DCW Limited (DCW) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 and FY 2024 Earnings Conference Call of DCW Limited hosted by Valorem Advisors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Purvangi Jain from Valorem Advisors. Thank you, and over to you, ma'am.

Good afternoon, everyone, and a warm welcome to you all. My name is Purvangi Jain from Valorem Advisors. We represent the Investor Relations of DCW Limited. On behalf of the company, I would like to thank you all for participating in the company's earnings call for the fourth quarter of the 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 the 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. Now let me introduce you to the management participating with us in today's earnings call and hand it over to them for their opening remarks. We have with us Mr. Saatvik Jain, President; Mr. Amitabh Gupta, CEO; Mr. Sudarshan Ganapathy, COO; and Mr. Pradipto Mukherjee, CFO. Without any further dealing, I request Mr. Saatvik Jain to start with his opening remarks. Over to you, sir.

Thanks, Purvangi. Good afternoon, everyone, and welcome to DCW earnings call to discuss quarter 4 and FY '24 performance. We will start today's call with a brief on the industry and also moving on to the company's performance. It has been an extremely difficult year for the chemical industry across all products. The global sentiment has been weak, fueled by weak demand in China, leading to excess imports into India and also weaker exports. Demand in India is not lacking, which is a big positive for the domestic market. So moving on to the industry dynamics of our products, we'll start with soda ash. There has been an increase in production of soda ash internationally. The increase in supply, along with weaker demand in U.S. and Europe has resulted in an oversupply situation, putting pressure on pricing. This year, however, we do not see any capacity additions, which we feel will lead to a rebalance in the supply-demand situation globally, bringing in some stability. The cheaper imports not only are putting pressure on pricing, but have also resulted in the domestic industry operating at lower capacity utilizations. For us, most of the year, we have operated at lower utilizations due to our own mechanical issues at the plant, as we have already discussed earlier. These are being resolved, and we hope to be producing at around 85% utilization in this fiscal. Like soda ash, PVC also suffers in the domestic markets due to cheap products being dumped from China. However, the prices are gradually getting stabilized, indicating robust demand from downstream piping sector. The PVC pipe industry is set to score a hat-trick of double-digit volume growth of 10% to 12% year-on-year in this financial, signaling a strong demand from the end user industries. Owing to this, PVC demand is expected to remain strong and is growing at around 8% to 10% per annum. Tightening of ocean freight across Asia are expected to increase the international PVC price announcements from major Asian PVC producers for June shipments. As for caustic soda, irrespective of the global situation, the oversupply in the domestic market itself is a challenge. With the ECU being under tremendous pressure, domestic industry has been operating at below 80% utilization. Moving on to synthetic rutile. The market situation in terms of TiO2 demand in China is improving, though there is still a severe pressure on pricing. Unlike quarter 3 of last year, we have seen some movement of our buildup inventory in quarter 4 and are seeing improvement in the demand situation from quarter 2, quarter 3 of this year into China as well as into other markets. As for C-PVC and synthetic iron oxide pigment. There have been significant contributors for DCW in this year. There has been severe pressure on pricing of C-PVC, again due to Chinese imports. However, as the demand remains strong and is growing, we are adding capacity this year and have achieved our highest ever C-PVC sales. Our new capacity is now operating, and we are producing at around 100% utilization. As for SIOP, even with the weaker pigment demand in the international market, we have managed to achieve our highest ever sales for this product. Work on our line balancing CapEx is complete and are on the verge of commissioning. Commercial volumes, however, will catch up with a lag effect. Despite challenges in the chemical space, DCW has shown its resilience with continuous focus on specialty chemicals over the last couple of years with investment in the segment, yielding reasonable stability to our bottom line and has helped the company tied over the depressed environment in the commodity segments. The Specialty Chemicals EBITDA for the quarter stood at INR 46 crores as against INR 34 crores in the same quarter of FY '23. Even in this environment, we have managed to post an EBITDA shy of INR 200 crores for FY '24. For the first time in many years, we have our finance cost for the FY at a normalized level of INR 74 crores and have maintained our credit rating at A. Our long-term debt has also reduced by INR 100 crores this year. Our investment in the renewable energy project is also underway and are hopeful to start drawing power from this from the second half of FY '25. With our investments completed towards the end of FY '24 and the market situation improving, we see the benefit significantly picking up in the second half of this year and are overall hopeful for a better fiscal. With that, I request our CFO, Pradipto Mukherjee to brief you on our financial performance. Over to you, Pradipto.

