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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, good day, and welcome to the earnings conference call of Salasar Techno Engineering Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Rohit Anand from EY. Thank you. And over to you, sir.
Thank you, and good afternoon, everyone. Before we proceed, let me remind you that the discussions may contain forward-looking statements that may involve known or unknown risks, uncertainties and other factors. It must be viewed in conjunction with our businesses that could cause the future results, performance or achievements to differ significantly from what is expressed or implied by such forward-looking statements. To take us through the financial results and development and to answer your questions today, we have the senior management of Salasar Techno Engineering Limited, represented by Mr. Shashank Agarwal, Joint Managing Director; and Mr. Pramod Kala, Chief Financial Officer. We will start the call with a brief overview of the past quarter by Mr. Shashank Agarwal, followed by a Q&A session.
I will hand over the call to Mr. Agarwal. Over to you, sir.
Thank you, Anand. Good afternoon, everyone. I welcome all the participants to Salasar Techno Engineering Limited's Q1 FY '23 Earnings Conference Call. I hope you and your families are healthy and safe. We have uploaded the investor presentation on the company website and the stock exchanges. And I hope that you might have gone through the same.
Salasar started as a telecom tower manufacturing company, is now one of the leading manufacturing companies in India providing customized steel structures to diverse range of industries, including not only telecom, but power, railways and various other applications. We are offering the subsidy-linked solutions to clients, including engineering, strengthening, designing, procurement, fabrication, galvanizing, along with EPC works.
Infrastructure push by government and increasing the economic activities post pandemic has strengthened steel structure demands. This makes a strong business case for companies like us. Not only domestically, we are also poised to reap the benefits of growing export demand, especially in the telecommunication towers. The company has reported a strong [indiscernible] revenues of INR 76 crores in FY '22, 217% year-on-year growth as compared to INR 35 crores in FY '21.
With 5G spectrum bidding already completed, the operators are now geared up to increase their presence in that particular area. And accordingly, the inquiries have started coming in from not only tower companies but operators as well. And this 5G expansion in India is going to be a game changer for companies like us as we hold market leader position in this particular sector.
I would like to move on to our recent financial performance. To share with you, I would like to say that Q1 has been a good quarter as far as the top line is concerned. First time ever, we have been able to achieve a top line of more than INR 200 crores in Q1. Normally, the first quarters of every financial year is slightly sluggish because of budget finalization issues and rainy season in most of the geographical [indiscernible] of India.
The consolidated revenues from operations for Q1 FY '23 registered a growth of 58.6% year-on-year basis to INR 211 crores in [indiscernible]. EBITDA is at INR 17 crores as compared to INR 15 crores in Q1 FY '22, a growth about 15% year-on-year. [indiscernible] 8% in Q1 FY '23 from 11.1% in Q1 FY '22, mainly due to high volatility in commodity prices and higher employee costs. PAT at INR 7.3 crores during this quarter was in line as compared to Q1 FY '22.
Moving on to segmental performance for the quarter. Manufacturing of steel structures contribute 75%. EPC for power transition contributed 17%. And EPC from railways electrification contribute 8% to the overall revenue in Q1 FY '23. Overall, order book is at INR 1,182 crores as on 30th June 2022, driven by positive momentum in our prefabricated heavy steel structure division. In total order, we have unexecuted EPC orders of about INR 809 crores. L-1 EPC orders of about INR 89 crores, prefabricated heavy steel structure division orders of INR 233 crores, and export orders of telecom towers of INR 63 crores.
In addition to this, there are routine orders in hand on a monthly basis for telecom towers to the tune of INR 20 crores to INR 25 crores. The unexecuted orders of INR 233 crores at our heavy steel structure division as of 30th June '22 has increased from INR 200 crores as it was on 31st March 2022. Both our capacity expansion plans are under progress. New galvanizing unit with a capacity of almost 100,000 metric tonnes at Unit 3, and our heavy steel structure division plant has 15,000 tonne metric capacity at July, are expected to be commissioned within the last quarter of financial year '23.
As the government is focusing on building a strong infrastructure, we anticipate the momentum continue with better margins as the fuel and commodity prices are softening up and we also envisage increased contribution from export business.
As of now, this is all from my side. I would now request the floor to be open for question-and-answer session, wherein each individual could ask questions and those can be answered by me. Thank you very much.
