20 Microns Limited (20MICRONS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the 20 Microns Limited Q2 and H1 FY '25 Earnings Conference Call hosted by Ventura Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand over the floor to Tushar from Ventura Securities Limited. Thank you, and over to you, Tushar.

Good day, ladies and gentlemen. On behalf of Ventura Securities Limited, I welcome you all to 20 Microns Limited Q2 and H1 FY '25 Earnings Call. The company is today represented by Mr. Atil Parikh, Chief Executive Officer and Managing Director. I would now like to hand over the call to Mr. Parikh for his opening remarks, post which we can start the question-and-answer session. Over to you, sir.

Good afternoon, everyone. A very warm welcome to the Q2 and H1 FY '25 Earnings Conference Call of 20 Microns Limited. I would like to start with a brief introduction of our company. 20 Microns Limited is a pioneering leader in the industrial minerals sector in India. With over 3 decades of rich experience, we have been at the forefront of revolutionizing mineral micronization in India with a systematic approach. Our diverse product portfolio encompasses a wide range of nonmetallic industrial minerals such as calcium carbonate, talc, kaolin, mica, quartz, dolomite, natural red oxide along with various other specialty chemicals and functional additives, including mineral-based fertilizers, construction chemicals and many more. Our robust infrastructure includes 9 state-of-the-art manufacturing facilities and warehouses across India, strategically located in Gujarat, Rajasthan, Tamil Nadu and Andhra Pradesh. This network provides us with a combined manufacturing capacity of more than 4,50,000 metric tons per annum. We also have 5 different captive mines in India with a total mining reserve of approximately 170 million tons. Our products serve as a central building blocks across various different industries, including paints and coatings, plastics and rubber, paper, tires, ceramics and many more. We currently support the diverse global customer base spanning over 65 countries and more than 200 clients from a wide range of sectors. Our clients include esteemed companies such as Berger Paints, Asian Paints, Kajaria, Pidilite, L&T, Kansai Nerolac Paints, Finolex Pipes, ONGC, JK Tires, AkzoNobel and many more. The core driver of our future success is our steadfast commitment to research and development. We make significant investments to foster a culture of innovation, continuously exploring new possibilities. Our dedicated R&D team of 45 to 50 professionals focuses on developing a broad range of products at our in-house facility in Vadodara. 20 Microns remains resilient in its mission to deliver high-quality products and pioneering solutions. Through continuous R&D initiatives and close collaboration with both domestic and international clientele, we consistently enhance our product portfolio to meet the needs of the diverse markets. Now moving on to the financials. In Q2 FY '25, our company has delivered a solid performance with a revenue increase of 20.3%, reaching INR 2,401.8 million compared to INR 1,997 million in Q2 FY '24. The company witnessed healthy revenue growth during Q2 FY '25 largely supported by a strong demand across our key product segments. For H1 FY '25, the revenues grew by 20.6% from INR 3,902 million in H1 FY '24 to INR 4,707 million in H1 FY '25, showcasing a sustained momentum in our core business operations. Further, the EBITDA for Q2 FY '25 stood at INR 308 million, reflecting a growth of 3% over the same period last year while H1 FY '25 EBITDA grew by almost 8% to INR 608 million. While there has been a slight reduction in the EBITDA margins, this is a attributable to external factors, specifically the rising costs associated with our raw materials [indiscernible] and transportation. Our PAT increased by 2.5%, reaching INR 164.5 million compared to INR 160.5 million in Q2 FY '24. For H1 FY '25, PAT increased by 10.9% amounting to INR 343.5 million compared to INR 310 million in H1 FY '24. Our business performance in Q2 and H1 FY '25 has remained quite steady, showcasing resilience in the face of external challenges. The extended monsoon season during Q2 also led to temporary disruptions in the demand. However, our diversified portfolio and robust market presence helped us to mitigate the impact, ensuring that we are on a steady growth path. As a result, we maintained a positive growth trajectory navigating through short-term obstacles while continuing to focus on long-term stability. Looking ahead, we are optimistic about the second half of the financial year as well, which is expected to maintain the consumption across key industries, and we anticipate a constant progress in demand in the coming quarters, especially in the domestic market. In summary, 20 Microns' future looks quite bright as we focus on innovation and strategic alliances. We are well prepared to capitalize on the numerous growth prospects that await us and are confident in our ability to expand our operations while providing value to our stakeholders. We thank our Board, management, employees, partners and shareholders for their unwavering trust. Together, we plan to deliver a solid performance and a reliable growth for 20 Microns. I thank you for your time, and I'm happy to answer any questions that you may have. Thank you.

