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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 Tega Industries Limited Q4 and FY '23 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. Nachiket Kale from Orient Capital. Thank you, and over to you, Mr. Kale.
Good evening, everybody. Welcome to the Q4 and FY '23, Earnings Conference Call of Tega Industries. Representing the management on this call, today, we have with us Mr. Mehul Mohanka, Managing Director and Group CEO; accompanied by Mr. Syed Imam, Director, Global Project Manager and Head of Sales.
Also with us is Mr. Kaushal Sureka, DGM Financial Accounts. Before we proceed, a disclaimer. This conference call may contain some forward-looking statements which are based on beliefs, opinions and expectations of the company as of date. A detailed statement has also been given on the company's investor presentation, which has just been uploaded to the stock exchange. I hope everyone had a chance to go through the [ reports ]. I would now like to hand over the call to Mr. Mehul Mohanka. Over to you.
Thank you. Good evening on behalf of Tega. I would like to extend our cordial welcome to everyone for joining us on our earnings call today. I have with me today on this call Mr. Imam, who is our Director of Global Sales and Marketing; and Mr. Kaushal Sureka, who heads our Finance and Accounts. I'm delighted to state that our business has experienced significant growth in key metrics during the fourth quarter. Building upon the strong momentum we achieved throughout the year. We have witnessed robust sales growth across all regions, reflecting the effectiveness of our strategies and the value we provide to our customers.
Furthermore, our expanding improved operating leverage and substantial margin improvement, both on a yearly as well as quarter-over-quarter basis. Despite the challenging global macro environment, characterized by geopolitical issues of Europe, a recessionary outlook in leading economies, currency volatility and inflationary pressures on raw materials. We have managed to deliver significant improved results. In addition to our strong performance, I am pleased to inform you that we have made an important strategic move by acquiring McNally Sayaji Engineering Limited. This marks Tega's first acquisition in India and fourth globally. McNally Sayaji Engineering Limited is a renowned company, which offers innovation -- innovative solutions in manufacturing and marketing of crushing, screening, grinding, material handling and mineral processing equipment, complemented by integrated customer support and after sales service.
This acquisition represents a significant step towards expanding our product portfolio, both in terms of products as well as services and space. The broader range of offerings is expected to enhance our company's sustainability and drive future growth. It is imperative to note that McNally Sayaji Engineering Limited is an operational company that is not losing cash, and we anticipate strong growth in the coming years. Looking beyond this acquisition, we are also excited to share that our expansion project in Chile is progressing well. We have successfully completed the land acquisition process and are currently awaiting further statutory approvals so as to commence construction. We will keep you updated on the progress of this project and provide any relevant updates as they become available.
In conclusion, I have strong confidence that Tega Industries Limited is well positioned to seize the opportunities within the sector we operate in and generate long-term value for all our stakeholders. 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. Kaushal Sureka to take you through the financial performance of the company for the period under review.
Thank you, sir. Good evening, all the participants. I'll just like to share the highlights of the financial performance of Tega Industries for the fourth quarter as well as for the whole year. So if you look at the fourth quarter, the revenue has gone up to INR 396 crores from INR 290 crores in the last year's similar period, showing a strong performance of growth of around 36%. Our operating EBITDA stands at INR 102 crores, which is 25% of our revenue as compared to last year's 23.8%, which shows a margin expansion of 200 basis points. On a full year basis, our revenue has gone up by 28% on a Y-o-Y basis. Against the revenue of INR 950 crores last year, we have reached a revenue level of INR 1,214 crores in this financial year.
The operating EBITDA for the full year is at the range of 22% against the operating EBITDA of 19% in the years preceding to this financial year. The PAT margins remained healthy at a percentage of 15% on revenue, which was in the last year, close to 12.5% for FY '22. We have been able to manage our working capital well, which was on a higher trajectory last year because of the supply chain issues, which we have seen during the fourth quarter of the last financial year, which has improved by around 20-odd days in this financial year, which is easing out the working capital pressure on the company. Our order book as on the 1st April 2023 stands at close to INR 340 crores.
We can now keep the floor open for any specific questions and answers.
[Operator Instructions] First question is from the line of Mohit Kumar from ICICI Securities.
Congratulations on a very good quarter and fiscal year. First question is, is it possible to break up the volume and value growth for the Q4 as well as for the entire year?
So the volume growth we had also given a direction till 9 months. The volume growth remains in the range of 16% to 17% for the whole of the year. And we're tracking the same kind of a range in this quarter as well and the price increase in the range of 5% to 6%. And there's a bit of a foreign exchange gain also on account of currency improvement. So that's in the range of 1%.