Thank you, Saatvik, and good afternoon, and welcome to the quarter 4 FY '24 earnings call. The financial highlights for the quarter is as follows. The revenue stood at -- the revenue for the quarter stood at INR 622 crores as against INR 398 crores last quarter and INR 588 crores in quarter 4 last year. This is an increase of 56% quarter-on-quarter and approximately 6% Y-o-Y. The increase in top line was driven by higher sales in SIOP and C-PVC, also marking our highest ever sales for the quarter. With early in shoots in export demand, the SR volumes for the quarter was also highest ever. However, there were certain cut-off benefits which accrued in this quarter from Q3. The PVC price and volumes remain stable, with a slight improvement in net realizations are being witnessed currently. The demand for caustic soda, lye and soda ash remained subdued, with prices continuing to correct, however, at a lower pace. The price correction was also witnessed in SR and C-PVC quarter-on-quarter, but it is expected to remain stable from here on. For the EBITDA, we clocked a number of INR 69 crores compared to INR 24 crores last quarter and INR 104 crores in quarter 4 of last year. It's 1.9x higher quarter-on-quarter, but a decline of 34% year-on-year. While there was price correction across all our product segments, the input cost did not see any meaningful correction. This has resulted in a margin pressure for the company. For the current quarter, we clocked at 11% margin as against 18% in quarter 4 of last year. Our continued focus and investment in the specialty segment has resulted in providing stability to the bottom line. The share of specialty EBITDA for the quarter rose to 67% as against 34% in quarter 4 of last year. The absolute EBITDA as already mentioned by Saatvik, stood at INR 46 crores for the quarter as against INR 35 crores in quarter 4 of last fiscal, an increase by 33% year-on-year. For the year as a whole, the revenue stood at INR 1,872 crores as against INR 2,634 crores in last fiscal. The dip of INR 762 crores is about 29%. The drop in realization across board has resulted in an impact -- of price impact closer to INR 620 crores and lower volumes of soda ash due to continued technical issues, SR due to weak export demand has further contributed to the downfall of revenue. EBITDA margins for the year stood at 10% as against 17% last fiscal. The drop predominantly due to price erosions, as already mentioned, in our commodity segment, while C-PVC also witnessed a price erosion of 28%. The EBITDA for the year stood at INR 194 crores versus INR 443 crores last year, down by 56%. It's important to mention here that the specialty EBITDA for the full year stood at INR 135 crores, as against INR 115 crores last year despite our price correction of C-PVC, as mentioned, of 28%. Quickly to touch up on the balance sheet, the long-term debt stood at the year-end at INR 409 crores as against INR 504 crores last year, a reduction of approximately by INR 100 crores. The cash balance -- the cash maintained in the balance sheet at INR 170 crores as against INR 168 crores in the last fiscal. The current ratio, however, for the company dipped to 1.13 versus 1.38 last fiscal. This was due to subdued business performance for the year. It's worth mentioning that the company has also completed its major payment, for its growth project of INR 125 crores in C-PVC and SIOP, which was announced earlier. The company has also further invested INR 20 crores in group captive solar investment. The financial benefits of all the above investments are expected to accrue in a phased manner with FY '24, '25, while C-PVC already has been commercialized and favorable impacts have been witnessed in quarter 4. With this, we would be open for questions. Thank you.

[Operator Instructions] We have our first question from the line of Sanjeev Damani from SKB Consulting.

Am I audible?

Yes, you are, please.

Sir, actually, I would just request you to kindly give an appraisal of pricing and production capacities of SIOP, synthetic rutile and C-PVC now, we having expanded already. So at what monthly production rate, we are running these plants? If you can kindly tell me.

Good afternoon. After our investments in the SIOP plant, we are running practically to about 55% of the capacity. We are doing about 75 tonnes per day against the installed capacity of about 85 tonnes per day. Synthetic rutile, we are running to practically full production. And C-PVC also, we are running to our full production.

But can you kindly -- C-PVC now at 20,000 or even more because previously, we used to produce some 13,000 tonnes against our capacity of 10,000 tonnes.

13,000 tonnes is a combined capacity, including the compounding. So the resin capacity stands -- which was standing at 10,000 tonnes that has become 20,000 tonnes now.

Okay. So I mean...

Standing at full capacity of 1,800 tonnes a month approximately.

Approximately. Sir, so 20,000 tonnes per annum is our resin capacity. And when we convert it into compound, C-PVC compound, then the capacity gets enhanced by how much percentage, sir?

2,000 tonnes roughly by 20%.

Roughly by 20%. And when we do -- we get compound out of resin, then we have to add certain things from outside purchase item or within our in-house item we are adding there?

