DCW Limited (DCW) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 and 9 Months FY '24 Earnings Conference Call of DCW Limited, hosted by Valorem Advisors. [Operator Instructions] I now hand the conference over to Mr. Anuj Sonpal from Valorem Advisors. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone, and a very warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the Investor Relations of DCW Limited. On behalf of the company, I'd like to thank you all for participating in the company's earnings call for the third quarter and 9 months ended of financial year 2024. Before we begin, let me mention a short cautionary statement. Some of the statements made in today's earnings call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. Let me now introduce you to the management participating with us in today's earnings call and hand it over to them for opening remarks. We have with us Mr. Saatvik Jain, President; Mr. Amitabh Gupta, CEO; Mr. Sudarshan Ganapathy, Chief Operating Officer; and Mr. Pradipto Mukherjee, Chief Financial Officer. Without any further delay, I request Mr. Saatvik Jain to start with his opening remarks. Thank you, and over to you, Saatvik.

Thanks, Anuj. Good afternoon, and thank you all for joining our earnings call to discuss the third quarter performance of FY '24. [indiscernible] today before handing it over to [indiscernible] performance. As you may already be aware, the chemical sector in India is currently going through one of its worst period in over a decade. The pain continues into Q3 and has lasted much longer than anticipated. Though domestic demand remains resilient and underlying industries are growing, the weak global demand environment has resulted in continued excess imports across our product range that are putting significant pressure on pricing. Apart from the price erosion in the commodity products due to imports, sluggish demand for our exports also continued into Q3, resulting in further reductions in sales volumes. To add to the pain, the Tuticorin Region in Tamil Nadu, where our facility is located, witnessed unprecedented rains and floods which completely halted our operations for 10 days, causing production delay -- sorry, production disruption and delay in some of our sales spilling over into Q4. Thankfully, our impact on stock loss is minimal as we are adequately covered with necessary insurance. And the expected impact is provided as an exceptional loss in this quarter. The price erosion, coupled with lower sales volumes on our exports and impact of the floods has resulted in a 4% lower revenue and 48% lower EBITDA over the last quarter. Moving to the market situation on our products. The domestic industry for PVC and soda ash are both severely hit due to huge quantities of imports being dumped into India from China, Russia, Iran, et cetera. Unfortunately, until we see the global demand-supply situation getting adjusted, this scenario will continue. Especially as the domestic demand for both these products remains strong with a strong push from the government on the user industries. As for caustic soda, the realizations also continued to be under pressure due to overall slowness in global demand and oversupply situation in India. Coming to synthetic rutile. Our sales were negligible in Q3, resulting in significant inventory buildup as we have continued our production. Weak demand in China is not only putting pressure on pricing but also put pressure on our sales. However, the titanium metal demand remains strong, and we are seeing some green shoots from this quarter onwards. Our inroads into specialty chemicals is playing out and has given us a cushion to the bottom line in tough times. C-PVC and SIOP remained strong and consistent contributors to our EBITDA and have added INR 32 crores to the EBITDA in the last quarter. With our new volumes of C-PVC kicking in towards the end of Q3, we have declared the highest ever sales of C-PVC in a quarter, in Q3. As our production ramps up, we will see volumes improving over the coming quarters. Our SIOP debottlenecking project is also almost complete with production volumes ramping up towards the end of this quarter, though sales will pick up with a lag effect. This has been an extremely tough year for our industry. However, even in this situation, DCW has prepared itself well with [indiscernible] value-added products. With these capacities commercializing and with the export of synthetic rutile improving, we are hopeful that the situation will turn to better from Q4 onwards. With that, I now request our CFO, Mr. Pradipto Mukherjee to brief you on our financial performance. Over to you, Pradipto. Thanks.

