Camlin Fine Sciences Limited (532834) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Camlin Fine Sciences Earnings Call for Q1 FY '26. [Operator Instructions] I now hand the conference to Mr. Rahesh Bhayani from InCred Capital Wealth Portfolio Managers Private Limited. Thank you, and over to you, sir.

Good evening, everyone. On behalf of InCred Equities, I welcome you all to the Camlin Fine Sciences Q1 FY '26 Earnings Conference Call. We have with us today Mr. Ashish Dandekar, Chairman and Managing Director; Mr. Nirmal Momaya, Managing Director; and Mr. Santosh Parab, Chief Financial Officer. I would like to thank the management for allowing InCred the opportunity to host this call. I now hand the conference over to Mr. Ashish Dandekar from Camlin Fine Sciences. Thank you so much, and over to you, Ashish, sir.

Thank you. Ladies and gentlemen, a very warm welcome you for the earnings call of this first quarter. As is our convention, Santosh Parab, our CFO, will give you a brief and run you through the quarter's results and issues, after which both he and Nirmal Momaya, our Managing Director, will be there to answer your queries. So I'll hand it over to Santos now. Santosh?

Thanks, Ashish. Welcome, everybody. Good evening. By this time, I think you will have got our investor presentation also and UFR, which was hosted on the website and also on the stock exchange. As you can observe, our revenue have been at INR 423 crores as compared to INR 437 crores of last year. There's a slight decrease. The major decrease is because of the dip in the Speciality Ingredients Straights sections where there were lower revenues. And of course, 2 aspects have impacted this lower revenues. One was we have taken an annual maintenance shutdown in the month of April in all our Dahej facility as well as Tarapur facility. So both throughput and output were impacted. This is an annual exercise. Every 12 to 18 months, we had to take one shutdown. This impacted the production also and of course, the margin. There was an unabsorbed fixed cost in the month of April of around INR 12 crores. We -- however, the other 2 main verticals, which are the hallmark and which has been the growth story of the company, the Blends business, which has witnessed a strong growth in almost all our geographies. Vanillin business also has been stable. As you are aware, there are channel stocks lying in the main 2 geographies of Europe and U.S. where the antidumping duty is there and there are fairly attractive prices, which are going up. We are observing that there are channel stocks. So the -- to maintain the revenues at what they are and the volumes has been a really nice performance. If you would have seen, we have also had an increase in employee cost. We had paid one-time performance bonuses to our Blends business. The Blends business, as you know, has been growing at a very, very fast rate, and it was imperative that we reward the efforts of our employees, so one-time performance bonus of around INR 7.5 crores was paid to the employees mainly in Mexico and the U.S. We have been strengthening our teams in Blends business largely on the sales side, where we have been recruiting salespeople. The new employees have also increased, and that is also reflecting in the increase in the employee cost. As you can see, the other expenses or the other operating expenses have been fairly under control. We have been able to control it despite the slowness, some of the plants were not working in this, but the fixed costs are under control. At the end, with the impact of lower production, higher [indiscernible], higher unabsorbed costs and some onetime employee cost, we have seen a dip in EBITDA. We have clocked around INR 19 crores of EBITDA, which is only 4.5% of EBITDA margin. But this is a one-time thing because of the annual maintenance shutdown taken in the month of April. As far as margins are concerned, the operating margins and the product sale margins have reduced from 48% to 44%, mainly on account of lower production. As you know, these are very sophisticated high-temperature plants and when we close and we restart, there is higher consumption of product, and that has impacted around 2% to 3% of our margin. But all other margins we have been holding on. The prices are stable, fairly stable on both the sides on the revenue as well as raw material side in this quarter. Vanillin business, we had a small dip in the revenues by around INR 5 crores, but volumes have been fairly almost same. Prices are going up, but in this quarter because we are observing the channel stock, as I said, the average realization has not gone up as we had expected. The production of vanillin in this quarter was, if we exclude the closure dates or the maintenance dates, it was around 50% of the capacity utilization. At present, we are running the plant at 60% capacity utilization. So the 2 main verticals are doing well, and we think that the [ states ] will come back. There is sluggish demand. There is Chinese issues all over the world, as you know. And of course, Trump tariff is there. We are closely watching. We know that this can have an impact on our business, especially in the vanillin business. We are concentrating more on U.S. However, other than that, we don't have much exposure in U.S. The U.S. -- income of blends manufactured in U.S., it's a local business so we are not -- we will not be impacted from that because it is a local business service from Mexico. So -- and we have not been selling any other major raw material, only a few crores is sold to U.S. So thank you. I will now hand over for question-and-answer session. Thank you.

