Captain Polyplast Limited (536974) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Captain Polyplast Limited Q2 and H1 FY '27 Results Conference Call hosted by Kirin Advisors Private Limited. [Operator Instructions] Please note this conference is being recorded. I now hand the conference over to Mr. Karan Thakur. Thank you and over to you, sir.

Thank you. On behalf of Kirin Advisors, I welcome you all to the conference call of Captain Polyplast Limited. From the management team, we have Mr. Ritesh Khichadia, Whole Time Director of the company. With that now, I hand over the call to Mr. Ritesh Khichadia for the opening remarks. Over to you, sir.

Thank you, Karan. Good afternoon, everyone, and thank you for joining us on the Q2 earnings call of Captain Polyplast Limited. I hope you have had a chance to review our financial results, which are available on the stock exchanges and on our website. I will begin with the industry environment, followed by our business performance during the quarter and financial highlights for Q2 and H1, and then finally conclude the call with our priorities and outlook for the H2 of FY '27. Let me begin with the operating environment. Water conservation and efficient irrigation are important priorities for Indian agriculture. Drip and sprinkler irrigation systems are helping farmers optimize water usage, improve irrigation efficiency and support crop productivity, creating a long-term opportunity for the growth of the micro irrigation industry in India. Government initiatives such as Per Drop More Crop continue to support micro-irrigation adoption. Improved affordability, replacement demand and low penetration are providing further growth opportunities to the industry. And the added effect for this year, as all of you know, is the effect of El Nino. Because of that, there has been uneven monsoon across India and there is deficient monsoon in many parts of India. So we are seeing a very high growth in certain pockets because of low water availability. Now if I come to the solar EPC business, especially the solar pumping segment, the PM-KUSUM scheme is continuing to drive demand in the segment as the timeline for the same has been extended and also the government is proposing a second phase which is soon going to be announced. So we are exploring opportunities in the solar pumps vertical in states beyond Maharashtra as new tenders are expected to emerge in the H2. Now I will give the business performance update. Quarter 2 was a very encouraging quarter for the company, especially for our solar EPC business. During the quarter, we secured 2 repeat orders from MSEDCL under the PM-KUSUM scheme, amounting to INR 23.6 crores for 1,000 pumps in July and INR 47 crore for 2,000 pumps in September. The order was the largest ever single solar EPC order win for the company in its history. So if we include all the orders for this financial year, our total order intake has reached INR 82.4 crores for a total of 3,500 solar pumps. And if we see, we had got empaneled in Maharashtra last year in August 2025. So since then we have received total orders of 5,000 pumps. So this shows that in a very short time we have executed well in this segment, which is reflecting in our fast order win. So apart from Maharashtra, as I said, we are also exploring opportunities in other states. And also we are continuously expanding our solar rooftop business through our existing dealer networks in the states where we are having strong presence in micro-irrigation. In the micro-irrigation segment, our focus continues to be on increasing the sale -- increasing the share of non-MIS, non-subsidy business, especially from commercial sales, export and also expanding dealer network in untapped markets. In this micro-irrigation business, we are expecting further improvement, especially as our Ahmedabad manufacturing facility ramps up and we progressively get more backward integration with this facility. So this is the update for the quarter. If I talk about the financial performance on the consolidated basis, our Q2 FY '27 total income was at INR 106.43 crores, which grew year-on-year by 32.89 percentage. The EBITDA for the quarter was INR 10.28 crores, which was a growth of 24.75 percentage, while the net profit stood at INR 4.48 crores, registering a growth of 5.55 percentage over the last year. The EBITDA margin for the quarter declined year-on-year. This decline was primarily due to the sharp increase in the raw material costs, especially costs for HDPE and LLDPE compared to the last year. We are expecting that in H2 we would be able to pass on the increase of these raw material costs, mainly because we are expecting revision in benchmark costs for micro-irrigation from the central government and state government in coming few months. So that should definitely help the EBITDA margins in H2. Now looking ahead for H2 FY '27, our priority remains on timely execution of the solar pump orders which we have already won. Second is ramping up our Ahmedabad manufacturing facility. As we improve the production levels there, we are progressively getting more components manufactured in-house which should aid the margins. And the third priority is to improve the mix of micro-irrigation business, especially increasing the share of non-subsidy business in this vertical. So what I see is that with a strong solar pump order pipeline and opportunities across renewable energy and irrigation, we remain focused on strengthening our market presence, improving operational efficiencies and delivering sustainable growth and long-term value for our stakeholders. With this, I would like to conclude my remarks and open the floor for questions. Thank you.

[Operator Instructions] The first question is from the line of [ Yash ] from [ Unique Solutions ].

Hello sir, am I audible?

Yes, you are audible.

Sir, my first question is your FY '27 solar pump order intake has reached INR 82.40 crores for 3,500 pumps. How is execution progressing and how much revenue do you expect to recognize from these orders by year end?

So the execution of these orders is already ongoing. We are expecting that these 3,500 pumps, the revenue would be recognized -- majority of that revenue would be recognized before the end of Q3. A lot of it is already recognized in Q1 and Q2. Whatever remaining is there, it would be recognized by Q3. And we are also in process of another tender and there will be one more after that. So those order wins, they would be recognized in the Q4 as and when we get those orders.