No. Compounding chemicals, we don't manufacture so it is our purchased items.

Okay. Okay. Okay. So for us, margins are same whether we sell resin or we sell compound?

No, value add [indiscernible] more or less you can say it's the same.

Okay. So when we sell compound, our margins are better, sir. Regarding synthetic rutile, I could not understand the figures that you have spoken. What is our capacity and how much we are producing per month these days?

So post our investments into the capacity -- the debottenecking in CapEx -- so synthetic rutile, our capacity is 40,000 tonnes. So we have been producing, let's say, at 90%.

Okay. So 40,000 per annum or it is per month?

Per annum, sorry. Per annum.

No problem. No problem. And we are running at 90% there also. Sir, last time, in past conference, you had mentioned about yellow SIOP, which will go to America and has gone for American approval. So is there any development to be understood about that product?

No, no. All our products are very well approved. Like today, America is our biggest buyer. And practically, 60% of our production is exported. And our product is very well accepted by the buyers over there. So we are frankly, our quarter 4 sales shows, we sold total 8,000 tonnes, out of which practically 60% was exported and balance was in the domestic sales.

Okay, sir. Okay. So sir, is there a further sign of improvement in American consumption in days to come? Because they are also now coming out of recession or something like that, slowdown. So can we estimate that we can export more?

We will not try to keep all our eggs in one basket. So we will be exploring other international markets as well and as well as the domestic market. So for the time being, even though the consumption in the U.S. may improve, but I think we will be concentrating more on the other markets than USA all alone.

Okay. And red and yellow only 2 type of SIOP we are manufacturing or even more, sir?

We make red and yellow. Now very recently, we have come up with the black, which samples have been sent to the buyer. And the initial report, which we have got is it is very well accepted by the buyers.

Okay. So sir, this time we produce 8,000 metric tons. So how much we can raise it to -- this is 8,000 metric tons on quarterly basis sir, am I right?

Yes, that's true.

So sir, how much we can further improve on this for capacity?

No. Let me clarify that 8,000 tonnes was not a production in the quarter, it was a little less. But then some of the stock went from the -- some of the sales went from the stock. So I think at best, we can think of producing about 2,500 tonnes in a month.

In a month, okay. Thank you very much, sir. All the best. These were very difficult periods. But regarding PVC, can we see margin improvement in coming days in the domestic market?

Yes. We are seeing early signs of market improvements coming, but it's too early to celebrate our results. We have to see whether these are sustainable.

Sir, one fine point if I can touch upon, I was studying Epigral, so I mean, are we planning to add certain products, which we are not making and Epigral is making that is Meghmani Finechemical.

We have a separate strategy game, they will look into it. If it fit in our chemistry, and then we will act accordingly.

[Operator Instructions] We have our next question from the line of [ Parth Chauhan ], our shareholder.

So I just wanted to know that in light of the prevailing conditions in the chemical industry, can you give some insight on the company's revenue for the upcoming periods?

So we -- it would be very difficult as of now to give a guidance on the revenue. However, having said that, whatever revenues we've done this year is on a depressed price as what we have seen. And the prices have gradually fallen over the year so there -- so yearly revenue what you see is basically average of those prices, right? Now what we are doing is we are only trying to focus on increasing volumes so far as our specialty segment is concerned where we see aggregated margins. Now that's where -- with that thought, we had invested to double our capacity into C-PVC and also debottlenecking SIOP. So to put a number in such a volatile situation would be difficult on the revenue side. But these are the drivers so far as our growth is concerned for next year. Like C-PVC, our CapEx has been done. So we would be operating at a capacity of 20,000 metric tons per annum. We are buying capacity of 27,000, 28,000 tonnes of production of SIOP, which we intend to reduce the time lag for sale and target of 25,000 tonnes of sales for next year. We concluded around 20,000 tonnes of sales this year, a 20% growth over there.

Understood. And secondly, I just wanted to know that moving forward, what would be the percentage contribution of specialty chemicals to the overall revenue coming forward?

So specialty chemical as a percentage of revenue is quite -- is not that much meaningful because specialty chemical is high price, low volume, with high margin, right? The idea to endeavor for the organization to put in specialty is basically to bring stability in the bottom line. In a year like this, you saw that our total profit for the company has come at INR 195 crores, INR 193 crores, INR 194 odd-crores, our 3 commodity segments would have only contributed INR 60 crores. The balance, INR 140 crores has come from the specialty. The idea is basically to put a stability to a bottom line and shift our mix towards the specialty segment. So our target is basically to take our Specialty EBITDA to more than 50% in the outer year.

