Summary of the earnings concall of Krishca Strapping Solutions Limited for H1 FY25:-

Krishca achieved a 40% volume growth in steel strapping production during H1 FY25 compared to H1 FY24. This contributed to a 30% growth in revenue, reaching ₹63.84 crore, despite a 10% decline in steel prices.The company expects to achieve a 25% year-over-year revenue growth for FY25.

Export growth has been flat in H1 FY25, reaching ₹8 crore compared to ₹15 crore of FY24. This stagnation is attributed to the impact of declining international steel prices, particularly due to Chinese competition.

To address this challenge, Krishca is focusing on diversifying its product portfolio to include more primary packaging materials. These materials, such as fabrics and lashing, are in high demand for export packaging due to their corrosion prevention properties.

Krishca is investing in a new speciality steel production plant in Chennai to expand production capacity and product range. This plant will produce high-quality steel products .This backward integration initiative is expected to enhance operational efficiency, expand production capacity and product range, and reduce reliance on external suppliers. 40% of the production will be used for captive consumption and balance will be sold in market.

To fund this investment,Krishca raised ₹68 crore through a preferential issue of equity shares and convertible warrants. ₹49.40 crore was raised from issuing 2,120,000 equity shares at ₹233 per share to non-promoter shareholders. An additional ₹18.63 crore was raised from issuing 800,000 warrants at ₹233 each to promoters and non-promoter groups.

Regarding the decline in EBITDA margin compared to the previous year, the Management attributed this to several factors, including the decrease in steel prices, increased shipping costs, and a rise in employee costs due to strategic hiring.

About the increase in receivables, the company explained that it was due to several factors, including last-minute dispatches in September, a focus on packaging contracts with longer receivable cycles, and a general slowdown in the steel industry.

Regarding the utilization of the new strapping line, Management stated that they expected to reach 40% utilization by the end of this financial year and were gradually shifting orders from the old plant to the new one.

The impact of the proposed solar power plant on margins was discussed. Management estimated annual cost savings of around ₹1 crore.

Krishca has order pipeline of ₹962 crore in packaging contracts. These contracts typically span 3-5 years. Management expects a 30% conversion rate on this pipeline. This projection is based on the company’s success rate in securing nine contracts over the past year. To enhance its expertise in this area, Krishca has been strategically hiring experienced personnel, which has contributed to increased employee costs.

The company expects to finalize the entire pipeline within the next six months. This suggests potential order wins of ₹250-300 crore in value. However, it’s important to note that this value represents the total contract worth over their 3-5 year duration, not the annual revenue generated.The largest potential single order size Krishca can currently handle is in the range of ₹50-100 crore per year.

On MIG welding wire plant and Middle-East plant, the company has decided to put these plans on hold for the time being.The rationale behind postponing the Middle East expansion is the company’s current focus on capital expenditure in India. The potential for higher returns and top-line growth from the Indian investments outweighs the Middle East project’s expected contribution.

The entire case is based on ability of IGL to increase gas prices. It could do this successfully in the past however the current circumstances need to be investigated to determine the probability of history repeating itself. Some things have changed as against the past this time. I see 2 problems-

1. Government is against price hikes. Please go through this article.
   https://www.business-standard.com/industry/news/cng-retailers-want-price-hike-government-wants-to-see-cost-breakup-124111700140_1.html

The officials in petroluem and gas ministry believe that these companies are already charging hefty margins and hence can easily absorb additional costs to get gas from new fields. They cite example of IGL making 11% as against companies like IOCL who make 4.5% . So they are asking for break up of final price In short , we will see resistance from government.

2.I am quoting some paras from the article whose link is provided below-

Earlier, on Oct. 25, the PNGRB had issued a notice to CGDs with a proposal to declare 73 networks as common carriers. The notice implies that entities other than CGDs can enter and provide CNG services.

Also read this –
Predicting that at one point of time, the allocation from Mumbai High could touch nil, Singh explained, “Initially, priority was given to power, fertiliser and all other sectors.” And now, those sectors don’t get it. Instead, city gas distributors were given priority. However, he said that “overall volume is declining. At one point, maybe in 2–3 years time, it will go down to nil.“

Then this–
He added that due to the entry of new firms into the gas distribution business, customers are likely to benefit from the increased competition vis-a-vis a reduction in prices.

The article states that production from Mumbai high will go to nil at some point in 2 to 3 years which means IGL gets nothing and has to buy from new wells just like any other company. Now this business will be a commodity business because you get gas at price just like any other company and you also have competition. How can there be a price hike in such a case?