Tega Industries Ltd
NSE:TEGA
Earnings Call Analysis
Q1-2024 Analysis
Tega Industries Ltd
During the Q1 FY '24 earnings call of Tega Industries, key executives, including Managing Director and Group CEO Mr. Mehul Mohanka, provided insights into the company's recent acquisitions, project developments, and financial performance. The call underlined the company's focus on technological innovation, global market expansion, and commitment to sustainability, noting the significant growth in the mill lining business and a valuable long-term contract with a European copper mine.
Tega Industries has witnessed a 10% increase in top-line growth compared to the same quarter of the previous year, with revenue rising from INR 2,444 million to INR 2,681 million. The order book showed robust health, growing by INR 400 million, an 8% increase, reaching INR 5,200 million at the group level. The EBITDA for the quarter stood at INR 393 million. Interestingly, the EBITDA margin for McNally Sayaji, a recent acquisition, was stated to range between 10% to 12%, lower than Tega's average of 20% to 22%.
The integration of McNally Sayaji has opened new market domains, providing an avenue for backward integration, enlarging Tega's equipment space and potential growth. Tega maintains guidance for business growth at a 15% compound annual growth rate (CAGR) and an aim to sustain EBITDA margins between 22% to 24%. This guidance is supported by innovative product lines like DynaPrime and a healthy pipeline ensuring the projected growth is well-founded.
The company indicated Q1 did not witness significant capital expenditures, as land acquisitions for expansions were completed in the prior fiscal year. However, with regulatory approvals anticipated, significant capital expenditures are expected in the upcoming quarters to support growth and capacity expansion.
Despite challenges with port conditions and container availability in Q1, Tega is optimistic about FY '24, expecting a volume growth of 15%. The current order book of INR 5,200 million is set to cover 6 to 6.5 months of revenue at the group level. Additionally, the company witnessed an improvement in working capital metrics, with receivables days reducing from 110-115 days in March to approximately 95 days in Q1, reflecting strong Q4 performance and a softer Q1 historically.
Tega's market growth is linked to the global increase in copper production, driven by the rising demand for electric vehicles. This, alongside product diversification such as entering into segments traditionally occupied by steel liners, suggests that Tega is strategically positioning itself to capture growth from various market dynamics.
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Ladies and gentleman, good day and welcome to the Tega Industries Limited Q1 FY '24 Earnings Conference Call organized by Orient Capital. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Bhavya Shah. Thank you, and over to you, Mr. Shah.
Yes. Good evening, everybody. Welcome to the Q1 FY '24 Earnings Conference Call of Tega Industries. Today on this call, we have with us Mr. Mehul Mohanka, Managing Director and Group CEO; Mr. Syed Imam, Director, Global Project Manager and Head of Sales; and Mr. Sharad Kumar Khaitan, CFO. Before we proceed with the call, I would like to give a small disclaimer that the conference call may contain some forward-looking statements which are based on beliefs, opinion and expectation of the company as of date. A detailed statement has also given on the company's investor presentation, which has been uploaded on the stock exchange. I hope everyone had a chance to go through the results. I would now like to hand over the call to Mr. Mehul Mohanka, over to you, sir.
Mr. Mehul Mohanka, we can't hear you if your line is on mute, please unmute it.
So good evening and a warm welcome to all the participants on the call. I'm joined this evening by Mr. Imam, who is our Director of Global Product Management Group; and Mr. Sharad Khaitan, who's our CFO. We are delighted to note that the recent acquisition of McNally Sayaji has not only enriched Tega but also opened up new avenues for us. The integration of McNally's capabilities has bolstered our global market reach and positioned us to manage larger projects with increased capacity. As our expansion project in Chile is progressing smoothly, we have now completed the line acquisition phase and are eagerly awaiting the necessary regulatory approvals to commence construction. We will ensure you are kept well informed on the project's development through timely updates as they become available. Our mill lining business has grown substantially on a year-on-year basis by almost 34%, highlighting our commitment to diversify our product portfolio and the ability to consistently deliver value. We are pleased to announce a significant milestone for Tega Industries Limited as our wholly owned subsidiary has recently executed a supply and maintenance agreement with the largest copper mine in Europe.
