20 Microns Limited ($20MICRONS)

Good afternoon, ladies and gentlemen. Very warm welcome to the Q4 FY '26 Earnings Conference Call of 20 Microns Limited, hosted by Wisdomsmith Advisors. I'm Muthukumar from Wisdomsmith Advisors, and it is a pleasure to welcome you all to today's call. We sincerely appreciate your participation and continued interest in the company. Joining us today from the management team are Atil Parikh, Chief Executive Officer and Managing Director; Nihad Baluch, Group Chief Finance Officer and Pranit Shah, Senior Finance Controller. As a reminder, this conference call is being recorded. This audio/video recording of the call will be made available on the company's website shortly after the session concludes, along with the transcript in due course. [Operator Instructions] Before we begin, I would like to draw your attention to the customary safe harbor statement. Certain statements made during this call may be forward-looking in nature and are subject to risks and uncertainties. Actual results may differ materially from those expressed or implied. The company undertakes no obligation to publicly update these statements based on subsequent developments or events. With that, I would now like to hand over the call to Mr. Nihad Baluch for his opening remarks. Over to you, sir.

Good evening, everyone. On behalf of the whole 20 Microns family and the management, we thank you all for joining the Q4 and FY '26 earnings discussion. 20 Microns Limited is among India's pioneer and leading player in industrial mineral and submicronized mineral. The company's foundation was built on deep expertise in micronization technology and mineral processing. The financial year '26 was a year of resilience and strategic transition for the company. Despite restrained demand condition in the key user industry, particularly paints and coating along with prolonged monsoon impact and geopolitical uncertainties, the company delivered stable growth with a healthy profitability. What is particularly important is that business continuing through the transition from the transitional industrial mineral player into a diversified specialty material and functional additive platform. Over the last several years, the management has successfully focused on increasing the value-added products, improvising operating efficiencies, strengthening international presence, improving capital productivity and building a more resilient and scalable business model. One of our key differentiators and the strength is our dedicated R&D and product application center, which allows us to work closely with our customer to develop their customized solutions. This strategic transition is now becoming visible in the company's financial profile. I'll give you a glimpse of the performance before we move to the other slides. Over the last 5 years, the revenue has nearly doubled. The PAT has almost tripled. The leverage has reduced significantly. Operating cash flows have strengthened materially and the company is creating a strong platform for the next growth cycle. About the INR 100 crore CapEx plan announced by the company should be viewed as a strategic growth accelerator rather than capacity expansion besides. The investment is aimed at strengthening the specialty product capabilities, improving operational productivity, enhancing backward integration, scaling international operations and improving long-term margin profile. Going forward, the company believes that next phase of the growth will be driven by the specialty and high-performance materials, polymer and rubber applications, export expansions and construction chemicals as well as the global sourcing diversification trends. Importantly, the balance sheet remains extremely healthy, providing flexibility to execute growth plans, while maintaining the financial discipline. So let's have a quick look to the next slides. Despite sectorial demand, modernization and macroeconomic uncertainties, the company delivered healthy revenue along with the stable profitability. The quarter was supposed to be operational efficiency, disciplined pricing, lower finance costs and improving contribution for value-added products. So if you see the graph, the revenue growth was about 14.8% Y-o-Y, led by recovery in the paint and the polymer rubber demand. If you see the sequential growth, this indicated around 21.5% stronger quarter momentum. EBITDA margin remained stable above 12%, reflecting the pricing discipline, whereas the EBITDA grew at 9.6% Y-o-Y to INR 31.8 crores. PAT grew 15.6% Y-o-Y and 17.6%, supported by lower finance costs and operational efficiencies. So healthy revenue recovery was stable. Profitability demonstrated resilience of the business model. I'll take you through the P&L summary. If we analyze the summary, we see that the PBT growth ahead of the revenue indicates operating leverage improvement. Lower finance cost has reduced earnings pressure. Margins remained stable despite industry softness. Company avoided aggressive low-margin business, which contributed to PBT increase by 28% Y-o-Y, outperforming the revenue growth and the EPS increased to INR 4.98 reflecting the improved profitability. The performance remained resilient despite weak demand, prolonged monsoon impact on post-Diwali offtake and lastly, geopolitical