BirlaNu Limited (BIRLANU) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to BirlaNu Limited Earnings Conference Call. [Operator Instructions] I now hand the conference over to Mr. Mit Shah from CDR India. Thank you, and over to you, Mr. Shah.

Thank you, Danish. Good afternoon, everyone, and welcome to BirlaNu Limited's Q1 FY '27 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 his opening comments, and he will be followed by Mr. Ajay Kapadia, who will take you through the financial perspectives that lie ahead. 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. I would like to invite Mr. Seth to present his views on the performance and strategic imperatives. Thank you, and over to you, sir.

Thank you, and good afternoon, everyone. It is a pleasure to welcome you all to BirlaNu's Quarter 1 FY '27 Earnings Call. Amidst one of the most volatile external environment headlined by the Middle East conflict and its impact on global supply chains and pricing, I'm happy to say BirlaNu has delivered a strong quarter, delivering on both growth and profitability. This performance was enabled by the efforts over the last couple of years to strengthen our product portfolio, sharpen our execution engine to drive operational efficiency and to build brand salience. Quarter 1 performance, as it was for quarter 4 last year, is a visible impact of these strategic initiatives, and we will only intensify the pace of this transformation in coming quarters. The India business has been off to a great start in FY '27. We grew our revenue base by about 11% to INR 833 crores, while EBITDA grew by 71% to reach INR 98 crores. As you can see, margins have improved by about 410 basis points over last year. This is headlined by the Pipe segment, where our margins expanded by 660 basis points, nearly 7%, and roofs by nearly 4%. With double-digit margins and growth, this quarter demonstrates our stated objective of value-building growth. The key highlights of this performance include, in the roof segment, we broke all previous records, crossing the INR 500 crore mark for the quarter. In fact, we did INR 517 crores to be precise, which represents a growth of 17% over last year. We reinforced our leadership position and increased our market share by about 1%. From a cost perspective, despite inflation, disciplined cost management and operating leverage translated into a margin expansion of nearly 4%. The walls business continued its strong momentum with revenue growth of over 14%, led by robust demand across both panels and blocks. Focused market development initiatives and stronger sales execution across customer segments supported improved realizations, which together with disciplined cost management drove margin expansion by nearly 3%, 270 basis points to be precise. The Pipes business navigated an exceptionally challenging market environment during the quarter with sharp swings in resin prices. You recall, in March, there was a price rise of nearly 60%. This was followed by a decline of about 30% in April, which resulted in sharp decline in demand, particularly in the month of April. Despite these headwinds, the business demonstrated strong execution, delivering one of the strongest margin improvements within the portfolio with EBITDA margins expanding by over 660 basis points, while sales rebounded strongly through May and June on the back of disciplined pricing, focused market execution and cost management. Construction Chemicals was the business that was most adversely impacted by the Middle East conflict. Our key raw material prices increased by over 50%, while disruptions across customer industries, for instance, tile industry was badly impacted and project execution led to a temporary slowdown in demand across several application segments. Despite these headwinds, we delivered 11% revenue growth, supported by focused sales acceleration initiatives and a significant expansion in our portfolio. This strengthened our presence across high-growth application segments and broadened our customer reach. Moving on to Parador, where despite the Middle East crisis and the demand slump that was introduced or induced by that crisis in our core European markets, we did well to sustain revenue at last year's levels. The order book is healthy. It is up over 10% over last year, and the pipeline indicates a strong recovery in H2. Profitability was impacted due to cost pressures and less than projected revenue trajectory. We are confident of an improved margin profile for the rest of the year with a slew of value enhancement initiatives in place, including a focused cost-out program being led by BCG. You recall, last year, we had done a similar program with BCG for the India business, and now we are doing the same thing for Parador. This short-term turbulence aside, Parador is making rapid strides in its strategic build of new markets, especially U.S. and India. New customers, especially in the commercial channel and deepening its core, the DIY and retail in Europe. At a consolidated level, the revenue for quarter 1 grew by just short of 12% to INR 1,174 crores, and the EBITDA improved significantly to INR 80 crores, which is about 35% higher compared to previous year. Before I close, I also want to share the progress on some of our strategic initiatives. Our strategic capacity expansion program will add a new chapter with the approval of a new boards plant near Hyderabad to supplement the greenfield plant being constructed in Nellore. This reflects our confidence in the long-term growth opportunity within the premium boards category. Our innovation engine delivered a slew of next-generation products in waterproofing and repair and rehabilitation segments of our fast-growing construction chemicals business. To further our sustainability agenda, we recently commissioned additional solar capacity at 2 of our manufacturing facilities while simultaneously advancing the next phase of renewable energy investments across our operations. We have also commenced implementation of our enterprise-wide AI road map, combining targeted business use cases with capability building across the organization. Looking ahead, while the year has begun on a very strong note, we remain mindful of the evolving external environment. Geopolitical uncertainties continue to persist. Raw material, freight and currency market remain volatile. And in addition, labor costs are showing an upward trend. We, therefore, remain disciplined in our approach and will continue to respond with agility as market conditions evolve. At the same time, we exit quarter 1 with the confidence that we will continue this momentum for the rest of the year. With a stronger portfolio, improving operating leverage and a relentless focus on execution, BirlaNu is well positioned to deliver sustainable, profitable growth while continuing to create long-term value for all our stakeholders. With that, I conclude my opening remarks, and let me hand over to Ajay to take you through the detailed financial and operational performance for the quarter. Ajay, over to you, and thank you.