[Operator Instructions] The first question is from the line of [ Raj Shah from RS Capital. ]
There are some questions from my end. I would just like to know, what are the sustainable margins for our company? And given...
Sorry, sorry. Can you repeat that? I think your line got disturbed or something. Can you repeat the question, please?
What are the sustainable margins for our company? And given the softness in the raw material price, is there a scope of margin expansion that you're looking?
Can you repeat the question? I missed the first part of this.
Okay. Okay. Okay. Is my voice now audible?
Yes. You're very much audible. Actually, I missed your first part of that.
No. No worries. I'll repeat. What are the sustainable margins for our company? And given the softness in the raw material prices that we are anticipating, do you see a scope of margin expansion from here onwards?
See typically we've been operating at 10% to 11% EBITDA margins year-on-year basis. Sometimes, it goes up to 11%. Sometimes, it remains at [ 10% or something ]. But the commodity pricing have actually kept at a very high -- the volatility has been very high during the last, I would say, last 12 months. This is all the reasons that our margins declined in the quarter 1 of this year. But I think margins are on a back track now. And we are -- we hope that the margins in this quarter will be better and sustainable.
As far as the sustainable margins are concerned, probably we should be looking at about 10% plus/minus here and there as something which is sustainable in long term. And yes, of course, the softening of the raw material prices would definitely help in some better margins which is our inventory cost and finance cost goes down as that -- as the involvement in the inventory becomes less, the financials becomes less.
Okay. And can you state the capacity utilization for the current quarter?
It's -- current quarter, the CapEx, we have been able to produce about 14,000 tonnes, which is, I would say, about 60% of the capacity.
Okay. So given the opportunity that we have, we see the capacity utilization levels going up from here for the rest of the financial year?
See, typically, if we are able to achieve anything between 75% to 80%, that I would perceive as a full capacity, because the capacity calculation is based on certain ideal conditions, right? When we calculate it, the capacity per plant is let's say 100,000 tonnes. And when you're making various kind of products, even if you are able to achieve anything between 75% to 80%, is something which is fair enough for us that we are at full capacity. So we are operating at 60%. And yes, we see it going up to 75% to 80% probably in this quarter and next quarter. Yes.
Can you state your debt levels of this quarter and the cash that we have in our balance sheet?
I think -- I have Mr. Pramod Kala with me...
Hello?
Are you able to hear it?
Yes. Now I can hear.
Yes. So the debt level remains the same as it was on 31st March. There's no further debt on the company as far as new debt is concerned. And...
[indiscernible]
Cash and cash equivalent is about INR 12 crores as on 30th June 2022.
Okay. And just my last question. What is the cost of capital or on the interest rates that the company -- that we have been getting charged?
About 7%, plus/minus.
The next question is from the line of [ Vijay Desai ] from Desai Investments.
I have a few questions on financial parts. So basically, sir, can you explain the major factors or reasons which aided or held our growth performance for this quarter from [ EBITDA ] basis basically?
See, this quarter, there were a lot of -- see, at the end of last quarter, as on 31st March, we had a lot of unbilled revenues which had to be billed in EPC, as well as -- typically, what happens is, normally, the first quarter is sluggish from all perceptions, in the sense that even the telecom players, they are exhausted after closing their 31st March balance sheet. And they take some time to gear up. Because this year, I think the demand has been good from all the sectors, including telecom, power transmission and railways wherein they've been able to supply good quantities. And as well as EPC execution helped us grow to this top line.
Sure, sir. And sir, my next question would be, can you please also share your view that why basically the gross -- if you look profitability, sir, the operating profitability, the margins have declined on a Y-o-Y basis.
Yes. See, I've already mentioned that, see, there's been a lot of -- huge volatility in the commodity prices. And though most of the times, our prices are pass-through basis, sometimes the effect of that is not reflected immediately. For example, suppose we have discussed something in June, the prices applicable would be probably for April, right, based on actual commodity prices, whereas you might have brought that commodity in May or in June itself when the prices where high. So this high volatility in the prices have actually affected the profitability in this particular quarter.
