Man Industries India Ltd
NSE:MANINDS
Earnings Call Analysis
Q3-2024 Analysis
Man Industries India Ltd
In a recent earnings call, Man Industries reported a robust financial performance. Their quarterly revenue reached INR 847 crores, marking a 26% increase year-on-year, while the 9-month financial year's revenue soared to INR 2,300.69 crores, a 43% increase from the previous year. Net profits demonstrated remarkable growth, leaping by about 92% year-on-year to INR 81 crores.
The company's unexecuted order book is impressive, standing at around INR 1,300 crores, scheduled for execution in the next six months, and they sit on outstanding bids worth more than INR 11,000 crores for various projects internationally. This positions them well for significant order inflows in the near future.
Man Industries anticipates their top line to grow by 20-25%, estimating revenues around INR 3,600 crores, with a similar 30-35% growth on the bottom line. They expect EBITDA to contribute approximately INR 350 crores to INR 360 crores with an EBITDA margin of 9-11%. For the following year, they project a top-line growth of 60-70%, leading to revenues of about INR 5,000 crores and EBITDA around INR 500 crores.
A notable achievement for the company is the successful testing of hydrogen transportation line pipes, a first in the industry, which signifies their commitment to sustainability and positions them to capitalize on the growing emphasis on clean energy and hydrogen's role in a carbon-neutral future. Man Industries is now poised for taking advantage of the green hydrogen trend, aligning with India's targets for energy independence and net zero carbon emissions.
Man Industries has received all necessary accreditations for its ERW plant, with revenue already beginning to materialize. They are also expanding geographically with a new stainless steel pipe plant in Jammu, expecting production to begin in the fourth quarter of 2025, supported by a total CapEx outlay of INR 550 crores. Their subsidiary Merino Shelters is also set to finalize a joint development agreement that promises significant inflows of INR 40 crores to INR 50 crores by the financial year-end, with long-term revenues expected over the next 4 to 5 years.
To support strategic initiatives and expansion plans, Man Industries is preparing to raise funds up to INR 250 crores using a mix of financial instruments, including equity shares and debt securities, subject to receiving the necessary regulatory and shareholder approvals.
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Ladies and gentlemen, good day, and welcome to the Man Industries Q3 FY '24 and 9 months FY '24 Earnings Conference Call. [Operator Instructions] Please note that this call is being recorded.I now hand the conference over to Mr. Kripashankar Maurya from Choice Equity Broking. Thank you, and over to you, sir.
Thank you, Manuja. Good afternoon, everyone. On behalf of Choice Equity Broking, welcome to Q3 9 month FY '24 post conference call of Man Industry. I also take this opportunity to welcome the senior management team.On today's call, we have with us Dr. Ramesh Mansukhani, Chairman; Mr. Nikhil Mansukhani, Managing Director; Mr. Ashok Gupta, Chief Financial Officer; and Mr. Rahul Rawat, Company Secretary.Kindly refer to the safe harbor statement on the second last slide of the earning presentation. I will now invite the management for their opening remarks to be followed by the question-and-answer session. Thank you, and over to you, sir.
Let me begin by giving you a brief of the financial performance for the quarter. Our total revenue stood at INR 847 crores, representing a growth of 26% year-on-year. Our EBITDA stood at INR 79 crores with EBITDA margin reported at 9.49% and the net profit stood at INR 30.6 crores.Coming to our financial performance, 9-month FY '24. We reported a total revenue of INR [ 2,300.69 ] crores which increased about 43% year-on-year. Our EBITDA stood at INR 221 crores and the EBITDA margin of 9.5%. And we reported a net profit of INR 81 crores, representing a growth of about 92% year-on-year. On the operational front, the unexecuted order book as on date stands at around INR 1,300 crores to be executed in the next 6 months. We continue to have outstanding bids for more than INR 11,000 crores at various stages of evaluation for several oil, gas, water projects in India and abroad, which sets our expectancy for good order inflows in the next few months. Currently, some of the orders are also we are at a good strong L1 position.Maintaining sound financial health, our debt equity ratio is 0.14% and currently hold a net cash position in the company. Coming at the outlook of '24-25, our top line will grow at approximately 20%, 25%, which would be approximately around INR 3,600 crores and the similar growth of 30%, 35% on the bottom line. EBITDA will stand at approximately 9% to 11% and -- which would contribute to around INR 350 crores to INR 360 crores. For '25-26, our top line will grow around 60% to 70% from year on, which will be approximately INR 5,000 crores. And the EBITDA would stand at approximately 10% to 11% to around INR 500 crores.Recently, we've achieved a significant milestone in the industry by successfully testing a hydrogen transportation line pipe, setting a benchmark as we are the first one in the industry to do so. Looking ahead, we are confident taking the first mover's advantage, enhancing our capability and book for the new hydrogen line pipes. The world increasingly recognizes hydrogen's pivotal role in decarbonizing industries and establishing a clean energy. Man