- #SouthIndianBank and #RKForgings' Q3 results review
Hersh Sayta bring you small and midcap stocks to keep up with on 'The SMID Show'. #NDTVProfitLive
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For more videos subscribe to our channel: https://www.youtube.com/@NDTVProfitIndia
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TVTranscript
00:00 also be on Nifty Metal, which is also up around a percent.
00:03 But as always on the Small and Mid-Cap Show, we focus on small and mid-cap companies and
00:09 we have now the CEO and MD of South Indian Bank who's going to join us.
00:16 We have P. R. Seshadri who's speaking with us live.
00:21 On the back of, of course, numbers, South Indian Bank delivered a decent set, but let's
00:28 try and get more perspective on those numbers from the MD and CEO.
00:34 Good morning, sir.
00:35 It's a pleasure having you here on the Small and Mid-Cap Show on NDTV Profit.
00:38 Thank you very much, Harsh, for having me on the call.
00:43 I really appreciate it.
00:44 Sure.
00:45 So, sir, let me first try and break down as to how deposit growth traction is building
00:51 up because that seems to be the focus of the industry, at least at the moment, given how
00:56 the first batch of numbers for the banking sector has come out.
01:01 How is deposit growth traction playing out for you?
01:04 Nine percent or growth on the deposit side while the advances seem to be flying away.
01:08 So there's a compression in the loan to deposit ratio that's playing out for you.
01:13 Is that one, a very conscious calibration of your LDR?
01:20 And two, how competitive is the deposit growth arena at the moment?
01:24 We've been very consciously keeping deposit growth at a level that is appropriate for
01:30 us.
01:31 We grew deposits nine percent.
01:32 We grew assets 11 percent, as the numbers show.
01:36 Our pricing on deposits is such as to maximize the NIM.
01:40 Therefore, as a consequence, our deposit pricing or the cost of deposit landed at 5.17 percent
01:48 is among the lower rates that the industry has.
01:54 If asset growth accelerates, as we expect it will, we will go there and get more deposits.
02:01 And we think that there is that we do have a solid deposit franchise, which will enable
02:06 us to increase deposits as we go forward.
02:11 We also have not just domestic deposits.
02:14 We have a large constituent of NRI deposits, which make up approximately 30 percent of
02:19 our total deposit base, which gives us the ability to actually increase the quantum of
02:27 deposits that we have over a period of time.
02:31 Sure.
02:32 And, you know, when it comes to your margins, you are seeing a bit of pressure.
02:35 I think the industry as a whole is seeing a bit of pressure.
02:40 Is it largely because the rate pass on is not fully happening?
02:46 And when do you see this pressure start to ebb, especially for you?
02:49 So essentially, it was basis risk, as they call it in the banking world.
02:55 So for the last year or so, about a year ago, we were enjoying the benefits of, you know,
03:02 assets repricing faster than liabilities.
03:04 And now we have the inverse.
03:06 We in South Indian Bank have an advantage, a large portion of our asset books, especially
03:11 to the corporate side, is very, very short duration.
03:15 And we've deliberately kept it like that because we believe that as we put out fresh money,
03:21 we should be able to put it out at the rates which the market will support at that point
03:25 in time.
03:26 And therefore, we should be able to smoothen this out.
03:28 And that's the that's the idea.
03:30 I think over the next few months, the pressure on deposits will continue.
03:37 And it's only when structural changes happen to the economy that that pressure will ebb.
03:44 Sure, understood.
03:45 And, you know, what about loan growth?
03:50 This kind of number continues to be sustainable.
03:53 And you know, within your loan growth, I also want to try and understand one key piece,
03:57 you know, your MSME piece stood out.
03:59 Your MSME book has actually de-grown.
04:02 What's the rationale there?
04:04 You know, how are you playing that particular piece of the puzzle?
04:09 So our loan growth has come largely from corporates, gold and from personal loans through cards.
04:17 That's where the growth has come from.
04:19 Our MSME and agri growth has not been there.
04:23 And that is an area of focus for us.
04:25 Historically, we've had some challenges on the on the NPA side on MSME.
04:31 Most of that is flown through our book.
04:33 And we've also invested a great deal on new technology that will enable us to attack this
04:38 market going forward.
04:40 So that's an area of focus as we look forward.
04:43 Our investor presentation talks about the strategy we want to granularize, which essentially
04:49 means that we need to go after retail as well as MSME to a greater degree.
04:55 Is there also a change in processes that you're seeming to target?
05:00 Is that also part of the reason why MSME has not grown?
05:03 And what are those changes that you're looking to make, if at all?
05:08 MSME growth in the past was actually, as you rightly mentioned, de-growing.
