BirlaNu Limited (BIRLANU.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to BirlaNu Limited's Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mit Shah from CDR India. Thank you, and over to you, Mr. Shah.

Thank you, Nirav. Good afternoon, ladies and gentlemen, and welcome to BirlaNu Limited's Q2 and H1 FY '26 Earnings Conference Call for investors and analysts. Today we have with us Mr. Akshat Seth, Managing Director and CEO of the company; and Mr. Ajay Kapadia, Chief Financial Officer. We will first have Mr. Akshat Seth making opening comments and he will be followed by Mr. Ajay, who will take you through the financial perspective. Before we begin, I'd like to point out that certain statements made in today's call could be forward-looking in nature, and details in this regard are available in the earnings presentation, which has been shared with you earlier. And I'd like to invite Mr. Akshat Seth to present his views on the performance and strategic imperatives that lie ahead. Thank you, and over to you, sir.

Thank you so much, and good afternoon, everyone. Q2, typically, the monsoon quarter is a low season for most of the building and construction products companies. However, for us, Q2, this time signaled a clear step-up in momentum with the performance during the quarter headlined by a strong improvement in operating profitability. At a consolidated level, we reported revenue of INR 810 crores, which represents a 5% growth on a year-on-year basis and achieved a margin expansion of nearly 330 basis points. This is despite the fact that across most of our product categories, the price realization declined by 3% to 7% year-on-year. On a YTD basis, so consolidated for H1, the EBITDA is 20% higher than last year. This result has been achieved through prioritized action on profitability levers and a relentless sales push despite the market continuing to provide headwinds. And I want to underline the fact that the market remains difficult. The demand scenario remains sluggish and the pricing remains soft across all our product categories. We remain confident of further improvement in profitability with several initiatives underway, and I will talk a little bit more about this. Before moving on to business performance, I would like to talk about our recent acquisition of Clean Coats Private Limited, which is a leading manufacturer of high-performance coatings and specialized construction chemicals. This acquisition is a big step towards establishing a comprehensive, differentiated construction chemicals platform, that can serve a broader spectrum of customers across B2B and retail channels. The transaction, which is margin accretive from day 1 offers significant long-term potential through deeper participation in this fast-growing, high-value segment. The acquisition further strengthens our vision of reimagining the way India builds through innovation-led high-performance solutions that need modern infrastructure and housing needs. Let me now walk you through the performance across our key businesses and the key initiatives that we are driving. First, let me speak about Parador, which delivered a strong performance with an 11% year-on-year revenue growth. This is despite continued challenges on the global macroeconomic front and the accompanying subdued consumer sentiment and tariff-related uncertainties. Operating margins for this quarter improved by 720 basis points on a year-on-year basis, reflecting the benefits of last year's restructuring and the sustained cost discipline. The other standout segment was Walls in India, which delivered a great performance despite extended monsoons, lower government infrastructure spending and heightened competitive intensity. Our revenues grew by over 18% year-on-year in this segment, driven by strong volume growth. This is despite prices being lower by 4% to 5% over last year. Our operating margins expanded by 110 basis points, driven by cost -- strong cost discipline and other initiatives. The Chennai Line 2, which we commissioned in recent months, business for blocks is now nearing full utilization. With a healthy order book and a robust pipeline, we are confident that this segment will sustain its growth momentum and delivered even stronger results in the second half of the year. Our Construction Chemicals business continued its strong trajectory even before the Clean Coats acquisition, and it delivered a 31% revenue growth driven by deeper market penetration. With the addition of Clean Coats, we continue to strengthen our product portfolio and scale this business profitably. Headwinds remained acute in the Pipe segment with decadal low resin pricing, extended monsoons, muted government spending and liquidity challenges. As a result, revenue declined and I'm not talking consolidated Pipes operations by about 11%, of which volume decline was about 9%. Despite market headwinds and continued pricing pressure, we improved our margins in this segment by 110 basis points. Going forward, we remain optimistic that with an expanded product mix, strong brand visibility and strengthened distribution, the business will continue to scale up and will also benefit from a better market sentiment and a market rebound. Similarly, in roofs, despite a 5% revenue degrowth, we expanded our margin by 180 basis points. This is in the context of an estimated 4% to 5% decline in market uptake and also lower realizations. This was achieved through recipe optimization, rational efficiencies and disciplined cost management. The strength of our brand and deep channel relationship continues to hold us in good stead in the roofing segment. Overall, our outlook for quarter 3 and beyond remains cautious, and therefore, several proactive measures have been taken to improve the financial health. Last quarter, we have started a comprehensive value enhancement exercise with Boston Consulting to identify and implement larger pools of value in our P&L. We expect full savings from this exercise to start becoming visible from FY '27 onwards, while incremental impact is already being felt in the P&L. In addition, we have taken several internal missions across our businesses to control cost and optimize processes that should further help us maintain competitive margins and resilience in the face of uncertain external environment. With our recent rebranding, BirlaNu is well positioned to maintain momentum and navigate a dynamic market environment with resilience and precision. We are on track with our new OPVC facility in Patna and our ambitious greenfield project in Andhra Pradesh to produce designer boards and other products. Several innovative launches across categories are planned for the remainder of the year, reinforcing our commitment to product leadership. Building on the progress achieved in Q2, we entered the second half with renewed confidence and focus. Our priorities remain clear. We have to accelerate growth across categories, enhanced customer engagement and strengthen execution capabilities to capture the opportunities in a demand landscape, which is expected to gradually improve. With that, I can conclude my opening remarks. Let me now invite Ajay to take you through the financial performance in detail. Ajay, over to you.