The second question is sir, can you just take up the revenue between DynaPrime and non-DynaPrime business?
So Mohit, this is a bit a strategic, and we would refrain from giving specific information, breaking DynaPrime and mill business, because that's something which we are now noticing is becoming a little difficult for us to share this information because as strategic information, we'll prefer to share the information at the overall business level maybe, but not split into DynaPrime and the traditional lines.
So is it possible to share if Chile, Australia breakup? Or do you think [indiscernible]?
Not really. You can you can see the segmental breakdown as part of the annual report when it goes [indiscernible].
I'll do that, sir. My last question is, sir, what kind of the synergies you expect from the acquisition of the McNally Sayaji and how -- and what is your plan to scale this business over, let's say, medium term, 3 to 5 years?
McNally Sayaji was an operational company, and it is kind of a backward integration for us, because we are into an equipment place, and we provide payers, which are getting installed into those equipments as well. So this opens up a new market domain for Tega as well as they are not in the equipment space. And the size of the market in the equipment space is pretty big as compared to these payer businesses. So McNally will open up that market from the equipment side. And from a Tega perspective, this will also add value, because we will have more installed equipment basis of our own group companies, which will have an advantage to us.
Is it possible to take the business international?
Sorry?
Is it possible to sale the equipment to the Chile and the other markets, Australia, et cetera?
Yes, Tega has been a global company, and we have export 80%, 85% of our business in the foreign geography. So McNally also as and when the product portfolio matures, we will definitely take that company also to the global market. And it is very much possible that we take to the export markets.
The next question is from the line of Dhiral from PhillipCapital PCG.
Congratulations for the very strong set of numbers. But if I look at your FY '23 gross margins and if I compare it with the FY '22, so our gross margins are down almost 100 to 110 bps. So very this year, we have seen everything pulling off from commodity to shipping and everything. But our margins have fallen on a Y-o-Y basis. So any particular reason for that, sir?
Dhiral, if you have heard our previous earnings call, it typically takes us two quarters to pass on the benefits or even the increase in the prices to our customers. So it is a little lag which happens. So you are right that it is showing a dip in terms of the overall margin. But if you see our quarter-on-quarter basis, we are improving and that is how the increased price is getting transferred to the customers. So in the coming quarters, if this remains a situation, you might see a margin improvement as well.
So [indiscernible] targeting of 60% kind of gross margin in our business? Or with the acquisition of the McNally Engineering, we are targeting even higher gross margin, sir?
No. Equipment business will not have a higher gross margin than our regular business. That's not something which is possible and sustainable in this space. If you look at the merged entity level, our margins will probably dip as a percentage from here on because Equipment business will have a lower margin definitely.
So what will be a guided range for FY '24, '25, sir, along with this acquisition now?
A bit too early to answer this question, Dhiral, because it's just been 2 or 3 months, we are into this company, and it will take some time for us to give any kind of a guidance to the market until the time we exactly assess the situations.
Okay. And so when I look at our gross block for FY '23 or maybe the net block, sir, it has reason substantially from INR 170 crores to almost INR 308 crores. So how much is that of is of the stand-alone Tega or maybe overall Tega, and how much that of the McNally Engineering, sir?
So most of it is from McNally Sayaji, with the new acquisition is coming with a gross block of around INR 170-odd crores at a fair value level.
Okay. Okay. And sir, can you just [indiscernible] that what was the overall growth of DynaPrime that we have seen in FY '23 as a whole or maybe the overall mill liner growth and the non-mill liner growth?
So on a DynaPrime, as we've already mentioned, Dhiral, we'll not be answering specific questions on DynaPrime, because that's a strategic project -- product, and we'll not be sharing those information going forward. But on a mill liner basis, we have grown in the range of 20%, 22%, which is the 70%, 75% of our business. So on an overall business basis, we have grown to 23%. So I think that answers your question that mill happens to be 70% of our business. So the majority growth comes from the mill business.
As on a non mill liner [indiscernible] how much that has grown, because this year, we have seen a very good growth as on 9 months, so what was the overall growth for FY '23, sir?
So if you talk about the overall growth, we are 24%. Mill liner has grown in the range of 20%, 21%. So non mill is in a bit of a higher range, but not crossing 30%, between the range of 25% to 26%.
Okay. Okay. And sir, this acquisition of McNally Engineering, so does it help only for the backward integration part? Or is there any revenue benefit that will flow to the P&L, sir, in FY '24?
Sorry, I did not understand your question.
So the acquisition of McNally Engineering, does it help only on the backward integration part or it will help in generating the revenue as it will expand our product market, sir?
