introduce some new pipe for ONGC deep drilling into the sea. So, what the market segment, how the Maharashtra Seamless Limited 18 October 2022 performance of the products what we have supplied to them, what is the feedback from the customer and how we are planning to get this product line increase in coming days?
Saket Jindal
So, this is the drill pipe which we are manufacturing in the Mangaon facility and we already supplied to other customers in the past and it was accepted the quality and we have API license for this product. So, there is no problem in the quality so far and we are adding one more line of this drill pipe to cater to the additional demand. So, it’s a high value-added product and additional capacity will help in meeting the demand. So, what kind of order inflow we expect in next two quarters in this product segment? We expect three more tenders to be awarded to us by ONGC and Oil India for drill p
Q
I just wanted to know how is the demand for the API line pipes and how do you see the demand going forward in H2?
Saket Jindal
In the Seamless or ERW? ERW. So, in ERW there is a constant demand and IFCL and other customers, there is always requirements and there are a lot of tenders expected and we have many players in India who were catering to this requirement. So, means there is no shortfall of orders in this area. Maharashtra Seamless Limited 18 October 2022 Got it and sir in the ERW segment would API line types be one of the highest margin products if I’m not wrong? Yes, so in the ERW, the API category is higher margin then the highest product.
Q
I just wanted to ask a couple of questions. Firstly, on the ERW pipe performance, sir even though our pipes are required in the water segment, the EBITDA per tonne is not as low as Rs.1000. So, can you please throw some light on what happened in this quarter and why is the EBITDA per tonne declined so much in the ERW segment?
Saket Jindal
So, there was a testing of the pipe where there was more time taken in the testing. So, we lost time in the testing and production was less so because of less production cost being higher there was less profit. There was, sorry I did not get your last part? The production was less and the cost was higher, so profit was low. You mean to say the operating leverage was not available and that impacted but even when there is a huge decline was there any inventory drawdown or high-cost raw materials which impacted the number? Some inventory impact also because of the higher price deal which was in s
Q
Sir, in our rig business despite higher day rate, we have mentioned EBIT losses in the Q2. So, can you just explain the reason behind it and how can you expect the rest of the two quarter, what kind of EBIT margins we can expect there?
Kaushal Bengani
In the rig segment there was forex loss on account of restatement of the USD loan, so there was forex loss of around Rs.11 crore in the first quarter and Rs.8 crore in the second quarter. However, if you look at operational profit, then we made around 17 crores of operational profit in the two quarters which is in line with what was projected. The loan taken for the rig is in USD and cash flow of the rig are also in USD there will be no cash loss going forward. It is only a notional restatement which we have to do at the end of every quarter. Okay. And sir for next two quarters we have strong
Q
Sir there are two questions on my site. One is, in H1 for USTPL there is around dispatch of around 44,000 KMT. And you have a target 105 KMT for FY23 year. I just wanted to know out of 44 KMT how much percentage goes towards export and what is the target for export, for the entire year. And second question is coming to the raw material part of it. I just wanted to know quarter one to quarter two of this year what is the fall in the prices or if the price has been stable, I just wanted to know the, to understand the inventory part of it. Maharashtra Seamless Limited 18 October 2022
Kaushal Bengani
In United Seamless, in the first quarter 50% of the dispatches were towards exports, in the second quarter 40% of the dispatches were towards exports. And going forward we expect similar levels for the export market in United Seamless. Regarding raw material, so in the first quarter, on account of imposition of export duty, raw material prices fell and they have been on the lower side since that point in time.
Q
Sir when you spoke about the outlook you spoke about cylinder pipes, can you talk about opportunity in cylinder pipes?
Kaushal Bengani
Cylinder pipes are manufactured in United Seamless; this is an import substitution product and the annual market is around 50 to 60,000 metric tonnes. We are the only domestic manufacturers of cylinder pipes and we supply to cylinder manufacturers who use our pipes to sell to companies like Linde and to companies like Tata Motors, Eicher Motors and all automobile companies. Sir out of 50, 60,000 industry size how much we are able to cater? I’ll tell you the exact numbers, in the first quarter 20% of dispatches from United Seamless was towards cylinder pipes, in the second quarter also 20% of d
Q
Sir firstly as you mentioned that the margin for USTPL were inordinately high and would get corrected for the next quarter. And also, we have also given the dispatch number lower by 22K for USTPL for H2. And, as dealers have mentioned that we are very likely to maintain the EBITDA number. So, how will the math work when we are anticipating 18,000 per tonne margin for USTPL 20,000 reduction in volume and we are looking for this I think so we did 470 crore of EBITDA for H1. And if you could explain sir where I’m missing the numbers?