uncertainty. Full year revenue crossed INR 953 crores despite slow quarters. EBITDA maintained -- EBITDA margins remained stable at 12.9%, supported by better product mix. Over the last 5 years, revenue nearly doubled, while profits almost tripled. So mainly our CapEx plan was in focus on capacity expansion phase-wise in mining and infrastructure, sustainability initiatives, research and development and AI-enabled processes. The CapEx and future strategy. Our INR 100 crore CapEx equally nears about 16% of the current market capitalization. The distribution of the CapEx would have 40% of allocation towards Malaysian operations. We assume that considering the next 3-year plan with the CapEx around 18% of revenue CAGR growth, 200 approx EBITDA margin expansion, ROCE improvement between 18% to 20%. The foregoing assumptions are considered achievable provided that the prevailing economic condition remains stable. However, in light to the current geopolitical development, the company shall modify or defer its phase plans accordingly. During the year, the company actively participated in key global industry exhibitions, including PlastIndia and PaintIndia. These exhibitions are strategically important initiatives to support our long-term strategy of moving deeper into specialty and higher performance applications. This section provides a broader perspective of the company's journey, leadership evolution, product diversification and long-term strategic positioning. This leadership provides stability and strategic consistency for the organization with a strong promoter-driven execution, long-term strategic continuity and enabling the company to evolve into a professionally managed and globally diversified specialty material company with a strong track record of sustainable growth and value creation. This is how our group umbrella has been structured. Our wider range of product portfolios is an entry barrier to limited competition. The revenue pie indicates the paint contribution about 46% of the revenue, indicating a gradual shift to polymer and rubber segments showing a better transition compared to the previous. Exports contribution are stable at 40%. Diversification outside paint is strategically positive. Higher specialty contribution will improve future margins. The company serves several leading Indian and multinational companies across paint, polymer, construction material, rubber and agriculture and industrial applications. The revenue increased from INR 613 crores in FY '22 to INR 954 crores in FY '26. This is a showcase that CAGR approximately grow about 12% over the 5 years. The EBITDA has increased from INR 79 crores to INR 123 crores over the 5 years with CAGR approx of 12% to 13%, despite multiple industry disruptions. PAT almost doubled from INR 35 crores to INR 67 crores with a CAGR approx of 14%. Therefore, the company is scaling without sacrificing the profitability. The ROCE remained healthy at 16.4% in FY '26. Operating cash flows increased sharply by INR 103.6 crores. The net debt equity ratio remained to 0.1x from 0.4x in FY '22. Strong cash generation improves funding capability for the future CapEx as well as the lower leverage reduction reduced financial risk and finance cost burden. The company also enters the next growth phase with a clear balance sheet. Now coming to the operational highlights. Inventory turnover has improved steadily over the years, reflecting better supply chain and inventory management. Inventory turnaround improved from 5.8x to 8.3x. The current ratio has strengthened, indicating healthy liquidity. The current ratio improved to 1.9x. The return on equity remained healthy despite temporary moderation to 14.6%. The total asset turnover remained 1.3x to 1.4x over the last 5 years. The company is preparing infrastructure and working capital base for scaling the future revenues. The net capital turnover ratio stands to 4.8x in FY '26. So overall, the company continues to focus on improving operational productivity and asset utilization. The market metrics, if we see the stock has been corrected 26% in the last 1 year. About 3 years returns will exceed 100%. Current PE stands at 9.3x appeared reasonable relative to the growth outlook. 20 Microns always remain committed to innovative lead growth, operational excellence, sustainability, value-added specialty solutions and long-term stakeholder value creation. I would like to thank you for your time and continued support.

Thank you, Nihad, for the detailed update. We will now begin with the question and answer session. [Operator Instructions] There is a question from Amit Mehendale. I think the same question has been put in the chat box as well. How do you plan to fund the INR 100 crore CapEx? How much equity to debt? This is a question from Amit Mehendale.

I'll take on this question. Mr. Amit, welcome. So largely for our domestic plans, the CapEx would be in form of the internal accruals, whereas for Malaysian entity, we are planning to have a ratio around 70% to 30%, that is 30% debt.

Okay. So there's one more question that is coming up, just one second. [Operator Instructions] So there is one question that has come up through e-mail. We witnessed a sharp recovery in revenue growth during Q4 FY '26. What were the key drivers behind this growth?

