Salasar Techno Engineering Ltd Q3 FY22 Earnings Conference Call Insights

Key highlights from Salasar Techno Engineering Ltd (SALASAR) Q3 FY22 Earnings Concall

Management Update:

• On the Heavy Steel Structure division, SALASAR stated its capex program is progressing as per plan, and expect the new galvanized unit with a capacity of 96,000 metric tonnes to be commissioned by Sept. 2022. Post commissioning, it will become the largest structural galvanizing plant in Asia based out of Unit 3 in U.P.

Q&A Highlights:

• Sandeep Jain from Soma Capital asked about the volumes done in nine months of FY22 and the current capacity utilization level. Shashank Agarwal, Joint MD said that in terms of tonnage, the capacity utilization is at around 45% as of now for the 9 months. And SALASAR did close to around 34,000 tonnes.

• Sandeep Jain from Soma Capital also asked about guidance in terms of volume and value for FY22 as well as in FY23. Shashank Agarwal, Joint MD replied that last year the company did close to INR593 crores as a top line. This year, it should be closing INR700 crores plus. For FY23, expects a growth of 25-30%.

• Sandeep Jain from Soma Capital asked about the company’s current debt level. Shashank Agarwal, Joint MD replied the company is at a debt level of INR227 crores wherein the company has fund based limits of INR195 crores as cash credit limit and INR32 crores of GECL, plus bank guarantee limits of about INR200 crores.

• Sandeep Jain from Soma Capital also asked about the capex undertaken currently, if it will be funded through internal accruals. Shashank Agarwal, Joint MD said for the new galvanizing plant, SALASAR has already tied up for a debt with a bank, INR37 crores which is already approved. And INR12 crores is from internal accruals. For the Bhilai plant, there is some plans to use internal funding, but would also like to raise some capital to fund that project.

• Rajesh from Bothra Investment asked what kind of business is coming from government orders and what is from private orders in each of the segment. Shashank Agarwal, Joint MD replied that telecom is private, about 95%. EPC business is all government.

• Rajesh from Bothra Investment enquired that in the next 3 to 5 years, where the company would be in terms of the revenue and margin. Shashank Agarwal, Joint MD answered that In five years, SALASAR should be at a revenue level of almost 4 to 5 times from here and possibly PAT level at 6 to 7 times current levels.

• Amit Shah with Antique Stock Broking asked about the L&T order details. Shashank Agarwal, Joint MD said that the order is for the bridges, which are going to be built on the bullet train project from Mumbai to Ahmedabad corridor. And the order size is of almost 10,000 tonnes, valuing at around INR 125 crores. The completion time is at least 12 to 15 months. SALASAR’s scope of work is supplying structures as per their design. On price, SALASAR said L& T has control over price variation.

• Amit Shah with Antique Stock Broking enquired if any expansion plan is there on the lines of visibility in terms of the incremental corridors as well as L&T giving incremental orders. Shashank Agarwal, Joint MD replied that the new plant put up in U.P. in unit 3 is already booked for next 1, 1.5 years. SALASAR has already started planning a new project in Bhilai, wherein the company would be making the structures for the customers in the Eastern part of India.

• Amit Shah with Antique Stock Broking asked about what is the kind of growth mix the company is looking going ahead. Shashank Agarwal, Joint MD said that in telecom, SALASAR is seeing a consistent growth of not more than 8-10% per year. Also expect very good top line coming in from the heavy structure division.

• Sandeep Jain from Soma Capital asked about the driver of company’s five year growth outlook. Shashank Agarwal, Joint MD said the focus of govt. is to improve the infrastructure across the country. Steel production capacity is increasing and there is a plan to increase capacity from the current level to three times in the next 10 years. Therefore, SALASAR is seeing a lot of growth coming from this sector in the next 3-5 years and bullish on top line growing.

• Sandeep Jain from Soma Capital enquired about the export orders and for which countries these are catered to. Shashank Agarwal, Joint MD said that the company is primarily executing export orders of telecom towers at the moment and these are for Philippines and some African countries.

• Sandeep Jain from Soma Capital asked if the company is expecting any improvement in debtor days going forward.  Shashank Agarwal, Joint MD replied that the company is expecting some improvement to happen. As the EPC business is limited and the manufacturing portion increases, the number of debtor days should come down gradually.