Industry addresses this with its pipe having passed the fracture toughness for hydrogen service test, ensuring structural integrity and safety for hydrogen transport. This certification safeguards us against challenges related to hydrogen small molecule size pertaining material, more easily other than the other gaps.In India, the Ministry of New and Renewable Energy has set ambitious targets for energy independence by 2047, and net zero carbon by 2017, underscoring the importance of green hydrogen in achieving these milestones. The breakthrough reaffirms Man Industries' commitment to driving positive change in the energy landscape and master giant leap towards the sustainable and hydrogen powered future.For our ERW plant, we received all the accreditations recently, and the revenue has just started flowing in. And the major revenue, which will flow in from '24-25 and the company has also received some of the orders. The company Q3 results is impacted also due to certain delay in approvals of ERW and due to the depreciation and finance costs of ERW. We are also expanding our geographical presence through our subsidiary companies by setting a new plant in Jammu for stainless steel pipes. The capacity is around 20,000 tonnes and which is expected production in Q4 of 2025.Total investment CapEx outlay is around INR 550 crores. And post the abrogation of 370 in J&K, the government has planned to increase the economic activities to set up the new units. The state government is also providing various subsidies and a large incentive on total CapEx outlay on planted machineries through SGST and CGST credit over 10 years and pass the land allotment approval in Jammu Industrial belt.Moving on to our bending plant, which was started last year. We've already got 3 orders internationally and which is already under execution, and we are booked for the next 3 to 4 months. In our subsidiary company, Merino Shelters, we are in process of finalizing a joint development agreement with a reputed developer by which we will get INR 40 crores to INR 50 crores by this financial year-end. And in the long-term revenue in the next 4 to 5 years, we will get a large chunk of revenue, which will be coming in the next 4 to 5 years.The company has decided to raise funds up to INR 250 crores by the way of issue of one or more instruments including equity shares, convertible, or nonconvertible securities of any description of warrants or debt securities to preferential issue qualify institution placements, right issuer, any other methods or a combination, subject to such regulatory statutory approvals as may be required, including the approval of shareholders of the company. The fund generated will support the company's strategic initiatives and expansion plans, ensuring the company's future commitment.With that, I conclude my opening statement, and we can now open the floor for the question-and-answer session.
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of [ Kaushik Zawar ], [ AKJ Capital ].
Great top numbers on the team. Sir, I have a question on the stainless steel business. So can you correct me if my understanding is wrong, so we are having -- we will be outlaying the capacity of 25,000 tonnes there. And the place has been decided as Jammu & Kashmir. And I wanted to understand this plant will be operational in FY '26 because aren't we a late entrant here because already the similar capacities have been running in other companies also, we follow those sector companies? So how much time it will take the order book because it takes time, right, to scale up that stainless steel business, but you're saying on the operational first year, you would expect somewhere around, if you do the math, some INR 500 crores to INR 1,000 crores of revenue from the first year. So is that the expectation? And how does this cycle works? Can you explain on the order book, et cetera, on the stainless steel part?
Yes, good afternoon, Mr. Zawar. So from the stainless steel, the operational is Q4, '24-25, and this is for commercial production. And as per the business plan, which we have taken in context right now, the first year, we've taken our top line of between INR 400 crores to INR 500 crores. This is mainly the mother pipe, and part of it will be the pilger product, which will go into the market. And as for the other, the players, obviously, Ratnamani is already there, and there is Sandvik and few more players. And as per the business plan and the market scenario, there is quite a big demand on the product currently. And due to the BIS and the restrictions put in to import the mother pipe from China, the current demand is quite high and the local people such as other vendors are not giving the mother pipe. They are actually pilgering it and giving it for the projects. So there is a good demand currently, and that's what we envisage when we are putting this project.
So we will be catering to the domestic market here?
Yes, we would be initially catering to the domestic market and also the export market.
So it will be in the oil and gas sector only?
Yes.
So it will be mother pipes, whatever the -- this is our product?
The percentage of ratio will vary. The first year, we will do probably 60% to 70% of mother prices and only 30% pilger. And as the accreditations and everything, as you start exporting and get approvals worldwide, we would change the balance accordingly. And also, we are capable to do higher INCONELs of duplex, super-duplex titanium from this mill. So once the stabilization happens initially, then we will also convert it to a higher-margin product as well.