Thank you, Saatvik, and good afternoon, everyone. The financial highlights for quarter 3 of FY '24 is as follows. The realizations across the company's commodity chemicals segment continued to grow. However, with the lower base, and settled for the quarter at stretched level across all our products. The caustic prices for the quarter stood at INR 30,000 per tonne, which is 10% down quarter-on-quarter. Synthetic rutile witnessed a significant reduction in export demand and the company could only achieve negligible volumes at stretched prices. The PVC realization for the quarter was around INR 70,000 per tonne, showing a correction of 10% again quarter-on-quarter. However, the company did not witness any disruption in domestic demand. The soda ash prices further softened by 7% quarter-on-quarter and averaged at around INR 26,000 per tonne. However, the company was also operating at 85% capacity due to its gearbox failure. And as was informed to the exchanges, this situation will continue for the next couple of quarters. The company continues its journey to strengthen the specialty segment by commercializing the C-PVC expansion plant, which we initiated a year back and the effect of which has been partly witnessed in the third quarter and will gradually phase up in the coming quarters. The C-PVC sales volumes for the quarter was highest for the company, resulting in a 25% increase in volumes quarter-on-quarter. The net realizations, however, corrected downwards with a decrease of 8% quarter-on-quarter. The SIOP sales volumes stood at 4,700 tonnes showing early signs of recovery in the export demand. The prices more or less remained firm quarter-on-quarter. There was an -- as Saatvik has also told, there was an unprecedented rain and water logging in the last 10 days of the quarter at the Tuticorin belt, which resulted in loss of production and sales in our facility as well. The loss of stock on account of flood, however, was limited since the company maintained adequate insurance coverage on its inventory as well as fixed assets, and the estimated impact of the same has been factored exceptional loss for the quarter. Further the disruption on account of flood has resulted into spilling over of sales from quarter 3 to quarter 4. The operating revenue for the company at quarter 3 stood at INR 398 crores, vis-a-vis previous quarter at INR 415 crores, down by 4%, and Q3 of the preceding year, down by 32%. As discussed, the price erosion across all our product segments in the range of 8% to 10%, barring SIOP had a pressure on the top line, but the revenues adjusted by 4% since there was volume increase -- sales volume increase, both in caustic and PVC by 8% and C-PVC by 25%. Coming to the operating profits. The products -- the EBITDA for Q3 from specialty segments, as was mentioned earlier, continued to be maintained at INR 32 crores as against INR 27 crores in quarter 3 of FY '23, while the commodity segment clocked a loss of INR 8 crores, which basically is a swing from INR 18 crores of profit in the last quarter. The 9 months number for the company is as follows. The top line is INR 1,250 crores for the company with an EBITDA of INR 125 crores. The finance costs dropped at INR 53 crores for the 9 months as against INR 107 crores in the year ago. This was predominantly because of the refinancing activity, which we undertook in September last year. Depreciation more or less remained flat at INR 69 crores and we had a profit before tax, which is just breakeven. With this, request the participants to question on any areas they would like to have, seek further clarification. Thank you.

[Operator Instructions] The first question is from the line of Tushar Raghatate from KamayaKya Wealth Management.

Sir, I just wanted to know, like, in terms of revenue contributions, what would be your commodity chemicals and the specialty chemicals, maybe an average percentage contribution? Yes. And how do you see that moving towards the specialty in next 2 to 3 years?

So I think for the quarter gone by, as we discussed the specialty chemicals, which we basically adopt the SIOP and the C-PVC that EBITDA remained at INR 32 crores -- EBITDA remained at INR 32 crores quarter-on-quarter. I mean both the quarters at INR 32 crores. Last year, the operating profits were around INR 27 crores. As we are adding volumes through our C-PVC segment and also SIOP going forward, I think the way we have previously guided as well, we see that the EBITDA contribution from the specialty in next -- in the outer years -- in outer 2 years would be north of 55%.

Fair enough, sir. Sir, in this PVC, caustic soda and soda ash, all the prices are corrected like heavily, just wanted to know, like, do you see this as a bottom of the price cycle or just wanted to know your view, sir?

Amitabh Gupta here. On the commodities, the prices are dependent upon -- very much dependent upon the import of the product in India. Today, unfortunately, international prices -- international markets are very, very weak, especially in China economy is doing very, very bad. So the prices of these 2 products are not showing any signs of recovery. But this cannot last very long. And I think in the next 3, 4 months, we will see some recovery in the commodities prices. So I think in the next 3, 4 months, we will see some recovery in the prices of both soda ash and caustic soda. May not be very great, but then certainly, it will be better than what it is today, okay?

Sir, just my last question. In your investor presentation, you mentioned the land bank of near to 2,500 acres. So what would be, like, the price of that?

Land bank price.

The valuation might be.

Valuation. So our land bank pricing, you're talking of fixed assets?

Yes. You have mentioned it was 2,500 acres of land available in your investor presentation.

Yes. So basically, that's our land bank, which we have. We are carrying those land bank at talks in our books. Obviously, the valuation would be INR 1,400 crores put together for both the plants basis the banking estimates, which has been done last.

[Operator Instructions] The next question is from the line of Sanjeev Damani from SKD Consulting.

Am I audible?

Yes, you are. Please go ahead.

Sir, regarding caustic, how much of caustic also do we consume in-house or we entirely sell it outside only?

So we do not consume caustic in-house. We entirely sell it out.

