Shilchar Technologies (NSE:SHILCTECH) Q1 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to Shilchar Technologies Limited Q1 FY twenty twenty seven Earnings Conference Call hosted by TIL Advisors. As a reminder, all participant lines will be in a listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr. Sayampakarna from TAL Advisors. Thank you, and over to you, sir. Thank you, Neeraj. Welcome, everyone. Good afternoon, and thanks for taking out the time to join us today in the Q1 FY 'twenty seven Earnings Conference Call of Shilchar Technologies Limited.

0:51 The investor updates, including the investor presentation, has already been uploaded on the stock exchange and on the company website. To take us through today's results, we have with us from the management team, Mr. Alesh Shah, Managing Director and Mr. Prajesh Purohit, Chief Financial Officer. We will start with a brief opening remarks on the quarterly performance by Mr. Alesh Shah, followed by a Q and A session. I would like to remind you that anything and everything that is said on this call that represents any outlook for the future that can be construed as a forward looking statement must be viewed in conjunction with the risks and uncertainties that we face. These risks and uncertainties have been mentioned in our annual reports. Over to you, sir.

1:40 Thank you, Shilchar, and good afternoon, everyone, and thank you for joining us today. Before we open the floor for questions, I would like to walk you through our performance for the first quarter of 'twenty seven and share some update on our operations and ongoing projects. Your Sir, didn't shut voice is breaking. For Q1 FY 'twenty seven, Shilchar Technologies reported revenue for operation of INR 134.60 crores and EBITDA for the quarter stood at INR 29.23 crores.

2:29 The profit after tax stood at INR 20.86 crores. As you can see, the financial year 'twenty seven has commenced on a softer note. The quarter was shaped largely by the continuing effect of the crisis in West Asia, which affected our Middle East export directly and through a sudden increase of price for certain raw materials, which affected our domestic business as well. First, on the export front, the recovery has taken longer than we had originally expected at the time of our Q4 call. Preliminary on account of a persistent increase in shipping costs through the first quarter. Container costs have risen between three to 5x for certain geographies as compared to levels before the crisis.

3:19 This has materially increased the landed cost of our customers and has led to a slower pickup in export dispatches. The increase in shipping cost is not limited to The Middle East, and the cost to North America have also risen significantly on account of ongoing geopolitical uncertainty. I would like to emphasize that this is a cost and logistic issue and not a demand issue. And while most of our export terms are ex works, there is a significant increase in the cost of procurement for our customers and hence, the deferment in orders. Underlying customer demand in both regions remain firm, but customers are currently lifting the bare minimum volume they need.

4:08 On the domestic front, passing on the sudden escalation in commodity price for existing order arising from the West Asia crisis has taken longer than anticipated. Negotiations with customers extended through much of the quarter, which resulted in slower dispatches in Q1. The situation was more severe in April and May and has eased off in recent months. The profitability margins for the quarter reflect Sorry to interrupt you. Again, we are losing your audio a bit. Can I please repeat the last few lines? Okay. On the domestic front, passing on the sudden expression in commodity price for existing orders arising from the West Asia crisis has taken longer than anticipated, Negotiations with customer extended through much of the quarter, which resulted in slower dispatches in Q1.

5:12 The situation was more severe in April and May and has eased off in recent months. Profitability margins for the quarter reflect both of these factors, a lower export mix and partial pass through of higher raw material prices. Looking ahead, we expect overall business momentum to be notably better in Q2 compared to the Q1. While exports may continue to see some impact from elevated shipping costs, if the situation in West Asia remains unchanged. We have better visibility on domestic side, which should support our top line. Our CapEx project, our expansion Phase III, which will add about 6,500 MVA capacity remains on track for commissioning in April 27.