Yes. So hello, everybody. Thank you for joining in. Basically, since January of 2026, we saw an upward trend in terms of the demand coming back in a variety of industries that we are catering to. And post that in February also, we saw a stable uptrend in terms of the demand. And with the war situation, many people try to build up on the capacity so that based upon the raw materials that they were already holding, and that kind of led to an upscale demand for the entire quarter. And that helped us, as a company, deliver due to the inventories that we carried for all our products in that quarter to our customers on time, and that led to the growth that you see in the quarter 4 of the company.

Okay. So there is a question that has come up from Manish Gupta. So the question is, I understand that 20 Microns owns certain mines. How much of company's raw material requirement is met from these mines? Question from Manish Gupta.

So when you look at the -- so we have a lot of raw materials, which are based on domestic and imported. In the imports, basically, we import -- we don't have our own mines, except the Malaysian mines, which has recently started. So apart from that, if you look at the domestic mines, some of the mines are under environmental clearance and some of the mines are operational. So out of that, approximately about 30% of our total raw material requirement comes from the mines and 70% comes from external sources.

There's one more question from Janish Shah. The question is, explain new product introduced, positioning and contribution in past 2 years and likely contribution in next 3 years. I'll just repeat the question. Explain new products introduced, positioning and contribution in past 2 years and likely contribution in next 3 years.

So a variety of products, if you see, we launch about 35 to 40 different products yearly basis by our R&D, which works on the latest trends which are running in the markets and for the industries that we cater. So there are many industries where we -- if you look at our share, plastics and paints are somewhere where we are having a higher penetration, but now our R&D is working on many other segments where we are creating products for those segments to upscale them and offer better solutions in terms of the additives that are required for those industries. So recently, we have launched the delaminated kaolins for the rubber industry, which has kind of kicked off very well for the tire industry specifically. We have launched anti-blocking agents, which are talc-based for the petrochemical industry. We have launched specialized calcium carbonates for the oral care industry. We have launched specialized kaolins and waxes for the ink industry. We have launched some specific products for the cosmetics industry. So if you look at it, there are many, many different products that we come out with, and they have all been commercialized as of this year. And we hope that these products -- these are -- very limited customers have started using these products in these applications. So in the next 3 to 4 years, we expect that within these industries, a lot of new customers will be approached, will be converted for using these kind of products, which are quite successful right now with the existing customers.

Okay. So next question -- I'm initially taking questions from those who have not asked the question before I get into questions, which are from a follow-up question. So there's a question from Prashant Kale. Are you facing any shortage of fuel gas? Is it affecting production?

Well, it's not affecting production. As of now, we definitely are facing a lot of issues in terms of the gas or the fuels that we use currently, but our teams are efficient enoughly managing those tough situations with balanced approach in terms of the hikes in the fuel costs, which are happening currently and the availability, which is there by having multiple sources of available resources that are there with the team of ours. So we are trying to manage it as of now. But in the future, depending on the situations and the government restrictions that might come in, then the situation might be different. But as of now, we are not facing much of issues and the production is going on at the current levels, which they should have been.

One more question comes from Ravikanth Manchem. The question is, in the presentation, it is mentioned that revenue will grow 18% CAGR growth with margins expanding 200 to 250 basis points. So can we expect INR 100 crore PAT in FY 2027?

Well, it's very difficult to predict as of now because of the current situations, and we don't know for how long these current situations are going to last for. But the CapEx plan is definitely in place and as Mr. Nihad has showcased in the presentation. And if we go forward with those plans at the pace and the time lines that we have scheduled it for, then definitely, we expect that whatever commitments that we have shown in the presentation would be achievable.

This is a follow-up question from Amit Maheshwari. So I'm just throwing the first question. Can you throw some light on expected completion time lines for the new CapEx? And what is the expected return on capital management -- return on capital management estimates these projects would deliver? Can you throw some light on the expected completion deadlines for the new CapEx and the expected return on capital?

Nihad, I think you can take this question.

Yes. So I think the time lines, what we have given in our CapEx plan, is by FY '30 that we'll be completing most of our projects in case the geopolitical scenario remains stable and supports our business fundamentals and targets. Whereas we are expecting ROCE around 20% in case by FY '30, if the things in the projects are timely being delivered.