Good afternoon, everyone, and thank you for joining. I'm pleased to walk you through the key financial and operational highlights for quarter 2 FY '26. This quarter marked a clear improvement in our financial trajectory despite subdued demand conditions and soft pricing scenario across several categories. Our consolidated revenue for the quarter stood at INR 810 crores, reflecting nearly 5% year-on-year growth and our overall profitability strengthened meaningfully with consolidated EBITDA at INR 4 crores as compared to a loss of INR 22 crores in last year same period. Through disciplined execution, continued cost optimization and tight operational control, we delivered a meaningful step up in our profitability and strengthen our overall operating performance. We expect further gains as the value enhancement program being executed with BCG and with a clear focus on accelerating margin expansion across the portfolios. Let me now take you through our business-wise performance. Starting with Roofs, the business reported revenue of INR 191 crores, a 5% decline, in line with the broader market contraction, while pricing pressure persisted operational efficiencies and cost actions helped us deliver a 180 basis point improvement in margin, reinforcing our leadership positions and competitiveness in the market. The highlight of the quarter is the Walls business. This business has delivered an exceptional performance with revenue growing by 18 percentage to INR 155 crores, driven by strong volume expansion across product lines. Despite price erosion versus last year, margins improved by 110 basis points, supported by focused cost actions and improved plant utilization. With new line in Chennai now commissioned and largely ramped up, the business is well positioned for a strong second half of the year. In our Pipes and Construction Chemicals portfolio revenue stood at INR 155 crores, representing a 6% year-on-year decline. This was primarily due to an 11% drop in Pipes revenue arising from decadal low resin prices, extended monsoons and muted government spending. Even in this environment, margins improved by 110 basis points, owing to recipe optimization, procurement efficiencies and disciplined operational management. Construction Chemicals continued its strong momentum, growing at the rate of 31% year-on-year through deeper channel penetration and sustained market development. The acquisition of Clean Coats further strengthened our presence in high-performance coatings and specialty chemicals market, and I'm pleased to share that the business has been margin accretive from day 1 with integration progressing quite well. Parador delivered a strong quarter with 11% revenue growth to INR 309 crores, supported by improving global demand visibility and disciplined execution. The business achieved EBITDA breakeven at the year-to-date level with a significant improvement compared to our last year's performance, driven by structural cost actions undertaken previously and more focused approach to spending. We continue to maintain strong financial discipline. The total debt stood at would be INR 767 crores with a debt-to-equity ratio of 0.65, and we will see a marginal increase following the acquisition of Clean Coats. Before I close, I want to reaffirm our commitment to sustain value creation. We are guiding the focused agenda on margin improvement, cost discipline and operational excellence. The initiatives underway gives us a clear visibility of continued EBITDA improvement, and we remain fully committed to strengthening profitability and cash generation in the periods ahead. That concludes my remarks. I now hand it back to the moderator to open the floor for questions. Thank you.