6:01 Civil foundation work have been completed, PEB erection and utility infrastructure work are progressing well and all equipment have been ordered. Our annual outlook remains unchanged for financial year 2027, and we expect to operate our existing 7,500 MVA capacity at almost full utilization. And the new facility will drive the next leg of growth for FY 'twenty eight onwards. We remain on track with our revenue ambition for the year, although the geographic mix may change if the situation in West Asia persist. Demand across our key domestic and export market remains strong, and our overall business outlook continues to be robust.

6:51 Thank you all, and we can now open the floor for questions. Thank you very much. We'll now begin the question and answer session. The first question is from the line of Vaneil Shah from Dralaland Botra. Please go ahead.

7:44 Sir, I just wanted to know Vinyl, sorry to interrupt. Can you speak through the handset, please? Sure. Yes. I just wanted to know that the management will quantify the revenue loss for Q1 FY 'twenty seven due to the shipment delays? And also what is our revenue run rate for this year? Like we are well into this year, So we would like to revisit our guidance of if the management would like to revisit their guidance of INR800 crores of revenue. No. So like Sir, sorry to interrupt you. Your voice is breaking terribly.

8:31 Let me reconnect your participants. Please stay connected. Participants, please stay connected while we return the management back to the call. Can you hear me now? Yes, sir. Ladies and gentlemen, thank you for your patience.

10:44 Sir, please go ahead. Yes. Sorry for the I think there was some problem with the network. But like I said, once again, I'm repeating that for Financier twenty seven, we are on track with whatever we have targeted in terms of the top line, and we don't anticipate any problem in achieving that. And also, if you could quantify the revenue loss for this quarter given the shipment delays? I mean, I would not like to put it as a revenue loss, but we could have done maybe around 30 crores, 35 crores worth of revenue if these prices would not have taken place.

11:34 Okay. And so my second question is related to our margin. So could you comment on the price division then in this quarter and how much raw material cost increase have we been able to pass on to the customers because we see significant pressure on gross margin for the last two quarters? So whatever orders we had during Q1, which were to be executed in Q4 and I mean, whatever orders which we had on hand for which were to be executed in Q4 and Q1, we could pass on probably, I would say, about 60% to 60% of the price rise to the customer. But whatever we are executing now is all at the current market price.

12:20 So we don't expect any problem in achieving the EBITDA. Okay, Thank you very much. I'll turn back the queue. Thank you. A request to all the participants kindly limit yourself to two questions per participant. Next question is from the line of Adesh Gosalia from Spark Capital. Please go ahead. Yes, I hope I'm audible. And thank you for the opportunity. So my first question is at the geographical split. If you can just question now that how much was the revenue from exports and the and going ahead, the visibility... Sorry to interrupt you. We lost your audio in between.

13:06 So am I audible now? Yes. Keep it just as it is. Go ahead. Yes. So I was asking about the geographic split in our revenue, like how much was from the domestic market and from the exports, Firstly, and going ahead for the next FY 'twenty seven or let's say for next one or two quarters, what is the visibility from order book perspective we have right now regarding the geographic split, like how much is from the export markets and how much is from the domestic market? And if you can share the order book number also. We have an order book of almost very close to INR500 crores as of today. This is over and above whatever we have already shipped out till yesterday.

13:54 So we have a very strong order book and a lot of new inquiries are on hand for which we are negotiating. So we expect more orders in coming days. Like I said in my opening remarks, the geographical mix may change depending on the present situation. So if the Middle East situation improves and the shipping cost comes down, I think we will be back to our normal export what we were doing earlier. Okay. But as you said, the order book right now stands at around INR500 crores. So if you can share that, what is the split of that order book between domestic and exports? I would say it's almost like 30% export and 70% domestic as of now.

14:47 Okay. Okay. And as you are seeing the geographic mix going ahead is going to shift, so what are the new markets that you are targeting? And how are you looking at it? Or whether now for the like as of now, we are only focusing on the domestic markets? Yes. So I mean, overall, we export everywhere, North America, Middle East, somewhat in Africa also. But to compensate the problem, we are concentrating on the domestic market and getting more orders from the local customers. You.. Next question is from the line of Jithian Parmar from Aurum Capital. Please go ahead.