Okay. So one more follow-up question from Janish Shah. What brings confidence for 18% CAGR revenue growth and 2% to 2.5% margin improvement in spite of challenging environment in past 2 years from supply chain and market demand. Please give greater clarity on this, please.

See, when we look at the past 2 years and the turbulent times that we have faced in the past 5 years since COVID times, our company has been very diligent enough in order to try and manage the situations in terms of raw material availabilities to managing the expenses, to maintaining the sales revenues in tougher times and being very resilient to all the external conditions with the right balanced approach. So with the INR 100 crore CapEx that we have lined up and which kind of leads to the marginal increase in the EBITDA margin levels and the revenue growth that we're expecting and with the kind of products that are lined up in the R&D for the next 2 to 3 years and the advanced stage that we're getting into for more advanced nano-sized materials that are going to be available for the market. I think when we look at those high-value items contributing towards the top line, that will definitely be impacting the overall bottom line as well, and that is why we are more confident on that.

So a couple of questions from Kunal Bhatia. So I will just take up the first question. You have made several strategic moves recently, the Sievert and the Dorfner JVs, the Malaysian limestone acquisition, et cetera. Could you help us understand when these initiatives are expected to start meaningfully contribute to consolidated earnings?

So Dorfner is already -- it's a different kind of a JV setup, which we have already initiated, and that is already contributing to the overall picture. The Sievert operations, which is a new operation, which has already been established in its first phase in the past few months. The second phase would go live probably in the next few months. And overall, if you look at this JV, the real outcome would be -- you can see it possibly by the end of the financial year because that's when both the phases would be stabilized enough and the recognition in the market would continue to come in. So that is where we are expecting that to happen. For the Malaysian operation, the mines have already been started operating. And currently, we are in that scenario of organizing the mine in a proper way and followed with the construction of the plant, which will be a minimum of 12 months. So within the next 12 months, we will be commissioning the plant. And post that, we are expecting that the operations would start. So anywhere in the early next financial year is when we are expecting the Malaysian operations to show some light.

So I'm taking one more question from Kunal Bhatia so that this is related to the earlier question also. Looking into the current financial year and the trends over the last few months, how are you reading the demand environment across your key end user industries? And which segments outside paints do you see driving the next leg of growth? And I'll just give you one more question also which has raised. How are the contracts structured in terms of increase in cost pass-through? How much is spot versus medium- to long-term contracts? Should I repeat the question?

In terms of contracts, if we look at it, we are not bound by any particular contracts for short term and long term. We have a mutual understanding with all our customers in terms of the offtakes at the beginning of the year that they are anticipating. And that keeps changing with the changing demands because of the macroeconomic environment changing. And so we regularly get updated by our customers upon what the trends are going to look like for the next few weeks to few months in current situations because it's very difficult to predict a year-long predictability. So when it comes to that, I think in the near term, we are expecting the demand to be very volatile and -- but all our plans and in terms of our inventories that we are managing are based on that to take care of the spikes as well as the downside of any demands which come in. But when we look at an industry-specific case scenario, then I think apart from paints, if we are looking at, then plastics and rubber and inks and construction chemicals is something that we are quite robust on for this financial year and the coming years as well because we're developing a lot of new products for these applications. And we look forward to growing our market share in these applications as well.

One more question from Hardik K. The question is, how is the construction chemical segment shaping since many are B2C products? Is any of our products gaining popularity? And do you see this segment becoming bigger in few years?

So when we look at construction chemicals, we are in both the segments. We are in B2B also and we are in B2C also. So in B2B, all our minerals are being used in the manufacturing of construction chemicals. And that is one of the reasons why we have extended ourselves into the retail segment also because it's an extension of what we have been doing all these years. And yes, we have launched quite a lot of products in the past 2 years, which see a lot of potential. We are working with quite reputed names, definitely on smaller volumes currently, but we see a lot of potential in the next 3 to 5 years because we have a dedicated team which is constantly working on these projects, and they give you entire solutions all the way from basements to roofing. So definitely, we see an impact created both by 20MCC Private Limited, which is our 20 Microns subsidiary, and we expect the same with a different set of products by our JV, which is with Sievert Building Materials Private Limited.

