Transcript. Conference Call of Sanghvi Forging and Engineering Limited

Transcription

1 Page 1 Transcript Conference Call of Sanghvi Forging and Engineering Limited Presentation Session Event Date / Time : 16 th November 2011, 3:45 PM IST Event Duration : 27 mins Good evening ladies and gentlemen. I am Mary, moderator for this conference. Welcome to the conference call of Sanghvi Forging and Engineering Limited. We have with us today Mr. Jayanti Sanghvi, Managing Director. At this moment all participants are in listen only mode. Later, we will conduct a question and answer session. At that time if you have a question please press * and 1 on your telephone keypad. Please note this conference is recorded. I would now like to hand over the floor to Mr. Trushik Tekwani of Concept Public Relations. Please go ahead sir. Trushik Tekwani: Good afternoon everyone. Firstly, on behalf of Concept Public Relations I would like to welcome Mr. Jayanti Sanghvi, Managing Director of Sanghvi Forging and Engineering Limited. Also I welcome all the analysts present here. Now I hand over the call to Mr. Jayanti Sanghvi; sir you may carry on now. Good afternoon everybody. I welcome everybody to the conference call of Sanghvi Forging. First I would be discussing about our second quarter results and then on our new project. Now for the second quarter, our company has achieved the total turnover of around Cr, with a total PAT of 1.25 Cr. As compared to the first quarter our turnover has grown by 60% and our PAT has grown by around 100%. This is mainly because our first quarter was slightly sluggish and now we have resumed to the normal quarter. And our half yearly EPS has reached around Now our company has done public offer in May and we are putting up a very big open die forging project. Normally in the forging industry, most of the players are focusing on the automobile components for the forging. We are focusing totally on the nonautomobile segment of forging industry. In our existing plant we have both the set ups that is, closed die forging and open die forging. We are doing closed die forgings up to 25 kgs and open die forgings up to 4 metric tonnes. Now, we are increasing our capacity of our open die forging plant by installing the world class 4,500-tonne open die forging press. With the help of this forging press, we will be able to do single piece forging up to 40 metric tonnes. I will just brief you about the current status of our project. Our project is planned to commission by May 2012 and all the related activities are going on. We have received already environmental clearance from the ministry. All the civil activities are going on in full swing at site. Now in our new open die forging project there are few critical equipments. First is forging press, another is forging manipulator and another is forging furnaces. Forging press we had purchased from an Italian company called Danieli Breda, which we had placed the order around 30 months back. Our whole press is under the final stage of manufacturing and the dispatches of the press will start by

2 Page 2 November end which will last up to December end. Total weight of the forging press is approximately 1000 metric tonnes. So there will be several shipments. So the whole press is expected to reach at site by February end. Now, forging manipulator, we placed the order for forging manipulator to a German Company called Dango and Dienenthal. Our whole manipulator is ready for shipment and which is expected to leave from Germany by November end or first week of December. Also for forging furnaces, we have placed the order to one German supplier called Schlager which has the latest technology for the minimum fuel consumptions into the furnaces. So all our furnaces will get ready by December end and will be shipped around January. All of our erection of the key equipment at site will start from first week of March and is expected to complete by April end. Currently we are on schedule as per our original plan for commissioning the project by May. We are also planning a big ceremony by May end or June from the CM of Gujarat. We will be inviting all of you to visit our new plant also. Now I will just give you a brief overview of the market what we are doing. In the last quarter we received at least approximately new orders worth 15 crores and we had already quoted a huge amount of tenders in government and private sector and we are expecting a good order flow. Our total order book position right now is 31 Cr. which is expected to be delivered in next 12 months. And for the new plants once it is commissioned, we are expecting good year on year growth for our company. This year approximately we are expecting a growth of around 25% as compared to last year and once the new plant comes on stream, next year we are expecting a growth of more than 100% and subsequent year also more than 100% as that is what we are planning with the new plant. Also one major development which has happened is due to the government s defense offset obligations. Now a lot of foreign vendors have a compulsion to source various forging components from Indian market so we have started already working with few of the foreign customers for selling forgings and once the new plant go on stream, we will have much better capabilities to serve the foreign customers for the defense offset obligation requirement. Also, on the funding side as our new project is funded with the mix of debt and equity, we have confirmed sanctions from the State Bank of India and Bank of Baroda to 72 crores but as now the interest rates are going up, we have requested the bank to see and now we have been able to organize a supplier s credit for 50% of the loan sanctioned. Also we are able to organize ECB for 20 crores of the loans. So going forward we expect that on a whole loan portfolio, our rate of interest would be slightly less than 10% and for the demand side also a lot of Indian government is now planning to procure a lot of defense equipment and they have plans for buying some submarines, some aircraft carriers, some army tanks etc. So all this will help us going forward in catering to the big demand through offset mechanism. Thank you. Question and Answer Session Thank you sir. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press * and 1 on your telephone keypad and wait for your turn to ask the question. If your question has been answered before your turn and you wish to withdraw your request, you may do so by pressing * and 1 again.