That part, what you said 30%, I did not understand that part, mother and the other one. What was that? Can you explain that?
Sure, pilger. So they are basically -- they are high-value products in the sense they are smaller diameters. So a press can remove a certain size of a mother pipe and then you pilger it down for different usages such as you have for aviation and then you have for nuclear. So there is a certain size which the press cannot make, which will get pilgered and then goes, which is a higher-margin business also.
What would be the margin for the shallow mother pipe?
So the total margin for the SS seamless tubes is between 18% to 22%. So any time anything between 10% 11% for the mother pipe and 10% to 11% for the pilgering bit.
And what is [Technical Difficulty].
The product quality you mean or which one? Grade?
Yes, yes, grade.
316 principle, 316 and 316L and then so on for the 304, which is one grade lower. And then you have the higher INCONELs, the super duplex and super duplex alloys.
So those will be…
Sorry to interrupt, Kaushik, can you join the queue? There are many in the lines.
Sure.
Thank you. The next question is from the line of [ Riddhesh Gandhi ] from Discovery Capital.
The question is, given we are already almost debt free, and we've already issued actually, I mean, warrants to the promoter and the healthy EBITDA that we have guided to for both FY '25 and FY '26. Just wanted to understand the rationale for raising incremental INR 250 crores.
So Dinesh, the reason for the incremental is that currently we are doing a CapEx, which is outlay of the CapEx is INR 550 crores for the SS. And then also, we have certain CapEx in the pipeline. We're just waiting for certain permissions for our expansion of LSAW, HSAW in a different country. So we are already looking at that. And on the basis of that, our CapEx level will be between -- the debt levels will go up approximately to around INR 600 crores, INR 700 crores. And to balance between the debt and cash in the company, we are just keeping some incremental value in the company.
Sir, the other question was with regards to the approval you have on the hydrogen side, which you've spoken about. Can you explain as to how difficult this approval actually is to get, who are the other people, are looking for it? And how do they place us in terms of this space and when do we expect actually the revenue to come from here?
So like I said, hydrogen is a new sector. It took us 16 months to get the approval from the European Research Lab. It was quite a detailed survey on the pipes and the fracture process that under certain pressure, there should not be any leakage and fracture during the -- once the pipeline is laid and the hydrogen because hydrogen is quite a notorious gas. It was a 3-step process, which the lab had done, and the final process approval certification we got just a few months ago. And looking at the outlook, India is looking for hydrogen and clean energy to go, I think, 2050 is the vision for India. But Europe's vision is 2030, 2035. So there are a lot of orders in which now we are already bidding in which the hydrogen enables. So basically, the designing is done in such a way that the steel and the quality which is used is for the hydrogen. But currently, they are not using hydrogen gas, but they are infilling the pipeline so that you can be used in the future. Also future, the hydrogen thing is very important that every single line pipe of hydrogen has to be laid down new because the old lines do not work for the hydrogen.So it is a brand-new sector for us. So I cannot tell you exactly how much business will come, but it's a brand-new sector like how our gas sector is there today. It's a brand-new sector. And tentatively, what we've worked in the Vibrant Gujarat also, which was announced, approximate quantity in the next 10 to 15 years is probably more than 5 million tonnes, out of which I think certain bid is committed by the Adani and certain bid for the new -- SR is putting a new hydrogen base in Gujarat. So the sector looks very positive going forward. And I think the orders will come from the next 3 years onwards.
The next question is from the line of [Technical Difficulty].
First question is, I joined queue a bit late, so for FY '26, what is the revenue and margin guidance for you, sir?
So FY '26, we are looking at a top line of approximately INR 5,000 crores and EBITDA level at between 10% to 11%, which would be around INR 500 crores to INR 550 crores.
So my second question is on like in last con call you said like you are expecting payment in 1 month for Merino Shelters. And like today, you said like still in process and we are like expecting by FY '24. I mean why was there a delay?
No. So the basic thing is we will -- we are going to get the payment in this couple of months. That's why I said by the end of this -- before the end of this year, we will get the certain amount of payment. The delay was because there was a legal due diligence, which was going on, which has got completed now. So the final documentation is in process. And once that is done only we can give the entire thing and get the details out. So it has to be more…
What is the quantum of payment you're expecting?
So we should get around INR 40 crores to INR 50 crores this year. And then once the transaction is completed and the entire detail is out, then I can disclose further details of it. But a large chunk of revenue will come to the company for the next 4 to 5 years.