Okay. And sir, you had earlier indicated plans to expand solar pump operations beyond Maharashtra and Gujarat. What progress have you made in Rajasthan, Jharkhand, Karnataka and Haryana?

So the PM-KUSUM 1 deadline, which was originally for March 2026, it was extended by the government. So in all the states, there was no fresh tendering in this year. Once PM-KUSUM 2 is announced we are expecting fresh tendering in those states. Once it is there we would be able to get empanelled in those states as well. So it will only happen once the new phase is announced.

Okay. And sir you had highlighted plans to increase commercial and non-subsidy micro-irrigation sales. How has this progressed and what contribution do you expect going forward?

So when we say non-subsidy segment, there are multiple avenues in that. One is obviously in the micro irrigation segment, lot of demand is also coming from repeat orders where farmers have already taken subsidy once a couple of years back and now they need additional components to keep their system running or to expand the coverage of that system. So this is 1 segment which we are actively focusing on. This segment is gradually -- the demand from this segment is gradually increasing and we are also seeing good traction in that segment. The other part is export sales. We are focusing on improving our presence in markets where we do not have a presence right now. So these 2 are key priorities for us for improving our commercial sales. Right now that mix is around 10 percentage and we are expecting that as we go ahead this share will definitely improve from this low base of 10 percentage.

Next question is from the line of [ Rahul ] from [ SK Securities ].

So first question is regarding like H1 FY '27 revenue grew by 25.14 percentage while PAT increased by only 7 percentage. So what are the key reasons for this divergence? And also should we expect better operating leverage and profit growth in H2 FY '27?

Sure. So if you see for the H1, our EBITDA margin has remained almost flat, but for the quarter 2, it was down. As I mentioned in my opening remarks, the EBITDA margin is down primarily because of the increase in raw material costs. So the major reason for lower growth in profit margin is primarily that the increase in raw material cost. And also as our scale of business has increased, working capital requirement has also increased. So the interest cost for the H1 is higher compared to the last year. So because of these 2 reasons, the profit growth has been lower. As I said that we are expecting EBITDA margins to improve in H2 as central government and the state governments are expected to revise benchmark costs for micro irrigation. So once that is in effect, definitely the profit growth will also come in line with the revenue growth in H2.

Okay sir, so next question is regarding the Q2 FY '27 EBITDA margins to that 9.66 percentage compared to 10.29 percentage last year. So what are the key factors impacting margins?

Yes, as I said, the main reason for that is decline in micro irrigation business margins. The key raw materials for micro irrigation products are all petrochemical derivatives, which include LLDPE and HDPE. So the price of these raw materials has increased sharply year-on-year, and this decline is mainly on account of that raw material price hike.

Okay, sir. One last question from my side. So how are the PVC pipes, commercial irrigation and other value-added products progressing?

Yes, as I said in the previous question as well, we are focusing on 2 avenues. One is for farmers who have already availed subsidy once. So if they have further requirement for micro-irrigation product, we are approaching them on non-subsidy sales. And the other part is export sales. So as I said, we are already having contribution of 10 percentage of these 2 segments in overall micro-irrigation business. As we go ahead, this number would definitely improve from this low base.

Next question is from the line of [ Nilen ] from [Shah Capital ].

Hello, sir. Am I audible?

Yes, you are.

Yes, sir. So my first question is, what's your target working capital cycle for the FY '27 and how much cash can potentially be released through the improving inventory and the receivable managements?

So the target working capital cycle, it depends on the business segment which we are talking about. If we talk about micro-irrigation business, the cycle would typically be between 6 to 8 months. This year we are expecting the cycle to shorten, mainly because many state governments we are seeing they have revived their focus on micro-irrigation because of the effect of El Nino. There is higher demand from farmers and governments have also recognized that and they are also actively engaging with the industry to remove the hurdles for adoption of micro-irrigation. So I think by March we would see some positive impact on the micro-irrigation working capital cycle because of that. So right now it is at 8 months, but we are expecting that it should come down by end of March. For the solar pumps business, right now the cycle is between 3 to 4 months, and I don't think there would be material change in that. It would remain in that range only. So as our business mix shifts towards solar pumps, the average working capital cycle would definitely shorten. And also once the MIS cycle is shortened, that would be further reduction in the total working capital. So I think on a consolidated basis, it should come around 5 to 6 months at the end of this financial year.

Okay, sir. Got it. And next question is that consolidated borrowing increased to approximately INR 89 crores in FY '26 with INR 77.72 crores due within 1 year. How do you plan to manage repayment and reduce debt...

Sorry. Can you repeat? Were you asking about parts and figures?

Yes. Consolidated borrowing increased to approximately INR 89 crores in FY '26 with INR 77.72 crores due within 1 year. How do you plan to manage repayment and reduce debt in upcoming years?

Yes. Actually most of our debt is working capital debt. So it is classified as short-term borrowing, but it is a revolving facility and it gets renewed on a yearly basis. So it is not to be repaid on a yearly basis. The actual repayment on a yearly basis, that figure is much smaller. That figure would be less than INR 10 crores out of the total debt. So that can be managed from our existing accruals.

Okay, sir. So my last question is what's your medium-term target for the EBITDA margin and ROC and ROE?