There's a question from Prashant Kale. When will this INR 100 crore CapEx become operational?

I think that was already addressed by Nihad.

Okay. And a related question is from Amit Mehendale. What will be Malaysian capacity utilization for FY '27?

Well, it all depends, as I mentioned. The plant will be ready in the next 12 months so -- if the things go in the right way. So once it's ready and the commissioning and everything is done and when it's put to use, only then we will be able to comment on this.

So there is a question from Manish Gupta. There was a proposal to give guarantees for borrowings by directors' own entities up to INR 50 crores. Are these entities operating in competing segments with 20 Microns?

I'm sorry, I didn't get the question.

There was a proposal to give guarantees for borrowings by directors own entities up to INR 50 crores. Are these entities operating in competing segments with 20 Microns?

Nihad, are you -- can you answer that?

Mr. Muthu, I have lost the question. Can you please pardon?

Yes. There was a proposal to give guarantees for borrowings by directors own entities up to INR 50 crores. Are these entities operating in competing segments with 20 Microns?

This was just sought an approval from the Board. Actually, this is for our -- one of the JV partners that quantum was around INR 2.5 crores.

Okay. So there is a question from Janish Shah. You have generally been guiding for annual performance in the past couple of years. Why have you withdrawn this for FY '27? What is the expectation in FY '27 on revenue and margins to the best of your judgment? Also give variables that can be monitored for any variability in FY '27 guidance. Question from Janish Shah.

Well, looking at the current scenario, we have not withdrawn ourselves, but we don't find it suitable enough to give any kind of a broader picture in terms of the expected revenues that we would foresee because when we look at the current situations, it's very hard to predict that and if it continues. But our main efforts currently in the company are mainly towards increasing the revenue to the best possibility that we can and maintaining the margins at the current levels, along with focusing on the PAT, which was also the focus of last financial year. So -- but what we expect that at least if things improve in the next month or 2 months, then definitely in the second half, we'll see the growth that we anticipate to cross the INR 1,000 crores benchmark and milestone, hopefully, in this financial year.

There's a follow-up question from Amit Maheshwari. Can you also please share the free cash generated by the business in FY '26? Also, could management please guide what percentage of revenues in FY '26 were from products launched in the last 2 to 3 years, basically to understand revenue split between new products and legacy products.

So the first half, Nihad will answer, but I'll ask -- I'll answer the second half of the question first. In the second half, they've asked about the new products. So about 4% to 5% is what the contribution usually comes in from the new products, which are usually taking shape, both from 20 Microns and 20 Microns Nano Minerals Limited. But then what happens is that there are -- these new products sometimes are upgrades to the older products also. So what happens is that the new products get launched and sometimes those older products get discontinued and that revenue also gets translated into this new product revenue stream. So that is how we kind of work around in terms of when we launch new products. The first half of the question can be answered by Nihad.

So the free cash flows generated in the previous year was around INR 42.28 crores.

Okay. There's a question from Amit Maheshwari. Can you throw some light on expected completion time lines for the new CapEx?

I think that has been addressed.

Sorry, that question has been addressed. Apologies. A question from Ravikanth. Are there any challenges for 20 Microns currently in supply chain due to the current war situation? And are there any cost implications due to surge in fuel price or logistics cost? If so, are we passing the cost to our customers?

Yes, there are many, many areas in which we are facing challenges in the current scenarios. It ranges from fuel hikes to gas hikes, to foreign exchange hikes, the USD because we import a lot of raw material, the supply chain disturbance. So our imports and exports both get disturbed because of that. The freight cost increases, raw material cost increases and many, many more increases which are there. So we have a bundled effect. But what we do is that we discuss a case-by-case basis with our customers. And in many cases, we do pass it on to our customers, but it doesn't happen immediately. It happens over a period of time. So whenever certain hikes are announced, it takes a few days to a few weeks before those things get implemented in the regular course of business. So definitely, that's how it works. But yes, we do get the hikes regularized from our customers in these tough times.

Okay. There's one question from Kunal Bhatia. Granulated calcium carbonate is seeing growth demand in the dietary supplements and fortified food space, given its role in improving flowability and compressibility for high-speed tableting. Since calcium carbonate is already a core part of our portfolio, does management see this as a natural extension? Are you currently manufacturing granulated supplement-grade calcium carbonate? And if not, is there any intent to enter this segment? Question from Kunal Bhatia.

