Hariom Pipes Ltd: A Capex Play!

My Take on Q2 Results:

Not so WoW Results, but justified a deep look

-Revenue up 138% YoY n 26% QoQ
-EBITDA up 127% YoY n 26% QoQ
-EBITDA Margin at 12.17% vs 12.78% YoY vs 12.17% QoQ
-PAT up 59% YoY n -4% QoQ
-OCF weak -60.8 Cr vs -23.8 Cr

Looking weak,
But a deeper look

Why PAT Growth lower?
-High Int & Dep Exp (Cauz of Capex)

Why Int Higher?
-Weak OCF (last 1 year -ve CFO)

Interesting things:

-Volume Growth is much higher 134% YoY n 28% QoQ🔥
-Value added share increased to 96% from 93% YoY
-VAP Volume increase by 176% YoY n 23% QoQ
-Realisation Growth is flat (Not selling product at depress price, to show good Revenue Growth)
-Highest ever volume & sales number
-Power & Fuel cost flat, even though FA doubled (cauz of Solar)
-Capex is ramping as per plan
-Will import cheaper RM to expand EBITDA Margin

About Weak OCF?

-Hariom is telling us that we need 2-3 Quarters time to improve CFO because of too much Capex, they need to maintain product, product mix & supply chain to stabilize

Weak CFO has led to high borrowings in B/S & high interest exp. impacting PAT

First ever presentation released:

Let’s analyse it:

1. Value Chain
   -Backward integrated steel production
   -Forward integrated into VAP steel products
   -More than 95% VAP sales
   -Reason behind high EBITDA Margin compared to other players

   

2. Modern & Sustainable use of technology for production

3. Production Capacity

-Capacity expanded more than doubled from FY22 base thorough acquisition & capex

Hariom has:
-250+ Product specification
-1500+ Dealer network and POS
-Strong presence in South & West Market

4. Customers:

   

5. Guidance:

-Goal to reach 2,500 Cr revenue by FY26

Achieve thorough:
-Improving product portfolio
-Grographical expansion
-Capex led growth
-Marketing & Branding
-Industry tailwinds

My look:

-Results look neutral to average in hindsight as CFO -ve, Borrowing up, no margin expansion, high dep & low pat growth but

Management is saying:
-Wait & give us 2-3 Quarter to stabilize & things will look much better after that

Also, all the long term triggers are intact
-Grographical expansion + Power cost flat + VAP mix improving + Industry cycle + sales growth + importing RM to improve GP Margin

All good… will wait & give time to Hariom to show their true growth…

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