Release Date: August 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- PCBL Ltd (BOM:506590, Financial) reported its best-ever operational and financial performance during Q1 FY25.
- Consolidated sales volume from the Carbon Black segment reached a record high of 1.54 lakh tons, up by 25% year-on-year.
- Consolidated revenue from operations increased by 59% to INR2,144 crores, driven by better realization, sales volumes, and the consolidation of Aquapharm.
- Consolidated EBITDA grew by 72% year-on-year to INR369 crores.
- The state-of-the-art plant in Chennai achieved a CapEx utilization of over 85% and received approvals from all major tire manufacturers in India.
Negative Points
- Despite the strong performance, the PAT increased by only 8% year-on-year to INR118 crores, indicating potential margin pressures.
- Aquapharm business is currently going through a soft cycle with pressure on margins and competition.
- The company has significant capital expenditure plans, which may strain cash flows and increase debt levels.
- The global Carbon Black market faces uncertainties due to geopolitical factors, including the ban on imports from Russia.
- The company’s ambitious growth targets may face challenges due to market volatility and the need for substantial capacity expansions.
Q & A Highlights
Q: Congrats on good set of numbers. Could you please provide the revenue growth guidance for FY25? Additionally, can you elaborate on whether the company expects to sustain its EBITDA margin or if there are anticipated changes that could impact margin levels moving forward?
A: Aman, I would give you a little long-term growth guidance. We are confident that the business, the Carbon Black business can deliver roughly 9.5%, 10% CAGR growth I'm talking in terms of volume over the next 4 to 5 years. And in terms of whether we are able to maintain our margins, there are a lot of initiatives that we have taken on yield improvement side, on product mix side. And also with additional capacity coming on the operating lever, it will also play favorably for the company. To do that, our operating margins or our EBITDA per ton would keep on increasing between now and going forward. The next 5 years, I think we have a strong possibility of EBITDA going up by INR4,500, INR5,000 per ton. That's how we see.
Q: Please outline the company's capital expenditure plans for the medium term.
A: Long-term capital expenditure, we need to add about roughly 400,000 tons of Carbon Black capacity. And we will also be kind of doubling Aquapharm capacity across geographies. So we have 2 facilities, 2 primary facilities, India. India, we have multiple facility, but India considering as one geography and then U.S. Currently, they have about 130,000 tons. Next 6 to 8 months' time, 48,000 tons capacity is going to come up. And during the next 4, 4.5 years, we are going to add another 100,000 tons of capacity. The Aquapharm capacity is also going to get double in the next 5 years' time. Additionally, we are -- we also created a joint venture company in collaboration with the Australian technology company. And we are already in final stage of closing the agreement. And then we will immediately proceed with implementation of a pilot plant. And we expect the first inflated plan to be ready, up and running in the next 1.5 to 2 years' time. And that is further going to add to the top line and bottom line at the consolidated level.
Q: Please detail the strategies the company is implementing to achieve the ambitious goal of increasing the business by 5x.
A: Aman, I didn't get your question correct? What exactly is your question?
Sanjesh Jain: Please detail the strategies the company is implementing to achieve the ambitious goal of increasing the business by 5x.
Raj Gupta: Yes. So Aman, you work out on this number, this 11% to 12% volume growth in Carbon Black segment, that's been doubling our capacity in Aquapharm business. And then additionally, there is battery chemical company coming into picture. We won't be -- I mean, there is a very high growth possibility of our getting a fivefold bottom line in the sizes.
Q: Sir, coming on to the Aquapharm, what sort of volumes we can expect for FY25? And what growth percent can we be building for the next 2 years in FY26 and '27?
A: Current year, I think we will be somewhere around 100,000 tons, maybe at 1,10,000 tons. The total capacity remains 1,32,000 tons as of now. This is current product mix. So maybe we will be somewhere around 1,00,000, 1,10,000 tons. But capacity utilization will gradually increase towards third and fourth quarter. So we expect better volumes towards third and fourth quarters. Also some of these lines that we are adding now in the new product segment, so it will be operational towards third and fourth quarters. So that will give us some more volume.
Aditya Khetan: So on to the volume growth, can we expect, sir, 15% to 20% in FY26 and '27?
Raj Gupta: Yes. Our target is a little more ambitious. I think we can grow between 20% to 25% volume growth going forward, I mean from '25, '26.
Q: Sir, on to the ban of EU into Russia, sir, are we getting any incremental inquiries from -- so from the EU players and this volume growth in exports market, which we had clocked in this quarter, how much proportion would be towards the European market and any further sort of inquiries or are we getting it? And are we looking for a long-term tie-up from that market?
A: Yes, Aditya. Most of our overseas sales are now strategic to our strategic customer base. So we do spend something in spot market, but our endeavor is always to get into long-term arrangement with the customers to be considered strategic for business. Now this Russian -- the sanction on Russian Carbon Black industry officially kicked off from 1st of July, but the real benefit we will start getting from maybe next 2, 3 quarters, because there is some stocking which happened in Europe. But even this (inaudible) our volumes in Europe has been going up steadily. Last year, we did about 14% of our international volume in, I'm talking about 2023, we did about 14% of our volumes from 0. And this quarter, we have already released about 21%, below -- I mean of international volumes coming from the European markets, so it is steadily growing. And we have made significant investments in our supply chain benefit. It is not only in Europe, but across (inaudible), which we consider important from growth perspective. We are into aggressive capacity expansion phase, and therefore, we need to constantly keep on adding customers and geographies. So that remains an area of focus for us.
Q: First, on the Aquapharm part of the business. When we did the acquisition, they were doing about INR380 crores, INR370 crores of EBITDA. Right now, we are at INR55 crores of EBITDA. I know industry is going through a tough situation, but INR55 crores looks way too small? And how do we plan to improve it?
A: Well, Sanjesh, when we acquired this company, we did not acquire it on basis of current performance, but the potential that the business holds. Now it is going through a soft cycle currently and other chemical companies are also facing the same challenge. But we believe that it has bottomed out. And already, there is a reflection in margin, it is improving. My own sense (inaudible) that by fourth quarter of this year we should be doing somewhere around INR80 crores to INR90 crores
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