Also, sir, on the margin trend, like in this further like there's like a bit confusion between operating and other operating income. Like if we exclude that, it will come around 7.5%. Like can you tell us the nature of other operating income that you mentioned in the…
So actually it is income through operational source only, the foreign exchange benefits, which we get through this business and sometimes the cash flow, when we have extra cash flow and it is going in FD and everything, these are the only revenue which is generated from other expenses. So -- and sometimes, even the export incentive, which is there, when we buy locally and export, so we get that also. So that is what goes in the other expense. So that is why we always nowadays add it and put it together that it is other income from operations.
Sir, final question is on like [indiscernible] CapEx that we are doing. So you said like we're developing 2 products, one is mother pipe. And can you give the other product?
You make -- it's basically mother pipe and through the mother pipe you make -- you draw it down or pilger it down and make a pilgered product, which is -- goes in, like I said, nuclear, pharmaceuticals, and different sizes because the mother pipe, main machine of the extrusion press does not manufacture to that size. So one is a hot drawn process, extruded process, and one is a cold drawn process after the hard run process is completed. So that is why this is the 2-layer process.
And with these products, we are planning to enter into aviation and nuclear sector?
Yes, yes. This product is used from aviation, nuclear, pharmaceuticals, fertilizers, retreatment, everywhere. Dairy.
Any particular discussion with the potential client…
Sorry, I can't -- I didn't get that.
Any particular discussion with the potential client for this product?
It's in progress. We will be participating in one of the tubes fares. So we keep meeting, so we are discussing continuously. But then I think the -- it will only materialize once the plant is operational and in execution at that time.
The next question is from the line of Vatsal Kothari from AlfAccurate Advisors Private Limited.
So I have a couple of questions. The first question is that I would just like to get some clarification on the EBITDA guidance for FY '25 and FY '26. Is the -- are the EBITDA numbers you mentioned including other income or excluding other income?
So the EBITDA would be around between 9% to 11% for '24-25 and 10% to 12% for '25-26. The EBITDA is including other income because the income is generated from this particular company itself. It is not generated from another source or outside source.
So I just wanted to understand that excluding other income, what would the EBITDA margins look like for '25 and '26?
I think more or less, if we see as an average 2%, 1.5%, 2% difference. Almost 1% -- I think 1%, 1.5% as an average when we put it, it's almost that much.
And my second question is how would the order book breakup for the current quarter look like between the oil and gas segment and the water segment? And expanding on that, what would the EBITDA per tonne look like for both these segments, respectively?
So the order book currently stands at INR 1,300 crores, and it's currently 50%, 50%, it's oil and gas and water also 50%. And going forward, we are L1 in a few bids, which are for oil and gas. The EBITDA margins normally for oil and gas comes around between 11% to 13% and for water comes between 7% to 8%. So at a blended rate, it would land up between 9% to 11% year-on-year. And we are working on some operational activities to increase the EBITDA at least by 1%.
And what would this breakup look like for 1 year, in Q3 FY '23?
One year before, it was, I think, the 70-30. I think 70% was oil gas and 30% was water.
And for Q4, would it be reasonable to expect the same numbers, 50-50 breakup?
Yes, it would be.
Adding to his point, see, in our other income, we do consider foreign exchange gains. Since we are generating this foreign exchange gains out of our core business, we are considering it as our other income -- other operating income indeed. But it is classified under other income according to [ ICI ] guidelines.
The next question is from the line of Anirudh Agarwal from Valuequest Investment Advisors.
Thanks for the opportunity. So Nikhil, first question was on your plant. So if you could just share some more details on that?
We can't hear you, Anirudh.
Is it better now?
Yes, slightly better.
Yes. I was just saying if you could share some more details about the Saudi plant plans, I think you were mentioning in one of your interviews and you alluded to a new plant on other geographies. So if you can just expand a little bit on that?
Anirudh, for the Saudi, we are just still waiting some in-principle approval. So we cannot really discuss any of the numbers, and we cannot declare it till the time it is signed off and clear. Once that is done, we can give you all the details and everything. We are the workings and everything, but I cannot, obviously, for reasons, I cannot disclose it right now.
But safe to say, it would be like buyout of an existing plant or something emerging and because you would want to hit the ground running, right, not new [indiscernible] that will take 3, 4, more years. Is that broadly correct?
[Indiscernible] no, it would be -- it would not be correct for me to do that.
Second on real estate, if you could just mention, I think you mentioned something on revenue share going ahead. So that is basically some sort of JV that we enter, which is [Technical Difficulty].
We can't hear you. Your voice is not coming properly.
Is it better?
Yes.