See, McNally Sayaji will definitely add on both the spaces. It also helped increase Tega's revenue, because we will have more non-installed basis where McNally equipment will be installed. So we will be able to push our products also faster there, because it is coming from the same brand. And McNally and equipment space will also give us new geographies and new market also. So as a group, we will have equipment business coming in, plus the [indiscernible] business will get a boost because of our own equipment getting installed at the customer sites.
So what kind of revenues are we are looking on the McNally Sayaji part FY '24, and FY '25?
See, at the time of acquisition and in the press release, we have mentioned that we are looking in the range of a CAGR growth of kind of 15% for this business. They have done in the range of 12%, 15% in the last 2 years since they went into NCLT. And we believe that in the initial first 2 years, we'll be able to higher up it by at least 2% or 3%. And 15% is a reasonable number, which we should be able to achieve for the next 3 to 4 years on a CAGR basis.
We'll take the next question from the line of Sandeep Tulsiyan from JM Financial.
Congratulations on this fantastic set of numbers. I have just one question regarding McNally Sayaji. I think the equipment sales that we have reported seems to have many high EBIT margins in the reported numbers. So should one look at these margins to be sustainable going forward as well, or it has to be looked after eliminating the intersegment amount as well that shows [indiscernible]?
So Sandeep, to answer your question, we have consolidated the best part of McNally's business into our financials, which is the last 5 weeks of the year. So if you look at the business lumpiness, that be the best period for any company to book revenues, right? So that is what's getting consolidated. So you're right, these numbers are seeing a healthy EBIT, but that's not sustainable as a percentage of revenue. We might track, as I mentioned, that a 15% CAGR on the revenue, but the margin levels will not be a percentage that is right now getting consolidated with Tega. They will have a lower EBITDA margin and the lower gross margin as compared to Tega's business because the nature of the business is as such.
Right. So see, when we compare other players in the space, typically, margins are -- I mean, they're all over the place, but if we take 10%, plus/minus maybe 2% to 3% over there. So should we consider a similar range, or the product portfolio and competitive intensity is different where margin should be outside this range guide where they should be going forward as well?
Sandeep, we would love to answer this question maybe from quarter 2 onwards, once we get a good sight of the business, more close sight of the business, to give a better guidance to the market. So right now, I think it will be very premature for us to give any kind of a commitment or directions to the market on this.
Fair enough. And also from a capital allocation perspective, I just want to understand what is the kind of CapEx we have planned in this entity. And are there any other product gaps which we're looking to address through future acquisitions, because the cash will continue to being very strong?
So from a CapEx perspective, as part of our resolution plan, we have said that we might infuse around INR 10 crores, INR 15 crores into the company based on the needs at each of the locations. From a product GAAP perspective, this adds a significant amount of our product portfolio in our core scheme of things. The next round of CapEx or the next round of acquisition is something which I'll not be able to comment right now. But as you all know, that Chile, we are coming up the greenfield project. So there's enough amount of CapEx plans which is on display. And the capital allocation for the next 1.5 years will be towards Chile and some bit of CapEx in geographies like Africa and in India.
[Operator Instructions] The next question is from the line of Sahil Sanghvi from Monarch Networth Capital.
Congratulations for excellent set of numbers. My first question is, can you give me the breakup of what were the revenues from McNally Sayaji and 4Q? I mean, out of the INR 396 crores. What was the revenue contribution from McNally?
So if I could just put you just a brief numbers. The total revenue from McNally Sayaji, which is getting consolidated for the 5 weeks is in the range of INR 35 crores.
INR 35 crores. Okay. Okay. And will you be able to give -- sorry?
It is for the period from 24th February to 31st March.
Yes. So that's INR 35 crores, right? And what's the FY '23 revenue that McNally Sayaji had done?
So as a company, they have done close to INR 190 crores for the full year.
So this -- I mean, this is different from the entity we have acquired?
Sorry?
This is different from the entity that we have acquired, I mean, the assets that we have acquired. INR 190 crores, is it fair to assume that the assets that we've acquired has done INR 190 crores?
INR 190 was for full year. And we have acquired this entity at the end of February. So we will be only consolidating that portion of revenue, which has accrued to them post our acquisition.
I get it. I get it. My second question would be, if you can just give some more details on the CapEx that you want to want the other business, as in the Tega side of the business, I mean how much you want to spend on what aspect and as a location and what kind of growth CapEx are you spending on what front?
