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I am pleased to present the performance of the company in 2017-18.
The company reported attractive profitable growth - even as revenues increased27.32 per cent to Rs 992.38 cr, profit after tax strengthened 105.30 per cent to Rs 70.79 cr.
The fact that the company reported a handsome increase in EBIDTA margin from 11.16 per cent in 2016-17 to 14.46 per cent in 2017-18 and an increase in its interest cover from 4.49 to 7.22 indicates the sustainable robustness of the business model.
The sharp improvement in our performance during the year under review was not as much the result of a short-term increase in steel realisations as much as a conscious focus on business sustainability. Over the years, the company focused prudently on business de-risking in a capital-intensive business. The result was that the company focused on a large volume of job work for some of the largest Indian steel companies that enhanced our manufacturing focus, strengthened access to cutting-edge technologies and provided us with a steady cash flow without corresponding market risks.
The company also entered into multi-year engagement in the supply of special steels to large, growing and quality-respecting automobile component manufacturers, a business that generated steady growth coupled with attractive margins. Besides, the company selected to largely utilise its cash accruals to grow its business, which resulted in a relatively low interest outflow and progressive strengthening of the business. The result of this measured caution in a cyclical sector is that Beekay Steel remained profitable in every single year of the cyclical downturn, moderated its debt-equity ratio from a peak 0.37 to 0.12 (2017-18), reduced its interest outflow, strengthened its credit-rating through the slowdown and invested Rs 70 cr in growing its business (200,000 TPA TMT bar capacity) largely through accruals.
As it turned out, when the steel sector revived, the company was among the first off the blocks, translating into increased revenues, margins and profits.
What we achieved in 2017-18
The company sustained the improvement in its operational performance into 201718 following an improvement in working across each of its business constituents.
The company generated a 16.36 per cent growth in jobwork volumes to 3.94 lakh tonnes; the quantum of revenues increased 14.16 per cent to Rs 115.86 cr.
The company generated a 85.59 per cent growth in TMT bar sales to Rs 424.97 cr.
The result was an aggregate increase in steel volumes from 518,000 tonnes in 2016-17 to 626,000 tonnes in 2017-18. This aggregate increase was accompanied by an increase in average realisations coupled with inventory gains.
Strengthening the business
The company strengthened its business during the year under review through various initiatives.
The company reported a 241.35 per cent increase in the export of TMT bars to Rs 231.57 cr in 2017-18 from Rs 67.75 cr in 2016-17, which made it possible to explore remunerative Asian markets serviced with speed from the port location (Vishakhapatnam).
The company strengthened it product registrations with large institutional customers, building a prospective revenue pipeline. The company is registered with prominent transmission sector companies like Power Grid Corporation, KEC International Limited, Kalpatru Power Transmission Limited as well as EPC contractors like Tata Projects Limited, Bharat Heavy Electricals Limited and VA Tech Wabag Limited, empowering the company to bid aggressively for quarterly tenders announced by these customers. The company is consistently adding new institutional buyers while increasing its wallet share with the existing ones.
The company grew supplies to prominent Indian aluminium companies, manufacturing customised products that resulted in sustained engagement and repeat offtake.
The company strengthened its credit rating by two notches - from BBB minus to BBB plus to A minus, which helped moderate debt cost by 200 bps, the full benefits of which will be reflected during the current financial year.
We believe that our business complement
- job work, engagement with automobile component manufacturers and TMT bars
- represents a prudent revenue mix that balances the needs of sustainable volume and revenue growth, addressing different downstream sectors, revenue visibility, secured receivables and attractive margins.
During the year under review, India implemented the landmark reform of Goods and Services Tax. This implementation unified various indirect taxes into one, reducing paperwork and liberating management bandwidth for complying companies. Besides, the coupling of GST and e-Way Bill strengthened the case for organised tax-compliant companies over unorganised players. Following the implementation, the cost differential between organised and unorganised players declined, strengthening the competitiveness of organised players.
As a result, there was a marked decline in the presence of unorganised steel manufacturers, reducing disturbance in terms of market realisations and offtake. Besides, GST implementation made it possible for steel products to move quicker between states, helping reach products faster to customers. Going ahead, we believe that this structural correction will strengthen the country’s steel sector in terms of practices, processes and formalisation through a level playing field.
I am optimistic of the prospects of the business for some good reasons.
From a macro perspective, the government’s focus on infrastructure growth on the one hand and adequate protection for the domestic steel industry is likely to sustain sectoral buoyancy across the foreseeable future. India consumes 100 mn tonnes of steel per year compared with around 700 mn tonnes in China, a vast gap that is likely to be corrected faster, driven by an increase in per capita incomes and aspirations. Besides, the incremental steel manufacturing capacity being commissioned in the country is relatively low when compared with the sustained growth in India, strengthening prospects for serious long-term players. The GST introduction will moderate the share of unorganised steel manufacturers, levelling the playing field and benefiting responsible compliance-driven steel companies.
From a corporate perspective, we are attractively placed to capitalise on the projected market growth on account of our locational advantages in Jamshedpur and Vishakhapatnam. We are among a handful of Indian steel companies manufacturing a relatively de-risked complement of TMT bars, structurals and special steels. Besides, the company combines the benefits of being relatively niche and medium-sized, enhancing its responsiveness to market needs.
In view of these realities, we see the steel sector in India at the cusp of a sustained recovery, with focused companies like ours capitalising extensively on the recovery.
Our strategic outlook
At Beekay Steel, we are optimistic of capitalising on the sectoral upturn for some good reasons.
One, the company intends to enhance the utilisation of its TMT bar capacity and embark on doubling the capacity through another plant of a similar size across the next couple of years.
Two, the company intends to extend its business into a new product segment (flats) through a jobwork engagement with a large Indian steel manufacturer.
The company intends to monetise its large land bank in Howrah (off Kolkata) and use the proceeds to invest in its core business.
The company will continue to seek approvals for its B2B products (special steels) from large and growing customers, strengthening prospects of serving a larger institutional clientele.
The company will strengthen its marketing team and distribution network that makes it possible to sell TMT bars at the highest realisations in the shortest time; the company will also focus on enhancing exports of this product.
The company is attractively placed to grow its business.
The company possesses a strong Balance Sheet, a presence in different product and market segments, longstanding customer relationships as well as a growing wallet share of institutional customers.
The company intends to scale existing capacities on the one hand and extend into adjacent business spaces with long-term potential on the other.
The companies believes that through a prudent leverage of what it has always done - albeit on a larger scale without compromising the integrity of the Balance Sheet - it expects to enhance value for all those associated with the company.
Mr. Suresh Chand Bansal