Thank you, Akshat, and good afternoon, everyone. I'll now walk you through the business and financial performance for the first quarter of FY '27. While the quarter was marked by continued volatility across key input markets and inflationary pressure across certain cost categories, we delivered a meaningful improvement in earnings and margins, reflecting our relentless focus on cost optimization and execution excellence. Let me begin with the headline numbers. On a standalone basis, revenue increased by 10% year-on-year to INR 824 crores, while EBITDA rose by nearly 70% to INR 97 crores. EBITDA margins expanded by over 420 basis points, supported by stronger realizations, manufacturing efficiencies, cost discipline and sharpened execution. On a consolidated basis, revenue grew by 11.6% to INR 1,174 crores, while EBITDA increased by 35% to INR 80 crores. Turning to the businesses. I'll start with Roofs business, which has delivered another excellent quarter with revenue growth of 70% and market share gain of about 100 basis points. EBITDA margin improved by 390 basis points to 18.2%, supported by stronger realization, improved volume sales and favorable operating leverage. The Walls business reported 14% revenue growth with healthy volume expansions across categories, improved realizations, higher capacity utilization and the benefits from the cost optimization initiatives implemented over the past year, contributed to EBITDA margin expansion of 270 basis points to 10.2%. The Pipe business experienced an unusually volatile quarter due to abnormal movements in PVC resin prices, which materially impacted channel offtake, particularly in the month of April. Consequently, revenue declined by 11%, while volumes were lower by 27%. Net sales realization improved during the quarter, primarily due to lower share of agri pipes in the sales mix. Despite these headwinds, EBITDA margins expanded by 660 basis points, driven by an improved product mix, procurement efficiencies and disciplined pricing actions. With government interventions facilitating stabilization in PVC resin price, we expect demand conditions to improve and anticipate moderate growth during the seasonally weak quarter 2. Construction Chemicals recorded 11% revenue growth despite significant inflation in key raw material prices. The business continued to expand its distribution footprint and customer reach, strengthening the foundation for sustained growth. Moving to Parador. Revenue remained broadly stable on a year-on-year basis in euro terms. EBITDA stood at a loss of INR 13 crores compared with a profit of INR 5 crores in the corresponding quarter in last quarter last year. The decline in profitability primarily reflects elevated raw material costs, onetime SAP migration expense and certain plant maintenance and refurbishment activities that were advanced to the first quarter from subsequent quarters. These timing-related costs are expected to normalize in the second half of the year, supporting an improvement in profitability. Beyond our operating performance, we also advanced several strategic and financial initiatives during the quarter. During the quarter, the Board has approved the establishment of a greenfield designer board manufacturing facilities in Hyderabad with an estimated capital outlay of INR 167 crores. This investment expands our manufacturing footprint in the premium board segment and further strengthen our position in a margin accretive product category. Turning to the balance sheet. Cash generation and capital efficiency remained key areas of focus. Through targeted initiatives across receivable, inventories and sourcing, we reduced approximately INR 100 crores of working capital on a year-on-year basis, resulting in improved operating cash flows. I'm also pleased to share that gross borrowings reduced by nearly INR 100 crores during the quarter from INR 852 crores as of March '26 to INR 758 crores as of June '26. We remain committed to maintaining a prudent capital structure while funding our approved greenfield and capacity expansion projects. As these projects are commissioned and begin contributing to earnings and cash flows, we expect borrowings to reduce progressively over the time. Overall, the quarter reflects the progress we have made in strengthening our operational and financial performance. We remain committed to building on this momentum through sustained operational improvements, prudent financial management and long-term value creation. With that, I conclude my remarks and hand the call back to the moderator to open the floor for questions. Thank you.