05:15 It is now the rate of de-growth has reduced very considerably.
05:18 And we think that we are at a point where it will pivot and it will start growing.
05:23 We changed our processes to make it more centralized.
05:27 Earlier decisions were taken at the branch level.
05:30 Now it is centralized.
05:31 Underwriting is centralized.
05:32 All of that impacted turnaround and so on and so forth.
05:37 But the new investments that we've made in our loan underwriting systems, etc., should
05:43 ensure that we have quality with appropriate turnaround times for our customers.
05:47 And that's what gives us confidence that we should be able to grow it.
05:51 Sure.
05:52 And when does that growth come about?
05:55 Just very quickly, because I have another question after this.
05:58 It should start this quarter.
06:01 We don't think that our MSME book will continue to de-grow.
06:04 I think it should start growing from now and it should continue to grow thereafter.
06:07 Sure.
06:08 So that should start aiding loan growth as well.
06:10 But last off, where should we see South Indian Bank?
06:14 So you currently have a book of sub 80,000 crore.
06:17 Where should we see it three or four years from now in terms of two metrics?
06:21 One is on your loan growth.
06:23 And second is you've crossed the 1% ROA threshold.
06:25 Where does it go from here all the way up to the next three to four years?
06:32 We are actually at this point in time working on a long term strategic plan.
06:37 We expect a very significant growth, both on the balance sheet size as well as we hope
06:43 to continue to keep this 16 plus percent return on equity that we've delivered this quarter.
06:49 On a long term basis, we'd like to go north of here.
06:52 But at this point in time, we don't have specific answers to your question.
06:56 Sure.
06:57 So maybe once, maybe next quarter or maybe prior to that, once we have some kind of visibility,
07:04 we can have you back to try and give us that kind of visibility.
07:07 Perfect.
07:08 It's been great speaking with you, Mr. Seshadri.
07:12 Of course, that's on the back of South Indian Bank's numbers and giving us all that perspective.
07:17 Thank you so much.
07:18 We're going to take a very short break.
07:19 More on the other side.
07:20 Stay tuned to NDTV Profit.
07:22 We have with us Lalit Kumar Khaitan of RK Forgings to break up those numbers.
07:27 Thank you.
07:35 Thank you.
07:54 Thank you.
08:15 Thank you.
08:43 Thank you.
09:05 Thank you.
09:33 Thank you.
09:55 Thank you.
10:19 Thank you.
10:43 Thank you.
11:07 Thank you.
11:32 Welcome back.
11:33 Thanks for staying tuned to NDTV Profit.
11:35 We have with us Lalit Kumar Khaitan, who's the ED and CFO at RK Forgings, joining us
11:40 with regard to numbers.
11:41 Good morning, sir.
11:42 It's a pleasure having you here.
11:43 So I want to first try and understand, you've put out an ambitious plan with regard to expansion.
11:49 You're moving up from the 2 lakh odd ton mark to the 3 lakh ton mark plus.
11:55 How quickly do these numbers start adding up within your capacity?
11:58 That's my first question.
12:00 And also, what does that do to your revenue?
12:03 Good morning, Harsh.
12:04 So whatever the plans are there, they are for quite some time.
12:08 And if you look at our presentation or whatever we have guided, we are adding this capacity
12:14 in the phased manner.
12:15 So first set of 32,000 tons are going to be added very nearly, maybe in the next 15 days
12:19 or a month time.
12:21 Then cold forging will start in Q1, FY25, and another 8,000 ton press, along with some
12:27 small presses, will start by December 24.
12:29 So all these will take the capacity to around 310,000 tons in RKFL standalone.
12:35 And certainly, this is a well thought out expansion in line with the future forecast
12:44 and what we are looking at our growth.
12:47 And what guidance we are giving on the standalone, we should grow at least 20% per annum on volume
12:53 terms, and we are able to manage that, and we are very much prized to achieve that kind
12:57 of growth.
12:58 And that you can see in our numbers quarter on quarter and year on year.
13:02 Right.
13:03 And how's the demand traction, sir?
13:05 Given the fact that you've put up sizable capacity, and it's right up in the pipeline,
13:12 how's the traction with regard to orders coming through?
13:16 What's the feel on the street like?
13:17 So we have a quite healthy demand.
13:21 In our industry, we don't have order book, we always get schedules and forecasts.
13:25 So whatever schedules we have right now in hand and the forecast we get from our OEMs,
13:31 on basis of that, we can project our future production and capacity planning.
13:37 And from that, we are in a very comfortable space and twice for quite a good growth.