Sir, I was just saying on the real estate deal, the correct understanding is that basically this is a JV that you would be looking to integrate, I think, when the deal finalizes, and that is why you would see some revenue share over the next 4, 5 years.
Yes. So it's our JDA. It's a joint development agreement with a A+ grade developer from Mumbai. And they will develop the entire project, and they will give us obviously upfront revenue and as well as revenue throughout the next 4 to 5 years of the project.
No incremental financial investment from our side required, right? It is only the land that basically be…
No, nothing. Only we are supposed to receive only now. We are not putting any more.
Third thing was on new orders. So basically, I think historically, like you also mentioned 70% to 80% used to be oil and gas and water we used to typically avoid or take lower contract. Is there something on oil and gas that is leading to pressure in terms of new orders for us? Can you just throw some light on that?
No, I didn't understand your question.
So typically, are we seeing oil and gas, we used to focus on largely oil and gas orders, right? So over the last year, basically, we've seen that new order wins have been slightly slower than we would have expected and what we have seen for some of your peers. And even within that, it seems that there are larger water segment orders. So anything on oil and gas that is not working for us or any challenges?
Yes. So basically, the water is contributing to a good portion now is because of the drive in India for the water. The oil and gas, like I said, it is ongoing a couple of years. There's some sort of slowdown, then something else picks up. So we are looking at a big upscale in the oil and gas in the coming years. That's also ONGC, deep sea exploration, they have done now. So that is also demand -- a lot of demand is coming from there. And as well as ERW, there is a CapEx planned by the government for INR 18,000 crores for City Gas furthermore. So looking at the future demand, the last year, though we were also more focused on exports because there were good sized export orders. Going forward, we are seeing a good amount of demand in oil and gas also, India and abroad. And water will continue to obviously drive up the revenues also, water is equally important for us.
And oil and gas export orders, I mean, the right way to understand is you would need some local manufacturing presence to garner larger orders, right? India plant itself is not sufficient to do that, right?
No, not really. It depends. Some countries have a restriction of a percentage or something. But rest of the countries, where it's an open tender, there is no restriction. So we make it from India only and we are more than sufficient to make from here.
The next question is from the line of [ Khadija Mantri ] from [indiscernible].
My question is regarding the numbers. So was there any one-off in the other expenses because we can see it has…
We can't hear you. Your voice is coming very low. Can you speak up, please?
Yes, is it better now?
Yes, it's much better.
Yes. Sir, so my question is regarding increase in other expenses. Was there any one-off in other expenses because as we can see, there's a sharp increase?
Look, majorly, the freight charges have gone up because we had an export order. So the major cost and the other expenses is the freight.
Sir, can you quantify that?
In the corresponding quarter, December '22, that was the overseas freight was around INR 25 crores. This year it's -- for the current quarter it is INR 70 crores.
And sir, my another question is regarding gross profit margin. So do you have any guidance for gross profit because we can see it has increased by 300 basis points this quarter. So what would be your guidance on a sustainable basis?
So basically, the -- like we said, the EBITDA margins -- can you hear us? Hello.
Yes, yes, sure, sure, yes.
So the EBITDA margin levels will be around 9% to 11% like we guided.
Sir, my question was regarding gross profit margin.
Profit margins are also similar level only, which has been in the company for the last 3 years.
And sir, a bit of a long-term question. Do we see any opportunity in the coal gasification project that the government is taking up?
For any gas or transportation line, the cheapest form is obviously to put it by a line pipe. So as we are already approved in all the government authorities, definitely, we'll be looking at it, if anything comes up.
Hello, [ Kamal ] this side. Our gross margin is always around 18% to 24%. Since our OpEx is getting increasing because of our ERW expenses and other expense and plan, that's why you are looking at the EBITDA margin at 9% to 11%, which is sustainable. Gross margin, it will tell, our gross margin is standing around 18% to 24% every quarter.
[Operator Instructions] The next question is from the line of Ruchika Dhanuka from PhillipCapital.
Just wanted to know if you could help us with the volume numbers for the quarter? Hello, am I audible?
Yes, yes, Ruchika. So it's approximately 85,000 tonnes to 90,000 tonnes.
And a similar number for the same quarter last year, if you could?
It's same quarter last year would be slightly similar, I think around 65,000 tonnes last year, but the steel price was higher. So you cannot match it directly proportionate to top line.
And so what is the CapEx number for FY '24 and '25?
The CapEx number for '25 is around INR 150 crores and '24 was around INR 90 crores.
INR 90 crores. So what would be the unspent amount currently for this, sir?
Around INR 25 crores, which we are spending now in the next 2 months, INR 25 crores, INR 30 crores.