[Operator Instructions] First question comes from the line of Surender Singh with My Equity Sherpa.

Am I audible?

Yes, you are.

So Akshat and our CFO, I was going through the latest annual report. And I see that regarding our borrowings, we talk about some covenants, which we could not honor in 2026, which in turn, we took waivers from banks. So could you talk about it, what it was and what we did around it?

Primarily debt equity covenants, which we could not meet, and that is the reason we have taken waiver from the bank.

Okay. So in 2025, we did with 2 banks and now I'm seeing, I think, 6 bank names is given. So what is our thinking on borrowings overall, like how it will progress?

So as of March '26, our borrowings were INR 852 crores. As on date, we are at INR 758 crores. We have reduced our borrowings by close to INR 100 crores during the quarter.

Okay. And going forward, how you think about it, like it will remain like this or we may take some more or there is a plan to further reduce it?

In near to short period, it will remain at the elevated level since we have announced a couple of greenfield projects. One we announced last year Nellore, boards plant. And in yesterday's Board meeting, we have announced Hyderabad board plants. But however, there is a timing difference. Nellore board plants will start giving us profit and cash from end of the -- last quarter of this year, starting off first quarter of next year. So that will help us to repay the borrowings and that will help us to fund for the new CapEx.

Okay. That helps. And Akshat, I would like to know your views on Parador in particular. I know that numbers are yet to come on P&L and all because of various headwinds. But being in your seat and seeing the system very closely, how do you envision it in next 2, 3 years? You think that that will be a good outcome if it unfolds with time?

See, I think I don't know if you've been part of some previous calls, we've also laid out what are the blocks that we have been pursuing for growth in the Parador business. At the moment, where we sit on the -- on last year's revenue base, and I'm not reacting to short-term month-on-month or quarter-on-quarter, some turbulence that might be there. But overall, there is now emerging line of sight for adding about at least 20 million to 30 million over the next couple of years on the revenue side to that base. Now that is coming through the investments we have made in building the commercial channel in U.S., in markets like India and also U.K., Middle East. And this is now basis pipeline and the advanced places where we have put in quotations and we have been specified. So there is line of sight on that. And that -- so that is one. Second, the expansion of our DIY channels in -- across Europe, there -- and that has been a strong reason why despite degrowth in the market, this quarter, we have maintained our revenue because we have been, again, increased our share on those DIY channels and growing beyond just the Germany theater. So that will also play out. And finally, there were some markets that we had in Europe, places like Italy and some markets in Eastern Europe, where again, order flow has started coming in. So those 3 put together give us that line of sight of that revenue increase. Now at that level, what it does is just given our breakevens and our P&L leverage starts flowing in, and there is also a decent level of profitability that starts coming in. So that is what we are putting fight for. And at the same time, there is work happening in further optimizing the cost structure. I mentioned in my opening remarks that we have engaged with BCG for a similar program as we did in India, which is to essentially bring cost out of the system. Our expectation is, at a conservative level that should deliver at least 300 to 400 basis point uplift on the EBITDA side. So there is line of sight on revenue. There is work happening, further work happening on the cost side. And I think there is -- we are on the healthier outlook that you are looking for is on the horizon.

Yes, that helps, Akshat. This is my first conference call with this company. And I admire your thought process. I have gone through all your previous communications. So I ended up learning a lot about this business and in general, like what is your thinking about this business. So thank you for that and I think I'm all set.

Next question comes from the line of Shlok Akolia with Xylem.

Sir, my question was also around Parador. So just wanted to understand like more about how do we expect the BCG initiatives to come in? Like what's the time line for that?

So the time lines, we've already completed the diagnostic phase. The design phase is underway and the implementation, et cetera, is about the 4-month exercise. So in about 4 to 5 months, okay, the first results and impact will start becoming visible within this -- by the end of this quarter, and then they will keep rolling for maybe another 3 months. So Q4 of this year should have visible impact on the P&L. But many of those will start building gradually over the next 3 to 4 months. So the October to December, there will be a buildup and the full impact should be visible around the Q4 mark.

