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ISGEC Heavy Engineering hosted a conference call on Jun 30, 2021. In the conference call the company was represented by Aditya Puri, MD.
Key takeaways of the call
Q1FY22 was a challenging quarter with oxygen and other gas for operations becoming scare on not available. Supervision of sites also turned challenge as supervisors turn covid positive. Things turned normal from June onwards. All factories and sites are now working at full capacity and there are no labour issues. Supplies from Vendors and manpower from Contractors are available normally
Order intake in Q1FY22 was Rs 2366 crore (vs. 526 crore in Q1FY21) on consolidated basis and it was Rs 2131 crore (vs. Rs 442 crore in Q1Fy21) on standalone basis. Oder Book as end of Jun 2021 was Rs 7924 crore. Hitachi JV has an order backlog of RS 489 crore.
Order book look satisfactory and of it about 83% is project orders and 17% are product orders. Export is over 10%.
About 50% of the order book is either from PSU/Government and have PVC clause. Rest are all fixed price contracts.
Orders have come from all the industries the company cater too. Textile and automobile is sluggish in last quarter and textile is picking up now.
Expect margin to come back to normal in next few quarters.
Performance of all JVs to be expected to better in FY22 than last year. Eagle press has healthy order book now and it will make a turnaround this fiscal.
Enquiry pipeline continues to be good.
Margin in Q1FY22 was impacted by extra costs incurred to keep the sites operational during 2nd wave of covid pandemic (extra cost also include money spent to retain manpower at sites/ replace those gone home) as well as steep rise in prices of steel, copper, aluminium and nickel.
In the new orders the company has factored in the high steel price. If steel prices not going up further or no 3rd wave of covid the company is not seeing any pressure on margin in coming quarters. Rest of the quarter the margin will be normal.
The long-term sustainable margin is 8% for EPC and 13% on products.
Export orders are started trickling in.
Balmer refinery boilers orders will be finalised in next 2-3 months.
Order booking in Q1FY22 was strong and next quarter also expected to be strong. In distillery/ethanol space the company is not ramping up its execution capability as the current strong momentum is not seen as long cycle. The company may take another couple of ethanol/distillery orders, which typically have a maximum orders size of about RS 200 crore.
Apart from small investment in manufacturing activity no large capex is planned by the company. It's all in the manufacturing area in foundry where the company is debottlenecking by which the capacity will up by 10%
Sugar business - Ethanol plant is expected to get commissioned next month. From next year onwards we are going to have B Heavy molasses. This business has to be seen as combined entity with sugar. The company will decide the ratio of sugar ethanol depending on the price of sugar and profitability in sugar/ethanol business. Return on capital employed for sugar business swill be in excess of 15%.
FGD order will be about 15-18% of the total order book.
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