Satia Industries hosted a conference call on May 02, 2023. In the conference call the company was represented by Mr R K Bhandari –Joint Managing Director and MrRachitNagpal-Chief Financial Officer.

Key Takeaways of the call:

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

Q4 and FY2023 financials results are strong for the third consecutive quarter with improvement in EBITDA margin. This is on account of healthy pricing environment and cost cutting measures undertaken by the company like caustic soda recovery and green energy.

The company has reported highest ever sales and EBITDA in Q4FY2023.

Revenues:

Revenues for the quarter stood at Rs 520.6 cr up 75% YoY. For FY2023 revenues stood at Rs 1883.7 cr up 111% YoY.

State boards contributed 40-45% of the total revenues in FY2023. The company plans to keep contribution from state boards at 50000-60000 tons. The company also has 80-85 dealer network and plans to sell the balance through dealer network so that it can increase its market share.

Margins:

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

For Q4FY2023 EBITDA margins stood at 26.2% and for the full year stood at 21.9%.

Strong volumes, healthy order book and operating efficiencies are the key factors for the improvement.

The company’s course of raw material consumed has come down to 40% in Q4FY2023 as compared to 50% in Q4FY2022 and 47% in Q3FY2023.

Depreciation: The Company has made some changes to depreciation accounting resulting in non-cash depreciation fully booked in Q4. This increase in depreciation is one time and is to the tune of Rs 59.03 crore.

The company expects normalized depreciation to be in the range of Rs 125-135 crore for the full year and around Rs 33 crore for one quarter.

Prices:

Hard wood prices have decreased from US$ 960/ ton to US $ 500-550/ ton.

International paper prices have come down from around US $ 1150-1200/ton to US $ 950 /ton.

CAPEX: The company has commissioned 2 machines of 1 ton each out of the proposed 8 cutlery machines which is expected to be commissioned in H1FY2024.

The company plans to modernize its PM3 in FY2024 form speed 650 meters per minute to 800-850 meters per minute.

The company expects maintenance CAPEX of around Rs 20-25 crore per year.

Long Term Debt: In addition to normal repayment the company has repaid additional long term loan of Rs 35 cr till April 2023. Out of the same Rs 8 crore was repaid in FY2023 and balance was repaid in April 2023.  The company plans to repay in total Rs 50 crore of loans. The company expects the finance cost to come down going forward.

Exemption under section 80 RA: The Company installed the first boiler in FY2018 and the exemption for it is 10 years from then(Till 2028) and the second boiler was installed in FY2021 and the exemption is till 2031.

Power and fuel cost: Increase in power and fuel cost in FY2023 is on account of pro-rata increase in volumes and also due to higher prices.

The company expects power and fuel cost to come down. The company has one boiler which uses rise straws as fuel which cost Rs 2500 per ton. The company plans to convert the second boiler also to rice straw. The company has also procured rice straw to the tune 1lac ton. Increase in use of rice straw from the current level to 80-90 % will help reduce power cost. The balance will be rice husk. Rice Husk currently cost around Rs 7500/per ton.

Employee cost: Increase in employee cost from Rs 23 crore  in Q3FY2023 to Rs 30 crore in Q4FY2023 is mainly due to addition of employees to the tune of 500 for its P M4line.

Exports: The exports are not competitive as international paper prices have come down. The company plans to maintain exports around 4-5%.

Outlook:

Order book: Order book is healthy at 24,000 tons to be executable in Q1FY2024. Further the company has received orders from Gujarat and Telangana to the tune of 8,000 tons.

The company expects margins to be sustainable as prices remain stable at similar levels.

Even if sale price of paper comes down, company expects raw material prices and chemical prices to come down which will help maintain margins.

As the orders are booked for Q1FY2024, the company expects EBITDA margin to be at similar levels as Q4FY2023 for Q1FY2024 and for the balance of FY2024 around 21%.

The company expects to maintain EBITDA margins at around 21% even if the prices come down by 8-10%.

Volume: The company has done around 210000 tons of volume in FY2023. The company expects PM4 to contribute around 20000-25000 incremental volumes which will help the total volumes for the company to be around 225000-230000 tons in FY2024. Modernization of PM3 will add around 15000 tons in FY2025.

Dividend: The board has recommended final dividend of Rs 0.2 per share. The total dividend for financial is  Rs 0.4 per share.

Management Commentary:

Commenting on the performance Chirag Satia said: “We are thrilled to announce that our company has announced yet another outstanding quarter, demonstrating our strong execution capabilities. During Q4FY23, our revenues grew by 75% and EBITDA by 136% YoY. We also saw a growth in EBITDA by 136% in the last quarter on a YoY basis. Our exceptional results were achieved through a combination of factors like strong customer demand resulting in increased sales volume, improved pricing, and lower cost of materials. We are anticipating a healthy volume growth in the coming year as well considering our strong relationships with state boards and healthy demand outlook for Printing & Writing Papers. The management anticipates a 5% to 10% increase in paper production on a year-over-year basis.

The company’s strong order book position in the state’s textbook segment provides massive revenue visibility in the medium term. The paper and packaging industry in India is experiencing rapid expansion and is poised for significant future growth, particularly with the increasing literacy rate. Also, the successful implementation of the NEP will be critical for our segment. If fully implemented, it has the potential to generate an additional demand that is almost equivalent to the annual demand we currently experience.”