H1FY26:
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• 40% YoY growth in volumes and 43% YoY growth in revenue in H1 FY26
• The carried-forward high-cost inventory and volatile commodity prices impacted margins during the period. All other costs remained well controlled despite pre-operative expenses related to new business initiatives. With CRGO steel prices softening, we have transitioned to a leaner inventory position, setting the stage for margin recovery in the coming periods.
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We are further aiming to increase the share of power transformer cut laminations.
• We onboarded several new customers during the year, who contributed approximately 10% of our total sales in H1FY26
• We are on track to receive NABL accreditation for the in-house testing laboratory by the end of CY2025. This will further strengthen our credibility with top-tier clients and improve turnaround times.
• Additional CRGO processing machinery to be installed by end of CY 2025 taking our total Installed capacity to ~24000 MTPA.
• CCAs and Transformers: Installed capacity of 1000 MVA is in place and trial runs have been successfully completed. We are targeting revenue of Rs. 5 crores in H2FY26 based on current order and enquiry pipeline. We will market transformers under our newly formed brand INTELLICORE, reflecting our legacy of technical excellence and domain expertise in transformer cores.
CONCALL NOTES:
• MARGINS: We strongly believe that the worst is behind us since our inventory has come down by 24% and we are lean and positioned to improve margins in the coming periods.
We have seen a reduction in gross margins primarily because of inventory buildup which was at higher price.
The unfortunate part is that the raw material prices are still going down because of which there is still volatility hanging with respect to raw material prices.
The situation that was there during the end of March 2025 is not there anymore with respect to the licensing of the CRGO mills. The mills have got their licenses and the supply is sufficient to cater to the Indian market. So, there are actually no shortages in the market for CRGO steel.
Having said that, we are seeing that the prices are still softening on the decreasing trend. We are seeing that the raw material prices are bottoming out because of which there will eventually be stability probably one or two quarters down the line. So as of now, it is difficult to say what the margins are going to be. But what we can say for sure is that the worst is behind us. And we are in a trajectory to increase our margins going forward.
On a monthly basis, wherein between April and September, there’s a reduction of about 12% in CRGO prices. It was around INR235 at the end of the financial year. And right now, it is hovering around INR210.
Looking at the cost structure of the mills and how the mills are actually saying about their own margins, we believe that the bottoming out situation should happen in the next 5% to 10% range from here.
We are not confident of what guidance we can give right now, considering that raw material prices are still volatile and demand is coming in bits and pieces. There is structural demand, but then because the raw material prices environment is slightly haywire, the customers also prefer to buy sometimes on spot basis. So, our order book has also shortened, but the quantities have not come down.
Currently gross margins continue to be in the normalized range of 50-60rs. I don’t see it going down as long as the inventory is in line. So yeah, I mean, we will continue at that level.
So as of now, this year, obviously does not look like we’re going to reach 12% EBITDA margins. However, we will be going on to increase from the current 5% level.
• INVENTORY: We do not have any old inventory, high-priced inventory in our stocks anymore. All of it has been consumed within H1.
So currently, we are at about 49 days of inventory. It has reduced significantly. The aim was that since it is a volatile raw material pricing environment, we should be reducing inventory. And we did that. And going forward, there will be no impact of inventory as long as we keep inventory in check.
If our inventory levels go up again, then in a falling price environment, we may lose money again, to be very honest. But we have full focus on keeping those inventory levels in check. And going forward, the EBITDA margins should increase from here.
Our business is that of pass-through. When the markets are going up, we are able to pass on the price increase to the customers. When the markets are going down, we are able to pass on the decreases to the customer. We have to pass on the decreases to the customer. But what happens is, if the pass-through happens in a smaller period or let’s say the prices go down in a period which is not sustainable, which is say less than 2, 3 months, then it is difficult to manage those inventory levels.
If you are at a level of 49 days of inventory, we believe that is quite a good level of inventory to have and the difference or decrease in prices of raw material happens generally in a span of 1 to 2 months at the earliest.
We are expecting that the decrease should not happen in a span of 3 months also, but then that might be wishful thinking. So, in a realistic scenario, the earliest the prices could fall could be in around 2 months period. So, we are confident of adjusting to that price decrease in that period considering our inventory level is low.