Under this agreement, our subsidiary will be responsible for supplying, installing and managing both mill and non-mill products for the mineral processing plant of the mine. The duration of this engagement spans a total of 5 years extendable by another year with effect from January 1, 2024. The agreement is linked to production and the minimum amount the customers expected to spend during the 6-year term of the agreement is approximately INR 685.2 crores. This contract establishes an incredible amount of faith and commitment the customer has in Tega's ability to supply innovative engineering solutions and services to its operations. We in Tega, continue to invest in cutting-edge technologies and data-driven solutions. These endeavors are aimed at optimizing our operations, enhancing efficiency and ultimately offering greater value to our esteemed customers. Our unrelenting pursuit of technological advancements has yielded game-changing products that resonate strongly with our customers and further solidifying our position as an industry leader. In keeping with our commitment to responsible business practices, we published our inaugural business responsibility and sustainability report this year.
Tega has always recognized the significance of environment, social and governance stewardship. This commitment extends beyond our Indian operations to our global endeavors as we work diligently towards achieving a net zero carbon footprint. Our purpose has intrinsically tied us to carry for the planet and its inhabitants. And this ethos guides us -- guides our every decision. In conclusion, I would like to express our sincere gratitude to all our investors for their unwavering faith in our company. Thank you all. And now I would like to hand over to Mr. Sharad Khaitan to take you through the financial performance of the company for the period under review.
Thank you, Mehul, and good evening, everyone. Thank you for joining us on the call, and it's always a pleasure to interact with all of you. At a good level when we compare with the same period last year, that is June '23 quarter versus June '22 quarter, the top line has grown by 10%. That is from INR 2,444 million to INR 2,681 million. Our order book has been robust. And from 31st March, when we had an order book of INR 4,800 million, we have now an order book of about INR 5,200 million at a group level, which demonstrates an increase of INR 400 million that is 8% increase in our order book. The EBITDA for the current quarter is INR 393 million. We can now keep the floor open for any specific questions and answers.
We will now begin the question-and-answer session. [Operator Instructions]. The first question is from the line of Dhiral Shah from PhillipCapital.
Sir, if you can share the more -- the color on the order that you have reached today, which is of INR 685 crores. So just wanted to know how much is the order contributing of the mill liner and how much is a non-mill liner? How this execution will take this? Will it be more front-ended or back-ended? Or it will be really distributed throughout the year?
So at this point, we're unable to share the product mix towards this agreement, but it's going to be executed on a monthly basis. So we would -- the revenue is going to accrue on a monthly basis over a 6-year period, starting 1st of January 2024.
Okay. So particularly for the FY '25 next year, sir, because of this order book, how much growth you are expecting? At least for next year, sir?
So the impact of this order will be close to [Audio Gap]
Am I audible?
Yes, you are.
So my question is really around the McNally synergy, and I wanted to understand how will we realize the synergy?
McNally synergy is like a backward integration for us because they are in the equipment space, and we provide space, which are getting installed in those equipments as well. So this opens up a new market domain for Tega as well as they are not into the equipment space and the size of the market in the equipment space is pretty big as compared to the [ spare ] business. So McNally will open up that market from the equipment side.
And from a Tega perspective, this will also add value because we'll have more installed equipment basis of our own group companies, which will add advantage to us. We have started working towards the integration of the entities and creating value from the synergies, which will have a positive impact in the future. But as you know, any of these integrations and synergies take some time, so we are working towards the same and we expect those synergies to have thoughtful results in a very short turn of time.
Okay. My second question was more towards the future outlook. So what are the growth levers we have in place to ensure we grow our business over the next, let's say, 3 to 4 years' time?
So our guidance from the last couple of years has been that we are looking to grow the business at 15% CAGR, okay? And for the Tega business to maintain the EBITDA at 22% -- 22% to 24%. That's what our plan is.
Yes, sir. So for the quantitative aspects, if you could just throw some light more on the qualitative part of your operations. So how do you intend to grow that number?
Qualitative in what manner you want to talk?
So basically, any growth figures you've -- inherent advantages that you will have?
So we -- I mean, if you look at the -- so we -- if you look at both copper and gold, in the last year -- from the last one year have been growing considerably, okay? The production is increasing, the market price is increasing. And because of the old degradation, the wear and tear of the products are going higher. So both this aspect and copper production is based on the EV, electrical vehicle introduction throughout the globe. So copper production is going to be high. Our consumption will be higher and growth is based on that. Second, our DynaPrime and other product lines are entering into the segment of steel liners and the growth is coming from there. And this is something we have given in the last couple of [indiscernible] calls also, so this is where our focus is.