And also, since we are carrying huge inventory at a high cost at the end of the last quarter, that has also postured us in terms of extra finance costs, as well as employee costs, of course, went up [indiscernible]. So that is one of the -- that is the couple of reasons with -- because of which, we have been not able to achieve the EBITDA margins the kind of what we have been achieving earlier. But this is something which is [indiscernible] it will get back to again 10%, 11% kind of EBITDA margins sooner than later.
Okay. Sure. And sir, one more question, on revenue guidance. So can you please give us some guidance for this fiscal end and a ballpark for also next FY '24?
So FY '23, we are looking at a growth of about 20% to 25% in the top line. We have been -- we did close to INR 720 crores. So anything between INR 900 to INR 950 crores or INR 1,000 crores is possible. Any figure with INR 900 crores to INR 1,000 crores is possible. And we would like to grow again next year by 15% to 20% [indiscernible] kind of rates.
Okay. Sir, lastly, on the order book, sir, what is the time line to utilize the current order book which we have?
Depending upon the others, it is from 3 months to 24 months. So -- but certain orders will be completed 3 months and to some 6 months, some...
[Operator Instructions] The next question is from the line of Aditya Mehta from [ AV Advisors. ]
Sir, I had a couple of questions. My first question was on the expectations. So what are the expectations from the export business? And which are the key areas in which we -- from which we are receiving the current export orders, in terms of, let's say, major countries, as well as their respective contribution?
So export orders are primarily for telecom towers at the moment. Last year, we did INR 75 crores of orders in FY '22. And in this particular quarter, we have already crossed INR 35 crores mark. And in the current quarter also which is then now, we are expecting to move up to this itself. So I'm expecting the orders for exports being crossed at a level of about INR 110 crores to INR 120 crores. Somewhere at about INR 110 crores and INR 120 crores.
Primarily, the orders are for telecom towers, as I said. And these are for African countries mainly and Philippines. So in Africa, we are doing Kenya, Rwanda, Ghana, Nigeria, Niger, Burkina Faso and Gabon and countries like these. And these are primarily to American Tower Corporation, ATC, which is the world leader in telecom tower -- is a telco, is a tower group. They have maximum number of towers in the world. They have very good presence in America. And after that, they have very good presence in India, and now in Africa and in many countries.
Apart from that, we are supplying towers to Airtel, our own Airtel from India. They have operations in many countries in Africa. [indiscernible] buy towers from us in India, we supply to them in for export [indiscernible]. And [indiscernible] is a new market, which is opened up recently about a couple of years back. And there are certain new tower companies which are putting up towers there. Certainly a new opened up market, there's a good demand coming in from there. And I expect this demand to continue for the next couple of years.
See, as 5G has been announced and the spectrum has been auctioned in India, Africa is a few years behind India. So what is being done today in Africa has been done in India a couple of years back. And what is going to be done today in India will be done in Africa in next couple of years. So that demand will keep coming. That's my guess and that's my update on that actually.
Okay. Okay, sir. Understood. Sir, my next question would be if you could please throw some light on the CapEx we are currently doing, let's say, at our UP and new Chhattisgarh facilities? And how much work we have already completed in those facilities? As well as what [indiscernible] expect physical date of commissioning these new plants?
Okay. So there's one expansion which is being done at Unit 3 in our existing unit and we have bought land next to our -- adjust into our existing plant, wherein we are putting a new [indiscernible] plants of about 100 tonnes -- 1000 tonnes capacity. This is probably one of the largest plants in the world. And the construction, the land had been acquired a couple of months -- few months back, and the construction is going on.
The heads are being fabricated and the foundations are being laid and the designs have already been completed. The order for plant and machinery have already been placed. We are expecting some machinery being shipped from overseas during the end of this month and some in coming next months, which should start arriving somewhere in the month of October and November. We'll start expecting execution of the machinery being in place by December and January sometime. So comfortably, I can say that within the last quarter of next year, we should be up and running for the galvanizing plant.
For our Chhattisgarh plant, the land has already been acquired. And there is development work on the land going on. And the construction would start somewhere during the month of September, October. And we again expect the plant to be commissioned within the last quarter of this financial year.
As far as the CapEx is concerned, we plan to do a CapEx of about INR 47 crores to probably INR 50 crores in our UP plant for galvanizing and about INR 60 crores in Chhattisgarh.
