Rajratan Global Wire Ltd Q2 FY2024 Concall Summary

Key Takeaways

• Volume-led recovery, Thailand leads: Consolidated volumes rebounded ~12% QoQ, with Thailand contributing ~3,000 tons of the gain as aggressive pricing restored utilization and market share.
• Thailand margin swing is the quarter's engine: Thailand EBITDA margin jumped from 2% to 11% purely on operating leverage and lower raw material costs, not price increases.
• India margin sacrificed for volume: India EBITDA margin already at 18-19%; management will fight for volume rather than margin as Tata Steel's new capacity and imports pressure pricing.
• Chennai plant on track, revenue next year: Trials start late Q3 or early Q4; material volume of 14,000-15,000 tons arrives in FY25, with INR220-225 crores sufficient to begin production this year.
• What to watch next quarter: Whether Thailand's 15-16% EBITDA margin target materializes, the pace of European customer approvals converting to orders, and any sign that Tata Steel's discounting in India is easing.

Thailand Turnaround

• Volume fight won: After losing volume in Q1 by holding price, management shifted to aggressive order-taking in Q2, restoring market share to 25% and lifting plant utilization to 80-85%. The higher throughput alone drove the margin recovery.
• Chinese competition slightly easier: Competitive intensity from Chinese players has marginally improved, helped by shifting global demand patterns including US demand changes.
• Chinese customer mix rising: Chinese-owned manufacturers in Thailand now represent 45-50% of domestic supplies, up from 19% and then 25%, as these companies ramp production and invest in capacity. Their margins are lower than Thai and Japanese customers, but management is offsetting this with cost reduction and raw material tailwinds.
• Export order book building: A good order from one European customer is shipping this quarter and next; management is moving toward bulk supplies to new export customers in Q3 and Q4.
• Tier-1 audits progressing: Continental audited last month and visits Thailand next month; Bridgestone responded positively for American business; Goodyear contact is active with hope of business starting from Thailand.

Yashovardhan Chordia: "In Q1, we wanted to continue the pricing, we lost some volume, but then volume went down and manufacturing cost increased. Whereas in Q2, grabbing orders in an aggressive way and running the plant more efficiently, I believe the costs are much better."

India: Volume Over Margin

• Growth slowed by two forces: India volumes grew only 5% YoY. Imports continue at lower prices, and Tata Steel commissioned increased capacity last quarter, taking roughly 1,000 tons of volume by offering discounts to low-cost customers.
• Import substitution expected: Management expects imports to fall in Q3 and Q4 as Rajratan matches import prices for two specific customers who had been buying imported material. The customer was sourcing ~2,000 tons from imports partly because Rajratan could not always supply on time.
• Tata Steel discounting seen as temporary: Management believes Tata Steel offered discounts to sell initial production from its new line and will not sustain this for long; demand may increase in a few quarters.
• EBITDA per ton under pressure: EBITDA per ton fell ~INR 1,500 YoY even as margin percentage improved slightly from ~18% to ~19%, reflecting competitive pricing pressure and time gaps in passing through raw material cost corrections.

Sunil Chordia: "We are already at 18%, 19% EBITDA margin. I don't project further improvement on that. I'll even fight for the volume rather than for the margin."

Chennai Greenfield: Timeline & Economics

• Trials imminent: No production or testing quantities in Q2; trials will start later in Q3 or early Q4 this financial year.
• Capex and phasing: INR220-225 crores will be enough to start production this financial year, with INR70-80 crores invested over the next year.
• Volume ramp next year: Bigger volumes of close to 14,000-15,000 tons addition to Indian business will come from Chennai in FY25, representing about 25% utilization of the new capacity. Full utilization will take three to four years.
• Margin outlook blended: Management declined to project standalone Chennai EBITDA margins at 25% utilization, but expects overall India business margin to be maintained on a blended basis between Pithampur and Chennai, helped by logistic cost savings from the southern location.
• Customer-driven rationale: The plant was built because customers asked for it, with long-term assurance that the market is growing. Michelin, for which Rajratan is the only approved Indian supplier, is one anchor, though Michelin's India business has declined drastically.

Sunil Chordia: "The background of increasing or putting up a new factory in Chennai is because of our customers. They all have been asking us to do this, okay. And there is a long-term assurance that the market is growing."

Export & Customer Approvals

• European breakthrough: Approval process started with two or three European customers; one has already placed a good order with quantities to be supplied in the current quarter and next.
• Tier-1 engagement widening: Bridgestone responded positively for American business; Continental completed an India audit and visits Thailand next; Goodyear contact is active with hope of business starting from Thailand. Some are visiting factories for audit, others considering RFQs for 2024 business.
• Pithampur export approval: Management is discussing approval of the Pithampur plant to begin exports.
• Geopolitical overhang: Internationally, geopolitical uncertainty persists; tyre companies have started formally asking for declarations that steel has no relationship with Russia, adding a compliance layer to export relationships.

Competitive Landscape

• Tata Steel entry in India: Tata Steel's new bead wire capacity became operational last quarter and took ~1,000 tons of volume by discounting to low-cost customers. Management expects this to be temporary as demand absorbs the new supply and imports get displaced.
• Chinese competition in Thailand: Competitive intensity has slightly improved; Shandong Daye's rumored European plant plans were noted by an analyst but management declined to comment beyond noting they are hearing Daye has reduced volumes in China itself.
• Import dynamics: Imports into India are expected to reduce as both Tata Steel and Rajratan add capacity; a customer was buying ~2,000 tons from imports partly because Rajratan could not always supply on time. Management has not pursued industry representation to curb imports, saying any such move could disturb customers.

Sunil Chordia: "They have offered discount they have sold that quantity whatever they produced. But I don't think, Tata will continue to do that for a very long time. Maybe soon, in few quarters, we will see the demand also increasing."

Guidance & Commitments

Key Metrics