[Operator Instructions] The first question is from the line of Raman KV from Sequent Investments.

Sir, my first question is, I just want to understand how much is the one-off for the entire quarter? And can you just break down like how much was with respect to the employee bonus, and with respect to annual maintenance shutdown, et cetera?

So as I said, I'll repeat the numbers. We had unabsorbed fixed of about INR 12.5 crores in all our plants in the month of April and around INR 7.5 crores was paid for one-time bonus to the employees of Blends. Apart from this, there was no -- as I said, we also had 2% to 3% of margin loss because of start-up of plants. We had closed the plants. We started the plants. The first dosing, the consumption increases. That will be around 2% to 3%, that will be another INR 7 crores to INR 8 crores.

Okay, sir. Sir, and my second question is, with respect to the Blends business, right? So in the previous call, you mentioned it's the high teens margin. So if I'm doing the calculation, even if I'm -- if my understanding is right, it should have fetched during this quarter around -- even if the margin is 10%, around INR 23 crores of EBITDA, but our entire EBITDA is INR 19 crores. So was there any impact on the Blends business margins?

So we have been saying that, yes, when the Blends business is mature, it does get a high teen margin. But as you know, there are a couple of geographies, which are very mature, especially Mexico, where we have 17% plus EBITDA margins, in America also, it's around 15%. But there are other geographies like India or Europe and the Vitafor piece, these are growing businesses where the margins are in the range of 8% to 10%. So the overall margins are not 17%, 18%, but sub-12%, 13%.

Okay, sir. And my final question is with respect to the vanillin business. Sir, what were the prices of -- what was our selling price of vanillin in quarter 1? And what are the prices now? And will our realization be impacted with the U.S. tariff?

In the first quarter, our average utilization was $12.5. And currently, it is slightly above that as we go forward. The antidumping duty levied on the Chinese producers for vanillin in the U.S., that's only to the U.S., and it is not applicable in other markets. For the Chinese, it's 280%. For us right now, currently, the tariff is at 50%, which is a moving target because in the last few days, a lot has changed, but we don't know where it will go and settle. So we yet have a very highly competitive position versus our Chinese competitors. So I don't -- so our understanding is that we will be highly competitive and we should be able to gain market share in the U.S. market. As far as Europe goes, there are no tariffs. There's just an antidumping duty on the Chinese producers at 131%, and that continues. And for us, there is no other additional tariff.

Sir. And one just out -- with respect to Europe, have you started any commercial export of vanillin to Europe? Or have you signed any contract for foreseeable export to Europe?

We started sales to Europe. And right now, Europe is on holiday. So it starts -- the business starts in September. So we expect to start negotiating for contracts for the next year for January. So that's expected in September, October.

And, sir, in the previous quarter, you gave a guidance of INR 65 crores to INR 70 crores of EBITDA run rate every quarter. So I mean this has been like a one-off quarter. Can we expect this guidance going forward? Or are you planning to revise it?

No. So it's -- we have not actually guided anything specific. All we are saying is that our vanillin business will work at about -- the estimated volumes are at about 2,500 to 3,000 tonnes. This is what we are saying. Expected realizations would be in the $13 to $14 through the year average for the year. And we continue to hold that as going forward. We continue to hold our Blends business growth. So I think overall that's what we are guiding.

So 20% Blends business growth is intact, right?

Yes.

[Operator Instructions] The next question is from the line of [ Chaitya Doshi ] from InCred Equity.

I have a couple of questions. The first one is, sir, as observed that CIF U.S. prices for methyl vanillin were around $16 per kg for June. Could you confirm if this aligns with the realization? And any -- like if you can share the price trends that you're seeing in the export markets?