Okay. Yes. All right. Sir, my next question was on the order book numbers. It would be really helpful if you could put down the order book numbers we can expect from the railway electrification in near term, and in which way we are -- we have already done with the business.
So in EPC we have INR 808 crores of overall order book, which is [indiscernible] at the moment, at about INR 89 crores, wherein we are expecting the agreement to be signed wherein we have already L-1. Out of this, about INR 985 crores or something of -- let's say, close to INR 1,000 crores, I think the railways is about INR 380 crores in railways and balance is from transmission power lines and substations. And for heavy structured building plant, we have orders worth INR 232 crores. And export orders are in hand about INR 60 crores.
All right. All right. Sir, my last question would be if you could explain the outlook or actually the expectations from the solar sector?
From?
From the solar segment, sir.
See, solar segment, we are not -- I'm personally not very bullish in the sense that the margins in the solar sector for our end customer has been excused to the last job probably. And if your customer is not making money, it is impossible for you to make money in that. There's a lot of smaller players which have come in and who started manufacturing very light kind of structures and they're connecting their light kind of structures wherein they just have to buy galvanized steel and convert them into different sections. And the margins in that have actually been achieved.
As far as galvanized structures are concerned, the [ demand ] in India is not very much. But yes, for exports, we have recently received orders for about INR 2 crores for solar sectors which are galvanized. Plus, we have also received some order for solar structures from our telecom buyers like ATC, which are to the tune of about INR 4 crores to INR 5 crores, which are at little bit better margin, and which are galvanized, which is something which we do. Typically, in India, the structures have become very light. And the galvanization is not happening as they are a few galvanized structures and they become out of our, I would say, work. So we didn't -- we have not been very keen on the solar division as such. We've been doing whatever has been coming, subject to that it suits us in terms of quantity and the price.
[Operator Instructions] The next question is from the line of Arvind Sharma from Infinity Capital.
Yes. So my questions are mostly related to the 5G business. So how is the 5G order book looking like? And what are your future expectations for the same?
See, we have recently seen that [indiscernible] really spends a lot of money on buying the spectrum with Jio spending almost INR 88,000 crores and Airtel spending almost INR 40,000 crores and Vodafone spending close to INR 15,000 crores to INR 20,000 crores. So all this money is going to be utilized in putting up 5G spectrum, 5G network, right? Now to put up a 5G network, what you need is the antenna all across the country.
If you read today's statement of Mr. Gopal Vittal of Airtel. He's the CEO. He says that by 2024 March, they'll have a 5G network across all the country, not only limited to urban areas or Tier 1, Tier 2 cities. And the investment, what he's envisaging is a huge investment on that. So that whatever they're spending on buying the spectrum can be utilized and actually be converted into a real business for all the operators.
There are 2 things about 5G spectrum. As far as we as at Salasar [indiscernible], the one is good, one is bad. The good thing is that their number of towers are going to be -- which are required are going to be huge. Today, India has close to 600,000 tower plus/minus. And to be able to cover the whole country on 5G network, probably they need at least 1 million more towers that can last more, towers in the next 4 to 5 years. This new 6 lakh towers have actually been put on ground in last 25 years, when they started telecom in 1995. And imagine putting up another 10 lakh towers in the next 5 years. So that's the kind of number that we are looking at.
But yes, the bad thing is that the towers are -- have become very light because the antennas or the system which is required for 5G is much light in weight. And there will be a lot of sites -- the existing sites wherein they'll be putting up the 5G systems. And to densify the 5G penetration, they will be putting a very lightweight site. There'll be a lot of sites on the rooftops. There will be a lot of sites on the middle of the roads. There'll be a lot of sites on the wall mounted structure. There will be a lot of sites on lighting post. There'll be a lot of lightweight sites. So the number of towers are -- have grown up -- are required are going to be exponential than what it was earlier.
But the weight has again -- in terms of our business, probably we'll be getting a similar kind of weights as we were getting. Not much, because of -- suppose there was a tower of 40 meters, which was typically used earlier for 2G or 3G or 4G, it became slowly to 8 tonnes and then 5 to 6 tonnes. And the tower which now there are envisaging, the weight of the tower has gone down to almost 2 tonnes for 25 meters and 30 meters. So there will be newer high sites, lighter weight sites, which would result in less quantity for us in terms of tonnage. But yes, the numbers are multiple times. So probably we would end up making the same kind of tonnage what we were making earlier. That's my take on 5G.
