XPRO India LtdQ1 FY23Industrial Products

XPRO India Ltd

Q1 FY23 Earnings Call Analysis

Management growth scorecard

Revenue

Category 3

Margin

Category 3

Fundraise

N/A

Order

N/A

Capex

Yes

1 of 3 growth signals are positive — mixed outlook.

Revenue guidance

Category 3

→Expectation of strong average price growth over next 2-3 years driven by product mix changes, with average price increasing notably from ~INR260-270 crores in 2021 to ~INR450 crores recently.
→Volumes in key segments like refrigerator films are gradually recovering after prior overproduction periods; production is showing signs of increase.
→Organic market growth estimated around 8-10%, import substitution potentially adding another 30% over a 5-year horizon, and new "sunrise" sectors (EV, solar) could drive exciting additional growth.
→Capacity expansions (new lines coming in FY’25 and FY’26) expected to enhance asset turns and revenue throughput, though precise forward estimates are cautious due to unpredictability.
→Growth also fueled by increasing exports and approvals from global players awaiting expanded capacity.
→Overall, company sees potential for substantial growth beyond current 500-700 crores in target markets with continued R&D and capacity ramp-up.

Category 3

→Management refrains from providing explicit forward-looking guidance on sales or EBITDA growth due to uncertainties.
→However, asset turns have improved significantly, with turnover rising from ~60-70 crores to 160 crores over a few years, indicating stronger operational efficiency.
→The company expects average product prices to move up strongly over the next 2-3 years, which is material for growth.
→The growth potential is driven by expanding capacity, including new production lines enabling thinner film production (down to 1.5 micron).
→Export opportunities are expected to grow, especially in sunrise segments like electric vehicles (EV) and non-conventional energy, with global demand rising.
→Domestic market growth includes import substitution and natural market growth; India currently requires four production lines but has fewer.
→The company aims for debt to remain low, leveraging internal accruals for capex.
→Conservative market growth estimates are around 8-10% p.a. for conventional segments, with higher potential in new segments over 5 years.

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→The company plans a capital expenditure of about INR 500 crores for two new lines, with a preference to keep debt very low.
→Debt is expected to be restricted primarily to External Commercial Borrowings (ECB) in the form of supplier credit from European machine suppliers, typically up to 85% of equipment base cost.
→Supplier credit financing is available at favorable interest rates, well below 1% over Euribor, making it a cost-effective option.
→The company recently turned long-term debt-free, and intends to maintain a low debt profile.
→A significant portion of the INR 500 crores capex is expected to be funded through internal accruals, with a minor portion through debt.
→No explicit mention of fresh equity fundraising in the recent discussion.
→The board has previously recommended dividends and issued bonus shares, reflecting confidence but no recent equity raise announcement.

→The company has placed orders for two new lines.
→There are very high lead times for equipment, extending beyond 26 months, possibly up to 3-4 years.
→Due to these long lead times, the company is not considering placing orders for additional new machines by the end of the current fiscal year.
→Current orderbook is constrained by capacity and lead times.
→Management is continuously thinking and working on expansion plans beyond the 500 tons capacity but no policy statement or announcement has been made yet.
→Financing conditions are currently favorable and cheap, providing a positive outlook for future expansion when capacity allows.

Yes

→The company is undertaking a significant capacity expansion for dielectric and superior grades of BOPP films.
→The first phase involves doubling capacity at the existing Barjora location with two state-of-the-art manufacturing lines.
→The first manufacturing line is scheduled to start contributing in FY 2024-25; the second, in FY 2025-26.
→Each new line involves a base cost of approximately INR 250 crores; total base cost for two lines is about INR 500 crores.
→Lead times for machines are very long, typically around 3 to 4 years.
→Management is working to keep debt low, mainly relying on external commercial borrowings and supplier credits.
→The company approved an INR 2 crore investment for 26% equity in a special purpose vehicle with Tata Power Renewable Energy Ltd. to source solar energy for Coex division, expected to deliver cost savings starting early 2025.
→Further expansion beyond 500 tons is under consideration but no policy statement or formal announcement yet.

How does XPRO India Ltd rank vs peers in Industrial Products?

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1XPRO India Ltd

Rev 3Mar 3

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