15:45 First of all, I would like to acknowledge the management that post the change in fortunes in capital goods and transformers, The management has performed exceedingly well and really took advantage of the cycle. My question is specific to margins. This you have maintained the annual guidance for revenue. What about margins? Are we still looking at kind of the 30% margins, EBITDA margins, which we have been doing historically? Or there will be some hit on that? And second is if you can throw some more color on the expansion we are doing, and we are going into two twenty KV also. So will that be lower margin business or that we can expect to have the same margins there?

16:48 Like I said earlier, if situation becomes normal and if our export comes back online as per previous year, we are confident that we'll be able to maintain the same profitability, what we have done in previous years. But in case if that does not happen and if we are more relied on the local market, then there will be a slight dip in that. So it depends going forward how the geopolitical situation take I mean, take takes the shape. And for project new projects, everything is on track. Construction is going on in full swing. All the machinery, everything, the orders have been placed, and we are all set to start the production from April 27.

17:42 So we don't anticipate any delay. Matter of fact, we may complete the project slightly earlier than what we have projected. Initially, being new in the market, our margins will be lower, mainly to create the references and to penetrate into the market. But going forward, again, we are going to have the same policy where we won't be able to we won't be doing any business with any state utility companies, and we will be concentrating more on the export market once we have enough reference within the domestic market. So initially, there will be a low profitability, but going forward, then again, we anticipate better margin.

18:34 Okay. So my final question. So we are moving slightly in higher class of transformers. Any future plans? I know this expansion is underway. Obviously, I think it will be through internal accruals. Any further plans for because we have a lot of land in Gavasat, any thought has been given on what next we want to do after this expansion comes in place? Yes. So we have purchased an additional about 4.5 acre of land next to our land, it's common wall. So we are planning for further expansion in that particular area.

19:24 I would not like to say anything on the type of product or type of KV class or the capacity, but we are working on that. And definitely, this expansion is completed or near completion, we will be planning something additional. Queue. Thank you. Thank you. Next question is from the line of Aman Soni from Seven Alpha Investors. Please go ahead. Afternoon. Aman, your voice is breaking. Can you speak a little louder, please? Am I audible now?

20:10 Yes. Yes, sir. Sir, in our last 26 annual report, which was released on mid of July, highlighted the recovery from April onwards, and we were very positive in our words for Q1, which was already gone by then. While the recent quarter presentation indicates that the recovery in the export has taken longer than expected due to persistently higher shipping costs during Q1. Could management help to quantify the impact of West Asia prices and elevated freight costs on export revenue in FY 'twenty seven? And if it was like that, why we picture it differently in annual growth?

21:00 I'm sorry, I'm not able to understand your question properly. But all our export orders, 90% of them are based on exports. So the shipping cost is not on our account. And if it increases, we don't pay anything from our side or it does not reduce our margin. But at the same time, from customer point of view, when they buy our product and if they have to pay higher shipping cost, it is costly to them. So they right now and because of this war like situation in Middle East, all the customers are going very cautiously. And whatever they need in absolute term, only that much they are buying and they are not stocking anything. So of course, this has affected our business.

21:53 And nobody expected that this Middle East crisis will go on for a very long period, but it has So that has continued in the affecting our Q1. And we are hopeful that this ends soon and everything becomes normal. You. I will request to come back for a follow-up. Next question is from the line of Salil Desai from Merciless Investment Managers. Please go ahead. Hello, Ajay. Hi. So a quick question on capacity utilization. So where are we on this current journey to full utilization right now? So what would have been, let's say, quarter one average utilization? So like I said in my opening remarks, I mean, we are planning to utilize very close to 100% of our capacity for year 'twenty six, 'twenty seven.

