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00:00Hello and welcome to DET. Now you are watching IPO central and the company in focus this
00:05time is Jain Resource Recycling. It is a company which is into recycling and production of
00:10non-ferrous metals. The company's IPO is opening on September 24 closes on 26, price
00:16between 220 to 232, a fresh issue of 500 crores and OFS of 750 crores. So a total of
00:221250 crores in IPO and the company is valued at little over 8000 crores at the upper end
00:28of the price band. Joining me today is Kamlesh Jain who is the managing director of the company
00:31and Mayank Parekh who is the joint managing director of the company. Gentlemen, thank
00:35you very much for joining us on ET now. Thank you.
00:37Kamlesh, let me begin with you. It is a company which is new to the stock market. Explain and
00:45give us an idea of the business model that you have in this company.
00:51So we are like a 4th generation company and I am the third and my son is the fourth. It
00:57is basically a base metal, non-ferrous metal recycling. And we import various types of non-ferrous
01:04scraps like batteries, cables, aluminium and this we buy locally also. And this raw material,
01:13what we buy globally and locally, we process and recycle it and take and make the finished goods like
01:19copper and copper alloy ingot, lead and lead alloy ingot and aluminium alloy ingot which is used for
01:25various different industrial applications. So when you circle the economy and the raw material is
01:31recycled and go back to the same industry. Give us a sense of what is the kind of
01:37dependence you have to import and how big is domestic market because domestically we are not so
01:44organized in terms of recycling of non-ferrous or whether any other kind of waste metals.
01:49Yes. So our major import is our major I mean import our purchase is from the imports side
01:58and we also buy domestically. Domestically improving a lot. Now the government push for recycling is very
02:05big and we are now sourcing for domestic scrap also is going up and we assume that it will go to higher
02:11level as the country is growing in a very robust way. So this scrap will come more and is getting more
02:17organized because of the regulations rules of government also.
02:20Mike, 750 crores in OFS and 500 crores in primary issue, what are you going to use the primary issue for?
02:30So the primary issue basically would be used for repayment of the loans. Out of 500 crores majority
02:42is going to be used in that and some portion will be used for general purpose businesses.
02:48What is the total debt that you have in your books?
02:51Total debt would stand at somewhere around 900 crores at present.
02:56And you will use what say 350 odd crores, 375 crores?
03:00375 or something like that, yes.
03:02Does this business require a lot of working capital?
03:04Yeah, it's a little capital intensive industry because of the we buy from globally and we have
03:13to make payment on loading the material. The shipment should take time. Some countries like 30 days,
03:18some countries taking 45 days, something 60 days also. So capital get blocked in while shipping.
03:25But once it comes, it's very fast and around I think 38 days, we are able to rotate the money
03:29from factory to the buyer's payment. So the majority money get blocked during the shipment time.
03:36And how do you do that sourcing of your material? Which are the countries from where you source normally?
03:41So we source globally around I think 120 plus countries and this sourcing happened around the clock,
03:51different time zone and different executives we have to source, talk to suppliers and we have
03:56regular suppliers who scrap yards, traders keep giving to us.
04:01And when you refine the metal to refine metal alloys and ingots which you do actually for lead,
04:08copper and aluminium, do you sell them globally or is it sold in the domestic market?
04:14No, we do both exports and we sell locally also. So we export to main market for copper is for mainly
04:21China and Korea and lead is for Korea and sometimes Japan also and our aluminium goes to Japan.
04:31And domestically we sell to lot of industries of copper and battery manufacturing and auto mill
04:38casting of aluminium we supply locally also. But major sale is of course exports.
04:43Kavrish, how do you manage this forex fluctuation means is it natural hedge for you or there is a
04:50you know by the time you order and by the time it comes and the payments have to be made,
04:55how do you manage that forex translation which comes in there is because it could be volatile in that.
05:00Yeah, yeah. So, as you could understand a large chunk of import right now is from imports
05:07and we also do exports. So, to a large extent to the extent we are exporting we have natural hedge.
05:17Having said that we have unhedged exposure of the purchase which we have a very strong hedging
05:25mechanism and operation we hedge by buying and selling forwards.
05:29Give me a sense of you know are the supplies which you have from 100 countries which you said
05:39do you have long term relationship or agreements with them for supply of
05:43these materials which you need to recycle?
