While results might appear good, there was a mixed-bagged commentary on Concall. The lights segment outlook was excellent but slight disappointment on Pipes business. Here is my analysis:
For Pipes:
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Revenue was flat due to a drop in realization levels. And H2 as usual will see greater recovery. However, disappointed due to the change in guidance of EBITDA/MT from 6,500 to around 5,500-6,000 for the whole year.
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Three CAPEX underway for the Pipes segment. 1) Upgradation of old Bahadurgarh Plant with 40cr. the investment will take 9 months, 2) Backward Integration at Hindupur Plant with 75cr. investment to take 1 year but got delayed due to land acquisition issues and 3) New Water Pipe Project in Bhuj with 75cr. investment to take 1 year. âAll these plants to increasing profitabilityâ.
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Hence, lower guidance on EBITDA/MT along with all key CAPEX getting operational only in FY25 would mean the Pipes segment will not see significant improvement in FY24.
For Lights:
- Despite Price Erosion due to competition there is an increase in EBITDA% from 7-8% to 9%. The major reason cited was that PLI-Led backward integration reduced cost and the change in product mix to higher valued products.
- Revenue was flat for one major reason i.e. change in the festive season timing. Last year it came in Q2 and this year it is in Q3. Hence, H2 would be significantly higher for lights. On top, with higher revenue, the guidance is even better. In H2 margins would range 10-11% as per management.
Hence, factoring in both segments the revenue might have only a slight growth for FY24 but there is good growth in EBITDA and PAT figures especially due to the lights business. At this stage, investors are waiting only for de-merger as major value creation lies in separating the lights business which is a very richly valued industry.
The announcement of a de-merger could be a great value re-rating trigger.
Disc: Invested.
Regards,
Mukul Jain