[Operator Instructions] First question comes from Agastya Dave from CAO Capital.

Clarification on the management that you have given that there were some external factors due to which the EBITDA margins were [Technical Difficulty] I understand the nature of these pressures, cost pressures, but can you quantify the impact that we saw during the quarter? And the second question, very similar question. Sir, you have mentioned that in the second half, you'll see there is a chance of improvement in margins provided the demand remains stable. So are these cost pressures expected to reverse? Is that the reason? Or because of higher demand, do you expect better margins because of operating costs and these cost pressures are expected to continue for a longer duration?

Yes. Thank you for your question. When we look at the external factors, we clarify that 20 Microns imports quite a lot of raw materials from overseas and due to the higher freight costs for the incoming raw material at certain times from certain territories that we import from and building upon certain inventories for the raw materials is where the cost pressures build up, which do not get translated in terms of the price increase that we receive from our customers at times for certain product ranges that we carry. So definitely, this is one of the factors, along with certain transportation costs, which have also increased due to the increase in the sales that we have seen in the past half year. So this cost pressure definitely would continue to build up because we do see a demand which is going to be present there, but the uncertainties definitely will continue. So there is no surety as to how the demand will peak and not peak in the coming quarters. But we are ready to -- with the inventory that we are carrying for the raw materials we build upon the product range to service our customers for the demand that might be created in the coming quarters.

And sir, can you quantify the impact that we saw during this quarter?

That will be -- that I do not have in hand right now, but we will get back to you.

All right. And sir, just a second follow-up. The 15% to 18% growth number that your [Technical Difficulty] what kind of surety [Technical Difficulty] level in that guidance?

Yes. So currently, if you notice, we are growing at 20% in the first half. And generally, Q3 is quite sluggish due to the festive demand, which is there and the holidays which are there. So due to that, we will -- we have put up a 15% to 18% growth rate, which we will hopefully achieve looking at the current scenario.

Next question comes from Rajesh Sharma from [ VS Capital ].

I just [Technical Difficulty] like last, you had mentioned it on the current status of [ EV product ] [Technical Difficulty]

I'm sorry, can you repeat the question? Your voice is breaking up.

[Technical Difficulty] mentioned about the current status of EV product development including [Technical Difficulty]

Regarding the new developments related to EVs and batteries and semiconductors, we -- it's still ongoing, and it will still take some more time for us to develop those kind of products because they are very niche products, and they need specific types of raw materials which go into developing these kind of products. And we are working with international labs to create the right products for the Indian markets and the global markets. And so it's still in the R&D phase and will take a couple of more quarters before we have something ready in the lab to announce it.

And looking beyond the current...

Yes. It will grow beyond the current financial year. Yes.

Current financial year. What's the long-term growth [Technical Difficulty] are there any plans for development?

I'm sorry, your is really cracking up. I'm not able to hear you right.

[indiscernible]

Sorry to interrupt. Your voice is not clear sir.

Am I audible?

Yes, sir, please go ahead.

[indiscernible]

I'm sorry to interrupt, sir. Your voice is not clear. Please come back in the queue. The next question comes from Shubh Shah from RatnaTraya Capital.

[indiscernible]

Sorry to interrupt, sir. Your voice is not audible. The next question comes from Divya Daga from Vijit Global Securities.