05:44Yes, so certain supplies we have some three months contracts sometime long term also.
05:51So, but mostly are spot contract because of the scrap getting generated there and there. So,
05:57the global tenders, the global domestic supplies, there are and there are demolition happening
06:02globally for the plants and housing complexes. So, it keeps coming and the scrap yards they keep
06:09selling to us on spot market and some are the long term also we have.
06:13Relationship and contract tenure. Yes.
06:15In this business relationship matters a lot. So, there are suppliers with whom we have relationship for
06:21decades. Contracts are generally spot contracts or short term maybe two months,
06:27three months but if you have long term relationship the business continues.
06:30What is the normally recovery rate from these scraps that you...
06:34So, it is not uniform sir. It depends on spec of the material. A different cable has got different
06:41copper content and different batteries has got different type of lead content. So, the suppliers
06:46give the spec, the contract specs matter based on the specification of the raw material. We buy the
06:51and give the price to them. So, it is not uniform because it's scrap. So, how can it be uniform?
06:56So, give me an idea of the kind of refining capacity that you have now for various metals,
07:01whether it is copper, lead or aluminum. So, we have a total capacity of more than 300,000 tons
07:07annually for aluminum, copper and lead put together. In this of course, the lead constitutes the highest
07:16capacity followed by copper and then aluminum. And is there a plan to expand that capacity? Of course,
07:22we are expanding in various strategies we have. So, we are going for expansion of this present
07:28capacities what we are manufacturing and we also have plan to do the value addition product. So,
07:34we are going for this copper cathodes and wire rods and copper flats production and the present
07:42capacity also is getting increased. What is the kind of capex for that actually and how are you funding it
07:47because your current fund raise is for you know retiring some of the debt?
07:51So, we right now we are working on value addition project for the copper in which we are making the
08:02high value added products of copper. So, after we complete this project, there are more projects
08:10under study and in offing. In fact, the company has been profitable year on year. There are good internal
08:19accruals which are enough to take care of the expansion projects. Give me a sense of the pricing here
08:26because you are looking at three pricing commodities copper, lead and aluminum and globally the prices have
08:33been volatile for them. How does the pricing work for you when you do the sourcing? I am sure that
08:40that also gets factor in the sourcing pricing, but when you sell is basically international prices that you sell to right in that sense. So,
08:48what what is the kind of sensitivity that you have to pricing of these metals globally?
08:53So, we have some platforms called LME, the London Metal Exchange. The London Metal Exchange
09:00make the entire global price mechanism. They have copper, lead, aluminum, various non-fluous metals.
09:06Now, the whatever the raw material you buy are linked to the LME prices. So, we have some formula.
09:12So, based on the formula we buy. So, let us say we buy LME into 80% into copper content. So, LME into 80%
09:18into copper content and we sell same material at LME into 105%, 102% depends on the spec of the buyer,
09:25depends on the payment, various terms. So, we have fixed formula to buy and to sell and that formula we will
09:32place. So, the fluctuation in the price does not affect because we have back to back hedging mechanism
09:38which take care of the risk of the fluctuation in the price.
09:41How do you manage the margins here? Because 5.3% is the margin which you have for 25% and it is
09:49gradually gone up in the last two years, but prices have also gone up. So, I am assuming that
09:54that is a reflection of, it is reflecting in the margins because globally these non-ferrous
10:00metal prices have gone up. So, it is a margin of 5, is it possible that you can take it up because
10:06now that as you said you are working on value added copper, does it help you in taking up the margin?
10:13So, prices of the LME which go high or low does not matter to us because we work on some kind of
10:19conversion margin and we are not linked to the copper price goes from here 10,000 to 11,000 or
10:2520,000, 15,000. It does not affect us because we are hedged. Of course, the expansion of what we are
10:31doing is a value added product and that will definitely add our EBITDA margin and it will go up
10:35in a significant way and I also feel that when the scale of operation is reduced the cost of production.
10:43So, as and when we increase the scale of the production, the cost also will be going down
10:49this process cost.
10:51Mind give me a sense of the working capital and inventory that you need to you know carry here
10:56because it and what is the normal conversion time means you mentioned the fact that when you sourcing
11:01it takes 30-40 days to for the material to come in, but once it comes in what is the turnaround time
11:07before you can refine it and then you sell it back?
