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 70.79cr. The fact that the company reported a handsome increase in EBIDTA margin from 11.16 percent in 2016-17 to 14.46 per cent in 2017-18 and an increase in its interest cover from4.49 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 muchthe result of a short-term increase in steel realisations as much as a conscious focus onbusiness sustainability. Over the years the company focused prudently on businessde-risking in a capital-intensive business. The result was that the company focused on alarge volume of job work for some of the largest Indian steel companies that enhanced ourmanufacturing focus strengthened access to cutting-edge technologies and provided us witha steady cash flow without corresponding market risks. The company also entered intomulti-year engagement in the supply of special steels to large growing andquality-respecting automobile component manufacturers a business that generated steadygrowth coupled with attractive margins. Besides the company selected to largely utiliseits cash accruals to grow its business which resulted in a relatively low interestoutflow and progressive strengthening of the business. The result of this measured cautionin a cyclical sector is that Beekay Steel remained profitable in every single year of thecyclical 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 andinvested Rs 70 cr in growing its business (200000 TPA TMT bar capacity) largely throughaccruals.
As it turned out when the steel sector revived the company was among the first offthe blocks translating into increased revenues margins and profits.
What we achieved in 2017-18
The company sustained the improvement in its operational performance into 2017-18following an improvement in working across each of its business constituents. The companygenerated a 16.36 per cent growth in jobwork volumes to 3.94 lakh tonnes; the quantum ofrevenues 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. Theresult was an aggregate increase in steel volumes from 518000 tonnes in 2016-17 to626000 tonnes in 2017-18. This aggregate increase was accompanied by an increase inaverage realisations coupled with inventory gains.
Strengthening the business
The company strengthened its business during the year under review through variousinitiatives. The company reported a 241.35 per cent increase in the export of TMT bars toRs 231.57 cr in 2017-18 from Rs 67.75 cr in 2016-17 which made it possible to exploreremunerative Asian markets serviced with speed from the port location (Vishakhapatnam).The company strengthened it product registrations with large institutional customersbuilding a prospective revenue pipeline. The company is registered with prominenttransmission sector companies like Power Grid Corporation KEC International LimitedKalpatru Power Transmission Limited as well as EPC contractors like Tata Projects LimitedBharat Heavy Electricals Limited and VA Tech Wabag Limited empowering the company to bidaggressively for quarterly tenders announced by these customers. The company isconsistently adding new institutional buyers while increasing its wallet share with theexisting ones.
The company grew supplies to prominent Indian aluminium companies manufacturingcustomised products that resulted in sustained engagement and repeat offtake. The companystrengthened its credit rating by two notches from BBB minus to BBB plus to Aminus which helped moderate debt cost by 200 bps the full benefits of which will bereflected during the current financial year.
We believe that our business complement job work engagement with automobilecomponent manufacturers and TMT bars represents a prudent revenue mix that balancesthe needs of sustainable volume and revenue growth addressing different downstreamsectors revenue visibility secured receivables and attractive margins.
During the year under review India implemented the landmark reform of Goods andServices Tax. This implementation unified various indirect taxes into one reducingpaperwork and liberating management bandwidth for complying companies. Besides thecoupling of GST and e-Way Bill strengthened the case for organised tax-compliant companiesover unorganised players. Following the implementation the cost differential betweenorganised and unorganised players declined strengthening the competitiveness of organisedplayers. As a result there was a marked decline in the presence of unorganised steelmanufacturers reducing disturbance in terms of market realisations and off take. BesidesGST implementation made it possible for steel products to move quicker between stateshelping reach products faster to customers. Going ahead we believe that this structuralcorrection will strengthen the countrys steel sector in terms of practicesprocesses and formalisation through a level playing field.
I am optimistic of the prospects of the business for some good reasons. From a macroperspective the governments focus on infrastructure growth on the one hand andadequate protection for the domestic steel industry is likely to sustain sectoral buoyancyacross the foreseeable future. India consumes 100 mn tonnes of steel per year comparedwith around 700 mn tonnes in China a vast gap that is likely to be corrected fasterdriven by an increase in per capita incomes and aspirations. Besides the incrementalsteel manufacturing capacity being commissioned in the country is relatively low whencompared with the sustained growth in India strengthening prospects for serious long-termplayers. The GST introduction will moderate the share of unorganised steel manufacturerslevelling the playing field and benefiting responsible compliance-driven steel companies.From a corporate perspective we are attractively placed to capitalise on the projectedmarket growth on account of our locational advantages in Jamshedpur and Vishakhapatnam. Weare among a handful of Indian steel companies manufacturing a relatively de-riskedcomplement of TMT bars structurals and special steels. Besides the company combines thebenefits of being relatively niche and medium-sized enhancing its responsiveness tomarket needs.
In view of these realities we see the steel sector in India at the cusp of a sustainedrecovery 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 goodreasons.
One the company intends to enhance the utilisation of its TMT bar capacity and embarkon doubling the capacity through another plant of a similar size across the next couple ofyears.
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 theproceeds to invest in its core business. The company will continue to seek approvals forits B2B products (special steels) from large and growing customers strengtheningprospects of serving a larger institutional clientele.
The company will strengthen its marketing team and distribution network that makes itpossible to sell TMT bars at the highest realisations in the shortest time; the companywill also focus on enhancing exports of this product.
The company is attractively placed to grow its business. The company possesses a strongBalance Sheet a presence in different product and market segments longstanding customerrelationships as well as a growing wallet share of institutional customers.
The company intends to scale existing capacities on the one hand and extend intoadjacent business spaces with long-term potential on the other. The companies believesthat through a prudent leverage of what it has always done albeit on a larger scalewithout compromising the integrity of the Balance Sheet it expects to enhance valuefor all those associated with the company.
Mr. Suresh Chand Bansal