22:49 Right. So I'm just asking if Q1 how far are you from 100%? Are you at 50%, 90%, 100% already? No. In Q1, I think we did only around 60%, 65% of the capacity utilization. Okay. Understood. Great. And I just wanted to follow-up on the question from the previous participant is that your annual report mentioned that things are normalizing, right, which was released in July, the annual report. But this quarter seems to have again been a little unexpected from a dispatch's point of view. So what is the difference? I mean, what kind of changed what you're thinking would be the situation when you're writing the annual report versus what the reality turned out to be? Actually, annual report was prepared somewhere in early June, and then it went for the printing and was circulated in July. But in June, we felt that this Middle East crisis will get over.

23:47 There were a few announcement by the concerned parties, concerned countries that war is getting over and MOUs are being signed. So that was the reason we said that. But unfortunately, that did not happen. Yes. I think all of us were taken by surprise with that. Next question is from the line of Abhi Jain from H. A. Capital. Hi. Good afternoon. Am I audible? Hello? Abhijan? Yes. Am I audible? Hello? Yes, go ahead.

24:37 So my question is that last time around, I had checked with you that we were not able to ship our products, etcetera, from Middle East to domestic market because there was a lot of demand in domestic market. And you have said that the orders were already in the pipeline, and they were already placed, and it's very difficult to do that within a quarter. But when we were starting in April, right, we already anticipated and we were everyone was seeing that this war is going on. So just want to understand that why did we not proactively try to match that demand that was there domestically? And why did we still harbor on getting orders from Middle East? Because I see that there are two fronts on which we have lost out in this quarter.

25:22 One is definitely that our capacities have been underutilized. So that is A. And secondly, obviously, when we shift to domestic market, the margin takes a hit. But in our case, both have happened, right? Margins have also taken a hit, and we are underutilized. And we were not able to shift to our potential. We were not able to utilize our capacity to a maximum in Q1. Can you help me understand that why is management not proactively shift the demand or shift the order base from Middle Eastern markets to market? Because if you look at your other competitors who are focused on domestic market, they've been thriving. The Q1 numbers have been thriving. So just want to understand, you took a margin rate also, and you also had a reduced offtake of our orders in this quarter? Yes. So I mean, we were anticipating that from April onwards, the shipping will take place in the normal way.

26:16 And actually, it started in a normal way in April. But then suddenly, from end of April and from May, the shipping cost increased drastically. And that halted our RACPOR. And these are the transformer what we make are all customer transformers. So immediately, I mean, we took a proactive action and shifted our focus from export to domestic. But then it takes time to get the orders, and then it takes time to execute. So that has already started, and we are seeing that in Q2 now. So I mean it's not some off the shelf product where we ship the product, we get the order and immediately we dispatch. I mean these are all custom made products. So it takes minimum lead time of about ten to twelve weeks or even sixteen weeks.

27:10 But we did take a very prompt action in shifting our focus from export to domestic. Yes. No, that was the discussion last quarter also, seeing the things that were on the annual. I think it would have been better to maximize our capacity utilization. But anyway, all right, sir. Yes, all the rest for the future. Thank you. Thank you. Thank you. Participants kindly limit yourself to two questions per participant. Next question is from the line of Aditya Dayal from Ziva Consultants. I just have one question. This capacity that is going to come in April 27, will it take more time for the product prototyping or all those things are included so that the revenue will be visible from the new capacity after April 27?

28:10 So I have earlier mentioned that in my earlier call also that once the facility is ready for the production, we will start producing transformers, what we are doing right now. And then slowly, we will start not slowly, but aggressively, we'll start marketing the bigger size of the product. But of course, the audit by customer, the approval process, the type testing, all those takes time. So actually, the larger capacity transformer orders will come a little bit later, but production capacity will be utilized by producing the existing range of customers. Sir, any time frame like when the prototyping for the bigger will be done?

