Release Date: August 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Gross margins improved to 44.9% due to a better product mix.
- Revenue from Blends grew by 13.4% compared to the last quarter.
- The new campaign of ethyl vanillin has resulted in process stability and improved product quality.
- The acquisition of Vitafor Invest NV is expected to extend the company's Blends and related businesses in Northern Africa and East European markets.
- Operating costs have remained largely stable, with a significant improvement in EBITDA to 7.2%.
Negative Points
- Consolidated revenue decreased by 1.5% compared to Q4 FY24 and by 5.7% compared to Q1 FY24.
- The European diphenol facility in Italy remains under shutdown, contributing to a loss of INR15 crores and a negative operating EBITDA of INR10 crores.
- Revenue of Performance Chemicals remains muted due to pricing headwinds.
- Catechol prices remain low, impacting both top line and margins.
- Foreign exchange volatility in the Brazilian subsidiary has negatively impacted financial performance.
Q & A Highlights
Q: Just wanted to know the EBITDA contribution from our Europe facility. And you're trying out some new products in that facility, any update on the same.
A: So as we have disclosed in our results, the overall loss in Europe was around INR15 crores for this quarter. And we had a negative operating EBITDA of INR10 crores. We did have some revenue of INR30 crores, which is mainly trading of some of our products and some Blends are sold there. Negative EBITDA was around INR10 crores in this quarter in Europe and a loss of 15%. (Santosh Parab, CFO)
Q: Do you see that loss was added on going forward in H2 also?
A: As we said, these are the fixed cost, because we are going to repurpose and we are working on the strategy to use this plant. It is likely that this negative EBITDA is going to continue at least for the next quarter. (Santosh Parab, CFO)
Q: Any update on the new product, which you are now looking forward in the Europe facility?
A: We are working on that as we told last time that it's a repurpose. There are a lot of works going on that. We're looking at avenues, looking at the market and we will come and revert. We'll be closing this in the next month or so, and then we'll come back and inform the stock exchange or the investors. (Santosh Parab, CFO)
Q: Sir, my first question is about the pricing situation, you also indicated. In fact, let's say, for HU, hydroquinone value-chain products or our anti-oxidant value-chain based products. So till last quarter, we have been seeing a kind of a stable pricing situation. This quarter, whether the pricing scenario is meaningfully different than what we have been witnessing till last quarter?
A: So it's come down slightly, but there's not a very major swing in terms of pricing on the hydroquinone downstream. The Blends business, of course, continues to have this same margin profile. The pricing really, as Santosh mentioned earlier, is that we are seeing in the last few weeks, especially on the vanillin side, there is some improvement in pricing. (Nirmal Momaya, MD)
Q: Is it broad-based. This is a China dumping kind of a trend again that market is witnessing that one should believe or it is just product specific? Because I think the aggression of the Chinese supplies have gone up in the recent times. So is it a broad-based trend for the chemical industry as a whole or it could be specific to certain segments?
A: So I would say that the China onslaught yet continues. It's not that it has changed significantly. The softening of pricing like we said, it's more. It's not like we've seen in the past 12 months. It's not been that rapid. And I think it's like kind of at its bottom now. Demand also is slowly coming back that we see in some of the products. So I would say that, yes, the Chinese impact continues, let us see now in the next quarter or two quarters, what and how that will pan out. (Nirmal Momaya, MD)
Q: Regards to vanillin I think the initiatives what it has been taken by the Western world to have a dumping duty against the Chinese supplies? So possibly the time lines for US and Europe would be different. But as per your understanding, when that we can think about or if we can see some kind of benefits for our product and supply opportunity on that front?
A: So US anti-dumping will probably come before the EU, typically that is what we understand. Time frames can be two months to six months for this to come. But any which ways, since this is an open public information and action, we are already seeing that impact of that specifically also in US and Europe where the buyers know that this is impending in down the corner so are wanting to develop us as a supplier in the long term. So that is kind of giving us a benefit already. (Nirmal Momaya, MD)
Q: My question is around the increased finance costs. So just wanted to understand the reason behind this, in case you've explained it earlier. Will you repeat it? And also, the tax expense has been higher for this quarter. So what are your expectations for the year?
A: First, the question is of interest. The interest rates the borrowing costs have not increased, but you see there have been final formations hit in some of our geographies and finance costs because depreciation of their currencies. The interest portion includes foreign exchange, and if you can go and see my results, you'll see that finance was increased on -- consolidated around INR6.5 crores of foreign exchange. And that has moved the increases -- mainly because of that, the overall finance cost has not increased. The second question was regarding -- I just missed your second part of the question. (Santosh Parab, CFO)
Q: So just wanted to understand, since you are facing pricing headwinds, and we have had a disappointing quarter in terms of margins. So I mean, how are we confident of still keeping our guidance intact for the full year FY25? I mean are we seeing any green shoots in driving some increase in prices rebounding?
A: Yes. In some of the products, we are seeing like in vanillin, as we mentioned earlier, that there is a green shoot in pricing and volumes. Also on the operating side, operating efficiencies, we are working on a program to improve the operating efficiencies, which should give us a few percentage points improvement. So a combination of some green shoots and operating efficiencies is what we are looking at to say that we'll probably end up at where we want it to be for the year. (Nirmal Momaya, MD)
Q: So I mean, for last quarter, when we were targeting 10% to 12% margins for the whole year, were we anticipating quarter one to be this with?
A: Yes. Quarter one was going to be soft. (Nirmal Momaya, MD)
Q: So my first question is about our heliotropin business in China. Could you please provide an update on the required CapEx to repurpose the existing plan as well as the market size and margin profile of this business.
A: So we are expecting cost between INR20 crores to INR30 crores on repurposing the plant. These costs had to be borne by our partner. This will not be to the company. He is working on it. So it will be INR20 cro
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
