Release Date: February 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Gross margins at the stand-alone level increased from 42.3% in Q2 FY24 to 43.1% in Q3 FY24, an overall increase of 75 basis points.
- The company achieved a 10% reduction in the average consumption of key raw materials compared to FY23, mitigating the impact of higher raw material prices.
- Power cost as a percentage of operating revenues reduced from 5.2% in Q2 FY24 to 4.7% in Q3 FY24.
- The newly acquired baryte beneficiation plant has stabilized, and significant benefits and cost savings are expected to flow from Q1 FY25.
- The company is set to recoup its entire investment in the backward integration project at Visakhapatnam by Q1 FY25, marking it as a significant success.
Negative Points
- Total income for Q3 FY24 was INR308 crores, a slight decline from INR311 crores in Q2 FY24.
- Consolidated EBITDA for Q3 FY24 was INR45 crores, down from INR49 crores in Q2 FY24, an 8% decline quarter-on-quarter.
- Consolidated PAT for Q3 FY24 was INR21 crores, down from INR24 crores in Q2 FY24, a 13% decline quarter-on-quarter.
- Depreciation surged by 89% on a year-on-year basis, exerting a short-term impact on profitability.
- The company is facing pricing pressure in the precipitated barium sulphate segment, specifically from Chinese competitors.
Q & A Highlights
Q: Can you explain the correlation between sodium dichromate prices and chrome ore prices, and why they seem to be moving in different directions?
A: Both prices are not moving in different directions. Chrome ore prices increased by 10% due to higher sea freight rates. Finished goods prices remained stable, but we have announced a price increase for Q1 FY25. (Cherukuri Siddhartha, Joint Managing Director)
Q: What is the outlook for the barium segment, considering the challenges faced in the past quarters?
A: Demand slowdown in the construction industry and longer product approval times have impacted profitability. However, we expect operating levels to reach over 70% by Q1 FY25, improving the product mix and spreads. (Cherukuri Siddhartha, Joint Managing Director)
Q: How has the Red Sea issue impacted your volumes and costs?
A: The Red Sea issue increased shipping costs by nearly 5x and transit times by 30-40%. This led to a 145 basis points increase in freight costs. We are renegotiating shipment contracts to mitigate this impact. (Hanumant Bhansali, VP Finance & Strategic Planning, Compliance Officer)
Q: Can you provide an update on the barium carbonate and barium sulphate capacity utilization?
A: Barium carbonate is operating at 75%, and barium sulphate at 55-60%. We aim to increase barium sulphate utilization to over 80% and barium carbonate to over 90% by FY25. (Cherukuri Siddhartha, Joint Managing Director)
Q: What measures have you taken to reduce costs and improve efficiencies?
A: We reduced raw material consumption by 10%, upgraded equipment, and improved processes, leading to better gross margins and lower electricity costs. We also completed backward integration in Visakhapatnam, expecting to recoup the investment by Q1 FY25. (Hanumant Bhansali, VP Finance & Strategic Planning, Compliance Officer)
Q: What is the status of the chrome ore acquisition, and how will it impact margins?
A: The acquisition is progressing well, with documentation being finalized. This will mitigate raw material price volatility and strengthen our supply chain. Exact cost benefits are confidential. (Hanumant Bhansali, VP Finance & Strategic Planning, Compliance Officer)
Q: What are your debt levels as of December 31, and what caused the increase in employee costs?
A: Gross debt is INR320 crores, and net debt is INR250 crores. The 10% increase in employee costs is due to annual bonuses rolled out in Q3. (Hanumant Bhansali, VP Finance & Strategic Planning, Compliance Officer)
Q: What is the revenue contribution from precipitated barium sulphate (PBS), and how do you see it evolving?
A: Currently, PBS contributes less than 5% to overall revenue. We expect this to increase from Q4 and Q1 FY25 as operating levels improve. (Hanumant Bhansali, VP Finance & Strategic Planning, Compliance Officer)
Q: What are your plans for capacity expansion and new product launches?
A: We are adding chromium metal to our portfolio, with a commercial launch expected by FY26. We are also expanding chrome oxide green production at our Visakhapatnam plant. (Cherukuri Siddhartha, Joint Managing Director)
Q: How are you addressing competition from Chinese players in the precipitated barium sulphate (PBS) segment?
A: We differentiate ourselves through quality and are working to make customers aware of the benefits of our products. Chinese products are generally 5-8% cheaper, but we focus on superior quality. (Cherukuri Siddhartha, Joint Managing Director)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