So I don't know from where, but when we are selling, as you know, we are selling to our subsidiary and the subsidiary ultimately sales. So in consolidated sales when India sells to North America, it doesn't reflect. Obviously, when we get a higher rate contracts in U.S., we will sell with some discount from India. So there are some transactions, which could be at $16, but that's not the average realization price at present. There are transactions with $16, but that's not the rule because the sale is on the basis of quantity also. So smaller the quantity, higher the realization. But when we are -- when we get an order and we transfer from India, we do discount it and sell at discounted price to them. So some prices would appear to be very high.

Okay. And sir, what would be the current retail or end user price range for vanillin in the U.S. market?

Currently, it would be at about $18 to $19.

Okay. And sir, with potential tariffs on Indian vanillin exports to the U.S., can you clarify how currently -- like who currently bears the cost of these duties, like our company, distributors or the end users?

It's always the importer, whoever is the importer has to bear the duty.

Okay. And going forward, how do you plan to manage like in the next -- if the 50% tariff is planned on, so how do you plan to go on?

No. Whoever is importing our products will have to pay the 50% tariff. And like I explained earlier, our competitors in China are at 280% with the antidumping duty and tariffs on China. We are competitive versus that.

Okay. And the last question, what is the current vanillin production level in absolute terms or capacity utilization percentage?

So during the quarter when we were producing, it was around 50% capacity utilization, as I said in my introduction. And at present, we are running at 60% capacity.

And when can we expect it to reach like 100%?

It's a market, say, right, because we can reach 100% tomorrow, but we have to match the market demand.

So the demand expectations are that the channel stocks should clear out by the next few months and the real demand should start showing up what ultimately is going to be the real demand coming from Europe and U.S.

The next question is from the line of Jatin Sangwan from Burman Capital.

Sir, you mentioned that you had some impact on gross margin also because of your plants shutdowns and also what's your sustainable gross margin number that we should look at without including the impact of vanillin that will come in, and of course, losses of catechol will go away, but let's say, is it sustainable gross margin for you?

It will be in the region of 40% to 45% gross margins in that range, 2% or 3% up or down will be sustainable. So we are at 44%, it could go to 47%, 48%. It's 2% or 3% up or down from where we are.

So we are saying that we are in the range of our sustainable gross margins?

Yes.

So the last 2 quarters, we were showing 50% plus gross margin that there were some one-offs in that. And going forward, gross margin would be around 45% plus minus 2%?

Correct.

And sir, you mentioned that the prices in U.S. for vanillin are $18 to $19. Can you give some color around what are the prices in Europe and other geographies?

So Europe would be about $14 to $15 right now. Like I said, again, there is stock in the channel, which is getting cleared. Once that gets cleared, we'll have a clear idea of where this price will go and stabilize. But going by the antidumping duties, I think Europe will be at $15, $16 and U.S. should go up further than northward of $20. And rest of the world, the market prices are -- the Chinese prices are between $7.50 to $8.

Got it. And sir, when we say that we will do 2,500 to 3,000 tonnes of vanillin, so how much are we expecting from U.S. and how much from Europe and how much from rest of the world?

So I would say U.S. and Europe should be at about 1,800 to 2,000 tonnes depending on, like I mentioned, about the channel stock and 600 to 800 tonnes will be rest of the world.

And sir, once this channel stock gets cleared, our U.S. plus Europe combined is around 7,000 to 8,000 tonnes of market. So by when we expect to reach full utilization for vanillin because since there is not much capacity available outside China?

Correct. So the estimate is that we should be at about 70% to 80% capacity utilization in FY '27. And I think there we'll get a clear idea, but FY '28 is what we are saying we should be at a full capacity utilization.

The next question is from the line of Surya Narayan Patra from PhillipCapital India Private Limited.

My first question is on the impact at the EBITDA level because of the plant shutdown. This is which plant maintenance that you have indicated, sir?

Both sides, Dahej and Tarapur because they are interconnected. So we took a shutdown in both sides.

Okay. So this is the annual -- this quarter, timing-wise, this is also the annual time line for maintenance shutdown? Or how is it, sir?