11:11So, as Kamrajji informed it is around 40 days of the total working capital cycle out of which we
11:19need some between 25 and 30 days to convert the material from the time it is received in
11:26the plant to the time we send it to the customer. And what is the normal inventory days that you
11:35keep with you? So, that is what I mean 25 to 30 days of inventory is what we keep. And that is
11:42optimum for you in that sense? Yes, if you look at our trends, the working capital efficiency has been
11:49going up. The present cycle of working capital of 40 days used to be higher a year back used to be
11:58even higher 2 years back. Frankly 25-30 days is very good efficiency, but we are not satisfied I mean we
12:06are working on this and we will bring it down further. It is a sector which is emerging in that sense.
12:13You are into non-ferrous metals, but you know there is another recycling area which is now emerging is
12:19e-waste recycling which is coming in. Does your business you know has an extension to go into
12:28e-waste recycling at some point in time because that is also an emerging area which is there?
12:33We have studied this domain very extensively and so e-waste when you talk of the generation,
12:42indigenous generation. It is pretty good as an estimate some 4 million tons of e-waste is getting
12:50generated in India and there is still a dearth of organized recyclers. There are many, but not enough
12:59for the country. So, this field is catching up. As far as we are concerned, if we get into this, yes of
13:05course, there are synergies and we are studying this. So, we are positive about this.
13:13Mike, if you can also give us an idea of you know the kind of cash flows that you will see every
13:17year means from operations. Is it cash flow positive for you and how does it you know
13:23do you see that increasing on over a period of time? So, we earned the internal accruals
13:30which is mainly deployed for working capital funding. And that internal accruals are sufficient
13:38for that because you know the kind of operations and the scalability that you are looking at.
13:44Is that internal accruals fine for you? Yeah, of course. Whatever the internal accruals we have
13:50and whatever the expansion going on, it will take care of that.
13:54How is this sector growing and what is the pace of this sector? And I am asking this because this is a
14:00sector which is new to the street as well. So, at what pace that you can scale up this business?
14:06So, as far as this sector, I mean we are into non-ferrous metals, the lead and copper and aluminium
14:15and these sectors are growing close to double digit number year on year.
14:20But, we supply these metals by recycling. So, the recycling content is going up. So, the growth
14:32of recycling is higher than the growth of these sectors.
14:36And does it also you know help when bigger and larger players are entering this sector? Because
14:43we have heard about Vedanta entering into recycling and other companies which are, does it give you a
14:49heft that this cycle? This sector is becoming now more organized in that sense.
14:54It is getting organized day by day, no doubt in that. But, I don't know about Vedanta,
14:58but Hindalco is going for e-waste recycling. I heard about them.
15:02I did not hear about… But both are different ball games.
15:05Anybody can enter into any business, but both are different ball games. The sourcing is different,
15:09the processing is different. So, very different ball games.
15:13So, if I have to ask you finally, you are at 300,000 ton capacity at this point in time. You are
15:20working on value added copper going forward. What is the total capex that you will be spending over
15:25a period of time, next few years to increase your capacity?
15:30So, there are many projects in the consideration for which the exact estimates have to be made.
15:40But, the project that we are doing right now, which is value added product for copper,
15:46which is divided into two phases. First phase would be roughly around 100 crores of rupees,
15:52and the next phase would be roughly around 50 crores of rupees. So, that is something that we are
15:57actually doing right now. Now, India is a net importer of copper,
16:04but you are exporting copper from here to China.
16:08So, actually, we send a lot of finished goods type. It is not like we send the recyclable resources.
16:14So, one fact that we are not net exporter of copper. So, we import, process and export.
16:23We import, process and also supply domestically.
16:26Now, I am talking country as a whole. Yes. So, of course, the country as a whole is net importer,
16:34but to this demand we are contributing by importing, processing and supplying domestically,
16:40but at the same time we are importing, processing and exporting too.
16:43So, gentlemen, it was a pleasure talking to you today. Your IPO is opening on 24th and closes on 26th.
16:49220 to 232 is a price band and 1250 crores is the IPO size. The company is valued at little over
16:568000 crores at the upper end of the price band. Thank you for watching today, IPO Central.
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