[indiscernible]

I'm sorry, ma'am. Your voice is not audible. [Operator Instructions] Question comes from Rajesh Sharma from VS Capital.

So just wanted to understand, looking beyond the current financial year, what are the long-term goals for the EV product line semiconductors? Is there any time line that you can tell us about?

Are you asking specifically related to EV?

Yes.

EV is a very new concept, and there are no direct products which go into the EV market for 20 Microns. We have to supply to the allied industries, which supply to the EV industries. So it could be the battery industries or the semiconductor industries, which supply to the EV industry. So there are no direct products which go into the EV. So we are working on developing products which go into the semiconductor industry or the battery industry. But they are certain specialized products and raw materials which are required for this kind of product development. So we are working with international laboratories and international different consultants who are guiding us in terms of the product development. So it will take some more time. There is no specific time limit in this particular reason because anyway, the demand is still not there in the Indian market for these kind of products. So we are trying to look at international products and try to develop these kind of products within India.

Question comes from [ Tanya ] an individual investor.

Congratulation on a good set of numbers. First question regarding could you help me with the revenue mix for H1 FY '25 in terms of the industry that we cater to?

So typically, in 20 Microns, if you look at our typical product mix, which has already been mentioned in the annual report, even in H1, the product mix remains the same where we cater about 51% to the paint industry, about 24% to the plastics industry, about 7% to 8% to the rubber industry, followed with the other smaller industries that we cater to. And also in terms of the product mix, calcium carbonate still holds 50% of our overall revenue, followed by 30% of kaolin, 10% of talc and remaining all the other products.

Since paints and coatings segment contributes almost 50% in terms of our revenue. So sir, any plans to diversify and reduce the dependency from the paint segment in the near future?

Well, the volume that we cater to in terms of the paint industry, no other industry has such a huge demand for minerals from the other industries in terms of the formulations that we use these minerals in. So that is the reason that the dependency on paints will continue to be the same as it is. But definitely, our focus is more now towards the plastics and rubber industries, and we are developing more and more new products for these industries. So eventually in this -- in the coming years, you'll see that the growth in the plastics and rubber segment will increase and will lead to an overall shift in the overall mix.

Any target that we are catering to?

Pardon.

Any target that we are catering to in terms of increasing our revenue base from the other segment and reducing the dependency...

Yes, that will all depend on the approval processes that take place in these industries because these are all niche products and the approval time for the trial phases are quite long compared to the regular products that we are supplying.

So what would be the time frame to get the approval?

Yes, there's no specific time frame that I can tell you about it as of now.

Question comes from Aman Jain from Arihant Capital.

[indiscernible] is a weaker quarter for us comparatively to the other 3 quarters. Q3 is generally a weaker quarter for us. But like you have also increased the guidance from 10% to 15% to 15% to 18%. So can we expect the Q3 to see much better growth and any sequential growth?

Are you talking only related to Q3?

Yes, for Q3. Yes.

Yes. So currently in Q2, the demand, if you look at the H1 comparison, when the Q3 demand is currently slight sluggish. If you look at the FMCG markets, they're all not up to the bar that they were in terms of the market scenario. So -- but we are quite hopeful that post Diwali now the pickup will happen, and we would be on the same path that we are at the H1 level.

Next question comes from Amit Agicha from HG Hawa & Co.

Congratulations on the good set of numbers. My question was with respect to the number of employees the company has and the gender ratio.

Yes. So we have more than 500-plus employees along with all the staff and the labors and everyone involved in the company. And our headquarters is based out of Baroda. As of now, I do not have an exact number for the gender ratio, but our team can always get back to you if you drop in a message to our Company Secretary for the same.

Next question comes from Shubh Shah from RatnaTraya Capital.

I wanted to ask, first, has the share of imported raw material as a proportion of our total COGS changed? Or is it around the 40%, 60% mix still?

No, it continues to remain the same.

Understood, sir. I just wanted to check about the proportion -- the contribution to revenues from 20 Microns Nano?

Yes.

What is the number for this quarter?