Right. So it's basically between 12 to 18 months. We've been taking these shutdowns. So last time we had divided into actually 2 parts. We had not done one single one. But here, we had a boiler inspections, we have to upgrade the boiler, so we took the shutdown for the entire maintenance. So that for the next 12 months, we don't need to -- or at least for 12 months, we don't need to take any other further shutdowns.

Okay. So then put together, it is a kind of 2%, so INR 7 crores, INR 8 crores as well as the INR 12.5 crores, almost INR 20 crores kind of impact relating to the plant shutdown and the restarting of the plant. Is that right understanding?

That's right.

Okay. Sir, now with regards to vanillin business. So is it -- see, the tariff is also there, which is an uncertain thing currently, but it is high also, 50%. And on the contrary, we are also kind of having a significant advantageous position to the competition. Practically, we are the second player to solve -- to cater to the U.S. and European demand in this current situation. So if that is the case, is it right to think that whatever tariff, whether it is 25%, 50%, whatever the tariff, that will be passed on only, we will not bear anything?

Correct. See, the way to view it is that there is an antidumping duty and tariffs on our competitors from outside of these 2 geographies, which is -- in U.S., it is 280%. In Europe, it is 130%. So -- and ours is 50% in U.S. and in Europe, it is the standard 5.5%. So there is 131% plus 5.5%, we are at 5.5%. So we have a distinct competitive advantage over our competitors.

So hence, ideally, we should not be bearing this tariff pressure at all because it is a -- since being -- we are the only second player for the U.S. market. So then it is a response...

But yes, you're right in a way, but what -- the way you have to look at it is that there's a limit to what you can pass on also, right? Because the competitors come in, if it is more than 280% of what they have to pay, then of course, they also come into the market. This becomes viable for them.

So if we try to sell at $20, it becomes a $30 product to the end customer, right? And then suddenly, the Chinese will be interested, because then they get more than $8.

So even if it is passed on to the importer, but we have to bear something because we have to compromise on the realization front.

Correct.

Yes.

Okay. So is it possible, sir, that instead of focusing on the U.S., given the -- if it is like, let's say, 50% and likely to sustain this way, so can we manage -- since it is a 2-player market for the 2 major regions, so can we focus largely on the European side and vacate the U.S. market for Solvay? And can Solvay cater the entire demand of the U.S. from U.S.?

See the way to see is that what will be ultimately the net realization that we get in our hands. Where will it be more lucrative, we will focus more on that. Today, the U.S. and Europe to us even with the 50% are more or less on the same line, maybe U.S. is even slightly better today even with a 50% tariff. The realizations will be better going forward in the U.S. than they would be in Europe. So I think it is better as a strategy to keep a balance and to be in the market because you have customers in both key geographies who are going to buy from us. So the large F&F companies have multi-locational supplies, and they expect us to supply in both these locations. And i think it is safer for us to be servicing both of these, even though one may be slightly more profitable than the other to have a face in front of the multinational customers, which is that we are a stable supplier, and we can service them across the world, which only our principal competitor out of Europe and U.S. can do, the Chinese cannot do that. So that's why I think that's a very strong position for us to be in and to take -- in the market is to be able to service them across all geographies.

Okay. Sir, since the anti-dumping duty got implemented in the last week of July itself, so when one should think about commencement of the supply deals, the annualized supply deals of vanillin with the large customers?

So generally, these deals are finalized October, November because from January, they need the material. So with the lead times of at least 60 days for shipping, they typically look at September, October to try and finalize these.

Okay. So then is it...

Like I said, we don't know what is in the channel, what stocks is in the channel. But our estimate is that stock also should not -- the overhang of that should not go more than 3, 4 months.

Okay. So then in that case, from both the angle, from the inventory -- left out inventory in the channel level angle as well as the kind of a new contract commissioning. So from both the angles, one can believe that the true benefit of vanilla ramp-up will be seen from the October, November, December quarter, means the third quarter of FY '26.

Correct.

Okay. And sir, is there a compulsion for us to sell in the non-U.S., non-Europe market for vanilla?

Not really. But some of the multinational customers, we would have to give some material at least in those other markets to prove our second supplier source in each of the markets, at least in major markets, yes.