[Operator Instructions] The first question is from the line of Niteen Dharmawat from Aurum Capital.

Sir, my question is related with the BCG implementation that we are doing and you mentioned that the benefits will get accrued from the next financial year. So can you please highlight what kind of benefits we are expecting at the EBITDA level from this implementation? And how do you see this in the current year in case there is anything coming up with this financial year as well?

Yes. So this is a comprehensive exercise that looks at every line item below revenue, so -- below gross revenue. So RM is also part of it. Overall, the focus is on the Walls and the Pipes segment and also on the putty segment. The expected envelope given the cost base, et cetera, we are -- the envelope is to the extent of nearly 300 basis points on current levels at EBITDA level, even if you apply a certain discounting factor anywhere between 150 to 200 basis points of EBITDA impact should get created by this program. Where we are in this study is, the diagnostic findings and the implementation and the opportunity sizing has been done. We are -- maybe we can do a full-scale, realization phase by end of December. And in Q4 is where a lot of those savings will start becoming visible. As with any such exercise, there is a ramp-up period as the savings sort of spread across the various opportunity areas. So that's why the first full year impact we feel will be visible in FY '27. But the ramp-up to that will start becoming -- will start happening from Q4 onwards.

My next question is about the European operations. You mentioned that we have seen good growth. So just wanted to understand how is the industry growing in that area because last when you mentioned the entire industry was struggling, we were still capturing the market share. So vis-à-vis as a industry, how are we doing now? And how do you see this going forward in terms of growth momentum returning back and we were expanding in other geographies? So how is that progressing?

Yes, I think there is one theme I want to underline and also not just for our European operations or Parador, but also for the India operations. We have not seen any visible sign of turnaround on the external sentiment. So the external environment remains difficult. Some of the initiatives that were put in place over the last 12, 15 months to grow despite a flattish external environment is what is driving the growth for Parador and also the growth in India. At the same time, given those headwinds, we are also conscious that profitability required a concerted effort, which is why a lot of profitability-related initiatives were also put in place, which, again, the impact is now beginning to be visible. I would also say that these are first signs of impact more impact should flow in, in coming quarters. On Parador, specifically, as I said, the market remains difficult. Our growth is coming from 2 or 3 axis. First, in our traditional home markets of DACH and Western Europe, we are focused on gaining share in the counters that we are playing in and that is what is driving growth. So overall, the market has not grown, but we have grown in that market, which is indicative of being -- of gaining share. It is physically also being shown by the fact that today, in Germany, we are on more counters than we have historically ever been on, which is driving a big chunk of this growth. So that is one part. The second part is some of these markets that we had invested in, have started to show revenue flow, be it U.S., be Middle East, be it Southeast Asia and China. Now I will say those early wins are still small in their revenue contribution, but the pipelines are now looking healthy, and we expect the revenue ramp-up to happen in those geographies. So that's the second thing. And the third area where we have been investing a lot of effort is on building the commercial channel, where, again, small wins have started happening, but the pipeline is healthier, which is what gives us confidence for the coming quarters as we step into the second half of the year. Does that answer your question, Niteen?

Yes, sir.

[Operator Instructions] Next question is from the line of Nayan Bhodia from Xylem PMS.

Yes, sir. So can you -- so if I'm not wrong in the Pipe segment, we have around 35,000 tonnes capacity in the legacy and around 80,000 in Crestia. Can you give the utilization breakdown right now?

So overall, we would be nearing the -- in Pipes at an aggregate level would be at about 50 -- anywhere between 50% to 60% utilization, depending on which month of this quarter.

Okay. And I think the antidumping duties are not yet announced. So how do we look at the utilization ramp up, the realization and the margin going forward?

