Krishca Ltd : A SME offering steel strapping Solution

Notes from Q4 FY24Concall:

1. Capacity & Capex

• Peak production capacity of 2500 Tons annually (out of 3000 T, 1500+1500) from both plants. 10 months out of 12 months (83% utilization) based calculation

• 110 million steel seals capacity – multiple types of seals – at current avg price * peak capacity = peak revenue of around 15-20cr from seals

• Peak revenue potential (strapping + seals): 300cr + 15-20cr = 315-320cr

• Target time for peak revenue: 4 years

• In Parallel, Packing Contract growth can give us a very good revenue considering the market size

• 2nd plant got commissioned in May. 16-17cr invested in 2nd plant capex line. Reason for delay in commissioning → Machinery was delayed for 3.5 months → during installation also, we have one of a kind line, took longer than expected for installation and trials

• Capex plans for FY25-26 → We are contemplating various expansion plans. There will be a further capex this year, in a couple of months, we will make the announcement

2. Market expansion

• Chinese risk in the Middle east? → FTA with UAE, 5% duty benefit if the customer buys from India – We also have local presence in the middle east, and we offer total packaging solution vs. Chinese/Koreans who can only provide strappings – We provide HDPE/LDPE etc. to them too

• What if Chinese also set up a unit in middle east? → we will be at par with any manufacturer in that region because we can now buy from China, Korea or wherever pricing is cheap

• Reason for delay in Middle east expansion? → Capex heavy investment, we are just off 1 capex, want to grow this before starting another capex. Also, looking for a strong partnership in the region. We are talking to people and getting more info about that market every day, so delay is good, we want to do this in a better way

• US/Europe expansion plans? → If I produce from another country and supply to the US, that will take up to 2 years max. But what we are doing, we started exporting directly from India to the US. Even after applying the anti-dumping duty of 25%, our price is still attractive vs. the local manufacturer price. Even this quarter, we have done close to 1cr, these are repeat orders. This year also we can do decent sales despite the duty. By the time we set up a plant in middle east, we will have ready set of customers to supply to

• We are also focusing on US, Sri Lanka, Bangladesh, Australia, Africa, Europe etc. Wherever we can get large volume buyers in the world

• Domestic-Export split: 88cr from domestic in FY24, 17cr from exports.

• Domestic diversification → we are supplying pan India basis

• Fy25 Export target: confident of doubling this number; Down the line 5 years → we will be maintaining at least 100 cr export sales including all products

3. Distribution

• Currently, there are no distributors in India. We do direct sales. Time to time, dealers also purchase from us, but they don’t have any exclusivity

• In middle east, we do have some distributors, for small clients buying upto 5-6 lacs per month – we have some 3 different distributors for various products

• For big clients (at least 30 lacs per month) in overseas market, we deal directly; Same concept is being tried in other overseas market

• Network plans this year – at least we will appoint distributor in all major countries/continents this year

4. Packing contract growth and orderbook

• Top 10 customer contribution – last year was 52-55 cr – roughly 50% contribution

• PSU margins better – SAIL is the biggest buyer – we are currently supplying to the Salem plant, smallest plant. To supply to Rourkela or Bokaro, stringent requirements – we are yet to fulfill those requirements. Hoping to enter big steel plants in east; once we do, we can expect a better margins from PSU

• Currently, In terms of orderbook, PSU contribution is very less. 1 more order we are expecting from Vizag

• Getting small small orders and getting eligibility into bigger contracts

• Competition for these orders → 3 companies

• Packing Contract given at client-plant-production line level. For e.g. JSW has 15+ different locations or plants → each plant has different production lines → in each production line also, we get contract from a different guy

• By entering 1 location, we open up the opportunity to participate in all locations

• Bid pipeline → 200cr; some of these orders are around 60cr annually. Hit ratio? → 20% expected from current pipeline = 40cr. Participating in 5-6 bigger contracts than Vedanta; Positive that this value will increase substantially in coming months

• Current Packing contract orderbook → ~27cr

• More than 50% contribution of packaging contract to topline in coming years. Expecting significant growth in PC in both domestic and export market

5. Guidance

• Topline growth → Minimum 25% overall growth this year and this trend will continue for next 5-6 years

• Domestic growth → targeting 25% overall growth this year; Exports at least 50%
  Put together overall, at least 25% in strapping space; Packing Contract also same

• This year we will be able to maintain the ongoing growth% in PAT

• From long term perspective, the intention would be to keep the Operating margins in long term will be between 15-20%

• Market share – Long term Aim to capture 30%+ market
  Current Strapping market share – more than 10%
  Packing Contract – much less than 5%

• Utilization for new plant this year → just started commercial production → it is not running continuously → current would be less than 15% → this year it will reach at least 40-50%

6. Industry & Risk specific

• Downcycle in the industry? – if steel production of India goes down, defs our sales will also go down

• If Steel prices go down, impact on margins? → absolute margins → pricing = fixed + variable component; fixed component comprises our value addition such as production cost, salaries etc. and our margins → so, whatever is the steel price increase or decrease MoM or QoQ, we pass that change to the customer → so, the absolute value also remains intact; lag of 1-2 months.

• In long term orders, there is a clearly defined price variation clause; Any contract with high steel strapping contribution is having a price variation clause

• Margin spread is fixed or absolute. Impact on Margin% → So, when steel prices are high, the margin % is lower since the margin is a smaller proportion of topline and vice-versa
  Low steel prices environment → better margin %
  High steel prices environment → lower margin %

• TMT sector – Low tensile straps – biggest competitor does not give color strapping (only 2 manufacturers in India) – We are very strong in south market, TN, Kerala, Karnataka – In secondary TMT market in Raipur/Jhalna, they don’t care about branding if the quality is good – but in our market, branding is important

7. Misc

• 200+ customers

• 3 verticals: 1. Direct sales of strapping and strapping tools 2. Packing contracts 3. Primary packaging – all the allied products except steel strapping

• Margin profile in trading other products better than steel strapping

• PC vs strapping biz margins: very similar margins

• Reward shareholders → right now, cant commit. We will look at something