So on a larger CapEx side, we already have plans for consolidating our operation and expanding capacity in Latin America. So -- which is a greenfield project in a way for us. We do have a bit of an expansion project of adding some capacities in Africa and in India. And with McNally Sayaji coming into our fold, we have allocated a portion of our capital to the tune of around INR 15-odd crores to put into the business to meet up the product gap wherever we find that the market is ready to take our products and we can build up the capabilities faster.
Yes. So just a clarification on the Latin America, Africa, India spend, I mean, how much would that be and over what period, whatever is...
Overall project cost perspective, it is close to $20 million in CapEx. So the land acquisition part is already done. We are waiting for inventory clearances from the regulators. And that will be -- we expect that to happen by another may be a quarter or two. And once that is there, the project will be at full swing and then the spend will start happening. And that is going to be funded from an optimal mix of debt and equity.
This is across all the three locations or just Latin America?
This is only for Chile, the $20 million only for the Latin America region.
And the other two locations, would there be any significant...
Not a very significant amount, not as big as in Chile. So we will have around -- initially, we have said that for the next 3 years, we have a project of around overall $30 million. $20 million goes to Chile and then rest of the $10 million will be in Africa, India and now with McNally coming in, you can add $2 million more to that.
Okay. Okay. And this $20 million for Latin America, will that all spend in FY '24? Or that will be spread over the next 2 years?
So the idea is to spend it as soon as we're ready for the [indiscernible] clearances because we are already short of capacity. There will be kind of demands we are looking in. So the moment we get these [indiscernible] clearances, the project will get full swing. And we expect that we will be able to spend most of it in '24. There might be some spillover, which might happen in '24, '25, the initial first or 2 quarters.
Right. And from a demand perspective, like how do you see the [indiscernible] business growing as in the Tega business growing for the next 2, 3 years?
We have always mentioned that we target and aspire to grow at a 15% growth rate. And we have been doing it for the last 5 years now. So we'll be keeping the same track, and we'll be targeting that number as well.
The next question is from the line of Sandeep Jain from Baroda BNP Paribas Mutual fund.
So first, if I can understand as mention INR 190 crores of McNally Sayaji revenue for FY '23, what amount of EBITDA they have made, can you disclose?
See, that does not make much of a sense for us because that -- the major part of that revenue was generated when we were not part of that company. So we acquired this company only in the last -- 24th February, which is like 5 weeks. So I think we should be looking into their future prospects more than what they've done in the past. So we strike -- we will track a revenue growth of close to 15-odd percent. EBITDA margins, we need to revisit. And only once we get a better sight on this, we'll be able to give you that number.
I'm just trying to understand whether there is some kind of operating leverage can be achieved or some kind of low-hanging boots there. And I understand it is not kind of comparable, but just wanted to understand the numbers side.
Every period, we have reported profits. So that's something which you can consider as an upside for them. Yes, they did not have a debt on their balance sheet. So that may be a no reason for them to report profits. But going forward, as I said, that we will have to wait and watch till another one or two quarters.
Got it. Got it. And second, if I can understand, so somewhere around INR 250 crores to INR 260 crores, we are going to spend in the next 3 years, right? If I can get $32 million, $33 million kind of it, right? And currently, if I look at the way the debt is there, so any kind of peak debt, are we in our mind and we want to reduce the debt position going ahead?
So our present debt equity ratio is in 0.3, and our net debt position after the acquisition remains at INR 70 crores at a debt level. Our EBITDA for this year is close to INR 260 crores, which is 4x the debt. A very healthy position in terms of the debt. So any new CapEx can very well be funded through an optimal mix of debt and equity. We can even think of funding entirely to internal growth as well, because the amount of [indiscernible] in the balance sheet will permit us. But that's something which as and when we have to spend, we have to look at the market and take a conscious call.
Got it. Got it. And all the new capacity or all the new CapEx which we are doing, we are doing on DynaPrime or we are doing on other products? And what will be the total nameplate capacity after that?
Our capacities are very much fungible, right? So it's not that when we add capacity, it can indicate to DynaPrime or again only cater to mill. They are largely fungible. So any capacity addition can serve that particular market for those kind of products. So is an overall basis, capacity is not for a particular product level.
Okay. And just my last question. Some time back, we have -- got the news back Chile and some other geographies are nationalizing all mines. So any kind of impact on us on that news or I'm just theoretically or hypothetically any kind of issues on that?
No. Chile had a political business, Imam here. Chile has a political change with the left coming in heavily in power last year. And the new constitution, the left had preferred some of the [indiscernible]. One of the biggest copper mines over there. Codelco is already government-owned, okay? But at the same time, now what has happened? In the last months, there has been a very large change again in the political situation over there. So some of these issues which had cropped up here before last year, I don't think it's going to get implemented fully.