Do you want to know the total revenue for 20 Microns Nano Minerals Limited?

Yes, yes.

Nano's revenue for -- are you talking about Nano revenue? Nano Minerals revenue for first quarter is around INR 54 crores, INR 54 crores.

So that's a 30% growth year-on-year.

Understood. And any guidance for this?

It will continue to remain the same as of now for H2.

Understood. Okay. And 2 more questions. First, the -- can you provide the breakdown of expenses, the freight or power and fuel cost, what has resulted in the increase in total expenses this quarter?

So basically, as I mentioned to you in my opening remarks that the raw material cost has increased, which is a major factor, which has increased by more than 1.5% year-on-year. So that is the major contributing factor to the overall expense compared to any of the other expenses that we have in place.

Okay. Understood. And last, any particular CapEx which we are planning to incur?

So we already have planned CapEx for the next 18 months, which we had spoken about in the last earnings call also that it is in the range of INR 70 crores to INR 80 crores, out of which INR 25 crores is going towards the recent acquisition that we have done in Malaysia for acquisition of mines. And there is another CapEx, which will be ongoing CapEx for 20 Microns in terms of the addition of capacities for our current product ranges and some CapEx, which will be going towards the capacity enhancement for the Nano product range and some CapEx, which will be going towards our new joint venture, which has been formed for the construction chemicals with Sievert Germany. So -- and then there's some CapEx which will be going towards R&D, upgradations of the current machinery and also some CapEx going towards buildings and renovations and stuff like that. So overall, we have an 18-month plan for INR 70 crores to INR 80 crores worth of CapEx.

Understood. And there is no kaolin CapEx as of now.

As of now, there is only a minor kaolin expansion CapEx, which has been planned, but not in a big way.

Next question comes Rushabh Shah from RRR investments Advisory.

I had a question about the half yearly results that you have published a few days back. The trade receivables has increased a lot, like from 125 to 160 in just half a year, which is a bit concerning because it has been increasing gradually and the cash flow from operations is also suffering, it has been negative since half yearly, so what are your comments on that?

Pranit, can you answer this for the trade receivables?

Yes. Trade receivable -- so far as our revenue is increased by 20%, naturally receivable has been increased. But if you look at holding days, it's not much changes. If you compare holding days with March '24 year, then it is around 63 days. Then there is not much change so far as holding days is concerned. However, in absolute term receivable is higher compared to last year. This is because of increase in revenues.

Yes, the holding days is average, but what I'm saying is that it has increased to 160. So the holding days will also increase because the average will be increased and the revenue has not increased much from like last half?

No, no, no. If you compare revenue year-by-year or compare with last year or current half, then revenue has been increased by 20%. Definitely. You saw our results, you can see that the revenue has been increased. [indiscernible] Yes. Sorry?

Yes. The revenue has increased by 20%, 25%, but the trade receivables has increased by a much larger percentage?

No. No, no, no, not much latter. But if you compare holding days, you calculate holding days, I have calculated holding days. September 4 receivable holding days is 62 days. June is 56 days. For '23, it is 61 days. So there is not much change.

Okay. So I think [indiscernible] decreased the trade payables also in the last 2 years, it was decreased by around 50%. And now we are seeing an increase again in that. So some of the suppliers are choosing again?

I'm not getting you properly, but so far as trade payable is concerned, during last quarter in January, February and March, this MSME Act is imposed. So we have to pay every MSME vendor within 45 days. So trade payable days is constantly decreasing compared to last year, compared to last year, this half year, trade payable also gone downwards so far as holding days is concerned.

Yes. So my another question was that the current other financial assets in the balance sheet that has been a low amount every year, the highest has been INR 4 crores. But if we see the half yearly balance of it, it has increased to INR 28 crores presently. Now from what I'm aware, historically, it has only contained like insurance claims and [indiscernible] one more, sir. So can you give some bifurcation about it?

Are you talking about other financial assets? What -- can you repeat your question?

Yes, current other financial assets?