We have our next question from the line of Rohit Nagraj from Centrum Broking.

Sir, if you could just give us individual segment-wise, what is the current market environment? Where are we in terms of cycle? And how do we think margins or overall demand probably would start improving in the next foreseeable future?

So we basically have 5 major product segments. In SIOP, we have been seeing our margins very steady of around 35%. We hope that would continue or maybe slightly improve because of the economies of scales of additional production coming in. C-PVC at current prices as well, we are seeing a 30% kind of a margin. PVC, we are a VC and PVC producer. The standard margin is 3% to 5%, but the profit stream happens because of the inventory. So when the PVC prices go up, we then report higher profits. If the PVC prices go down, we report a loss because of the effect of inventory carry. Soda ash roughly is a stable business, which gives 18% to 20% kind of a margin for us. We have been bit challenged because of the technical issue to operate the plant at 80%. Once we go to a 100%, we think we should be north of 20% in terms of steady margin. And what else. I think caustic, caustic obviously, as of now, the current prices have still been falling. So quarter-on-quarter, there has been a reduction. We have now been operating caustic not for profit because it's not yielding profits. We are basically operating caustic to derive the inputs for synthetic rutile and C-PVC. That is chlorine and HCl.

Right. And just from the industry demand perspective in each of these segments, I mean C-PVC that its import substitute, so whatever we produce, we will be able to sell it. But for the other segments, how has been the demand from the domestic market and again a similar thing from the exports for the product which you are doing?

All products, I think, except caustic soda, I think we are in a reasonably good place in terms of the demand. Only caustic soda, we are seeing a surplus capacity in the domestic industry, which will have some pressure on the production, capacity utilization and margin.

Right, right. And one last, if I can squeeze in. So now our CapExs' are coming to fruition, how will be the incremental capital allocation we are looking at? Are we looking at any diversification into some other segments or the same segments we want to continue with higher capacity additions?

So I think as I've been -- deliberations in our previous communications, we're basically trying to meet our South facility become chlorine neutral by adding value-added products. So we have some work to go additional CapEx to come in, in our South facility to make the facility totally tied up and balanced in terms of chlorine, right, and also had growth through value-added products in our related chemistry. So that is a journey which we have to run for a year, year and a half maybe. Post that, we would have to venture into newer industries, which we've started discussion in the drawing board now. Bit premature for us to communicate that now.

We have our next question from the line of [ Parth Chauhan ], an individual investor. As there is no response, we'll move on to the next participant. We have our next participant from the line of Giriraj Daga from Visaria Family Trust.

Yes. My first question is would you be able to share the volume -- sales volume detail for FY '24 for each of the segments?

Could you be a bit loud, please.

Am I audible now?

Yes.

So would you be able to share the sales volume number for FY '24 for each of the segment?

I think we intend to sell our capacity in the next year -- I mean, last year or what are you talking? Are you talking for the years gone by?

First, I'm asking for FY '24 and then the guidance for FY '25 sales volume number.

I think we have done -- I mean, we had operated at around the capacity -- production capacity for -- we started caustic and synthetic rutile, so synthetic rutile, we had operated at 80% capacity, the sales were at 75%. So basically there was some inventory buildup over there. SIOP, we had worked at 65 tonnes per day as capacity which is 18,000 tonnes odd. We have done -- we've surpassed that capacity and we have been whispering distance of sales to 20,000 tonnes for the last year. Caustic soda we would have done 210 tonnes to 215 tonnes all throughout the year per day and have sold that. So I would off hand probably able to tell the quantity, but I can just check and get back. C-PVC, we have done 10,000 capacity from the old plant and around 2,000 tonnes from the new plant, so 12,000 that's quarter 4 additions. Rest all, soda ash we've operated at -- I mean we sold 80,000 plus odd tonnes and we have produced that much only. PVC at around 1 lakh tonnes production in sales.

Okay. And the idea was to get the inter segment also. So like C-PVC we have mentioned production of about 14,500 for the full year. So I'm assuming that sales will be roughly about similar 14,000 level, right?

That is C-PVC. Yes, you're right. So our sales would be around 14,000 tonnes per annum. So we have sold -- so we have not built up inventory in PVC and C-PVC. We have built up inventory in SR and SIOP.

Okay. SIOP we have mentioned 21,570 is the production number, you have mentioned sales...

Yes, we have been -- we have sold around 19,800 tonnes approximately.

Okay. 19,800 and then this number is expected to go above 25,000, 26,000 this year, right?

That's what our intent is.