Okay. And how much percentage of this chlorine that is produced by you is as on today used then in next quarter, what are the estimate of the consumption in-house will go up of chlorine?. Thank you, sir, for prompting me.

So basically, we have been consuming around 60%, 65% of our -- of chlorines in-house. The 30%, 35% is where we are not balanced, we are selling it. Going forward, as we ramp-up our C-PVC capacity, the idea is basically to become truly neutral. So with this capacity, we would inch up to around 80%, 85%. And the balance is what we need to sell it in the -- continue to sell it in the market.

Okay. Sir, do we also have to consume PVC for making C-PVC? And if yes, how much percentage of our production we consume in-house?

As of now, we are in the process of testing our PVC, because you need a special quality of PVC for use in the C-PVC. So, R&D work it on to improve our product to fall in the quality requirements for C-PVC. So if that happens, maybe in the next year, we will consume close to 10,000 tonnes of our PVC in our C-PVC.

Okay. So this thought is just now -- I mean, these days only this thought has come or it has been long back you are already working it on?

So typically, our first 10,000 tonnes of C-PVC what we are producing and selling historically were through a process, which does not allow us to use our own PVC. Now we have got into this expansion doubling of capacity where, first of all, our endeavor was to get the capacity and commercialize the product. Now we are doing R&D of using our own PVC in the new wet process. and sell it. So that's R&D, which will take a quarter or 6 months for us to get comfortable with.

Right. Sir, last time, in the last con call, you had mentioned that you have some more ideas. You are doing a lot of R&D for producing certain more chemicals in the same complex. So I mean, can you throw some light? Is there any development there or some...

I think we have always been maintaining a stance that, first of all, we have obviously certain projects or CapEx is in the pipeline. First of all, we have completed, commercialized the C-PVC within a year's time as we have communicated to the market. SIOP, we will do the capitalization of 18,000 to 28,000 tonnes by 31st of March. The benefits of which you will see in -- partly in this year and full-fledged from next year. Apart from that, whatever projects we have are more into the value-added segment and also keeping in mind that we have to become chlorine-neutral. And we -- as of now, it will be premature to mention what we are thinking. In next quarter, I think you can expect the communication from our side on the future dealings.

Very nice, and I think you have concluded. But currently, sir, I mean, caustic soda capacity utilization will increase in the next quarter? Or will it remain stagnant?

It should remain stagnant because we don't see any immediate recovery in the caustic soda maybe from quarter 1 of next financial year, maybe we can see some improvement.

For the benefit of the viewer as well, we just wanted to say that, we have also invested in our solar renewable energy to take care of 25% of our power requirement, that would have some significant benefits coming into our power cost, but that would only happen from quarter 2 of next year. That only we will give us our leverage to go full capacity utilization for caustic because as of now, we're trying to balance the extra chlorine utilization plus the C-PVC coming in and this power cost reduction, and we'll see how well we can enhance the production.

Sir, the last time I had mentioned about rooftop solar also within the factory premises, is there anything being done for that?

Rooftop solar doesn't produce enough for our requirement, plus whatever is generated within the complex, you cannot bank because solar -- the entire business model works on you're having an ability to bank the additional generation so that which you can use when the solar is not getting generated. So for that essentially, there has to be an export of the surplus power, which is not allowed as per the current rules in the Tamil Nadu government. So necessarily you have to put a project outside your complex, by which you can draw the power through the grid and whatever is the surplus, you can bank and which you can utilize in the PM hours when there is no solar grid.

Set off -- this will be a set off from our consumption. And in Gujarat also, this is not suitable, sir, at our Dhrangadhra plant?

Gujarat, we don't consume so much of power because Gujarat our soda ash is more steam dependent. So it makes no commercial sense for us to go for any solar because our power requirement is not significant. In anyways, we need to generate power for the sake of generating steam.

For generating steam, these days, many people are shifting to LNG. I mean, if at all, this is a feasible idea for us to save energy.

Per se, it is apparently expensive. We are also evaluating, but it looks to be an expensive proposal as on date. Because co-generation of power and steam is more cheaper in terms of generating only steam using LNG.

Largely, we use coal everywhere for our power requirement and steam requirement. Is that correct, sir?

Yes. Coal in Dhrangadhra, we use the combination of lignite and coal. In our Sahupuram complex, we use coal.

That's also fully imported. I think we use fully imported only?

Yes. Yes. Yes.

[Operator Instructions] The next question is from the line of Sahil Jain, an Individual Investor.

So a couple of questions from my side. So the first one is, when do you anticipate a recovery or improvement in the pricing dynamics for the chemical products?