The next question is from the line of [ Nikhil Chaudhari ] from [ Investor ].
Sir, I wanted to probably understand the -- our visibility with respect to the hydrogen pipes. And you did mention there is an opportunity in Europe. But are there any active probably orders that we expect in probably coming quarters? Or is it a still far-fetched like thing that might come in probably next 2 to 3 years only?
So we have bid certain orders in Europe, but it's in the pipeline. It's basically in hydrogen-enabled line. So I don't know whether they will run it, but it is designed as per hydrogen. So it will be very good for us also if we could win that order. And other than that, India is, we are looking at it, but it would take 2 to 3 years. I think everyone is working on it. And like I said, once it comes up full-fledged and a couple of clients are laid down and everyone gets the confidence, then it's all new lines of a brand-new sector like how we have water, gas, and oil. Hydrogen will be a brand-new sector, which would drive a lot of the natural energy.
So Nikhil, adding to his point -- adding to this point. The hydrogen pipeline market is projected to grow from $9.1 billion in 2023 to $26 billion by 2030. So the CAGR would be around 16% here on till 2030. And you have to look at from a global angle, not from India angle. So we are open for every market. So demand is high. As you rightly said, all the lines would be [ virgin ]. So there is a huge demand in this sector. And being a front mover, we'll take that advantage.
Also probably any margins that probably you might be envisaging and probably this new thing that we are doing?
Margin would also be higher than our regular SAW pipes. But we have not done any such products. So it will be very difficult to quantify that. But we do expect the margin would be somewhere around 18% to 20% at least.
Also I wanted to understand with respect to our -- the seamless expansion that we are doing, what would be the risk to our commencing of operations by, let's say, Q4 of '25? Anything that probably you feel will delay the CapEx, any land acquisition, which is pending on our cards, something that worries you or that should worry yourselves also and investor?
No, not really. We have already placed all the long lead items already has been placed and all the LCs and the finance has been opened up already. So we do not see. Definitely the only challenge will be to get it executed properly and on time, which we anyway have the team and specialty to do the needful. So other than probably a few months, plus and minus, I do not see, envisage any other issue than that.
The next question is from the line of Vignesh Iyer from Sequent Investments.
Coming on the CapEx part of your business. So we are expected to do INR 550 crores for the industry in the pipe, right? And as I can see the CWIP stands at INR 50 crores now. So just to get an understanding, will you be spending the INR 500 crores in -- remaining part of the FY '24 and '25?
Yes.
No. Because since you guided for INR 150 crores of CapEx in '25. So I mean, I wouldn't add up the amount.
No, no. So the debt INR 550 crore isn't -- I'm talking about the internal capital utilization. The rest is from the bank debt, which is taken. So yes. So more than that also, INR 170 crores to INR 200 crores has already been including LCs opening and everything, approximate expense of the SS which has been done till date is [ 124 plus MT ] around INR 190 crores to INR 200 crores. So for this year, till December, the further CapEx would be approximately INR 300 crores to INR 350 crores to complete and start the project.
And since -- so you're raising around INR 250 crores -- okay, for in equity, still guiding for a debt of INR 700 crores. So I'm thinking what is that addition amount coming for, I mean?
So we have planned certain expansion abroad in which we are just waiting for the final approval. Once that is done, we will be moving there as well. And for that reason only, we are raising the funds. And we don't want to stress out the current cash and existing business running. So that's the reason for raising the fund.
At what rate are we raising this [indiscernible]? I mean, what are your expected cost of fund?
We are not raising it through this particular -- we are talking about INR 250 crores is through a preferential allotment part 2.
No, no, I mean, I'm talking about the debt that will be raising over and above this to fund the plant.
9% to 9.5%. And when it's U.S. dollar, it's around 7.5%.
Sir, coming to the part of other income, so we have -- we see -- go through a lot of companies that are posting their quarterly or half yearly financial statements, right? They do insert a column called other operating income in the financial statement itself and are, I mean, approved by in the [ MDF ] as well as Companies Act, right? I mean that gives you a better picture of what EBITDA is because or else we have to wait till the investor presentation, how to understand what is the actual EBITDA margins, right? So I would request you if that new line can be added where it is shown as other operating income and we have another income column separately for it.
Yes, we'll do that. We'll do that. Yes. Thank you for your suggestion. We'll do that. Thank you, Vignesh.
The next question is from the line of Dhananjay Mishra from Sunidhi Securities.
Sir, in your guidance of INR 3,600 crores for FY '25, so how much contribution you have considered from ERW? And for FY '26, because we are saying that stainless steel will be contributing close to INR 500 crores in the first year. So are we considering some other incremental revenue coming from unplanned CapEx in FY '26 revenue? Because -- can you just clarify on that?
