Brief company introduction
Bharat Wire Ropes Limited is a leading manufacturer of specialty wire rope slings and wire strands with a wide range of products serving various industries. The company has two manufacturing plants, one in Atgaon, Maharashtra with a capacity of 6,000 metric tons per annum, and a state-of-the-art facility in Chalisgaon, Maharashtra with a capacity of 66,000 metric tons per annum. The company exports its products to over 50 countries across 6 continents and also caters to government, semi-government, private organizations, and multinational companies.
Financial details & highlights
- In the fourth quarter of FY23, the company reported consolidated revenues of 162 crores, a YoY growth of 21%, and a QoQ growth of 12.5%.
- The EBITDA margins for the quarter were reported at 28.16%, showing significant growth both yearly and quarterly.
- Net profits for the quarter were 16 crores, a YoY growth of 106%, but a QoQ decrease of 16% due to additional deferred tax provisions.
- For the financial year 2023, consolidated revenues reached 589 crores, a strong YoY growth of 43%.
- The EBITDA for the year was around 139 crores, a growth of over 100% YoY with EBITDA margins at 23.56%.
- Net profit for the year was 62 crores, a YoY growth of 354%, with a note that an additional tax provision of 8.4 crores was made due to changes in the tax structure.
- The Managing Director, Mr. M.L. Mittal, highlights that the company achieved its highest-ever quarterly and yearly revenues in Q3 FY23 and FY20.
- The EBITDA margin reported this quarter is around 28% and higher than the market leader in the industry.
Conference call highlights
- The company stated that strategic efforts have been made to enhance marketing, productivity, and plant utilization while focusing on sustainable operations.
- The company stated that volume increased by 13% YoY.
- The company stated that currently operating at a 60% to 62% capacity utilization level
- The company stated that there was an improvement in realizations by 30% in FY23 due toincreased steel prices.
- The company stated that there was improved profitability due to increased sales realizations, cost optimizations, and a reduction of interest costs.
- The company stated that there is a strong and healthy balance sheet.
- The company stated that improved credibility with customers resulted in consistent repeat orders.
- The company is switching to solar power for sustainability, aiming to reduce carbon footprints and energy costs by 30% to 40% in the coming years.
- The company is expecting 15% to 20% volume growth on the consumability side over the next 3 to 5 years to achieve a rated capacity of 72,000 tons per annum.
- Anticipating increased demand from the Indian infrastructure development plans, including a $15 billion investment in roadway construction to be completed in the next 5 years.
- The company is planning to invest in new product developments with a target ROCE of at least 25% to 30%.
- The company is expecting improved margins with incremental volume growth due to operational efficiency, reduced production costs, and higher sales prices for specialized products.
- The company is not significantly exposed to commodity price fluctuations due to effective inventory management.
- The company stated that its products have a competitive advantage due to their high gross contribution.
- The company stated that the elevator market has stringent entry barriers and a rigorous approval process, which can take years to navigate.
- The company issued Compulsorily Convertible Equity Instruments (CCPs) worth 382 crores to the bankers, which will convert into equity after 13.5 to 20 years based on prevailing market prices. Management has the option to buy out the CCPs at a deep discount of 9% anytime after April 1, 2023. The company considers the CCPs as equity instruments, not liabilities.
- The company has received a subsidy under the PSI scheme of the Government of Maharashtra, amounting to 30 crores last year. The total eligibility for subsidy is 435 crores, and the current deadline for subsidy receipt is October 25.
- The company expects to receive around 44 crores in subsidy over the next 15 to 18 months.
- The company stated that the subsidy received is considered part of the revenue from operations and is accounted for as revenue.
- The company stated that production volume for Q4 of FY23 was 11,298 metric tons, while sales volume was 10,689 metric tons.
- The company has a production capacity of 72,000 tons, but the volumes for the previous year were around 39,000 tons.The company acknowledges that achieving 100% of the installed capacity is challenging due to various factors such as equipment balance, process efficiency, and logistics.
- The improvement in average selling prices (ASPs) is expected as the company focuses on adding more sophisticated products and competing with global giants.
- The company’s power purchase agreement (PPA) for solar energy is signed at Rs. 4.40 paisa per unit, compared to the current payment of Rs. 9-10 paisa per unit to the government.
- The energy cost for the last financial year (FY22-23) was 51 crores 12 lahks, compared to 39 crores in the previous year (FY21-22).
- The company’s focus is on pricing its products rather than offering discounts.
- The company expects a growth rate of 15% to 20% in terms of volume.
- The company is constantly working on adding value-added products to its portfolio, with a target of adding a couple of products every quarter.
- The company stated that the order book reduction of 30 crores is not due to seasonality but rather the bunching of orders in the export market and the timing of tender execution.
- The company stated that the EBITDA margin is directly dependent on steel prices, productivity, and sales realizations.
- In the previous year, the company achieved a gross margin of Rs. 59,000 per ton, EBITDA margin of Rs. 36,000 per ton, and PAT margin of Rs. 16,000 per ton. The company is confident in maintaining similar margins in the future, taking into account variations in energy and steel prices.
- The company is taking measures to mitigate risks, particularly in energy costs. They are addressing power cost increases by installing solar power systems.
- The expected contribution of high-margin products in total revenue for FY23 is projected to be around 8% to 10%, but a complete breakdown will be available after the completion of the second and third quarters.
- The company sees excellent opportunities and a large market size in India.
Bharat Wire Ropes Limited is engaged in the business of manufacturing Steel Wire, Wire Ropes, Strands, and Slings.It is known as one of the largest manufacturers of Steel Wire rope in India and globally. The company has been in the business for more than 30 years now. It remains to be seen how the company’s near-term performance will pan out given the steady rise in inflation. Given the company’s strong working, Bharat Wire Ropes Ltd. Ltd. is a good Infra stock to watch out for