Release Date: April 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Overall sales volume grew sequentially despite adverse price movements.
- Highest salt production and sales in India, with expectations for continued growth in soda ash and salt.
- US operations posted record production numbers, with positive future shipment trends.
- China's soda ash demand grew by approximately 15% year-over-year in January and February.
- Focus on timely execution of expansion projects, with additional volumes expected in Q2.
Negative Points
- Muted demand for soda ash in India and Europe, with continued challenges in the European market.
- Non-cash impairment charge taken for a plant in the UK due to lower future cash flows.
- Pressure on export margins, with a significant drop in export realization impacting EBITDA.
- Geopolitical instability and high interest rates continue to pose risks to the operating environment.
- Increased imports into India, leading to depressed domestic player sales.
Q & A Highlights
Q: Can you provide more details around the purpose of the NCDs and explain the non-cash charge?
A: The NCDs are being issued to leverage arbitrage opportunities in interest rates and to deleverage other geographies. The non-cash charge is an impairment of fixed assets at the Lostock plant in the UK, as future cash flows are lower than the holding value of the assets. This is a one-time, non-cash charge.
Q: What is the extent of the oversupply in the market, and what is your outlook for demand in 2024?
A: The European market has an oversupply of about 1 million to 1.2 million tonnes due to demand destruction. In China, 5 million tonnes of new capacity is mostly being absorbed domestically. The Chinese prices have bottomed out, and the Indian market remains stable. The oversupply situation is expected to persist unless capacities are reduced.
Q: Are there any second thoughts about capacity expansions in the US or Africa given the oversupply?
A: We will continue to expand in competitive markets like India and the US. The expansions in Kenya and the US are in the design phase and will proceed as planned. These expansions are value-creating due to their brownfield nature.
Q: What are the demand trends supporting the positive outlook for US domestic volumes and shipments?
A: The US plant has posted record production numbers, and we can serve both domestic and international markets effectively. Despite challenges in the container glass sector, the overall economic conditions remain positive.
Q: How do you see the ramping up of the new brownfield capacity of 250,000 tonnes in India?
A: The new capacity will be fully operational by May, and we expect to reach full capacity utilization within 90 days. The current quarter's production was constrained by utility shortages, which will be resolved post-May.
Q: What is the impact of the Chinese capacity addition on the global market?
A: The 5 million tonnes of new capacity in China is mostly being consumed domestically. The pressure on synthetic capacity from natural capacity is causing some units to operate at lower rates. The real concern is the demand side, particularly if Chinese real estate demand falls significantly.
Q: What is the outlook for margins in the UK and US given the current market conditions?
A: The UK has seen a compression in contribution margins by about $30 to $40 per tonne. We do not anticipate major changes in these numbers. The US domestic EBITDA remains stable, but export margins have deteriorated due to lower international prices.
Q: What is the company's strategy for managing its debt structure?
A: The NCDs will be used to refinance dollar-denominated debt with rupee-denominated debt. The major CapEx in India is nearly complete, and future expansions will be funded through internal accruals. The goal is to reduce net debt over time.
Q: How do you see the pricing environment in 2024 given the oversupply in Europe?
A: The supply from Turkey, which would have gone to Europe, is now moving to other parts of the world, causing dissonance. The supply within Europe needs to come down for the market to stabilize. We are closely monitoring the situation.
Q: What has led to the demand destruction in Europe, and how will this situation improve?
A: The loss of access to cheap Russian gas and high inflation have created stress in the European market. The situation is unlikely to improve without a resolution to the energy crisis. The increased imports into India have also impacted domestic sales.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