Yes. So from this year, we are contributing to ERW is around INR 300 crores to INR 400 crores. For the '24-25. And '25-26, we are looking at around INR 500 crores from -- INR 400 crores to INR 500 crores. INR 700 crores to INR 800 crores from the existing ERW, which will be fully in track. And plus certain CapEx, like we said, we are going to one of the Middle East countries, and we are -- we will be getting certain revenue, but a small revenue. That's why we have kept it at around INR 5,000 crores of our top line. It is on the conservative approachable side, 10% to 11% for '26.
And for ERW, this 115,000 capacity, last time, I think, you said that peak revenue could be around INR 400 crores. Now you are saying that it could be further increased to INR 700 crores?
No, no. ERW peak revenue can go up to almost INR 1,000 crores. And we are considering for this year as this is the -- because we just got all the upgradations now. So the first year, we are considering around 40% of -- 40% to 50% of the top line from their capability to operate, 30% to 40%. And stainless steel, for the first year, we've considered between 30% to 40% again.
So this INR 1,000 crores…
[Indiscernible] really ramped up.
So INR 1,000 crore top line you are considering at what volume, 1 lakh this volume, 1.10 lakh or…
1.50 lakh.
[Foreign Language] So that I cannot comment 1 year down the line, what will be the current price. The volume, what we are saying is that if 100,000 to 125,000 is the capacity, we're looking at anything between 30% to 40% usage of that capacity, which will culminate to around INR 300 crores to INR 400 crores for '25 -- '24-25 and almost INR 700 crores for '25-26 from ERW itself. And SS '26, the first year, would be around between INR 300 crores to INR 400 crores.
The next question is from the line of Manan Shah from Moneybee Investment Advisors.
I wanted to understand on the hydrogen pipe segment that we plan to enter. So how are these pipes different from the pipes which are getting used for the existing natural gas pipeline? I mean why can't those pipes be used for transporting natural gas -- sorry, hydrogen?
So basically, the grade of steel is completely different. These grade of steels are used for sour gas. So the formation, the process, what we do is the same, but the grade of steel and the welding is different. So these, basically, these are used for highly sour grades of crude and gas, these kind of grades of sour grade steel is being used. And these are the same grade, which we tested through our pipes for hydrogen, which were qualified. So that's why they have to lay down the whole new lines, each and every new line required for hydrogen.
So what would be the competitive landscape for these kind of pipes currently?
For the hydrogen pipes?
Yes.
Basically, once the approval is there with the authorities, it's the first mover's advantage and how you get your approvals in place, which is a very big process in our industry. Once you are through with that, then I think it will be a good, but India will be still competitive to the world. That's -- we've seen that. And qualification is very, very important.
To ask, when you're bidding generally, how many players are there who are bidding for this versus, say, when you're bidding for an oil and gas order? So I mean there are just 2 players or 3 players who are bidding for the same order or there are more players?
[Indiscernible] are less because this is only used in LSAW, not in spiral. So firstly, all the mills who are only making LSAW pipes will be qualified for hydrogen, #1. So a large quantity or 70% of the quantity of the world of spiral quantities go out. So you've reduced the number to quite a small amount. And out of that also who are qualified and capable and have the credibility and have a past experience of sour grade will get the further experience and also having a steel tie-up and good relationship with steel mills because this kind of steel, currently, which is approved for hydrogen is only 5, 6 mills in the world.
And for us, this will be the raw material, the grade of steel required will be domestically sourced or we have to import it?
No, it's all imported. Domestically it's not available.
And are there any current live tenders for these projects, for hydrogen pipes?
Yes, we've bid for a couple of them in Europe.
And what will be the size of these tenders?
Reasonably large size.
The next question is from the line of [indiscernible] from [ Tiger Asset ].
Sir, in this quarter, you said there's a freight cost increase from INR 25 crore to INR 70 crore, right?
Yes, please?
Yes. There's an increase in freight cost in this quarter from INR 25 crores to INR 70 crores.
Because for the corresponding quarter of December '22, this composition of order from the domestic market. And current year, the quarter is basically on export, sea freight is more on account sea freight.
So [indiscernible] is there an impact of regular prices to us or to our business?
So no, no, these are regular expenses of shipping. It's not any increase as such because of the Red Sea issue or anything right now.
The next question is from the line of [ Dheya ] from [ Nivesh Shah Investment Advisor ].
I just wanted to understand that the Red Sea issue has not been accounted in this quarter's results, right? So how much pressure do you expect, if any, in the current quarter?