13:42 Though markets, certainly if you look at the market, there are some headwinds in the exports
13:46 and moderation in the growth, but that is temporary.
13:49 And that will be, I think, be taken care of in one or two quarters.
13:53 But at RKFL, we have already held the orders from those OEMs, even in domestic as well
13:59 as export market, and we are going to do better than what we have done in Q3 in upcoming period.
14:05 Understood.
14:06 And would your margins therefore sustain above the 20% mark?
14:09 Is that something that you're reasonably confident of doing?
14:12 Yes, certainly margin are very much sustainable right now what we are there and our endeavor
14:18 is to further improve on that and so there is no doubt on improving upon the margin from
14:24 here on.
14:25 So, you know, you'll have quite a bit of free cash flow coming through, coming your way,
14:30 you know, probably 1000 crore plus, if I'm doing the math right.
14:34 Please correct me if I'm wrong.
14:35 That's point number one.
14:36 Point number two is that what do you do with this free cash flow?
14:38 You have around 1500 odd crore of debt.
14:41 No, so, Nars, if you look at the free cash flow, it can be somewhere around that what
14:46 you have created, but certainly we have capex plan every year, we have to spend 300-400
14:51 crore in the capacity expansion and right now, what plan we have made for next year
14:57 that are already in the public domain that will also take some share out of that.
15:01 There are some maintenance capex we have to do.
15:04 And once you go there has to be some working capital requirement also, but putting all
15:08 together that also we will have 300 to 400 crore surplus and that will go to reduction
15:14 of debt and so my debt will be toned down if you look at next one year, whatever numbers
15:19 we are looking at FY24 in terms of debt that will be substantially down in FY25.
15:25 So would that mean by FY25 you will be debt free, you currently have roughly 1600 odd
15:29 crore of debt if I'm not wrong?
15:31 No, I think your numbers are quite, I think, backdated as we have raised the 1004 QIP in
15:39 the month of November.
15:40 So my net debt is around 600 crore right now and it will go down to another 300-400
15:48 crore in next financial year and we will be debt free if we don't do any further acquisition
15:54 or capex and streamline all these things, then certainly we will have the cash on the
15:58 balance sheet in FY26.
16:00 Understood, understood.
16:02 And therefore, could one start expecting you to, sorry, with regard to your capex itself,
16:09 how should one see your capex play out over the next three to four years, if you can help
16:15 us break that down please?
16:17 So it's very difficult to say what will happen on the capex for next three, four years, but
16:22 going by the trend, what we look at and we keep on looking at the growth opportunities
16:27 and adding capacities as per the market demand and my customers' requirement.
16:31 So we will keep on working on that and try to put on the capex every year around 250-300
16:36 crore, that's the budget we always have to grow the capacity and value add the capacity
16:43 in terms of having more complex product or automation.
16:48 So a lot of things we are working upon that.
16:49 So we will keep on looking at those avenues and if you want to be specific, next year
16:54 the investment and capex together will be having a 400-450 crore outlook.
16:59 Understood.
17:00 Thank you, Mr. Lalit Kumar.
17:02 It's been a pleasure speaking with you, trying to understand some of those numbers as well
17:06 as the future growth potential that RK Forgings has as well as the guidance with regard to
17:12 how that will go about.
17:14 It's been good speaking.
17:15 Thank you so much.
17:16 But quickly moving on, we also have Ajit Venkataraman, who is the Managing Director at Philonix Industries,
17:22 who's going to join us now.
17:25 Good morning, sir.
17:26 Welcome to LADP Profit.
17:27 Good morning to you.
17:28 Right.
17:29 So I want to try and understand how volumes are shaping up because there seems to be a
17:39 bit of compression or continued sustained compression with regard to volumes.
17:43 When do you see that recovery starting to play through and if you can give us some,
17:48 you know, some bit of visibility both on the pipes and fitting side as well as on the PVC
17:53 side of things.
17:54 Sure.
17:55 So in terms of profits, if it margins to 30.7.
18:04 So apologies, I think we have you on a slightly patchy line.
18:08 So we'll wait for that line to get better.
18:12 But very quickly to try and break some of these numbers down with regard to Phinolex
18:17 and how they've come out with or what's the kind of numbers that we've looked at.
18:21 We've seen a bit of compression when it comes to the volume number at Phinolex and therefore
18:27 you are seeing a bit of compression with regard to the top line as well, around nine odd percent,
18:32 nine and a half odd percent of compression on the top line on a year on year basis.
18:37 Even though on a sequential basis, the numbers look slightly better.
18:40 Ibita though has come out up trumps.
18:44 It's come 31 percent higher on a year on year basis and therefore your margins have gone
18:49 up quite substantially, need to understand the sustainability of that kind of margin
18:54 number and whether we can go up from there.