See, again, it's hard for us to comment on when -- if and when the antidumping duty will come. There is a certain market situation that we have faced with at this moment, and we'll continue to fight it. If it comes and if it comes sooner, then of course, there will be a -- that will be a positive development, but we are not basing our recovery or our strategy on the antidumping duty coming in. We will continue to assume that the current situation sustains and that is what we are fighting against.

Okay. So let's say that the antidumping duties are not announced. And how do we look at the growth of the Pipes segment and the margins over there?

So at the moment, overall level, I think if I take segment by segment, the government spending, which impacts the demand for Pipes that remains muted at the moment, no visible sign of that bouncing back while there are conversations and announcements, which promise a better investment set, but until that happens and fund flow starts happening, I think it will be premature to comment on it. So that remains a weak spot in the overall demand scenario. In the residential and in the B2B space also, it is not a very high growth scenario that we see. Demand growth has been muted as has been witnessed by most players. For us, the game is simple, we have to gain share from other players. We have a deeper market penetration. That's what we are aiming for. So the way we are thinking about it is that gaining market share is the priority. Any upside that happens from the market side is a cherry on top.

Okay. And for the Parador business, can you update us on the margin trends over there, the demand side scenario and what is your medium-term EBITDA margin guidance and ambition for Parador right now?

See, this year, we have demonstrated a much improved EBITDA trajectory. We will continue to drive at on that trajectory. So H2 typically is a better revenue half of the year. So with that revenue growth, there might be -- there will be some more improvement on the profitability side. But largely, we will continue all the good work that has happened over the last 6, to 12-month period, with the visible impact over the last 6 months, that trajectory should continue.

Okay. And on a consol level, what guidance would you like to give for the BirlaNu Group?

I'm sorry, your voice was not clear.

So my question was on a consolidated level, what guidance would you give for the whole group for all the segments combined?

You're asking on a consolidated basis?

Yes, yes. Revenue and margin guidance.

Again, the momentum we have shown on the growth side and on the profitability side this quarter is what we are aiming to continue and improve further. Exact numbers, I think, one on the profitability side, et cetera, as I said, as some of these initiatives get to a maturity stage, there should be a further improvement on the profitability side. So while exact numbers should play out, we expect the current momentum to continue and only an improved version of the current momentum to be visible to all of you.

[Operator Instructions] Next question is from the line of Amit Agicha from HG Hawa & Company.

Sir, my questions are related to a number of employee debt policy of the company like as far as employees are concerned, what are the total number of employees currently? And what is the increasing expected employee addition over the next 2 year, specifically with connected to tech, R&D supply chain composition, the current blended cost.

Amit, sorry to interrupt you, but we lost your audio in between. Can you please come in a better reception area?

Yes. My questions are related to the number of employees and the debt policy of the company.

Number of employees and what of the...

Debt borrowings, the blended cost of interest.

So in terms of people who are working with us in various contractual arrangement across India and in our international markets, the total number is to the tune of about 5,000 employees. 5,000 employees and associates. Debt servicing, Ajay?

The total debt is around INR 767 crore as on 30th September. The debt in BirlaNu is at the rate of 7.2% to 7.3%. The European is below 3.8 percentage interest cost.

All the best for the future.

The debt will further go up slightly by INR 100 crores because of this recent acquisition. And probably, it will remains -- it will further go up because of new greenfield projects we have already announced that will come up in the next 12 months' time, where the investment is to the tune of INR 125 crores.

And at the same time, I think with an improved operating cash flow situation and also in the recent past, we have monetize some noncore assets. Those will continue and we want to keep this whole debt level to a manageable level. So we are also taking steps to bring those down.

[Operator Instructions] Next question is from line of [ Rohit from Marshmello Capital ].

My first question is on the spending that we were intending to do over the next 2, 3 years for us to reach our stated goal of hitting $1 billion. We see news articles indicating we're looking to spend up to R 1,000 crores, INR1,400 crores. Could you expand on this bit, please, both CapEx and inorganic also?

Rohit, I could understand maybe just a drift of the question. You're asking what are we planning to do over the next 2 to 3 years to...

Sorry to interrupt you. Rohit, can you mute your line from your side, please?

Yes. Is this better?

It's better, Rohit, can I request you to repeat your question, please?