No, nothing as such. The contracts were pre-signed and there has not been any changes from that front. And so we are not envisaging any price impact or anything due to the Red Sea.
So as I understand this, going forward, if the issue continues, then we might face the pressure, right, the freight pressure?
It's not that. We always accommodate that in our cost. So whenever we take the cost as per the logistics software and the future also cost can be seen in that. If right now, because the Red Sea issue has already played up, so it is already catching higher cost. So when we are bidding for the projects, we are already catching a higher cost for the logistics. In case it might turn out, if it cools down, and we have taken a higher cost, we might get an advantage at a later stage. So currently, we're not at any loans.
Also you told that our order book is split into 50% oil -- oil and gas and 50% water. So seeing that there is an immense demand, as you told, in the oil and gas sector, are we seeing that any -- so are we seeing incremental percentage of oil and gas segment in the order book?
So we average when we say it's around 70%. Current quarter, like you said, going forward quarter was 50%-50% and this quarter. But normally it is 70%-30%.
So are we looking at 70%-30%?
The same kind of outlook.
Also I had this last question on the China competitiveness. As you know that China is coming back into the global markets now. Are we seeing any competitiveness from Chinese players in the tenders which we bid for in the international market?
Not really. Maybe some tenders in Africa. But rest of the places, they are only -- they are only part of the AVL in the steel supply. They are not in the part of the approved vendor list in the pipe supply. So which is a big advantage for us.
[Operator Instructions] The next question is from the line of Manan Shah from Moneybee Investment Advisors.
I wanted to ask, you mentioned that we are expecting some approval from the Middle East. So I wanted to understand if the fund raise is contingent on that approval or we would be still going ahead with that?
No, no, no. It is we are going ahead. This is in principle as in, this is an approval, which is not -- it's a process, that's about it. It is not something which is like I have to take it from someone else. It's basically just a process base, and it is not contingent as per that.
The next question is from the line of Kaushal Kedia from Wallfort.
I just wanted to understand, earlier in the call you mentioned that some freight costs have gone up to INR 70 crores, vis-a-vis INR 25 crores last quarter or last year?
Corresponding quarter of last year, December '22, I was talking about.
And sir, hasn't across industries, freight costs come down compared to last year? I mean I think you are an exception where the freight, so can you just give a little more detail about this?
It's not gone up. Freight cost is down only, but it is the size of the project which got shipped out because last year, like we said, this year, almost 70% to 80% was export orders, large -- couple of large export orders which we did. It's on the basis of that. So the domestic logistic cost came down and the shipping costs went down.
So this is not a one-off cost, it's a regular cost, which will be incurred going forward also for export orders?
Regular cost. It's nothing we might have faced on freight, so on the regular cost.
No, come again, sorry?
If not, we would have faced the freight when the freights were down rather than spend more cost on the freight. So that's what I'm saying.
No, I'm not clear, sir. Sorry, I'm sorry. So you're saying that -- can you give…
It cost, we did not spend more on the freight cost. We were in line with the freight cost of the market or we were actually lesser because the market was down at that time, so we negotiated well. So we would be probably lesser, not more.
Okay. So this is more to do because the volumes are up. That's why the freight cost is seeming to be more. Okay. understood. Thank you.
The last question is from the line of [ Vinay Rokadia ], an individual investor.
Just I wanted to know what are the basic raw material? And what was the price movement in this quarter regarding, was it stable or something of that sort?
So basic raw material [indiscernible] it is especially basically for API grade, we procure it from domestic market as well as we get it imported from country like China, Korea, Japan, Germany.
Then what was the pricing trend in the raw material? Was it stable or something?
It is more or less stable.
And just last one question, sir, regarding this Merino Shelter, can you just brief something about the size of the project? Or what will be the -- our share or something and the area in which this project is coming up or something that?
Vinay-ji [Foreign Language] I cannot disclose it till the time it is get signed off, but it's a large size of project. That's what I can say. It's approximately between 20 lakh to 25 lakhs square foot of area which will be developed, and we will get a good chunk of share for our revenue. And these revenues, like I said, would continue to come in for the next 4 to 5 years. And the company, whatever companies invested, hopefully, the company will get 3x of that amount.
As there are no further questions, I would now like to hand the conference over to management for closing comments.
Thank you all for participating in the earnings con call. I hope we were able to answer your questions satisfactorily and at the same time offering insight into our business. If you have any further questions or would like to know more about the company, please reach out to our Investor Relations Manager at Valorem Advisors.Thank you. Stay safe and stay healthy.
On behalf of Choice Equity Broking, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.