18:57 And profit after tax as a result has gone up by roughly 20 odd percent.
19:02 But we do have Mr. Ajit back with us.
19:08 Welcome back, sir.
19:09 So I just want to try and I hope now it's clearer.
19:12 It is better.
19:13 Perfect.
19:14 Okay.
19:15 So I just want to try and get that.
19:17 Not sure if you got my first question with regard to volumes.
19:20 Please go ahead.
19:21 So volumes did drop a bit, 10 percent overall.
19:25 In terms of revenue, it was down 10 percent.
19:28 But mostly it is coming at the back of drop in resin volumes, which dropped almost 32
19:35 percent.
19:36 And one of the main reasons behind this is availability of raw materials because of disruptions
19:42 in the Middle East.
19:44 So that is most likely the reason why our resin volume has dropped.
19:50 And as a result, you can see the impact on the revenue itself.
19:54 Overall volume, we had about 81, 82,000 unit metric tons for pipes and fittings.
20:03 This in comparison to Q3 of FY23 was approximately 90,000.
20:09 So there, yes, there was a drop, but Q3 FY23 was the highest volumes ever.
20:15 And this was on back of pent up demand, which had happened prior to that in terms of the
20:24 COVID period.
20:25 So matching Q3 FY23 would have been difficult, but the volume has been robust and the profitability
20:33 has also been robust.
20:34 We have very clearly seen that EBITDA margins are up 30.5 percent.
20:38 Going forward, we don't see any change in fundamentals.
20:43 The construction industry is growing quite robustly.
20:46 Yes, we did see a slowdown in agri segment starting late Q2 and existed almost throughout
20:55 Q3.
20:56 And this is mainly due to the price sensitive segment that agri segment is.
21:02 And there has been a little bit of volatility in the PVC prices.
21:10 And as you can see, the PVC prices have hit the lowest and the network has been a little
21:16 bit slow in taking on inventory.
21:19 So this has been seen throughout Q3.
21:23 And therefore, you have seen a slight drop, but we expect it to pick up in Q4 because
21:28 Q4 and Q1 are the strongest quarters for the pipe and fitting industry.
21:31 Sure, understood.
21:32 So demand should pick up, but prices should stabilize as well very quickly.
21:37 See, we expect that the PVC prices have hit rock bottom.
21:42 It is in the range of $750 to $770 per metric tonne.
21:49 And we expect the prices to start going up soon or at least remain at this level because
21:58 I don't think it is going to go further below than this.
22:01 Understood.
22:02 And what does that do to margins?
22:03 Your margins have seen an uptick clearly.
22:05 Talk to us about the levers of margin expansion in this quarter as well as going forward and
22:12 where should we expect that number?
22:14 Sure.
22:15 See, the margins, if you look at the stable levels before COVID, it used to be in the
22:19 7 to 8 rupees range.
22:22 We have started seeing the 10 to 11 rupees per kg range.
22:26 And this is mainly due to the product mix that we have got.
22:30 And we expect that the non-agri will continue to contribute more towards our overall business.
22:38 And as a result, the rupees per kg will be growing towards the 12, 13 rupees per kg in
22:45 the next two to three years.
22:46 And that is driven by the product mix.
22:50 Sure, understood.
22:52 And one quick one, I want to try and understand from you how the numbers with regard to top
22:58 line will grow as a result of all of this.
23:01 So we have seen that from FY22, we have largely been at that flat line kind of a number in
23:08 terms of top line.
23:10 Should we expect to see a bump up right up front in FY24 itself or would you wait for
23:15 FY25 to see that number go up?
23:18 See, the top line is a very difficult measure to track at this point of time because of
23:24 the volatility in PVC prices.
23:26 So we track much more of the metric tons of material, which we expect to grow anywhere
23:32 for the industry to go between 10 and 15%.
23:36 Top line is completely dependent upon the PVC prices.
23:40 Got your point.
23:41 Okay, thank you, Mr. Ajit for that quick conversation with regard to how Phenolex is shaping up
23:46 in terms of its numbers as well as Q3, how the numbers have shaped up.
23:50 Thank you.
23:51 But, you know, with that, we're completely out of time on this edition of the Small and
23:56 Mid Cap Show.
23:57 We have markets largely where we left them.
24:00 We're roughly at 3/5 of a percent odd higher on the Nifty 50.
24:07 No complaints after the kind of week that we've had.
24:10 But for now, it's a goodbye from all of us here on the Small and Mid Cap Show.
24:14 More on NETV Profit on the other side.
24:16 So stay tuned.
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