The next question is from the line of [ Vinay Mehra ], individual investor.
I just had one question. Can you please elaborate further on the copper mine order book announced earlier today?
So this is one of the biggest copper mine, which is there in Europe, okay? And we have -- the contract which we have signed today is for 6 years, 5 years plus 1-year automatic renewal, okay? And the expected revenue in this -- at the minimum level because it's a production-based contract, so the -- what we have given is the minimum value of INR 685 crores, that will be there. okay? And we will be managing all the [ ware ] assets of it in the mines, including the service part of it.
Okay. And I had one more question. I -- probably you might have answered it, and I might have missed it, but I just wanted to know what the progress on the expansion plan in Chile and when it will be I mean, getting over. I mean will it be fulfilled by Q1 FY 24?
Like we told earlier, our Chile expansion project is progressing well. We have done the land acquisition, and we are waiting for certain statutory approval to come in construction, et cetera, which we expect to come in Q3 of this year.
The next question is from the line of [ Ronak ] from [ Kharak Food ] Investment Group.
I would like to -- like we have too much exposure outside of India. So like current situation is like a bit [indiscernible] kind of environment. So how do you think it will be -- like how would it affect the revenues of the company? How you see -- like we are a lot diversified, but still, we are [indiscernible] 80% of revenues are outside of India. So how do you see the environment there?
We seem to have lost the line for the management. Please stay connected while we reconnect the line for the management. [Operator Instructions] Ladies and gentlemen, thank you for patiently holding your lines. We have the line from the management reconnected. Over to you, sir.
So my question was like we have made enough exposure outside of the India [indiscernible] kind of going in the European countries and in America. So how do you see the situation of the company going forward?
You have to repeat the question, please. We are not getting you very clear.
Like we have enough exposure outside of India, and the current economics trends in Europe and U.S. is not much like [indiscernible] kind of environment. So I just want to know like what are the [indiscernible]?
Just to -- I mean, before that, a similar question we had answered. If you look at the base on which our business is built. We are looking at 2 major commodity, copper and gold. And despite of whatever the economic state that is happening, copper has been growing close to around between 3.5% to 4%. And gold also is above by 1% to 1.5%. So as far as production is concerned, both the copper and gold, irrespective of territory, is still going on. And I don't think any impact on the global economic situation is going to have on these two commodity because of two reasons.
Number one, the electrical vehicle introduction globally is going on at a very large pace. And each vehicle require a large amount of copper and so the copper is on a very strong note also. So both copper and gold, we continue to think will grow and the impact on the environment except Russia or Ukraine, where our exposure anyway is very small. The rest of the territories are doing well as far as production and billing has been concerned.
The next question is from the line of Priyesh [indiscernible] from Max Life Insurance.
My first question is to -- would it be possible for you to break up the growth between volume and value for Q1?
So on an overall basis, if you look at our business, if you remove the equipment business, there has been a degrowth. So the volume degrowth is close to 10%. Yes, there has been a price increase, which we have been carrying since quarter 3 of last financial year, which is close to 1% to 1.5%. And there's a bit of a ForEx because of the dollar depreciation against INR. So that's close to around 2%, that's ex equipment business.
So could you tell us the reason for the volume degrowth -- especially in equipment business?
So like we have mentioned to you earlier also, that there has been lower [indiscernible] account, the logistics and shipment issues, which were there because of nonavailability of shipping containers due to port condition in the month of June. So it's just a timing difference, which we are missing in the current quarter. The order book remains healthy for us. And the impact of this issue of port condition itself has impacted the current quarter by about INR 200 million.
So can you also just break up the revenue between DynaPrime and non-DynaPrime [indiscernible]?
I'm sorry, this is a strategic decision, and we don't share this data, actually.
Okay. And how has been the penetration of DynaPrime across the region in different geographies?