3 Page 3 Dear participants please press * and 1 for your questions. First question comes from Mr. Arpit Gupta from CRISIL Ltd. Hello this is Arpit from CRISIL. I just wanted to know you were talking about Indian Government initiative of indigenizing the procurement of all these forgings for all those aerospace and all those things. I just wanted to know if a player is placing an order for a submarine from one who is exposed to some other player then how much cost of the project has to be procured indigenously. See it is like this. Indian government has the minimum defense offset clause of 30% and it can go up to 50%. That depends upon the negotiation between Indian government and foreign vendor. But as per the prescribed defense policy it is minimum 30%. But government for some strategic equipment they can reduce also but normally they are going with 30%, which means of any foreign vendor gets the order to the tune of 1000 crores, he has to purchase compulsorily from India to the tune of 300 crores to complete his defense offset obligation. Okay fine. These major materials like engines and all those things, they cannot procure from India, they have to be procured from German markets and all those players. So what all products I mean See, it will happen like this. Engine, definitely they have to procure from German market. But engine is made of various components which are manufactured by castings, forgings, machinings like this. So to their engine supplier they can ask to source some of these components from Indian Companies. Okay fine. So sir we have tie ups with what all companies? We are already working with some companies like DCNS France. This is one of the major contractors who is helping Indian government to build submarines in India, and those submarines have been manufactured by Mazagoan dock at Bombay. So they have different subsidy for defense offset obligation and they are sourcing some of the components from us and directly we are supplying to Mazagoan dock. So it works in that way. It is a slow process which has started recently, but in the coming years definitely it will pick up in a big way. And sir, currently we are procuring we are making small size of forging and all. But since we would be expanding our size and capacity, and would be manufacturing upto 40 tonnes forgings open die forgings right? Correct. So do we need some extra licensing or extra tie up with the companies because these are very critical equipment. Yes, in our industry we need a lot of critical approvals. For example right now if I am selling to DCNS this would be components in the range of 500 kgs or two tonnes or three tonnes. But once our new plant is completely ready, then we will come and we will enhance our approvals. Without plant nobody will enhance the