29:04 Once we start the production, it will be around three to four months. Okay. And currently, have you received any orders for the bigger or any request for like are they inquiring about the bigger transformers? Yes. We are already discussing with few customers on the bigger transformers. Next question is from the line of Komal Iyer from NBG Investments. Good evening, sir. Do you think there is a pressure on the domestic transformer prices since the exports are not happening? So are you experiencing a pressure in the domestic transformer market in the lower kV?

29:52 No, there is no pressure of lower margins or anything on the domestic market. Domestic market is normal, what it used to be for two years back and last year, and same thing is happening right now also. There is no change. Okay. So what kind of product mix are you looking at for INR800 crores, you said revenue, how much will be domestic and how much will be export? It's difficult to say right now. But as of today, based on current situation, the domestic sales will be higher than export. But in case situation change, then our focus will also shift from domestic to expo. Okay. Komal, you have any follow-up question?

30:50 Thank you. Next question is from the line of Shilchar, Individual Investor. Please go ahead. Hello. Thank you for taking my question. I wanted to know the revenue breakup between exports and domestic for this quarter and for quarter one twenty twenty six. I think I'll ask my CFO to send it to you. If you just contact us by e mail, we'll provide this details to you. Okay, sir. I have one more question. I want to ask about the inventory days and receivable days for quarter one twenty seven. Again, those information we can provide you by email.

31:43 Okay, sir. Thank you so much. All the best. Next question is from the line of Ritesh Khanna, Individual Investor. So my question is, sir, what gives you the confidence that we won't lose the export revenues permanently considering that we are not able to service the requirements from our clients in this, I mean, demand led scenario? That would be my first question. Yes. So we are very confident because it's not that our product is expensive or the customer has some cheaper source somewhere else.

32:29 Because if the situation becomes normal, we are very competitive, customer prefer us because of our quality and service and our shorter lead time. So once the situation becomes normal, we will get back that business for sure. And it's not that customer is buying right now from somewhere else. They are just not purchasing and taking a very cautious step because of a lot of uncertainty. Okay. Sir, my second question would be on a consolidated EBITDA basis, what would be the margin difference between domestic and international clientele? Again, it's difficult to say because our product is based on the project to project, but I would say the difference is about 10%.

33:26 Yes. So now that Q1 is behind us, so I wanted to understand what has the offtake been for the last one point five months or so? I cannot tell you that figure. But like I said that we are on track to achieve the target what we have projected for the inter I mean, year 'twenty seven, 'twenty eight. And we will be mostly utilizing the 100% gas LPG. Okay, sir. Thanks for taking my questions, That would be all. Thank you. Next follow-up question is from the line of Adesh Gosalia from Spark Capital Advisors. Please go ahead.

34:15 Yes. Thank you for the opportunity again. Just to continue my previous question that I was talking about regarding the as you said, the order book right now stands at around INR 500 crores, and it is 70% domestic and 30% exports. So firstly, what is the visibility like execution time line you have, like this order would be executed over how long? And the kind of margin that you are looking since it is more domestic concentrated. So only talking about the orders that you have in hand, what kind of margin profile do they hold? So these orders are mostly for Q2, Q3, and some of them are for Q4 also. And like I said earlier, we are expecting more orders, which will be again for Q3 and Q4.

35:07 We are fully booked for Q2. And like I said earlier, about 30% is export and 70% is domestic. But if situation becomes normal, we will get more orders for the export also. No, no, sir. I was asking about the order book that you have in hand. So what is the margin that you have? Like what is the margin visibility only on the INR500 crore order book? Since it is more domestic inclined, so there must be some change on the pricing that you have quoted and the margins that you will be generating because since our previous usual mix is fifty-fifty between domestic and export, so that is the reason our margins have been so high. But now since the mix is changing, so there must be some visibility you have on the margin side.

