Anup Engg VC On Recent Acquisition, Order Inflows | NDTV Profit
Transcript
00:00 D. Anoop Engineering is a manufacturer of process equipments like heat exchangers, vessels,
00:06 reactors, columns and other things.
00:09 Recently they have announced an acquisition, they have announced some order flows coming
00:13 in and so much to talk about to Puneet Lalbhai as he joins in to try and tell us what is
00:19 the growth landscape looking like for a business which maybe you could argue Puneet is still
00:27 if not in its infancy then still in its earlier days because it is not a very large business
00:32 but it is set up for maybe some strong things if analysts are to be bullied.
00:38 Could you describe in your own words how do you see the next 2-3 years for D. Anoop Engineering?
00:44 Hi, it is a pleasure to be here.
00:46 Very good question.
00:48 I think the important thing to note is that we are in a very strong CAPEX cycle as far
00:54 as this industry is concerned.
00:56 So you are right, it is a small business, we should be closing upwards of 500 crores
01:01 this year but I think we are poised for rapid growth.
01:05 We have been guiding the market that will be growing for the next 4-5 years at 25% plus
01:13 and that is a reflection of the state of the industry both domestically and abroad and
01:21 the demand is predominantly being driven by petrochemicals and oil and gas today and also
01:29 some strong demand in some renewable energy sectors such as green and blue hydrogen.
01:36 So we see energy as playing a big role in the short term oil and gas and in the longer
01:42 term some of the more renewable forms but the CAPEX cycle is strong and we are excited
01:47 about future prospects.
01:50 Can you tell us, is this more a return to demand from sectors which maybe say oil and
01:57 gas was a bit dormant until recently or is it that you have introduced some product segments
02:02 which are now catering not just to the erstwhile energy segment but the upcoming or the longer
02:10 term energy segment if I can use that term which is the renewable side and is that what
02:15 is giving you the confidence for this kind of growth for the next 4-5 years or maybe
02:20 more?
02:21 So there are many things that goes into why we are confident.
02:26 I think the topmost one amongst them is our own performance and growth.
02:32 Initially we were very small but now we have acquired marquee customers, we have a very
02:38 very good on time delivery record, we have a great number of repeat and happy customers
02:46 and we are also at the same time in a very strong CAPEX cycle that is looking strong
02:53 for the next 3-4 years is what we all feel.
02:57 So given that we have grown both in size and capability that our track record has been
03:04 excellent and that the industry itself is in a growth phase that is what is leading
03:11 to the confidence.
03:13 So in order to live up to this kind of growth ambition that you have would it happen through
03:18 organic order flows in or would you like the way you have done with Mabel and I hope the
03:23 pronunciation is correct but the way you have done with Mabel you will have to resort to
03:26 the inorganic route as well.
03:29 I think it will be a combination of both.
03:31 So we have also created a lot of capacity.
03:35 As of last year we brought on stream our second greenfield facility at KEDA which is an absolutely
03:44 world class facility and phase 1 is in its last stages of investment so it should be
03:52 complete around the April-May kind of time horizon and that facility should give us 200
03:59 crore plus turnover.
04:01 Our existing order is good for 550 to 600 and then the rest will come from acquisitions.
04:10 Mabel currently is around the 50 crore mark which should be 60 plus next year at Mabel
04:14 and the overall potential at Mabel is to easily cross 100 and get towards that 200 figure
04:22 in the medium term.
04:25 So the existing capacity itself has a lot of headroom to grow and at the same time we
04:30 will be considering all opportunities if an interesting opportunity comes along.
04:35 We have a very strong cash position, good cash inflows, very strong order book for next
04:42 year and a good capex cycle to sort of give us some tailwinds.
04:48 All of this put together gives us a confidence of growth and it will be a combination of
04:55 inorganic and organic.
04:59 So a couple of things, one before I get to the export versus domestic side and what are
05:04 you doing globally versus locally, just one quick word, is the uptake in raw material
05:08 costs recently a bit of a worry or would most of these things be passed through?
05:13 And part two of my question therefore will be that you are circa 20-22% EBITDA if I am
05:17 not wrong EBITDA margins, sometime post-COVID you also clocked in northwards of 25-27% as
05:23 well.
05:24 So as you scale up, as the revenues inch up and as capex picks up and reflects more in
05:30 your order book, would the new normal be 20-22% or could it be higher on the EBITDA margin
05:36 front that is?
05:37 So I would say that the new normal would continue to be 20-22% for two reasons.
05:44 One we are increasing the sort of product complexity and by product complexity the main
05:52 driver is more and more critical and exotic metallurgy.
05:57 When that happens the raw material as a component of the overall cost goes up.
06:04 But the return per square meter or under the crane, that will continuously go up.
06:12 So as the product mix shifts towards higher metallurgy we expect EBITDAs to sort of come
06:18 down somewhat but overall profitability in terms of the return on effort, return on activity,
06:27 return on square footage that goes up.