Kaushal Bengani
Saketji we have reduced the dispatch target in United Seamless by 15,000 tonnes however, we have increased the dispatch target in Maharashtra Seamless by 15,000 tonnes. So, overall we will dispatch the same tonnage of Seamless pipes. Correct, but from 30,000 EBITDA per tonne it will go down to 18,000 as Jindal sir has said that it is even out and this one extraordinary number for USTPL. So, how will that then the bottom line will not be affected. Even though the volume will remain same, the EBITDA numbers will go down. Dispatch will not be reduced if we don’t make the value addition. See eithe
Q
On ERW pipes business our capacity is 1,25,000 tonnes but I understand being a old mill and depending order sizes we have never reached peak volumes of even 90,000, to one lakh tonne, so after the current round of CAPEX, what would be the peak potential volumes of ERW pipes?
Kaushal Bengani
We expect it to be very close to the stated capacity of 1,25,000 tonnes. Okay. And the second one on the margin outflow for ERW I missed on that point. So, the current quarter was low margin so, what’s the outlook for second half and what would be the normalized margin in ERW pipes going forward? Could you repeat that again please? Yes, so ERW pipe margins were very low at around Rs.1000 a tonne in this quarter historically they have been higher but they have remained volatile. So, based on current Maharashtra Seamless Limited 18 October 2022 order book what margins you expect in ERW pipes in
Q
Thank you everyone. On behalf of PhillipCapital, I would like to thank Maharashtra Seamless to give us the opportunity to host the call. And I hand over the call to Maharashtra Seamless management for any closing comments. Over to you sir.
Kaushal Bengani
We thank the investors and the shareholders for participating in the call. The activism shown by some of the shareholders have been guiding us in taking decisions which have been beneficial for the organization and has also improved our profitability and our position in the market. We value the contribution that we get from our shareholders, and we want to improve our engagement with them. And we’ve taken a lot of feedback from shareholders and implemented them. Please connect with us in case of any additional queries and we thank you again for participating in the call. I would also like to t
Speaking time
Kaushal Bengani
24
D P Jindal
20
Saket Jindal
19
Moderator
14
Hetal Gada
13
Bhavin Chheda
10
Saket Kapoor
8
Pratiksha Daftari
5
Vishal Rampuria
5
Chetan Doshi
4
Opening remarks
Vikash Singh
Good afternoon, everyone. On behalf of PhillipCapital and Maharashtra Seamless, I welcome all of you on Q2 FY23 Earnings Conference Call. Today from the management side we have with us Mr. D. P. Jindal – Chairman, Mr. Saket Jindal – Managing Director, and Mr. Kaushal Bengani – Senior Manager Investor Relations. Without taking any much time I would hand over the floor to Mr. Kaushal Bengani for opening remarks. Kaushal over to you.
Kaushal Bengani
Thank you Vikash. Good afternoon shareholders. We are pleased to have this call with you and thank you for joining us. We hope you’ve been able to go through our recent announcements, results and earnings presentations. Keeping in view the upcoming festive holidays, we have put tremendous effort in declaring our quarterly results within 17 days. Our performance in the previous quarter improved substantially. On year-on-year basis revenue and profit increased 46% and 86% respectively, quarter-on-quarter basis revenue and profit increased by 6% and 15% respectively. In the previous quarter, Maharashtra Seamless has supplied two key value addition products, sour service subsea seamless pipes and drill pipes and more orders are expected. As domestic market for subsea pipes is around 70,000 tonnes and the market for drill pipes is 12,000 tonnes, we expect more orders to be received by us. In United Seamless cylinder pipes and export markets comprise 60% of total dispatches leading to extrao
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