Now coming to your point, wherein the effect of inventory loss was more than probably anticipated, I agree with you. And that is probably because when we were sitting in March, April, at that time also, we had some bookings with our suppliers. And we cannot go back on our commitments with our suppliers, because that is a point of goodwill with what we have built over the years with these suppliers. And it is not easy to build that. So having said that, we had to consume all of that inventory that was coming in that was in the order pipeline that was in the purchase cycle. That all inventory also came in and got consumed probably in the periods of June, July and to some extent August. So by September, we were comfortable
• We are satisfied that our operating costs are under control despite some costs seeping in from transformer manufacturing and EPC without any revenue booking.
• CAPACITY EXPANSION: Further capacity is expected soon, reaching up to 24,000 metric tons. We are expecting to increase that capacity within November, December. I mean, the installation of the capacity will probably will be completed by November. And hopefully, we will ramp up production as well as sales going forward. So, in this last quarter of this year, the effect of that capacity may be seen.
• Further approvals are being sought from PGCIL, NTPC and Torrent Power and also some other end users. We are hoping that some of them will be realized in FY26 and there could be some delays also.
• For the EPC orders, we as a company are in the learning phase and while we have the scope of securing more orders, we have currently chosen to get a sufficient order book of about INR260 crores, INR270 crores. This order book is inclusive of GST. So, without GST it will be around INR220 crores, INR225 crores.
We have specifically chosen to limit our order booking considering our cautious approach, keeping in mind key risks, execution bandwidth, capital availability and return on capital
• Putting up capacities is not a very big challenge in CRGO steel as you all might have observed by now. Our strategy is very simple that we would like to reach a certain optimum utilization level. And once we are optimized at that utilization level, we will further increase capacities. We don’t want to put over capacity in any of our businesses, which is why we want to have more growth drivers rather than just focused on CRGO steel.
• The idea was, for us the idea was to ramp up the volumes as quickly as possible and then look at optimization of margins. So, the stage has come where we will also look at optimization of margins.
• COMPETITIVE INTENSITY: It would be wise for me to admit that competition has increased, primarily because everybody is in the expansion mode. But I believe that CRGO capacities come quicker than transformer manufacturing capacities. So eventually, it will stable out somewhere down the line.
• DEMAND SCENARIO: When we are discussing with our customers, we don’t see any slowdown anytime soon. So at least for the next two years, a lot of our customers, at least in the power transformer space are filled with orders. And whenever we are talking with end users, which includes the likes of PGCIL, NTPC or even solar EPC players, they are saying that the demand is going to continue at least for the next two, three years.
• TRANSFORMERS: We have just been able to install the capacities. And now the next step is to go for BIS approval, because transformer is a BIS licensed product. So, we have to get a BIS license. That is already underway. And we are hoping to get the license very soon. And after that, we will slowly and gradually build up on our transformer manufacturing capabilities and seek approvals in due course of time.
How we are looking at transformers is that see, look we do not want to compete with our existing customer base. What we want to do is we want to give them an option to buy CRGOs, laminations or assembled cores or whole coil assemblies or even build transformers from us. Based on the capacities that they have or say if they don’t have enough capacities, we will be able to support them. Having said that, the untapped segments wherein we were, like I said in my previous call that we were getting inquiries from exports and we have some customers who are ready to help us out with respect to the sales side of export of transformers. We are relying on that to ramp up transformer manufacturing.
This year we will be targeting about INR5 crores from both core coil assemblies and transformers.
Within the capacities that we have, we believe that we can easily do INR100 crores to INR120 crores depending on various optimization levels that we achieve.
Next year, the target would be to go up to about INR40 crores, INR50 crores. (It’s just a target, not a guidance)
So, for transformers, it is difficult to comment right now because the initial few orders will be coming at lower margins. We are not sure of what the margins will look like. At least give us another half year to figure out how the margin profile is going to be because there are a lot of segments of the market that could be catered to. Transformer manufacturing is such that there could be EBITDA margins of north of 25% also and somebody could be making EBITDA margins of less than 10% also. So, it is difficult to comment where our optimum mix would lie at.
• We will still continue to have a long-term guidance of 12% EBITDA margins.