Yes. Currently, we don't possess any of the licensing for developing any food-grade or pharma-grade calcium carbonates in our company. But definitely, in the future, we anticipate to get into this kind of business once we understand this market well and if we see a good potential for this market because it needs an entirely new and different kind of a setup than what we traditionally practice currently in the organization.

Okay. The last question on the -- in the chat box is from Prashant Kale. What is revenue potential of the INR 100 crore CapEx?

I think Nihad has worked that out. He can comment on it.

See we have, in our CapEx plan, already given a detailed version that what additions would be there. So largely in terms of revenue, if you see that we'll be citing an overall growth of 18% across the next 3 years, and we'll be having a potential margin equation of around 200 bps in the medium term.

Okay. So one more question from LRS...

It seems like we have lost Muthu. Ajay, can you take over?

Sorry, I think Muthu was in the middle of asking a question. Sorry, was it this Kunal Bhatia question? Granulated calcium carbonate is showing -- no, so that we just did. There is a question from -- what is our market share within our core products? Who are our major competitors? Did we do this? This seems to be the latest question.

Yes. So basically, it's the market share, if we look at it, it ranges anywhere from 10% to 30% depending on what kind of things that are we talking about. We can't [indiscernible] a product basically upon an overall picture. But from product to product, it varies from 10% to 30%. Again, when it comes to the main competitors, we have a lot of international competitors. We have a lot of domestic competitors. We will send you a list of the competitors because not many of them are in the listed space. So Wisdomsmith, I'll ask them to get back to you with the list of competitors. And yes, so that's pretty much it.

There's one question that has come from Ravikanth. Usually, April to June is the highest revenue quarter for 20 Microns. Still the same in the current situation? Question from Ravikanth.

Well, it doesn't seem like it because currently, the demand is a little weaker, but we are trying our best to showcase that because it all depends on the entire year. So it's very hard to judge if it's going to be the highest or the lowest quarter because we don't know how the year is going to shape up. So...

So Janish Shah has a question. Was there any decline in revenue from Paint segment in FY '26?

No, there has been no decline in the revenue. There has been -- it has maintained itself at the same levels as last year -- in the previous financial year. So there has been a flat growth in the Paint segment.

Okay. So no more questions there. [Operator Instructions] So it's a question -- LRS Capital's question. Do we aspire to be debt free? If yes, by when?

Mr. Nihad can answer that.

Yes, there is always an aspiration to be debt free. Eventually, yes, there are plans also in long term that we are also working on it. So as we come nearer to the time lines, we'll be sharing you the details accordingly.

One related -- another finance question. Where do we expect net working capital to range in FY '27? Are we seeing any delays in payment terms from customers?

We -- if you see our entire cash flow cycle that have been given in our balance sheet, there is no such gaps in our net working capital range. So to the extent of FY '26 will remain the same in terms of net working capital utilization. And yes, there are about payment delays. See, there are not as of -- there is no such delays we have identified. Citing to the next or the third quarter, we'll be able to share the positioning of exactly the situation that may arise. But as of now, there is no delay.

One question from Janish Shah, is asking how much automation plan to bring margin improvement in the next 2 years?

There are a lot of automation plans which are already in place, many of our older processes, which we were following traditionally in our production facilities with the CapEx that we are -- have incurred in the last 2 years and with the future CapEx that we are expecting in terms of the new age milling processes that we will be following, which goes -- which takes care of a reduction in the power costs. It also helps in improving your -- the capacity. There are some initiatives which we are also being taken in terms of renewable energy where we are going to be using solar, hybrid and wind energy in certain cases for some of our plants to reduce the operating costs in terms of the power consumption. Also, there are many functions where we have identified automation in the next 3 years where we will be taking them up as a part of the CapEx plan upgradations for our existing plants.

So I think we can perhaps close the call. Yes. So on behalf of 20 Microns, I would like to thank all the participants and also thank you, Mr. Parikh, Mr. Baluch and Mr. Pranit Shah for answering -- addressing the investors. We hope to meet you in our next call in -- at the half year results time. And you can always reach out to us for continuing discussions. Thank you everybody.

Thank you, everyone.