Current other financial assets?

Yes.

So what I would suggest is that if you can take this question and write it to the Senior Finance Controller, he'll be able to address your queries in a much better way one-on-one.

You are talking about current financial assets where amount of INR 24 crores is amount receivable for issue of share capital, which we have invested in this September month to our Malaysian company. So the current financial asset is INR 28 crores compared to March.

So it is an investment in the Malaysian mines.

Yes, yes. Amount receivables for issue of share capital, that amount is INR 24 crores, which is not in last financial year. So if you compare the amount with September '24 versus March '24, you will find it significant rise mix. This is because of this investment.

Okay. And my last question was that I saw that the cash flow from [ equivalents ] there has been negative this year for the half year. And the reason for that is the inventory buildup. The change in inventory has been negative and the revenue has not changed much from last quarter. So why is the inventory building up? And are you storing inventory for future demand or what is the reason for that?

Yes we are carrying inventory. So far as imported material is concerned, we have kept material looking to future demand. We have reserved that material. So that operational cash flow is being used in that inventory and mainly it is imported material. So the payable period or credit period is also lower compared to domestic material. And most of our operational cash flow is used to purchase these inventories. And so far as demand is concerned, Atil sir will explain you what about demand and how this inventory would be due [indiscernible].

Next question comes from Alisha from Envision Capital.

Sir, first question was the growth that we've seen in H1 of 20% plus. Can you break that down into how much is volume growth and how much is realization growth because of better product mix?

So in terms of volume and in terms of the value, both are at a 20% growth equally.

Okay. Understood. Sir, second question, if you could just help us with the Nano revenue and margins in H1?

Nano as Mr. Pranit just mentioned in his earlier question, it stands at INR 54 crores in H1, which is about almost a 28% to 30% growth year-on-year compared to last financial year. And the margins will continue to remain in Nano in the same range of 12% to 13%.

And growth in Nano, this is -- have we got any major new customers that we've added or is just ramping up with existing customers? And how should one work with in terms of growth for Nano going forward over the next 2, 3 years?

So in terms of Nano, we have multiple products that we have for various different industries. And as I mentioned to you in my earlier remarks was that there's a lot of time which gets taken for the trials for Nano-related products because of the expensive testing that has to be done for these products depending upon the industries that are consuming these kind of products. So a lot of products that we have launched in 2022 and '23 have finally got the approvals in '24, and that has been showing the results in terms of the increase in the volume and in terms of the value for these products over a period of time and will continue to increase because there are many other pending trials, which are being conducted by our customers, the long-term ones, and these will continue to get converted in the following year as well as in the next year. And we are also building up on capacities in Nano also for the products which are kind of the key ones where we're expecting better demand coming in which -- because Nano is basically products are import substitute products and because of the import sustainability, which is not so good right now due to the freight factors and the demand and the supply, which is there currently in the global scenario, we would have some advantage on that in the coming quarters and in the future years as well.

What would be our capacity utilization in Nano currently?

So it differs from product range to product range and some we are at 90% and some we are at 50%. So again, products, different capacity utilization is there in that particular segment.

And just with respect to what you were saying that as the products are gaining acceptance, can this business continue 3% growth. [Audio Gap] are producing from H2 of '26, correct. And what will be the benefit because what we were procuring from outside now we will do to our own mine. So is this supposed to give us better margins? Or will this help in better working capital management? If you could just also reiterate what would be -- what benefits one could expect because of this?

So the margins is not going to be an important factor in this one because it is going to continue to remain the same. But the thing is that we will have a more structured way of securing the material since it is our own mine. So we have a certain way of doing mining and getting the right kind of material and having less dependency on external mine owners, where we have control over raw material, which is coming in. So we will be benefiting out of the quality of raw material basically. And that would eventually help us in terms of better utilization of the material, helping us in terms of better product quality and less of wastage generated for that particular product range.

And this should start from H2 of '26?