4 Page 4 approval but once the plants Already we have an existing working relationships with most of the companies, so that helps us in enhancing the approvals and it is also a process. Next year we are not projecting 100% capacity. We will start off next year and in another 1 year we will stabilize and all the necessary approvals and everything will be taken. Bank. Okay fine sir, fair enough sir. That s all from my side. Next question comes from Mr. Amin Pirani from Deutsche Thanks for taking my questions. First of all you currently have an existing capacity of 3600 metric tonnes. Is that correct? Yes. In the new plant how much capacity would you be coming in? Sorry, I may have missed the initial part of the call. For the new plant we are adding a capacity of around 15,000 metric tonnes per annum. And this will be completely open die casting or? It will be completely open die forging. And how much of our capacity utilization are you expecting to release in the first two years? First year we are expecting a utilization of around 50% to 65%. Second year 65% and it will stabilize at around 70%. Sir do you have any particular order which are supposed to be serviced out of this new facility or? Right now, all our major customers are buying big open forging. But as those are not available in India they are mostly importing from various countries like Germany, France, Korea, Italy etc. But we are supplying all small forgings to various big customer and we have most of the approvals in place. Right now we are approved by companies like Nuclear Power, Baba Atomic, BHEL, Siemens, Alstom etc. These are the companies who will be our prospective customers means we expect that 75% of our capacity of the new plant will be sold to our existing clients. Okay. And sir what kind of like right now we can do upto 4 tonne size. In this size plant would you be able to increase that? Would you be able to do heavier forgings? Yes in the existing plant we are doing upto 4 metric tonnes, in the new plant we are increasing a single piece forging capacity upto 40 metric tonnes. Because the forging manipulator what we have purchased is of stretchable capacity.

5 Page 5 We can lift the piece upto 50 tonnes, but practically we can do forging upto 40 to 45 tonnes in that range. Okay sir. And sir on the raw material side, how do your pricing work with your customer level? Is there a pass through or is there a formula like manual? Normally, all the contracts what we get are with a fixed price basis. And the practice what we follow is as and when we distribute the orders, we book our steel with our steel suppliers with forward deliveries. So in turn they book their alloys.suppose I buy stainless steel from some company they will book nickel on forward delivery basis. So all our supply commitments are fixed but our only worry will be that the period between the quotation and the receipts of order, that is the risk what we run normally. pricing? Okay but your pricing is fixed.there is no change in the Normally all the contracts are fixed price contracts. Okay sir. On your credit cost, you said that you would be able to reduce your costs through supplier credit and through (not clear). Can you mention any present suppliers who are extending that credit right now? Already we are organized from ING also for supply of credit and from German supplier we have organized through SBI Interest. Okay. So basically if the banks themselves are lending they make their arrangements with your customers is that right? Basically we open a 1000-day LC and we organize for that. Okay sir, thanks and I will come back for more questions. Thank you sir. Dear participants please press * and 1 for your questions. Next is a follow up question from Mr. Amin Pirani from Deutsche Bank. Hello thanks for taking my question again. I just wanted to understand what are the particular components that we are supplying to Alstom and BHEL? Are you making the rotors for them? For their TGs example? In our existing plant we don t make rotors, but in our new plant we definitely plan to make rotors for hydro turbines initially and then probably we will go for thermal turbines. super critical TGs also? Okay and would the rotors be also can you make rotors for

6 Page 6 No. Normally super critical are used in above 600 megawatt turbines, where the weight of the rotor itself will be more than 100 tonnes, so that we cannot make from this plant. Okay and sir on your credit cost when you open a LC, is the credit risk borne by the supplier or is it given from a bank loan? It is normally a banking arrangement between Indian Bank and foreign bank basically. Suppliers don t have any risk in it. bank loan? plus 2% to 2-1/2%. So what could be the like interest cost failing from a normal Right now we are able to organize in the range of LIBOR Okay thank you sir. Thank you sir. Dear participants, please press * and 1 for your questions. There are no further questions. Now I hand over the floor to Mr. Trushik Tekwani for closing comments. Trushik Tekwani: I thank all on behalf of concept Public Relations for participating and being a part of this teleconference. If you have any further questions, please drop in an at trushik@conceptpr.com Once again thank you all very much. Ladies and gentlemen, this concludes your conference call. Thank you for your participation and for using Door Sabha s conference call service. You may disconnect your lines now. Thank you and have a pleasant evening. Note: 1.This document has been edited to improve readability. 2. Blanks in this transcript represent inaudible or incomprehensible words.