06:31 So you are saying that while revenues, I mean, two ways you can slice and dice either where
06:38 revenues going up but margins coming down or that margins might come off from 20-22
06:43 maybe lower teens or maybe mid-teens but you will still see revenue growth?
06:46 No, no.
06:47 So we will maintain the margins at current levels despite the product mix becoming more
06:53 complex towards exotic metallurgy and we are able to do that because operating leverage
06:58 is kicking in that you were mentioning.
07:00 Got it.
07:01 Okay, fair call.
07:02 So can you tell us the global market versus the local market picture, Puneet, because
07:09 you are winning global orders too, I presume.
07:11 So what is the current revenue mix, local versus export or local versus global as the
07:16 case may be and what is the current order book right in terms of local versus global?
07:24 So the current year we should be at around 25% exports.
07:29 However, the situation is very heavily indexed towards exports going into the next year.
07:38 So next year we expect the export percentage to be closer to 50% on a 700-ish crore opening
07:50 order book.
07:52 Okay.
07:53 And just in terms of conversations, I mean, whether through the Mabel acquisition, some
07:59 other or I mean, it might be an ideal mix for you to be able to attract customers that
08:06 you might not have been able to thus far and so on and so forth.
08:09 Tell us what is the kind of order of flow that you believe will come in.
08:14 I speak to a lot of companies who are talking very highly about the kind of response that
08:20 strong engineering companies in India are getting in the Middle Eastern geography.
08:24 Absolutely.
08:26 So I think one has to understand that our product cycle is anywhere between 12 to 18
08:33 months.
08:34 So in a sense, next year is already locked in terms of the capacity that we have created.
08:41 We are almost going to be at full capacity.
08:45 We have already confirmed orders of 700 crores plus, which will be a 25% growth from this
08:53 year.
08:54 Of course, we have to execute, which we've shown a very good track record of in the last
08:59 few years.
09:01 So that's where we stand on the opening order book.
09:05 The two major geographies for us, as you rightly mentioned, one is the Middle East and the
09:09 second is North America, closely followed by Europe.
09:13 So these are the three places where our products are being exported to.
09:20 As far as Mabel is concerned, there are four things that we get through the Mabel acquisition.
09:25 First is an expansion of product portfolio.
09:28 So Mabel does products that we currently don't have in our basket, products like silos, product
09:36 like storage tanks, site fabricated equipment, all of that will come into our portfolio with
09:41 Mabel.
09:43 The second thing we get is proximity to our customers in South India.
09:47 We have some of our very strategic customers down South and being close to them is a big
09:53 advantage, especially big and bulky equipment.
09:58 Transporting them is a huge cost.
09:59 So being closer to your customers is an advantage.
10:03 And third, we will also have the capability of more engineering bandwidth that comes with
10:11 Mabel and fourth is capacity expansion.
10:14 Mabel will be about 10 to 12 percent of our overall capacity going forward.
10:19 And there is room to expand at Mabel as well.
10:22 Today, only 6,000 square meters out of the 20,000 square meters possible has been built
10:28 there.
10:29 So we should be able to grow at that location as well.
10:34 My final question, what's the visibility like?
10:37 700 crores gives you the ability to grow at 20, 25 percent, which is fine.
10:42 But what's the order inflow visibility that you may have based on conversations that you
10:46 guys are having with your clients?
10:48 For let's say 525.
10:49 So it's looking very good.
10:50 It's looking quite good.
10:52 So our target would be to build up a similar type of growth number in terms of building
10:59 up the order book for the year after during this year.
11:04 So currently, a lot of projects are being announced.
11:09 The CAPEX cycle is robust.
11:11 So we are pretty confident that we should fare well going forward.
11:15 Sorry, I'll just wrap up the interview with this.
11:18 Is this the normal book to bill ratio that you would typically operate it or could it
11:24 in your business or could it be actually higher as well?
11:28 No, so I think it's important to maintain your on time close to 100 percent in this
11:35 business.
11:36 And that's what's given us the ability to move up in terms of complexity, in terms of
11:43 metallurgy, in terms of the level of trust we enjoy with the customers.
11:47 So your growth has to stay in very closely in pace with the capacities you build.
11:56 And so we are currently doing that, you know, very, very precisely and comfortably.
12:03 So we've built the new facility at KEDA.
12:07 That facility has started operating at the right levels of efficiency.
12:12 Quarter three and quarter four met the dispatch targets from the new location.
12:21 And we should be we are in the final stages of completing the full phase one, which is
12:24 to base at KEDA that should give us 200 crores.
12:28 So that that matching has to happen.
12:32 And the investments and the order inflow have been planned to be able to grow at this 25
12:37 percent, hopefully, if things support at 30 percent.
12:41 So hope that answers the question.
12:44 It does.
12:45 Thanks so much, Puneet.
12:46 And all the best for the quarters ahead.
12:47 Much appreciate you speaking to us today.
12:49 Thank you.
12:50 Thank you.
12:50 Thank you.