Satia Industries hosted a conference call on Feb 13, 2023. In the conference call the company was represented by by Mr R K Bhandari –Joint Managing Director and Mr RachitNagpal-Chief Financial Officer.

Key Takeaways of the call:

The company is a Agro and Wood based paper industry and has the location advantage as it is in the wheat belt of India which continues to ensure year around availability of raw material.

The company announced strong set of quarterly numbers for the second consecutive quarter with improvement in EBITDA margin which is in line with the company’s guidance provided earlier.

Healthy pricing scenarios and cost cutting measures undertaken by the company  like caustic soda recovery and green energy production  are the key factors  for the steady increase in operating margins.

The company has reported highest ever sales and EBITDA in Q3FY2023.

Revenues:

Revenues for the quarter stood at Rs 486.8 cr up 125% YoY. For 9M ended FY2023 revenues stood at Rs 1363.1 cr up 129% YoY.

Volumes sold for Q3FY2023 stood at 53000 ton, 51500 for Q2FY2023 and 143700 for whole of FY2022.

Margins:

Continued efforts and focus on profitability has resulted in fruit full results with improvement in EBIDA margins for the second consecutive quarter.

EBITDA for the quarter stood at Rs 110.2 cr with EBITDA margin of 23% which is near to all time high quarterly margins of 27%. Strong volumes, better pricing and high operational efficiencies are the key factors for the improvement.

EBITDA for 9MFY2023 stood at Rs 272.5 cr up 118% with EBITDA margin of 20%. The company expects margin to sustain at these levels if current prices prevail.

PAT for the quarter was Rs 64.8 cr a growth of 124% YoY and for 9MFY2023 PAT stood at 145.9 cr a growth of 105% YoY.

Capacity Utilization: The company continues to improves capacity utilization from PM4 which started operations from Feb -22. The company expects to further increase the capacity utilization along with the backward integration of wood pulping which will come on board by the end of FY2023.

Diversification: The company is looking to diversify into cutlery business and expects the same to start contributing to the revenue.

Order book: The company’s current order book is in excess of 30000 tons and will be executed in Q4FY2023 and thereafter providing revenue visibility and steer through the volatility in prices.

Prices:

Paper prices stood at 88000-90000 per ton in Q3FY2023 and the company is currently executing the orders received at higher realizations as such the company expects prices to increase by 5-7% in the quarter in Q4FY2023 and remain at similar levels for Q1FY2024. Post which the company will have to look at prevailing market conditions.

Cost: The company expects backward integration wood pulp to reduce cost to the tune by 5%. The current cost of raw materials is around 48-49% of the sales and expects the same to come down to 42-43% of sales.

The company has 2 boilers of which one is of Rice husk and one is of Rice straw. The company is adding one more boiler of rice straw by next financial year end(FY2024). The cost of rise husk per ton is around Rs 8000-9000 per ton while of rice straw is Rs 2000 per ton. Addition of one more boiler of rice straw will help reduce cost for the company.

Capacity Expansion: The company’s PM4 is running at a average speed of 900 mts per minute but can run at the speed of 1000-1100 mts per minute. The company is currently running PM4 at an average speed of 1025 Mts per minute. This will help increase revenues to the tune of 9-10%

Further, the company plans to modernize its PM3 plant which is currently operating at 666 mts per minute to 725 mts per minute by next 2 financial years.

The company is expanding its wood pulp capacity from 160 tons to 300 tons of which 200 tons will become operational in the last month of Q4FY23 and the balance will come in Q1FY2024.

Depreciation:  The company expects depreciation to be in the range of Rs 30-32 cr in Q4FY2023 and to be in the range of Rs 130 cr for FY2023. The company expects depreciation to be in the range of Rs 120-125 cr in FY2024.

CAPEX: The company plans to incur CAPEX of around Rs 100-125 cr for each of the next 2 years.

Security Deposit: The company has around Rs 100 cr security deposit on liability side which are interest free and are mostly from dealers, vendors and contractors.

Debt repayment: The company plans to repay more than the current maturities of long term debt in the current financial year and to repay around Rs 130 cr in FY2024.

Interest cost: The current interest cost on debt is around 8-8.25% pa.

Tax rate: Tax rate last year stood at 18% and expects to be around 17% for the full year of FY2023. Effective tax rate is around 12-13% due to high 80IS exemption.

The company expects similar low tax rate for next 5-7 years.

Outlook:

The company expects to sustain 7-8% volume growth in paper segment at any circumstances.

The company expects paper volumes of around 55000 tons in Q4 and total paper volumes of around 210000 tons in FY2023. The company expects revenues in excess of Rs 500 cr in Q4FY2023.

The company expects demand to sustain due to introduction of new education policy.

The company expects revenues to the tune of Rs 40-50 cr from cutlery segment and to add more capacity if it goes well.

Dividend: The company has declared an interim dividend of Rs 0.2 per share (20%) face value of Re 1/- per share for the financial year 2022-23 on 10,00,00,000 equity share of Rs 1/ each .

Management Commentary:

Commenting on the financial results, Executive Director Mr. Chirag Satia, said: “We are pleased to deliver an excellent quarter and fiscal in terms of volume as well as increased profits. The Revenue from Operations has increased by 125% in Q3 of FY23 vis-à-vis Q3 FY22 which was the result of higher capacity utilization, strong demand leading to higher sales volume and improved realizations.

With the commitment and persistent efforts of the management and better utilization of resources, we have recorded a growth in EBITDA by 182% during the quarter on YoY basis.

The Educational sector along with spurt in domestic demand of paper across the nation in addition to our continued strong association with State Textbook corporations, remains the key strength of the company. Paper Industry in India is expected to grow at compounded annual growth rate of 8-9% over the next 5 years on account of robust growth in writing and printing paper segment led by New Education Policy and govt focus on increasing literacy level in India.