So again, what we have said and I think -- this has been the reason that we are not disclosing this number. We have been finding that there has been quite a lot of strategic changes in the competition because of the way we were representing number. But the total growth of the company, and you can see the healthy growth of the order booking, not withstanding the impact of condition on the quarter 1 results. The growth are dependent upon this data plan product and also for the [ environment ] product that we have been increasing based on penetration and wallet share increase in customer vehicles. So this is -- both are going on simultaneously and the impact on this is seen in the order booking. And hopefully, that we are looking at it, the long-term growth of 15% that we have said, will continue to happen at 15% CAGR.
Okay. So the growth of 15% is including McNally Sayaji, right?
So we are not -- we are talking about only Tega. McNally Sayaji, we also close to around 15% as of now.
Okay. And with the 10% to 12% EBITDA margin in McNally Sayaji?
Yes. So McNally equipment business was almost at a lower EBITDA as compared to the consumer while average of Tega will continue to be between 20% to 22%, McNally will oscillate between that 10% to 12%.
Okay. Understand. So what is the total capacity as of now?
Total?
Total capacity in terms for [indiscernible].
We do not have capacity in terms of [indiscernible] because of our value proposition in the product but the levels of revenue, which we can grow from [indiscernible] -- at least with the times CapEx in Chile and some sort of a debottlenecking income at other part of the world, we can cater the 15% growth, which we are projecting for at least next 3 to 4 years minimum.
So how much CapEx we have incurred in Q1?
Q1 is not at any significant CapEx because the land acquisition was already done in the last financial year. No major CapEx as such in the current quarter. The moment we get these regulatory clearances, we will have -- we'll see a lot of CapEx being spent in the coming quarters.
The next question is from the line of Ashish from JM Financial.
So my question is on the volume growth outlook for this year. You said that first quarter was weak because of the port condition challenges and unavailability of containers, now, how is Q2 looking sir? And how does FY '24 look like?
So '24 will continue -- I mean, as we said, the order booking is healthy. okay? And our pipeline is also healthy. So we are looking at a growth of 15% in FY '24.
Okay. Sir, that's the value growth we are talking about? Or that's what...
We are talking about volume growth.
Volume growth. Right sir. Sir also, typically, so because of the unavailability of containers, would that have impacted your inventory levels as would your inventory levels would have gone up? Or we would have probably scaled down the production because of that?
The inventories [indiscernible] have gone up to that extent.
The next question is from the line of Karan Sanwal from Niveshaay.
I just wanted to confirm the repayable position that we have in the last [indiscernible], it has actually increased from [indiscernible] compared year-on-year basis. So have we experienced any decrease in quarter 1 for say the relative [indiscernible]?
You are not very clear. Can you please repeat your question? There is a background noise from your end.
Am I audible right now?
No, we can hear you, but there's a background noise at the same time. So we are missing you out.
So I wanted to confirm the -- if there are any decrease in the travel position for the company in quarter 1?
So at the back of the strong fourth quarter, our working capital has improved because the quarter 4 was the strongest historically and quarter 1 is in a way a softest quarter for us historically. So our working capital days have improved and it is mostly because of the receivables because the inventory level has gone up, as Sharad mentioned, because of the port conditions and other things, our inventory is topped up. So the entire improvement in the working capital is mostly at the back of receivables improvement.
So could you give a number like what is the receivables at the moment, quarter 1?
It will be close to around 95 days, which was around 110, 115 days in March.
Okay. That helps. And the second question is what is the execution time line for the order book that we have right now, INR 500 crores?
So this INR 500 crores has 2 components. One is the consumable business, which generally we have an order book of close to 4 to 5 months. But in case of an equipment business, the order book, whatever you carry, it is executive in the next 8 to 9 months. So both businesses have their own time lines in terms of the turnaround time to deliver. So if you look at the overall INR 500 crores on a weighted average basis, we will take care of our 6 to 6.5 months revenue at a group level.
Would it be possible to bifurcate the order book between consumables and equipments?
We look at our business as a whole. In application industry, we would prefer to look at it at a consolidated level only.
So could you provide your sales bifurcation between mill liners and non-mill liners?
Sorry?
Mill liners and non-mill liners, the sales bifurcation for the quarter?
See if you look at an overall basis, you always said that the mill liners constituted about 70% of our all business. And the equipment business now going up, this portion will shrink because of the higher base. So -- and you always have to look at it from a year-on-year basis, the quarters can be a little erratic because of the some issues coming up here and there. But we always should look at on a year-on-year basis, not on a quarterly basis.