35:54 Yes, we do have visibility, but I mean, it is very difficult to tell you in terms of percentage. But these orders are at current raw material prices. So they are good orders and having quite good margins, reasonable margins. Okay. So should we take that Q1 margins would be continuing for Q2, Q3 or they will be higher than that? Yes, it will be higher. I mean we hope to achieve more EBITDA. Okay. Okay. And on the production front, what was the utilization of the production? Like in some sense, can quantify how much did we produce in Q1?

36:41 I think I just said in the earlier one of the questions that we have utilized about 60%, 65% of the production capacity for Q1. You. I'll come back for a follow-up. Participants, please limit yourself to two questions per participant and rejoin. The next question is from the line of Harsh Singh from Samisha Capital. Please go ahead. So firstly, on the export side, sir, is it possible for you to tell us, firstly, beyond Middle East, have you seen any issue in exports in other geographies that you export to?

37:30 Sorry, can you repeat your question again, please? Sure, sure, sir. So I was just asking, beyond Middle East, have you seen any issues in exporting to any other geographies that you export to? And if you could just give us the percentage breakdown of exports across geographies? No. Like I said earlier, I mean, overall shipping cost has gone up for all the geographies. So we do export to North America. We do export to Africa and Middle East. And because of the shipping cost, overall, everything is affected. Thank you. Next question is from the line of Abdul Fateh from True Beacon Investments. Please go ahead.

38:20 Hi. Good afternoon. Am I audible? Hello. Sir, there is bit of background noise from your line. Can you hear me now? Yes, go ahead. Yes. So I was just looking at your order book at INR500 crores. Assuming that if you're not able to service these orders because of the shipping costs, what are chances that these orders may get canceled and these guys may have alternate arrangement to get it from somewhere else? Like I said that out of 500, almost 70% is local and 30% is export. And no orders are getting canceled. I mean they are just getting pushed out.

39:06 So delivery may delay, but otherwise, there is no cancellation. And since our products are custom based products, I mean, cancellation does not take place. Next question is from the line of Rakesh, Individual Investor. Sir, just I wanted to understand this margin thing, right? Just I wanted to understand how exactly it works. Some of the geo orders got canceled. That is the reason we went down such a drastically or is it because of the raw material from the geo customer? I wanted to understand how exactly it will not come. From which customers? Sorry, I'm not able to understand. Geo customers means non India customers, right? Just I wanted to understand whether the huge dip in the margin, right?

40:03 Why it went down so much because of the order cancellation? Or is it because of the raw material prices went up? No, it's because the shipping have not taken place due to the higher shipping costs. Okay. So means that order got canceled? No, they are not canceled. They are just pushed out. Pushed out Peterson, that will be refund back or how is that, sir? Just... No, no. Is a delay in delivery date. So instead of now June, they want they'll take delivery in July or August, something like that. Okay. Sir. Thank you. Thank you.

40:49 Next follow-up question is from the line of Vinilchar from Dalaran Brochamp. Please go ahead. Yes. Thank you for taking my question again. Sir, I just wanted to understand if my understanding is correct here. You explained that the order book of INR500 crores will be immediately executed across Q2 and Q3. So even if the situations improve, the incremental new orders which we'll get from export front will be executed in Q4 only. Am I right in the next year, sir? No, it doesn't work that way. Actually, said that the INR500 crores orders what we have is for Q2, Q3 and some of the orders are for Q4 also. And this also includes the export order.

41:34 And if we get more export orders, they will be executed as per the customer's delivery requirement. So we would already have the current order time lines as well for the domestic front? Yes. I mean, but we have ability to manage if we get the orders. But sir, you already alluded that we are already working at almost 100% capacity for Q2. That's why this is a confusion I'm getting, if you could help me out here. No, it's not a confusion. These are the expertise what we have where we can execute if we get more orders at higher profit margin.

42:22 Okay, sir. Thank you very much. Thank you very much. Ladies and gentlemen, as there are no further questions, on behalf of Shilchar Technologies Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you. Thank you.