Jay Bee Laminati — Q4 FY25 earnings call

So we stocked up raw material, and plus, we were on a growing spree, because we knew that H2, we would have to increase sales. We would have to acquire new customers. So for that, we needed raw material. If we did not do that, at that time, it was a decision that we had to take. If we did not do that at that time, we would have been stuck with no raw material and no sales or say limited increase in sales, which is what we did. And that was also visible in the value of the raw material at the end of September, which was to the tune of ₹90 crores.

Analyst questioned the lower-than-guidance H2 margins, and management explained it was due to strategic stocking of higher-priced raw material amidst market volatility to support sales growth.

Asked by Pritesh Chheda

I just answered this question. So I mean, your guess is as good as mine. We can be going into an oversupply situation. I cannot say that for sure. On the risk of not being misquoted, I would just like to say that we are going on a stable basis. We want to cut that path, and we would eventually try to reduce the debt, because we know that, if there is a cyclicality in the business in that sense where the supply is greater than demand, the only thing that protects us is being stable and cautious in our approach. We have seen those cycles, and we will continue to do that.

Analyst raised concerns about potential industry oversupply given widespread capacity expansions, to which management acknowledged the risk but emphasized a cautious and stable growth strategy.

Asked by Pritesh Chheda

So, at least from my experience, we've seen that the industry has always been in a mostly unorganised state, and it has to be looked at through different segments. So distribution, power, specifically. Distribution segment will continue to have N number of CRGO manufacturers. The business is such that, it is very easy to enter and put up a capacity and start procuring raw material and start supplying to transformer manufacturers. The key lies in consistency of supply and quality.

Analyst questioned the rationale behind aggressive capacity expansion by multiple players and the sustainability of demand, leading management to explain the fragmented nature of the industry and the importance of quality and consistency for organized players.

Asked by Prolin Nandu

So, we have seen in the past that a lot of transformer manufacturers have tried or successfully done backward integration. For example, BHEL is already backward integrated, but still it buys a large chunk of cut laminations from the outside market. Then some of the players who did backward integrated, they discontinued the CRGO manufacturing operation because they were not able to deal with the inventory, the timelines and the inflexibility of selecting different grades based on their designs.

Analyst inquired about the company's forward integration strategy and its competitive advantage against transformer manufacturers doing backward integration, with management highlighting the complexities of CRGO inventory management and grade selection as a deterrent for many.

Asked by Surya

Right. So, we were approved in 220 kV class in Unit I, and now we got it for Unit II. That is the story, for 400 kV class, right? So Unit I is only up to 220 kV, and Unit II is 220 as well as 400 kV. That is one thing. Now we started this journey back in 2016. It took us almost 1.5 years to get ready for the kind of requirements that PGCIL wanted us. Those are mainly, based on infrastructural requirements as well as the history of suppliers to our customers.

Analyst sought clarification on the PGCIL approval process for higher kV classes, and management detailed the extensive timeline (1.5 years for Unit I) and infrastructural requirements, emphasizing the importance of a track record.

Asked by Prolin Nandu

So inventory has actually come off. In September, like I said, we were carrying an inventory of three to four months to the tune of ₹90 crores, and it is reduced to ₹76 crores and we are further in the process of reducing it. ... And then one more thing I want to point out here is that receivables are some of them, some of the receivables to the tune of about 30 crores are protected by the use of a letter of credit. So we use an LC discounting facility where those receivables are already protected. And the other receivables, we are protecting through the process of credit insurance.

Analyst questioned the increase in inventory and receivables, prompting management to clarify that inventory had reduced from ₹90 crores to ₹76 crores and that a significant portion of receivables are protected by LCs and credit insurance.

Asked by Paras Chheda

So we have sufficient inventory as of now for the next three months. We already have bookings and pipelines fixed. After that, we will again have to rely on the existing suppliers who are say not under the purview of getting or expiring BIS licenses. So we have good relations with them. Last year also, we were able to secure good quantities from the existing suppliers. So I think supply should not be a challenge. The only thing is when to buy, when to procure, and in what pricing level to procure.

Analyst raised concerns about the uncertainty surrounding BIS license renewals for some mills and its potential impact on raw material supply, to which management assured sufficient inventory and strong relationships with compliant suppliers.

Asked by Srusti Goyal

And coming back to your first question. So, again, let me reiterate very clearly very, very clearly that I was misquoted in the March con call. I had clearly mentioned in that call that there is raw material price fluctuations and that could lead to reducing EBITDA margins compared to H1. When I was asked what will be the range of EBITDA margins that we can expect, I mentioned 10% to 15% considering what we achieved in H1 and considering what we could achieve in H2. And we were at the bottom end of that range. So I believe I never misguided anyone. Going forward in that call and as well as in my previous calls, I have always guided a guidance of 12% to 13%, which we achieved on a full year basis.

Analyst challenged management on perceived inconsistencies in margin guidance, prompting a clarification that the 12-13% long-term EBITDA margin guidance remains consistent, despite H2 fluctuations due to raw material prices.

Asked by Yashvardhan Singh