Okay. And where are we on this? I mean have you done any new bidding so far in this quarter?
So we are already market leaders in telecom. And we are supplying to all the operators as well as other tower companies. So there is no bidding as such which happens between us. It is just that the designs change and you make as per the customer requirement because we are the trusted partner. And so whatever is required by them, we redesign, we manufacture, and that is the kind of story.
And also, can we expect any margin improvement, with increase in this revenue?
No. To be honest, the telecom industry is under pressure margin. So I don't expect margins to go up, especially in telecom sector. There is a pressure from all around. They have the pressure to roll out huge number of sites. At the same time, there's a huge pressure on us to come up with the most optimized cost base. So I don't see any improvement in margins as far as telecom sector is concerned.
Okay. And last question would be, do we need any additional CapEx for this 5G connectivity?
No, we don't need to. No. No, we don't need to because we have the capacities which is fungible. It can manufacture a telecom tower or a toll or a [indiscernible] tower or the power transmission line tower or a structure for railways. So we have the fungible capacity which can be utilized for whatever is required. It's just as a matter of changing the design.
[Operator Instructions] The next question is a follow-up from the line of [ Vijay Desai ] from Desai Investments.
Sir, I want to ask regarding the smart city. So sir, can you give some outlook on smart city? And are we looking at any positive activities happening over there?
See, smart cities, there's been a lot of noise about smart cities. Okay. But as far as we see -- it's not that it has only been in words. There has been some work also. And -- but that is in different sector. Like there's a lot of cabling which was over -- had gone underground. That's also part of the smart city, right? So that is the work which some companies have done.
As far as telecom is concerned, as I said, the telecom industry is under pressure margin -- under margin of -- under pressure for margins. So the way they are spending on -- and essentially, what is happening is that in the smart city, the revenue case for the telecom operators is not very lucrative. So most of the smart city, I would say, the organizations of smart cities or whatever the government has made special purpose vehicles, they don't want to do CapEx. They want operators to come in, do a CapEx. And then they want to pay -- they want to share the revenues with them.
And today, operators are in a position. I mean, they don't want to do such kind of CapEx where the revenue case is not there. So operators are doing CapEx only where they can get immediate revenues. And somehow, the smart cities, as far as I've been able to gather, don't make a very strong case for the operators to be revenue positive. That is one of the reasons that we as Salasar have not been able to get much business as possible. I mean what sort of if nobody has been able to -- see the work has definitely not happened in the telecom sector which is positive. It's not positive.
Okay. Now sir, if I see our past financials, so in FY '22, we have achieved somewhere around INR 700 crores to INR 720 crores of revenue, which is, I think, in past 5 years it is the highest revenue which we have achieved. So going forward, how do you see this? That INR 700 crore mark will continue? Or if you can throw some light on this.
I just answered this in the previous question. So we are expecting to grow at about 25% this year. And year after that, we should continue to keep growing at 15% to 20%.
Okay. So which will be the major projects and we can say the key projects which you expect would contribute more?
So our new division of heavy structure division, which is making bridges, has got some very good order book and it is doing good traction. Plus, of course, telecom would continue to give us good revenues, as well as we have some very good orders for power transmission line monopoles, which should give us slightly better margins as well as good revenues.
Sir, lastly, on the capacity utilization, if you can give us some numbers on new plants? What we expect in FY '23 and '24, the utilization?
So FY '23, we should be utilizing 70% to 75% of our capacity, which should be a good capacity as we see. And going forward, when the new plants operate, of course, a couple of years, maybe 1 year or 6 months, the capacity utilization of our new plant will be [indiscernible] will actually increase.
[Operator Instructions] As there are no further questions from the participants, I now hand the conference over to the management for closing comments.
Since there are now no questions, I think we can close this. And I would like to thank each one of you for being present on this call today. And I appreciate your interest in Salasar Techno Engineering and look forward to interacting with you again during our next quarter. Meanwhile, please feel free to reach out to our IR team at E&Y for any clarifications or feedback. Thank you, each one of you once again.
Thank you very much.
Thank you, all.
You. On behalf of Salasar Techno Engineering Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.