Q2FY23 NOTES:
• OPERATING MARGINS: The bulk of the order booking that was done for this year was in the second half of last year and what happened is that, most of these orders were taken at the peak of the sort of raw material spike where we had very little time between actually bidding for the orders and actually the spike happening after winning the orders. So, the raw material pressure is likely to continue till the end of Q4. So, the margins should remain around what we see them in Q2 for the rest of the year. However, the good news is that going forward all the orders that we booked post a spike that form a big chunk of this 536 crores order book, they have started returning to the old levels of margins. So, we should likely see good margins return in the first quarter of the next year.
• GROWTH TARGET: We expect that we should be able to grow at a CAGR of over 25% for the next 3 years with 24% margins.
• KHEDA FACILITY: Kheda Phase-1 likely to get commissioned by Q4 FY23 end. Civil & Fabrication to be completed by Q3 end. The complete first phase will be operational which includes one full bay and half a bay. The full bay is used for the assembly and the cutting and bending will happen in the half bay. We can put a total of seven such bays in 3 phases.
Only towards Quarter 3. Quarter 4 will we start seeing good levels of utilization because we’ll have to get the qualifications, we’ll have to get the customers in, we’ll have to sort of get all the approvals in place for various different types of equipment. So, that all will take some time. Next year towards the end of the year is when Kheda will start delivering on its full capacity.
• VISION OF NEW CEO FOR THE COMPANY: We need to diversify in different geography and product categories. Mainly I talk about exotic metallurgy, so it will give a higher value equipment product mix for us. Second is acquiring technology of proprietary products. Third, expanding the capacities and capabilities. So, Kheda is a clear example of how we are going to increase our capacity and capability because of the sheer size of that facility. As you all know it’s under the hook, 17 meters, which gives us a huge leeway in terms of getting more into heavier, complex and larger diameter equipment.
More moving towards higher in the value chain, both in terms of thicknesses and also in terms of exotic metallurgy:
The first and foremost in the existing product category that we have, the first priority would be to move up the value chain in terms of higher thicknesses. With the new facility of Kheda as I said it leaves us a good leeway in terms of making higher thicknesses than what we are doing today and also larger diameters and the ODC consignment
Second, we have the clean room order facility in the Odhav facility that we are doing now. We are focused on building a pool of order for exotic metallurgy, namely titanium and others where we could increase the share of exotic metallurgies thereby giving us larger top line and as well as a higher value per equipment.
Also, we are looking at some equipments that we could make for hydrogen which is the future going forward.
EXPORTS: Exports at 20% for hy22. Export share in revenue mix has Started to increase, according to management goal of 50-50% revenue mix of domestic-export. The company also added new customers from South America, Europe & Middle East.
Number two the Odhav facility is constrained from its location perspective also. It’s landlocked and the space is very limited so a lot of the export customers that require large equipment etc. would not even consider this manufacturing location. So, we’ve not gone to that set of customers also which we know that if they come and see the facility, they will have the first question around logistics and that will be the, before they even look at our systems, processes and shop floor, it would become a constraint. So, these are the issues of why we have focused on this set of customers which itself is giving us good bottom line. I think the right question to ask is what will happen after Kheda and there I can assure you that any export customer will love the infrastructure that we are putting in place. It’s probably, it’s going to be a best-in-class kind of infrastructure.
We are qualified for a lot of export customers and those customers can start utilizing the Kheda facility.
One of the things where we are very well placed is that Regi has relationships with the best of all customers globally and they are eager to be able to come into India and have a new supplier because today there are only two or three people who can service their needs and the shift away from some of the South East Asian and Chinese supply chains is only going to add to that necessity of looking for more options in India.
HIGHER AVERAGE EQUIPMENT VALUE: Capacity is a moving target because average equipment value is also changing all the time. So, the same number of equipment can deliver a higher turnover, if your average equipment value goes up. It’s been constantly going up every year. We are close to full right now. But we will continue to remain close to full with the higher turnover because our average equipment value is going up. What, the way you have to think about it is that our average equipment value 2 years ago was I think in the 1 crores range. Now it is 2.7 crores on this order book.
PRODUCT MIX TARGETS: The Kheda Facility, because of the sheer size, reactors and pressure vessels would be planned for Kheda. As you would have seen from the product mix that we had historically, close to about 75% around we were always on the heat exchanger side and the balance would add up to about 20%-25%. Going forward with Kheda in place that’s the change that we want to bring about. We want to keep exchangers to about 60% and the balance is where we want to increase it, so that we do due justice the capabilities that we’ve built up at Kheda locations.
MISCELLANEOUS:
• Order Inflow for the year: We have booked close to around 300 crores in H1. We are seeing a similar traction for H2.
• I think three strengths we’ve historically had as Anup. I think our competitiveness, our on-time delivery and our quality. We’ve hardly had a quality complaint for the last 5 years. I don’t think we’ve ever missed a customer CDD. I think preserving this is going to be key to looking to the future
• Getting into proprietary equipment there are several conversations happening which of course we will inform you as they become more concrete.
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