So -- and private companies have been very large in Chile. Even for a government company, we are in the space of consumables, okay? And if the mines are operating, we need -- they need that. So for us -- although we are there in Chile with both government space, which is Codelco, we are also there with a private Chile business. Chile being 40% of the total copper production in the world. I think going forward, any government will be very difficult to change drastically over there. So based on latest development, we think things will continue as it is.
Got it. And just a kind of data keeping. So Codelco growth, that is the government mine in Chile is more or less same compared to the private mining growth, or they are working at a different scale?
No. As far as growth is concerned, I think both, the mining and the Codelco as well the private sectors are all working in the same kind of space, because they have to continue to get it to the larger and the demand of copper that we're going to come up with the easy sales. So I think everyone is tuned in to how to add capacity, how to increase productivity.
[Operator Instructions] The next question is from the line of Mihir from Carnelian Capital.
Congratulations on a great set of numbers. Sir, you mentioned about $30 million CapEx, just largely wanted to understand on the operation numbers front. What kind of capacity addition are we looking at Chile and India in operational terms, if you can clarify? That would be very hopeful.
And my second question was on the [indiscernible]. I mean when we see other [indiscernible] companies, they are also present in the overall business itself. So what is the differentiated [indiscernible] that we are having specifically with efforts to DynaPrime product, which is giving a such a good growth and despite the fact that we are operating only the mill liner business versus those companies also having their own mills.
Can you just once again repeat your question?
Yes, sure, sure. So I mean my second question was on the fact that there are global companies, which are also operating in the overall mills business. Since we are primarily operating on the mill liner business, I mean despite [indiscernible] part of the segment. So what does the differentiation of right to win that we are having. Then were able to win the contracts, output revenue growth despite operating in just in mill liner segment and not the entire mill?
So if I can answer that, this is Mehul. If you look at our entire historical growth, the reason why we have continued to deliver growth in mill lining segment is because we have very clearly been able to differentiate ourselves from the other competitors or other companies which supply both, mill and linings, or just the mill. So there's a clear distinction that the customer makes in his mind when he sees a proposal from us, because we deliver value in terms of both, engineering and performance. So that's how we differentiate ourselves. And now having bought McNally, which manufactures grinding mill itself, that's where the integration or the backward integration and the opportunity to now combine our linings with the mill also presents itself as a future growth opportunity.
Sure, sir. And just on the CapEx side, I think you mentioned about $30 million.
This is the operator. Sir, please use the handset mode. The audio is not clear from your line.
So just on the CapEx side, I think the $30 million number you mentioned, if you can clarify what in terms of addition, I mean, operational terms at million tonnes for annum are we looking to add at Chile and Dahej from $30 million? That will be really helpful.
So from the capacity in Chile, we will be able to generate our revenue levels at a peak level by FY '30 in the range of $70 million to $80 million from here on. So we kind of double the revenue from present level in the next 5 to 6 years to get capacity. And for Dahej, also, this will add at least 7% to 8% on our top line once this spend is done in Dahej and in South Africa.
The next question is from the line of Shirom Kapur from Prabhudas Lilladher.
Could you help us with the utilization levels at each plant for FY '22 as well as FY [indiscernible]?
See, capacity utilization, as I mentioned, we are not a kind of a commodity or a branding media wherein we can say [indiscernible] is our capacity. But on an overall revenue basis, we see that we are right now operating at in the range of around 60-odd percent from our overall capital utilization. And it is largely same across location. You've seen Chile, we are higher capacity utilization. That is why we are topping up the capacity and creating more and more capabilities in Chile. So here, we are at higher capacity utilization, which is calling for our CapEx to be spent in the next 2 years. But an overall company level, we are at 60%.
Okay. Sounds good. And I'm feeling for -- for the new acquisition, MSEL, you guided for 15% growth going forward, so that would be the INR 190 crores. This is a 100% acquisition, right? So the INR 190 crores, which they did in FY '23 or projecting for 15% CAGR on that for the next few years. Is that correct?
Yes. You're correct.
And I have missed this earlier, but is there any margin guidance that you can give us on the new subsidiaries going forward, which they can achieve?
Not now, maybe 1 or 2 more quarters from hereon.
Thank you. Ladies and gentlemen, in the interest of time, that was the last question. I now hand the conference over to the management for closing comments.
Thank you to all the participants for attending this call and asking us questions which also allow us to introspect further and help you clarify your doubts around our business, and happy to handle this query in the upcoming earning calls for the coming quarters. Thank you.
Thank you. Ladies and gentlemen, on behalf of Tega Industries Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.