See, we are seeing some early signs of some recovery, but like told by our CEO, I think we expect the price recovery will gradually happen somewhere from quarter 1 of next year. The demand remains strong. It is only the price that is what is really pulling us down, because for all our products, we are seeing significant continuity of the domestic demand. Only thing is because of dumping from most of China and other countries, we are seeing a pressure on our realization.

Okay. And the other question is, do we anticipate further correction in the prices of chemicals in the coming quarters?

I don't think so. There could be some marginal correction, but I think prices have more or less bottomed out. I think from henceforth, we will see some period of prices getting stable, and then we can see -- if the international demand improves, we can see some signs of price recovery. But to get the prices stabilized, we feel that will happen in the next quarter.

Okay. And also in the light of prevailing conditions in the chemical industries, could you provide insights into the company's revenue guidance for FY '25?

So we would like to refrain from giving any guidance on the top line or the bottom line for the next year. All what we can say is that the C-PVC CapEx, what has been concluded, you will -- in current year, you will get the benefits of a couple of months of revenue and bottom line. Next year, you have an annualization benefit of that. That means we would be having the benefits of our C-PVC top line and bottom line going up. It's a 35% margin business for us even at current prices, and we think that would boost up significantly our bottom line. Secondly, we have the SIOP capacity buildup for 28,000 tonnes from 18,000 tonnes, and that's also our 35% to 40% business for us into the specialty segment. So there is a runway of 7,000 tonnes, 8,000 tonnes of additional production to be sold. So I think the numbers would look significantly better even if the prices continue to be maintained at this level. We will also have the advantage of the power cost reduction by way of investment into renewable. So all put together, I think the numbers would look pretty much better than what you see today for our -- in our financials. The important thing is that we have got the work done this year. Amidst all these problems, we have almost concluded all our projects and invested in the renewable. The benefits of this will get reaped in the next year financials.

[Operator Instructions] The next question is from the line of Parth Vasani, an Individual Investor.

Am I audible?

Yes, please.

I just wanted to understand in terms of like -- I was just trying to understand the realization for the caustic soda. So the revenue that we laid for Q3 is around INR 75 crores and the quantity is around 17,000 to 18,000 that I can see from the presentation. So is it -- if I divide that, then the realization generally comes around INR 43,500 crores. So is it the right way of looking at it or...?

No, no, no. Caustic division comprises of revenue from all other products as well. So it is not per se only the caustic soda price. We also have synthetic rutile, chlorine, trichloroethylene and Utox. There are many products, which consist of -- which form part of the Caustic division. So it will not be prudent to divide the revenue by the quantity.

So what would be the realization for Q3, if you can give?

Of what? Come again?

For Caustic Soda, what would be the realization in FY '24?

I think -- it was around INR 30,000.

INR 30,000. Okay, okay. Okay. So that is the ECU, after considering the ECU portion, right?

No, the ECU will be lower because this is accounting realization what we are talking because the chlorine will also have a separate realization. The loss of sale of chlorine has to be deducted from INR 30,000.

Got it. Okay. Okay. Okay. Understood. And chlorine would be generally somewhere around INR 3,000 or INR 4,000 kind of a negative, right?

Yes. Yes.

Okay. Okay. And the second question, similar lines, as I saw from the presentation, the C-PVC, the top line is around INR 51 crores in Q3, and the production quantity is around 4,000. So the realization that I divide so that comes around INR 1,27,000 kind of thing. Is that the right way of looking at it?

No. No. That may not be the right way because not all it produced would have got sold. So I think that is not the right way. I think the realization will be I would say, north of INR 130,000, INR 135,000.

Okay. So okay. Last -- okay. So is that -- by how much percentage it would have come compared to the last quarter?

It's come down by 8% quarter-on-quarter.

8%.

Yes.

Okay. Okay. And the new -- and I can see the new plant that we have commissioned that we have started to getting the production from that as well, if I'm not wrong, right?

Yes.

Yes.

Okay. Okay. And by what time do you expect that also to ramp up similar to what we [indiscernible]?

We have commissioned the plant on 31st of October to be precise. And then I think we had only 30, 35 clear working days because we lost 10, 12 days of flood and all those things. And there will be a gradual ramping up. What we expect is that quarter 4, we would see around -- for the new facility around 50% to 60% phased up and maybe from quarter 1 of next year, we see the full capacity sold out in the market.

[Operator Instructions] As there are no further questions, I now hand the conference over to management for closing comments. Thank you, and over to you, sir.

We hope, that we have answered all your questions. And if you have anything further you'd like to know or ask about the company, please reach out to our IR managers, Valorem. Thank you everyone.

Thank you.

Thank you.

On behalf of DCW Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.