Yes, I'll do that. See, I mean in -- after the acquisitions and the plant expansions, there have been articles which indicate that we're looking to spend upwards of INR 1,000 crores over the next 2, 3 years to meet our stated target of hitting the revenue of $1 billion. Could you expand on the expenditures on both organic and inorganic, the scale of the spending that we are planning over the next 2, 3 years?

Yes. I think this -- the expenditure that is needed, overall, as we have stated in the earlier calls as well, we are aiming to, in the short run of 2 to 3 years, double the portfolio that we are sitting on. So this year, we should finish it around little more than INR 3,800 crores or somewhere in that vicinity between INR 3,800 crores to INR 4,000 crores. The idea is how do we get it to a doubling stage, which is where the investment outlay is a combination of 2 or 3 things, there will be increased working capital requirements, so that gets financed. Where will that growth come from? I think on Pipes, we have stated that we are trying to grow that segment there. The investments in new capacity will not be required for doubling the portfolio. We already have that capacity. The investments will largely be on the working capital side. The second one, which we are trying to grow from a smaller base to be in the vicinity of INR 800 crores to INR 1,000 crores is in the Construction Chemicals space. We've already done 1 acquisition. Whether we will undertake more acquisition or we continue to grow organically now from here on, I think that we should keep a watch on. But that's the kind of investment that will be needed to grow that business. That's the second one. The third one where we are investing is in the Walls business, where again, there is a clear line of sight of moving from what we did last year of about INR 500 crores to get to about INR 850 crores, INR 900 crores in this period. Part of that investment is happening in the greenfield plant that we have already announced in Andhra Pradesh. And there might be some more investments required to achieve this revenue growth. So I would -- it's hard to distinguish what is organic and inorganic, but that's the estimate we have of the kind of investment that will be needed to drive the growth plan that we are pursuing. Part of it is working capital, part of it is growth oriented, yes.

So do you have an estimate of the quantum of the spending that would be required? I mean is it INR 500 crores or INR 1,000 crores, what is that number? And what is the maximum debt to equity we are comfortable with? I mean for the growth that we are targeting in all these segments.

Yes, I think that's the consolidated number that you are quoting. That's the estimate that we have. The only split, which is a difficult one, is how much will it go on the inorganic side because that's dependent on what transactions, the timing of those transactions and the nature of those transactions. So that's the only one which is hard to predict, but it should be in that ZIP code that we are talking about. On what is the comfortable level of debt, I think a shade less than what we currently are in terms of the debt level is a comfortable level. At the moment, we are probably at the -- we would want to bring the debt level down given the size of our operations.

Understood. Fair enough. So in addition to the segments we have, we don't plan to enter any new segments, it's the existing segments, and we hope to scale up the operations in each of the segments that we have currently, correct?

That is correct. I think the growth path in each of the segments is clearly laid out. There is still a lot of execution to be done to achieve the kind of markers we have set for ourselves. We do not want to be distracted by more segments at the moment.

That was helpful. My next question is, in general, I wanted to understand, I mean, in terms of valuation, we seem to be -- I mean very near to the COVID level in terms of not price, but valuation and the asset is quite valuable as well. So is there any commentary from the Board or the promoters on purchasing from the open market or any thoughts on buyback of shares as well? I know we have a lot of capital expenditures and I mean expenditures lined up for growth. But given the valuation, is there any thought on doing any buyback as well?

See, these are conversations that are constant. I think till such time there is a decision on it, it's hard to comment. And of course, this is for the Board to decide. So we will obviously come to you and share it with everyone as and when there is a clear line of sight or a decision in this regard.

[Operator Instructions] Next follow-up question is from the line of Amit Agicha from HG Hawa & Company.

Sir, as far as the capacity utilization is concerned, and the marketing networks, are there any out-of-the-box kind of solutions that we are coming out to improve our penetration because just increasing distributor and channel partners is a strategy which almost all the competition is adopting? And people are also doing branding with superstars, et cetera. So how can we now sharpen our edge in marketing even more?

Sorry, not clear on the second part. So I understood that you were saying what more can be done beyond just adding channel partners...