Yes. We are undergoing still the final structure of acquisition. So it should eventually finish by the end of this calendar year. And then we will start working on the operations of the mine and everything. So yes, mostly by Q2 of next financial year is when we will start the mining process and simultaneously we will also be investing in upgrading the machinery and making it more usable for a [Technical Difficulty]

Next question comes from Shubh Shah from RatnaTraya Capital.

Sir, I wanted to know the company level capacity utilization?

The company level utilization as of now stands at 90%.

[Operator Instructions] Next question comes from [ Jeet ] an Individual Investor.

Sir, firstly, can you give me a breakup of your revenue in terms of how much is domestic and how much is international?

So we work at 85% domestic and 15% international. This year, we have less of exports compared to the domestic but our ratio has moved to 87% and 13%.

Okay, sir. And can we see an increase in export and domestic in the next couple of years?

It all depends on the external factors, basically, we have no control over them. So we have lost many exports to just the higher freight because of the supply chain issues, which were there since [indiscernible] and because of that, we have to forgo many customers in the American market and the South American market. But it all depends on how the external scenario shapes up. Based on that, we will be able to -- so we have -- I would not be able to answer you directly right now, but our focus definitely is there. So our focus currently has shifted to Asia more because we are seeing a lot of demand coming in from the Middle Eastern and the South Asian markets predominantly. So that's where our main focus is currently lying there.

Sir, is there any good [Technical Difficulty]

Hello, your voice is not audible.

[Technical Difficulty]

Sorry to interrupt, sir, your voice is not clear.

Is it okay sir?

Please go ahead sir.

Sir, is there demand [indiscernible] coming. Are we able to filter that?

I'm sorry. I couldn't hear you again.

Sir, if the good demand comes in, are we able to fulfill that?

Yes, yes, absolutely. Absolutely.

The last question of the day comes from [ Rishi Kogni ], an individual investor.

Sir, basically, I have 2 questions. First one, so sir, how is the margin for the [indiscernible]. that is from our end [indiscernible] And additionally, what percentage of margin we do make on these products?

Yes. So there is a very good potential that we are seeing in terms of both these products for [indiscernible] because they are both partially replaceable products for the high expenses segments that these products actually replace. So the demand definitely will keep increasing year-on-year, and we are seeing that happen as well. And the margins, as mentioned, we keep under the 12% to 13% range currently. So yes, expect.

And what is the potential [indiscernible]

Potential market?

Yes, sir.

Potential market is very difficult to say because anyway, if you look at the size of the zinc oxide and the price of titanium dioxide [indiscernible] in the market, it's pretty high that it's difficult to pay back to a particular market demand because not everyone is going to be pleased with our products, looking at the formulation and looking at the price that we offer. So it's not only the uncertainty view as of now.

Okay. My second question sir, are there further substitution for innovation [indiscernible] in other kinds of high cost raw material [indiscernible]

So all our product ranges that we offer in 20 Microns Nano Minerals Limited. Many of them are partial replacement products for the expensive thickeners or expensive matting agent or expensive opacifiers that we have been using traditionally in the market. And do you provide them solutions to partially refuse them with our products. So it's a very natural way of replacement, but it's up to the customer as to how confident they are in terms of using these products and saving on costs in terms of their formulation. So that's how it goes.

Now I hand over the floor to management for closing comments.

I, Atil Parikh and Mr. Pranit Shah, the Senior Finance Controller, would like to thank all the participants for attending this session. We believe that we have satisfactorily run you through our company and financial, and addressed every arising question thereon put up on the floor by the participants. We continue to see growth in our broad product portfolio and witnessed a strong momentum across our business, supported by R&D and other strategic initiatives. We remain focused on bringing new products, exploring new markets and creating value for our stakeholders. Please follow up with our Investor Relations team, Mr. Kunal Shah and Mr. Vinayak Shirodkar from Captive IR if you have any further questions, which won't be covered up in this session. I hope you have a great day ahead. Thank you once again.

Thank you, members of the management. Ladies and gentlemen, on behalf of Ventura Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.