Release Date: February 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Achieved a 17% sequential revenue growth, highlighting brand strength and operational capabilities.
- Gross margin improved to 55.2% during Q3 FY '24 compared to 52.9% in the same period last year.
- EBITDA margins remained healthy at 21.2% for the quarter and 25.4% for the six months of FY '24.
- Year-to-year PAT grew by 18% to INR1,717 million, with a 260 bps improvement in net profit margin.
- Successfully modernized all six digesters, completing the backward integration chain, expected to reduce steam consumption and increase wood pulping efficiency.
Negative Points
- Revenue declined by 10% year-on-year to INR4,357 million due to subdued demand, declining prices, and increased imports.
- The delay in the full implementation of the new education policy led to cautious inventory management by textbook vendors.
- The paper industry is under pressure from increased imports, with a 45% to 50% rise in overseas paper dumping.
- Current demand in the paper industry is dull, and prices are under pressure due to market conditions.
- Despite modernization efforts, the company is still facing challenges in achieving peak production levels for PM4.
Q & A Highlights
Highlights of Satia Industries Ltd (BOM:539201, Financial) Q3 and 9 months FY '24 Earnings Call
Q: Can you provide insights into the current pricing environment and industry challenges?
A: The paper industry is under pressure due to increased imports and delayed implementation of the new education policy. This has led to cautious behavior among textbook vendors, affecting demand and prices. Despite these challenges, Satia Industries has sufficient orders to sustain production for the next three months. (R. K. Bhandari, Joint Managing Director)
Q: What is the long-term outlook for the paper industry, and how do you see it evolving over the next four to five years?
A: The long-term outlook is optimistic due to low per capita consumption in India compared to other regions. With increasing literacy rates and economic growth, the demand for writing and printing paper is expected to rise. Raw material prices are stabilizing, and the new education policy will further boost demand. (R. K. Bhandari, Joint Managing Director)
Q: How does the company plan to address the issue of dumping and excess inventory in the Indian market?
A: The industry can only represent its concerns to the government. Satia Industries focuses on becoming more competitive in quality and pricing. Despite increased imports, the company has maintained healthy EBITDA margins due to its cost-efficient use of agro-based raw materials. (R. K. Bhandari, Joint Managing Director)
Q: Can you elaborate on the company's eucalyptus plantation and its impact on operations?
A: The eucalyptus plantation helps manage treated effluent water and provides raw material for the plant. While it doesn't meet 100% of the company's requirements, it offers agricultural tax-free income and supports environmental compliance. The company also distributes saplings to local farmers to encourage plantation. (R. K. Bhandari, Joint Managing Director)
Q: What are the company's plans for future capacity expansion and modernization?
A: Satia Industries plans to modernize PM3 in the next financial year to reduce steam, water, and power consumption per tonne of paper. This will increase production capacity from 600 to 700 tonnes per day without increasing pollution load. The company aims to achieve a 10% increase in production next year. (R. K. Bhandari, Joint Managing Director)
Q: How does the company plan to manage its dividend policy and free cash flows?
A: The company intends to maintain a dividend payout ratio of 30% to 40% of distributable profit. Despite significant investments in fixed assets for backward integration, the company has already paid INR10 crores in interim dividends this year and plans to continue this policy. (Rachit Nagpal, Chief Financial Officer)
Q: What is the expected impact of the new education policy on demand, and how will the company capitalize on it?
A: The new education policy is expected to increase demand for writing and printing paper by 15% to 20% as textbook boards and private publishers reprint their materials. Satia Industries is well-positioned to meet this demand due to its strong market presence and production capabilities. (R. K. Bhandari, Joint Managing Director)
Q: How does the company differentiate itself in the market, and what are its key strengths?
A: Satia Industries differentiates itself through product quality, cost competitiveness, and a strong distribution network. The company focuses on maintaining high-quality standards while optimizing costs through technological advancements and efficient resource utilization. (R. K. Bhandari, Joint Managing Director)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