[Operator Instructions] Next question comes from the line of [ Aditya ] from Securities Investment Management.

Sir, first question was on the Boards and Panel segment. If you can just talk about what is happening in this industry because if I look at your commentary and the kind of CapEx we are doing, it seems that this seems to be a strong growth segment for us. So if you can just talk a little bit about what's happening in this segment, what is driving growth in this segment and what kind of utilization we are working currently?

So -- and your question is on the Board segment, which is today roughly anywhere between INR 1,500 crores to INR 2,000 crore industry segment, but growing at close to 10% to 14% growth rate year-on-year. The segment is also attractive because it sort of affords a higher margin profile. So most players in the industry are operating in the high teens as far as margin -- operating margins are concerned and probably even more. It's a segment which also is interesting because it affords differentiation on the products and playing in the premium segment. So there are basic boards and then there are value-added products like high-density boards, designer boards, et cetera, which afford a greater level of differentiation. We believe we have a right to win in that segment because so far, we've been capacity constrained. We have been operating at nearly 80% to 90% of our capacity. So we are chock-a-block. We have a right to win because on cementitious product, it follows a similar product composition as in the fiber cement industry. So there is a lot of resident knowledge about the product and our ability to differentiate and innovate on the product. Plus we also have the market access to the customers because we are serving the same customers for our other wall products, whether it's block or panel. And that's why we feel very confident about our prospects. And hence, the 2 capacity additions that have been announced, one earlier, which is in Andhra Pradesh, we are expecting to commission that plant by Q4 of this financial year. And then the new project that we are pursuing where we got the Board's approval yesterday, that will be in Telangana. So that's where we are sort of adding capacity, plus there are smaller brownfield capacity additions that will happen at our existing plants. So from our perspective, it's a segment with the new capacity additions that we have announced over the next couple of years. By the time these capacities come in and we are able to ramp it up, it will inject close to a revenue upside of about INR 300 crores to INR 350 crores and hopefully an EBITDA uplift north of INR 75 crores to INR 85 crores. Aditya, does that answer your question? Sir, your line is not clear. [Technical Difficulty]

Aditya, we cannot hear you. You may please rejoin the queue. Thank you. Our next question comes from the line of Sai Ganesh with Square 64 Capital Advisors.

Am I audible? Hello.

Yes, your voice is not clear. Not really. I think there is -- Danish, are you able to hear him.

Yes, yes. Sai, you may please proceed ahead with your question.

Yes, a couple of questions from the Roofing side. You have reported a 17% PBT margin in Roofing for Q1 FY '27, while our peers are in line with our margins. But before we used to do 20% to 25% plus PBT margin, if you look at FY '22, FY '23. At that time our peers used to do 16%, 17% margins. But now our peers have started reporting 17% margins, but we are still stuck in that 17% range. Wanted your thoughts on that?

I'm not 100% sure of which peers you are talking about, but I would request you to also just try and do a deeper analysis of the peer results because a lot of our peers have in the last 3 or 4 years, added boards in their portfolio and the numbers that get reported are a consolidation of boards and roofing, whereas the roofing numbers you are talking for us are pure-play roofing numbers, and we have not sort of boarded with our boards number.

I am understanding. Boards are -- lots are happening more than 16%, 17%? PBT is what we are talking about, not [indiscernible].

Yes, slightly different understanding at our end. So I'll request that you do have a look at that. Boards for most players are delivering attractive margins, which is what I covered in the previous one as well. But I'm happy to say, from a roofing perspective, overall, while there has been a strong improvement in the EBITDA margin compared to last year. I think the base you are talking about is 3 to 4 years old, different industry dynamic and different input prices at that point in time. So it's a slightly different one. But happy to say that, overall, it's been a good quarter from a margin point of view, and there's been a significant improvement.

Okay. And is there any inventory gain such as one-off, there's no one-off, right, in our roofing margin?

No, there are no one-offs. There are no inventory gains or revaluations that have been done. So these are pure operating numbers.

Our next question comes from the line of Saurabh Ginodia with SMIFS Limited.

We have done exceptionally well on the roofing side, 17% growth has come after a gap of so many quarters. So just wanted to understand what has been the growth drivers, and how were the secondary sales on the roofings?

