Technocraft industries

Technocraft Industries (India) Ltd Q4FY24 Concall Notes

1. Management Guidance

(Management Tone: seems confident and bullish led by new capacities)

• Drum closure business will be steady in FY25 (supported by good growth in China), Scaffoldings business will see strong growth due to the Aurangabad expansion (full effects will be visible in 2025-26), Engineering and design service will also grow strongly and textile business will also see better performance for both the spinning and garment unit (due to shift from Bombay).
• FY25 Consol guidance- Revenues will grow by 25-27% in FY25 and 20-21% in FY26 , Margin- Likely to expand to 19-20% in FY25.

2. Business

• Capex done for the two new plants (Amravati and Aurangabad) has been progressing well and will help the company to get out of the bombay circuit. Amravati is fully operational and Aurangabad (new aluminum formwork facility) has started trial production which will scale up gradually and reach optimum utilization levels by end of FY25. Expansion in Aluminium extrusion is for captive consumption (1500tpm will be required for 60k sq m of aluminum formwork production). Finished product is Mach One.
• The benefits from these new capacities will be visible from FY 24-25. Total Capex required will be 280cr (phase 1). Company has already spent half of that.
• The decline in the overall volumes of Scaffolding and Formwork division in FY24 was due to –

1. Slowdown in the European market which became prominent from Q3FY23 (October) as a result of the Ukraine Russia crisis. Scaffolding plant was operating at 70% utilization levels and output was restricted to 2000 tpm (peak volumes were 3000 tpm) due to decline in these markets.
2. Slowdown in the infrastructure formwork segment in India, led by delay in execution of projects. Even though the business was sitting on strong order books (which they still are), they were impacted by the slow cashflow cycle between the govt and the contractors who are TIIL’s customers. This business was averaging about 700 tpm but now is down to 200-250 tpm (peak volumes for steel formwork division was 800 tpm)

• Things have turned around in this business since February. The European market continues to be slow but there has been a strong uptick in demand from the US, Middle East, Australia and India. From April of this year, the business will be back to 3000 tpm. June onwards this output will increase to 3250 tpm. Mach one continues to be strong and the infra formwork division is steady at 250 tpm but management expects it to pick up post election results.

• Mach one has done well. 100% of sales is from India and capacities are fully utilized. Volumes used to be 20k sqm per month and currently they are doing 30k sqm per month. Plan is to add another 30k sqm per month in Phase 1 of expansion. Production will start from August and the full effect of this increase will be seen next year. Peak revenue which will be seen next year from mach one will be 850cr (New facility will add about 450 cr). Total order book for aluminum formwork is 2 lakh sqm.

• Mach one is also seeing demand from South America, US, African countries, and the Middle east. Management has not started tapping into these opportunities fully because of capacity constraints. Post commissioning of the Aurangabad plant, they will also start tapping into these opportunities.

• The end use of the product Mach one is residential developers (mostly) and construction contractors. The life of standard aluminum formwork is about 3-4 years. Project specific formwork (about 35%) will have a life of one project and will be scrapped. Scrap realizations of aluminum formwork is 30%.

• The realizations of aluminum formwork per sq m is Rs. 10,000 rs and steel formwork is about 1.05-1.1 lakh per sq metric tonne.

• Sustainable margin for the scaffolding division is 20% and for formwork and Mach One division is 15%.

• Majority of the company’s export for scaffolding is to the US (75%), Europe is 5-10%. The US continues to see good demand but problems in other markets have dampened the show in cumulative revenues. This business is majorly an export business with 95% revenues coming from exports.

• The company has recently hired a sales head for europe. Waiting for a certification to start supplies of scaffoldings in Europe. Will come in 3-4 months.

• Drum closure business will have a market share of 55-60% (varies between 40-60%). China contributes to 15-20% of the drum closure revenues. Chineses drum closure facilities are running over 90% capacities and will see some expansion.

• Share of drum closures in Europe is ⅓. It has gone down due to war, shifting of chemicals out of Europe, etc. Company trying to make the shortfall by focusing aggressively on other markets, hence no fall in sales this year.

• Company has added a new range of plastic closures which will start showing results in FY25. Plastic closure is a higher margin segment but low volume.

• Drum closure business is built on long term relationships with customers, so the repeat business is very high (90%).

• Textile business spinning operations have been shifted from Mumbai to Amravati, where the spinning division will see good cost benefits. Yarn has shifted there already and did 12-15% margins last year and will do 10-12% ebitda this year. Similarly, the garment business also shifted to Amravati (1.5years ago). Total proceeds from the sale of the Mumbai facility will be 27-28 crs. Garments business did sales of 50 cr last year, will touch 80-90 crs this year with ebitda margins of 15%. Fabric segment has been under stress due to the global scenario. But now the US market is picking up with buyers like Walmart and Target. Next Q onwards this division will also start doing well.

• Will receive subsidy of 50cr from 150 cr of investment for the new capex done here. (earlier received 35-40 cr for capex done for another 120-130cr). No plans of incremental capex in Textiles.

• Engineering and design segment has done well. No abnormality in margin fall. Demand is quite strong specifically from the US, UK and other western countries. This division has strong long term relationships with repeat business of 50%.

3. Risks

• The Red Sea issue led to a rise in freight cost. This has cooled down from a month.But, management is able to pass on these costs in the price of the product sold.

• Lost some share to Chinese players in the drum closure segment which the management will get back.