• Volatility in the raw material prices is not something new for us. The only difference this time was that we were ramping up quantities, right? We were expanding right after IPO, as you know that we went from 12,000 to 18,000 tons and now we are going on to reach 24,000 tons looking at the demand scenario because of which we had to make sure that we have enough inventory to cater to the new customers or even existing customers. So, it was a trade-off. It was a trade-off between availability of material for the customer versus whether the prices are going down and keep how much inventory we should keep
And on top of that there was uncertainty with respect to regulation on the steel mills. There licenses were stripped away from some of the mills and then all of a sudden, they were given back again and then there were rumours that they will be stopped again but they were not stopped. So, all of that environment we were sort of unable to adjust to.
And now though since the regulation is also stable, our capacities have ramped up, our volumes have ramped up. So, we don’t see that happening again and basic idea is to keep the inventory lean and we will continue to do that.
• Transformers and EPC, we are seeing that as something that will give us stability and scalability in respect to both revenues and margins. So, in terms of capital, it is a well thought out strategy. The idea is to create the three growth drivers and eventually form a synergy of the three divisions
• EPC: On the cash flow front, yes, you’re right. It will involve cash flow, but our calculations state that as of now the projects, if we are very choosy about the kind of projects that are good in nature, are good in terms of capital involvement, as well as return on that, we will be able to ensure that we are still cash flow positive from all of the divisions combined together.
In FY26 itself, we will be looking at booking certain revenue from the EPC projects, considering that they’ve already started.
And with respect to EPC, we have projected about 8% to 10% EBITDA on the received orders based on our calculations and certain risk assumptions, building in sufficient buffers for unplanned circumstances.
Our debtor days will not increase because of this contract, primarily because it will be based on certain physical progress-based milestones. So, whenever we are putting up capital, we should be able to recover that in a span of say about two to three months.
With respect to EPC, we are looking at about INR40 crores, INR45 crores in FY26.
• 400 KV segment: Contribution from 400 kV and above was about 12% to 14% of our total business, which translates to about INR25 crores, INR26 crores.
Because I think in the last call, you mentioned we are targeting INR10 crores on monthly average. Mudit Aggarwal: Correct. So that was one. Obviously, that was based on the average selling price that was prevalent at the end of March, which has come down. And secondly, yes, we are still in the process of getting those customers roped in. So, like, for example, I said that we have already roped in some new customers, and some of the customers are already in the process of approval of our company. So what happens is end users are approving, for example, PGCIL is approving our facility, and even some of the customers want to audit and approve the facilities beforehand. So, all of that takes time, and that has taken more time than we expected. And we are hoping that H2 revenue from more than 400 kV class should be higher
• On a monthly basis, I can assure you that our average purchase as well as COGS have come to the same level as compared to the other months in September. So going forward in October onwards, we are seeing that the margins will increase.
• Our inventory which we are currently holding is around the level of INR215rs.
• Trade payables will increase back to 50-55 days.
• In raw material, there is a scope of about 5%, 10% of going down further based on how much the supplier mills can actually absorb losses. At one point of time, they would say that we are not willing to go down below this. But as long as there is an oversupply situation in the entire world, led by Chinese CRGO steel mills, it will continue to go down.
• What we are confident is we will be able to pass through the cost to the customer, right? If it’s on the increasing or the decreasing side. So, we don’t want to really give out a specific guidance of the margin, but yes, we will increase it from the current level. And hopefully we will, I mean, probably by the end of the year, we should be able to achieve a better margin profile for the entire period as well as the entire year.
THINGS TO TRACK:
• OPERATING MARGINS: The most important variable to track. Now that high-cost inventory is out, will it go back to normal range of 10-12%?
• VOLUME GROWTH AND CAPACITY EXPANSION PROGRESS
• HIGHER KV SALES AND ITS IMPACT ON MARGINS: Will it lead to increase in margins?
• EPC VERTICAL PROGRESS: Sales, Margins, working capital, cash flows.
• CCA AND TRANSFORMER PRODUCT PROGRESS
• CASH FLOWS AND WORKING CAPITAL DAYS
• MONITOR OVERSUPPLY SITUATION: A medium-term risk. Keep track of transformers company sales or any slowdown in volume growth of Jaybee.
