Release Date: May 28, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue from operations grew by 21.8% year on year to INR338.69 crores, driven by strong volume growth across the product portfolio.
- EBITDA increased by 55.22% to INR53.27 crores, with EBITDA margins expanding by 339 basis points to 15.7%.
- Profit after tax nearly doubled to INR41.32 crores from INR20.50 crores in the previous year.
- Significant reduction in raw material costs contributed to normalized margin levels and overall financial improvement.
- Strategic focus on maintaining a diversified product portfolio and not relying excessively on any single product, customer, or geography has been effective.
Negative Points
- Subdued demand, higher customer inventory levels, and currency volatility in key markets like Egypt, Pakistan, and Turkey initially constrained performance.
- Intense pricing pressures created a highly competitive landscape, impacting margins.
- Other expenses saw a sharp increase, particularly in the last two quarters, driven by higher power and fuel costs.
- Employee costs increased significantly, partly due to salary hikes and additional hiring to meet production requirements.
- The company faces delays in European product registrations, with approvals taking longer than initially expected.
Q & A Highlights
Q: Given the current gross margin of around 53.3% for FY24, how do you see the gross margins evolving over the next 12 to 18 months?
A: We expect the gross margin to remain stable at around 53%, similar to the current year. The increase in other expenses, particularly power and fuel costs, has been significant, but we are managing it through increased outsourcing to meet demand. (Rahul Nachane, Managing Director)
Q: Can you provide more details on the sharp increase in other expenses in the last two quarters?
A: The increase in other expenses is mainly due to higher power and fuel costs, which contributed about INR4.5 crores. Additionally, processing charges and outsourcing costs have also increased. We are gradually increasing outsourcing to meet market demand. (Rahul Nachane, Managing Director)
Q: What is the outlook for volume growth and price realizations in FY25?
A: We expect volume growth to continue as demand increases, but price realizations are likely to remain stable at current low levels. This is a conscious strategy to maintain market share despite competitive pressures. (Rahul Nachane, Managing Director)
Q: Can you provide an update on the new plant for regulated markets and the expected timeline for its operations?
A: The new plant is expected to be operational by the end of Q3 FY25 for validation batches, with full commercial production starting by the end of 2025. This plant will primarily serve the European and US markets. (Rahul Nachane, Managing Director)
Q: How do you plan to manage capacity constraints given the high utilization rates at existing plants?
A: We are currently operating at over 90% capacity utilization. To manage this, we are increasing outsourcing and continuously debottlenecking operations to meet demand without losing market opportunities. (Rahul Nachane, Managing Director)
Q: What is the status of product filings in the European market, and when do you expect approvals?
A: We have filed for eight products in the European market. The approval process has been delayed due to additional regulatory requirements and backlog, but we continue to work on these filings. (Rahul Nachane, Managing Director)
Q: How do you see the competitive landscape in the regulated markets compared to the unregulated markets?
A: The regulated markets require closer collaboration with customers and offer longer-term relationships, which can lead to more stable margins compared to the price-driven unregulated markets. (Rahul Nachane, Managing Director)
Q: What are your expectations for long-term margin recovery, especially considering the current depressed margins?
A: We aim to return to our long-term EBITDA margin range of 17% to 22%. While current margins are depressed due to competitive pressures and low price realizations, we expect them to recover as market conditions improve. (Rahul Nachane, Managing Director)
Q: Can you provide more details on the increase in employee costs?
A: Employee costs have increased due to annual salary hikes and the need to hire more personnel to handle increased production volumes. This increase is across all departments, not just sales. (Rahul Nachane, Managing Director)
Q: What is the potential for further brownfield expansions at existing plants?
A: We are open to brownfield expansion opportunities if market demand justifies it. Brownfield projects have shorter timelines compared to greenfield projects and can help us meet market demand more quickly. (Rahul Nachane, Managing Director)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