Okay. So on a long-term basis, what would we expect the proportion of mill liners to go, if we consider all the 3 businesses? Mill liners, non-mill liners and equipment?
See at a 15% growth rate, 70% mill liner business might reduce to around 65%, 665 in years to come because McNally has a lower base, and it will take some time to catch up. But it will not fall down below 65% because that's the main business of the entire group.
Okay. Great. One last question, if I may. So apart from copper and gold, where are we -- are we expecting any good growth for the consumer business. Because that copper and gold, as I understand is a major driver of our mill liner consumer business. So any other metals that we are expecting to -- which is showing a good traction?
Copper and gold will continue to remain high because these are the metals which need the highest amount of beneficiation. You cannot replace the copper or gold with any other commodity because those does not need that much of a mineral beneficiation. And even the grade in these metals are very low. We do have iron ore, platinum, uranium, zinc, but they are not substantial enough to replace gold or copper and become that dominant in our whole theme of things.
The next question is from Rushabh Doshi from Nirmiti Investment Advisors.
So my first question was, has there -- is there been some significant change in the competitive scenario in Q1? And also like ,in India, AI has a [indiscernible] rate in the lining business, and we are seeing around [ 40% ] volume growth they're expecting in this financing. So in terms of competition, like are we losing out to them somewhere? And is it easier for them to sell their mill liners along with their [indiscernible] or are these products very different? And my second question was, can you just share the export benefits, which we received for this year for the copper?
What's your second question?
Do you receive any export benefits?
We do have export benefit in terms of the RoDTEP scheme of the government. And we do also get some financial benefit in terms of some interest remission schemes given by the government to exporters of a particular class of products. To answer your first question, we have always mentioned that we do not consider AI to be our competitor in any space because we are into DynaPrime or other mill liners and we are into still liner and we are disrupting that space, what they claim, how is -- how easy or difficult for them is to get a better margin, we should not comment, but we keep our guidance of a 15% to 18% growth on a year-on-year basis with an EBITDA of around 20% for our consumable business. And we hold firm on that comment on an annualized basis. Yes, quarter-on-quarter, there will be some movement, but on an annualized basis, we hold our guidance.
And could you share the export [indiscernible] in this quarter?
Sorry?
The export benefits [indiscernible] -- I guess it sounds part of your other number.
So the export benefits are all part of operating revenue, which we get from the government in terms of the RoDTEP scheme. The interest benefit, which the government extends to us, it [indiscernible].
The next question is from the line of [ Praveen Motwani ] from Bank of India Mutual Fund.
Sir, I just wanted to understand what sort of logistic issues that we have faced during this quarter than other companies are talking about things are getting normalized and the costs have come down on a year-on-year basis. So if you can just elaborate a little more on what went wrong with us in terms of container shortage or logistics issue whichever we have faced?
There was a port congestion issues in the month of June because of Cyclone and other issues. It was a temporary phenomenon, but of a issue which comes up till we don't have sales done, we cannot recognize the revenue in the books of accounts. So it's a temporary phenomenon, we have overcome like everybody has overcome. Because of the cyclone and port congestion issues, we had the container issue, which was there. So it's just a temporary blip actually.
Understood. Okay. And my second question is, sir, what kind of margins that we are expecting on a consolidated basis for FY '24? Any guidance on that?
So for consumable business, we've always -- already mentioned that our gross margins will be in the level of 57% to 60%. And for the equipment business, we have said that we need at least 1 or 2 more quarters to very firmly assess the potential of the business and then maybe give a better guidance to the market, but where the gross margins of that business would look like. There already has been an improvement with the synergies with [indiscernible] we have, it is visible. But we'll still refrain from making any numbers right now. It will be better for us to comment maybe in the quarter or two to you.
Understood. Okay. Okay. And then the last question is all the cost of acquisition has been integrated, right? I mean there have been no one-offs going forward in the coming quarters?
No, there are no further expenses on discount.
We'll take that as the last question. I would now like to hand the conference back to the management team for closing comments.
Thank you to all the participants for attending this call and asking us the questions, which will allow us to introspect further and help to clarify your doubts around that business. And we're happy to handle the queries in the upcoming earnings call for the coming quarters. Thank you very much. Have a nice weekend.
Thank you. On behalf of Tega Industries Limited, that concludes this conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.