Release Date: February 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Pondy Oxides And Chemicals Ltd (BOM:532626, Financial) reported a total revenue of INR454 crores for Q3 FY 2023-2024, reflecting a 16% growth in value and 12% in volume from the previous quarter.
- The company's EBITDA levels in the lead vertical improved to 6.04% from 5.20% in the previous quarter.
- The debt-equity ratio stands at 0.83, which is well within industry standards.
- The company has obtained shareholder approval for raising INR133.50 crores through equity shares and warrants, which will fund expansion projects.
- Pondy Oxides And Chemicals Ltd (BOM:532626) is expanding its lead vertical capacity from 132,000 metric tons per annum to 204,000 metric tons per annum, with installation commencing in June 2024 and commissioning by September 2024.
Negative Points
- The aluminum division's lower realization and operational expenses have impacted the overall EBITDA, which stands at 5.40%.
- The working capital increased to INR275 crores as of December 2023, up from INR240 crores in the same quarter last year, due to higher inventory and debtor levels in the aluminum vertical.
- The planned CapEx of INR300 crores to INR500 crores over five years may put pressure on the company's margins and profitability.
- The company's aluminum division is currently operating at only 20% capacity utilization, indicating underperformance.
- The plastics division is also underutilized, with a capacity utilization of just 25%, which may affect overall profitability.
Q & A Highlights
Q: Can you tell us more about the recent MoU that your company has signed with the government of Tamil Nadu?
A: We have proposed to set up a state-of-art recycling and manufacturing plant in Tamil Nadu for non-ferrous metals, lithium-ion batteries, paper, plastics, and rubber. The government of Tamil Nadu has agreed to offer facilitation and support for implementing the project. The company plans to invest INR300 crores to INR500 crores in the proposed projects over the next five years, projected to generate additional revenue of INR750 crores per annum for the first phase.
Q: How does the company intend to fund its CapEx of INR500 crore, and can we expect a dip in the margins due to this MoU?
A: The planned CapEx of INR300 crores to INR500 crores will span over five years. POCL has raised INR133.50 crores in equity to fund its initial CapEx growth phase through preferential allotment. Future funding requirements will be decided based on business fundamentals and the global economic scenario. An ideal mix of debt and equity will enable us to maintain a relatively lower weighted average cost of capital, improving profitability along with our top line.
Q: Can you share the numbers in terms of working capital for this quarter compared to the same quarter last year?
A: The working capital amount as of December 2023 is INR275 crores, compared to INR240 crores in the December quarter last year. This increase is attributed to higher inventory and debtor levels in the aluminum vertical.
Q: Can you provide an updated breakdown of your sales between exports and domestic markets for Q3 FY24?
A: The geographical sales mix of POCL is about 45% domestic sales and 55% export sales. With additional verticals in aluminum and plastics, we will gain access to a wider array in the domestic market in the coming months.
Q: Can you share a roadmap on how the company intends to grow in the foreseeable future?
A: Lead is our core vertical, and we are expanding capacities in lead vertical at our newly acquired company in Tamil Nadu. We are also developing other verticals like plastics and aluminum. We have built a strong platform and diverse portfolio with visible business opportunities in these areas. We continue to see progress in lithium-ion, rubber, and paper, which will yield positive strategic growth in the short to midterm.
Q: What is the total funding requirement to go from 132,000 tons of capacity to around 200,000 tons capacity, and what is the ideal debt equity mix?
A: The investment of INR300 crores to INR500 crores will be in phases. Out of the INR133-crore preferential issue, we will initially get about INR70 crores before the end of March 2024, which will be utilized for immediate expansion. The balance will be used for the second phase of utilization. Initially, we will not go for any term loan proposal.
Q: Will additional demand generated from expansion be entirely value-added products?
A: The entire production will not be value-added products but will be in a mix of about 35-65 or 40-60. It will be a mix of both pure lead and various alloys and specific products manufactured for customers.
Q: What is the segment-wise revenue breakup for Q3 and capacity utilizations for all segments?
A: For the lead division, the revenue for YTD numbers is about INR1,125 crores. Aluminum has done about INR40 crores, and plastics about INR15 crores for the last nine months. Capacity utilization is about 60-65% for lead, 20% for aluminum, and 25% for plastics.
Q: What are the expected margins and exports as a percentage of sales for FY24 and FY25?
A: The EBITDA margin is currently around 6% for the lead division. Once the Thervoykandigai plant is operational, we expect the EBITDA margin to exceed 7%. The export percentage of sales is currently at 55%, and we foresee similar proportions in the future.
Q: What is the progress on the lithium-ion recycling unit?
A: The lithium-ion recycling unit is currently at the feasibility stage. We are conducting R&D and evaluating the techno-commercial feasibility. We expect to see significant progress and potential in the next two to three years, with announcements on the same in a couple of quarters.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
