Manaksia Coated Metals & Industries Limited — Q2 FY26 earnings call

Our business model is largely a back-to-back model where we are not having an exposure to the commodity price risk since more than 80% of our business is back-to-back, and spot changes in the market of commodity does not impact our inventory or our business model. So, our strong focus on exports and OEM business has led to this situation and we would like to continue this focus and strategy to be a dominant player and a strong player in the OEM segment and the export segment which really creates a strong identity and value for our company, for our product and for our customers.

Analyst questioned how the company plans to build a strong identity beyond being part of the commodity cycle, and management explained their strategy of value-added products, back-to-back model, and export/OEM focus.

Asked by Sucrit Patil

Well, see, we have our own cost structure which we are trying to make it more and more efficient every quarter by enhancing our capacity utilization by improving focus of the company towards higher value-added products and improving the focus towards export. So, naturally with higher capacity utilization, the fixed cost per ton reduces and as I was saying, the capacity additions that we are doing on the alu-zinc front as well as the second pre-painted line will also lead to further reduction in the fixed cost per ton thereby ensuring that our EBITDA margins are protected and potentially enhanced.

Analyst asked about steps to protect margins amidst changing input costs and demand, and management detailed strategies including capacity utilization, product mix shift to value-added, and exports.

Asked by Sucrit Patil

zinc project which is scheduled to start revenue generation within the current fiscal of FY '26, followed by the other two projects which are the second pre-painted line, the second color coating line which is expected to start generating revenue in early Fiscal '27. And the third is the captive solar power plant which will start giving its output in terms of energy cost savings which is also expected from early Fiscal '27.

Analyst sought clarity on the timeline for commissioning and meaningful volume contribution from the ongoing CAPEX projects, which management provided with specific fiscal year targets.

Asked by Rehan Syed

Well, this is an intentional, let's say, end result because we are producing two finished products. One is a first stage product which is galvanized steel and the other is a second stage of value addition with the final product being pre-painted steel. Actually, the value addition of pre-painted steel is the higher category of value addition which also contributes to a higher EBITDA margin contribution per ton. And hence, in fact, it is a statistic that we are quite proud of that we have been able to reduce the contribution of revenue via galvanized steel and enhance the contribution of revenue via the sale of a bigger volume of pre-painted steel which talks about our ability to sell more and more value-added product and focus more on higher value-added product. So, this is an absolutely intentional end result.

Analyst questioned the low galvanized steel sales, and management clarified it's a deliberate strategic shift towards higher-margin pre-painted steel.

Asked by Prateek Choudhary

Firstly, the statistic given in the presentation of the higher EBITDA margins, that is something that we are basically demonstrating in the sense of a market potential of what an aluminum-zinc coating can potentially do to company's product profile and margin profile. We do not see any reason for this to change. And the technical aspect of aluminum being cheaper than zinc still remains as it is, where aluminum as a metal has always been cheaper than zinc and continues to be so, which would definitely technically and theoretically result in a lower raw material cost as compared to a production cost of galvanized steel.

Analyst asked for an update on a previously mentioned 40% EBITDA increase from alu-zinc, and management clarified it as a market potential rather than a specific company target, while affirming the underlying technical advantages.

Asked by Prateek Choudhary

I think the most recent fundraise that was completed by the company was a total of Rs. 134.55 crores, it was a preferential allotment of warrants. Out of which roughly Rs. 120 crores has been realized by the company. And the end uses for this previous fundraise was basically on the aspects of debt reduction, higher working capital requirement and for CAPEX projects of alu-zinc and the second color coating line. And this has been the deployment of these proceeds.

Analyst sought details on the recent fundraise and its specific utilization, which management provided, linking it to debt reduction, working capital, and CAPEX.

Asked by Prateek Choudhary

Well, there are multiple reasons which have contributed to enhancement of our overall margins, I can name a few of them. One of them is obviously higher capacity utilization. We have been ramping up capacity utilization which has led to a lower fixed cost per ton and better ability to amortize all our costs over a larger tonnage, number one. Number two, we have gradually shifted our focus from more commoditized segment end-uses to more niche and customized end-uses and customer segments such as HVAC, refrigeration, home appliances, clean rooms, bus bodies and so on and so forth which are having a better realization in terms of price and better margin profile. Thirdly, our focus and growth in exports are also one of the key contributors to this margin growth.

Analyst questioned the significant gross margin improvement despite no major product mix change, and management provided detailed reasons including capacity utilization, shift to niche segments, and export growth.

Asked by Sunil Jain

So, yes, there will come a time where we will have our alu-zinc capacity of 1,80,000 tons and pre-painted capacity of 2,36,000 tons. And there will be a gap of roughly, say, 50,000 tons approximate between the two. But one has to assume that there would be a percentage of capacity utilization that we will be running at for the pre-painted steel. And the surplus capacity that we have for color coating can be potentially utilized by buying galvanized substrates from the market and performing color coating to produce pre-painted steel. However, we would indulge in any such kind of utilization only if we find it profitable enough to maintain our EBITDA per ton numbers.

Analyst asked how the company plans to bridge the capacity gap between its alu-zinc and pre-painted lines, and management explained the strategy of potentially sourcing external galvanized substrates if profitable.

Asked by Mayank Agrawal