In conversation with Tuljaram Maheshwari- WTD, CEO & CFO, Sahyadri Industries

We would like to explore opportunities in Northern India that will enable us to achieve our vision of becoming a Pan India player, articulates Tuljaram Maheshwari - WTD, CEO and CFO, Sahyadri Industries.

1. How is the roofing industry panning out across the country and how is the rural economy linked to our sector?

The India roofing market size reached USD 6.5 billion in 2022. Looking forward, The International Market Analysis Research and Consulting (IMARC) Group expects the market to reach USD 9.7 Billion by 2028, exhibiting a growth rate (CAGR) of 6.64 per cent during 2023-2028. The roofing sheets are installed and used majorly in the rural areas and hence it is directly linked to the rural income prevailing in the country. The demand for the product comes largely from the villages, tier 3 and tier 4 towns.

2. In our core product, there is widespread concern about the usage of Asbestos which is perceived to be a harmful resource. Can you share your thoughts on the same and how does company mitigate such risks?

At the outset, let me clarify that Asbestos being a harmful product is far from the truth. If Asbestos was as harmful as it is being portrayed, then no one from the industry would have received any permission from the government and related agencies to expand manufacturing facilities as well as new greenfield projects. Asbestos mining was banned in India and not its usage. We strongly believe that the usage of Asbestos is completely safe for everyone with requisite precautions as prescribed by the environment ministry. Globally, Asbestos is used in 145 countries out of ~200 countries which validates our belief in the safety of our product.

Since mining is banned in India, we import mainly from Kazakhstan which has huge reserves of Asbestos. Apart from Kazakhstan, Brazil has Asbestos in abundance. We have never faced any issues in procuring Asbestos from any country.

3. On the Non-Asbestos front, what are the company’s growth plans?

The Non-Asbestos product is a different product category which has been produced with pulp, cement etc as its raw material. The Non-Asbestos product segment can cater to a huge industry size as big as the plywood industry. Sahyadri Industries offers multiple products in the Non-Asbestos category such as EcoPro Multi-use Fibre Cement Boards, Bull Board etc. The current revenue mix is at 80%:20% in favour of Asbestos to Non-Asbestos products. Going ahead, it might skew towards a mix of 70%:30%. The margins earned in this vertical are similar to roofing products. We export Non-Asbestos products to the Middle East, UK and Africa. The company plans to grow this business segment and strengthen its foothold in the existing markets

4. Sahyadri Industries has incurred Rs 117 crore of capex in the last 2 years. Also, it is estimated that the company plans to spend Rs 190 crore from FY24 to FY26. What is the rationale behind this capital expenditure?

The company has incurred capital expenditure to build state of art manufacturing facilities that will enable the company in expanding its reach in the unrepresented markets across the country. Recently, we commissioned our Tamil Nadu facility which was an extension to our existing manufacturing unit. The company has also outlined its expansion plan wherein an ongoing capex of Rs 190 crore is estimated to be deployed towards a couple of facilities.

The Odisha facility will have a capacity of 1,20,000 MTPA for Asbestos roofing sheets whereas the Maharashtra facility will have a capacity of 72,000 MTPA for Non Asbestos products. The capex allows Sahyadri Industries in exploring newer geographies and move towards achieving a vision of becoming a Pan-India player.

5. Q4 of the financial year is considered to be one of the best quarters, the company reported a topline growth however, why has the EBITDA impacted? How do you see Q1FY24 panning out?

The Q4 is seasonally a good quarter for the company and our industry at large. The demand remained subdued on-ground due to a slowdown in the rural economy coupled with pressure on prices. However, the company registered a revenue growth of 26.2 per cent to Rs 167.7 crore in Q4FY23 as compared to Rs 132.9 crore in Q4FY22. The decline in EBITDA in Q4FY23 on a YoY basis is attributable towards a rise in raw material cost, fuel cost etc. The raw material price continues to be at elevated levels due to inflationary pressure across the globe. The stabilization of operations at the Perundurai plant resulted in higher expenditure that has also impacted EBITDA

The Q1FY24 is trending as per our expectations as rural demand has also picked up just before the onset of the monsoon. Despite this, we are still far from a normalised season which used to be the case during the pre-covid period.

6. What is the overall strategy for the company on its products, markets and any other new initiatives?

Sahyadri Industries is a niche player in the construction industry and we would like to adopt a two-pronged strategy focussing towards products and markets. Let me elaborate on each of the following:

Products:

We are currently manufacturing Asbestos based roofing products with 80 per cent of revenue coming from that vertical in the overall revenue pie. Going forward, we will emphasize growing Non-Asbestos products wherein we can develop value-added products with that segment. Presently, the Company has ~17 per cent of value-added products and it is expected to increase to 25 per cent by FY24. The company also intends to increase the revenue share from 20 per cent currently in Non-Asbestos vertical to 30 per cent.

Markets:

We aim to expand our footprint in newer geographies and deepen our penetration in the existing markets. Sahyadri is also a market leader in western India with a strong foothold, especially in Maharashtra & Gujarat. In FY23, we have commissioned additional capacity at the Tamil Nadu facility which will enable us to grab a higher market share in Southern India.

We are in the process to establish our presence in the eastern market with an upcoming Odisha plant. Also, a new facility is being set up in Maharashtra to cater to Non-Asbestos products. The upcoming Maharashtra unit is strategically located to have convenient access to the ports as we export some Non-Asbestos products to different parts of the world.

Further, we would like to explore opportunities in Northern India that will enable us to achieve our vision of becoming a Pan India player. Sahyadri will also have a significant thrust on improving capacity utilisation and achieving operational efficiencies in future.