So on secondary sales, overall, all of this is secondary because this is a period where there are significant offtakes and this is not a product that has huge stocking. So stocking for us happens only in the Q4 period or Q2 period -- end of Q3. This is a season where there is a strong secondary momentum. So I would call all of this as secondary for this period. What has contributed overall, there's been buoyancy, I think the rural demand was strong. There was price support available, so overall in 17%, the volume growth is nearly 10%. What also helped was our closest competition as a substitute product, the steel sheets were at an elevated price point. So there was increased demand for the fiber cement roofs. So those were some factors that played out well, and overall there was buoyancy in the industry.

Understood. And Ajay mentioned that we have done quite well on the working capital side and there has been a reduction of about INR 100 crores. So just can you talk about what efforts have been made and how much of it is sustainable?

So Saurabh, we have worked on two areas: one is the inventory side. We used to carry a large stock of fiber. We have substantially reduced our fiber stock in last 6 to 8 months. The other side on -- on receivable side, we have tightened our controls on giving the credits, and that has resulted into close to 30% reduction in our receivable numbers.

So one can safely say that both the things are sustainable going forward?

Both are questionable?

No. Sustainable.

Sustainable, yes, yes.

Our next question comes from the line of Aditya with Securities Investment Management.

Sir, continuing with the Boards and Panels, if you could just help us understand, is this a replacement product, like we are replacing plywood or gypsum? And if yes, so what is generally the advantages of this product as compared to its substitutes?

So it has a broad range of substitutes. So these are used for -- between panels and boards, they have applications in creating walls. So these are drywall applications. They help in creating room, room partitions, et cetera. Boards additionally have the application of using as cladding, whether for internal or for external applications. There are a range of products in that category. So yes, gypsum boards, et cetera, are one, traditional walls are the other substitute. The advantage is faster fabrication in an application. So the time involved for construction goes down. The cost -- it is a cost-effective product. And third, the thermal and sound insulation properties are great. There is also fire retardant properties that the product offers. So that's a broad overview.

Aditya, are you done with your question?

No, I have a follow-up. Hello.

Is there any follow-up?

Hello, am I audible?

Yes, sir, you are.

Yes, Aditya, now you're audible.

Yes. So I was asking, is it majorly used in commercial applications or it is also used in residential?

Larger adoption in commercial, but it is used equally in residential as well. So the adoption is increasing in the residential segment as well. But the penetration level is higher in the commercial applications.

Understood. And sir, in this INR 1,500 crores to INR 2,000 crores market, is it majorly dominated by organized players only or the unorganized share is also quite large?

No. So it's not an easy product to manufacture. The CapEx intensity is also fairly high. It's largely dominated by organized players. So there are only 5 to 7 players of note in the industry. There is also a good 15%, 20% share of imports currently into the country.

Got it. Got it. And sir, you mentioned that the margins in the segment are close to mid-teens for the industry as a general. But when I look at your EBIT margins, which you've given segmental, our margins are in the mid-single digit. So why is there such a sharp contrast between us and the industry?

So our play currently, I was talking only about the Board segment. Our wall segment today is a combination of boards, panels and blocks. Our blended margins reported this quarter are about 10% to 11%. Standalone board plants tend to operate and especially the new ones tend to operate in the 15% to 20% range.

Understood, walls currently is making very low margins.

Walls currently is now finally in a double-digit zone, and there has again been a 2% to 3% improvement over last year. This has been one of the strategic pursuits we've been making that the rightful zone for our walls segment from a profitability point of view. Our current portfolio is in the zone of about 12% to 14%. I'm happy that we have broken into the double-digit zone and there is further headroom for improvement there. So I think we are now 80% where we should be, given the portfolio we carry today. And I'm not counting the impact of the new capacities that will further pull this margin up.

Got it. Got it. And now, sir, coming to Parador. I think you mentioned in the opening remarks, there were some one-off costs this quarter. If you could just firstly quantify the same.

Yes. So broadly, 2 buckets. There were some IT upgradation projects and enhancements that were planned earlier, which were executed in this quarter. So that is onetime in nature, essentially to do with our SAP systems and a couple of other things. Then there were some repair and maintenance spends, which were front-ended, at the start of the year. Those will get normalized over the rest of the year. So they were essentially given that we take shutdowns in quarter 2, they were front-loaded into quarter 1 for booking the orders. So those are the 2 major ones.