DCW Limited (DCW) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '25 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 first quarter of FY '25. 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. Let me now 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 delay, I request Mr. Saatvik Jain to start with his opening remarks. Thank you, and over to you, sir.

Thanks, Purvangi. And good afternoon, and welcome to DCW's earnings call for the first quarter of FY 2025. In the first quarter, we continued to witness ongoing dumping of commodity chemicals into India at depressed prices. This seems to be a common pain point for our industry across the board. On the demand front, export demand remained sluggish. Due to these reasons, we saw continued pricing pressure across most of our products. In Q1, our commodity segment volumes across most of our products showed marginal growth year-on-year, except in synthetic rutile. On the other hand, the specialty segment experienced a sales volume growth of 80% in both synthetic iron oxide pigment and C-PVC, supported by the enhanced capacity from the recently commissioned CapEx by our company. However, some slowness in SIOP volumes were seen in Q1 due to increased freight rates and natural seasonality. As I mentioned earlier, net realization across products saw price corrections, with caustic, soda ash and synthetic rutile decreasing in the range of 12% to 30% and the specialty segment prices also decreased by around 5% to 10%, while PVC prices remained firm due to higher inward container freight. PVC prices, however, we feel are not sustainable and have already started showing corrections as we enter into Q2. Global volatility and demand situation in China has put significant pressure on exports of synthetic rutile in both volume and price. However, we are seeing some green shoots from H2 of this year. However, this is later than we anticipated. Our company's strategic investments and increased capacities in specialty chemicals over the past several years have provided stability to the bottom line even in such volatile and uncertain market environment. EBITDA contribution of our specialty chemicals to our business has increased twofold year-on-year despite minor corrections in realizations. To further strengthen our position, we had made fresh investments during the last fiscal into our specialty chemicals business with double C-PVC capacity and line balancing CapEx to increase utilization of SIOP from earlier levels. The C-PVC capacity was completed on time with production ramping up from quarter 3 of last year. We are happy to state that Q1 was the first quarter with 100% production at the new capacity, which has helped in increased sales volumes. Additionally, our SIOP CapEx has been completed in the month of May with capacity ramping up slowly. Production volumes in Q1 were up almost 15% compared to the average of the last fiscal. We expect gradual increase in sales and full benefits to accrue from this from H2 onwards. Our investment in the renewable energy project is also underway and is on track for expected completion in H2. With the current capacities online, we are consuming almost 70% of our chlorine internally, up from 65% as mentioned at our earlier interactions. Our aim is to be chlorine-neutral by FY '26 with consumption in value-added products while keeping our debt numbers in check. In the coming months, we expect commodity chemical prices to remain subdued due to excessive dumping at low prices, while specialty chemicals are anticipated to perform with a stable pricing situation and added volumes. This FY like last year, we expect that our company's performance is going to be skewed towards the second half of the year. With that, I now request our CFO, Pradipto Mukherjee, to brief you on our financial performance. Over to you, Pradipto.

Thank you, Saatvik. And good afternoon, and welcome, everyone, to Q1 FY '25 earnings call. The revenue for the company in quarter 1 FY '25 stood at INR 500 crores as against INR 438 crores in quarter 1 of last fiscal. This is an increase of 14% despite an overall price impact across all our product segments, affecting the overall by 10%. Barring the PVC division, where the prices were formed up in quarter 1 in the current fiscal due to increase in import prices on account of container freight, all our products witnessed price erosions. The Y-o-Y major price erosions have been witnessed across soda ash, caustic and synthetic rutile. C-PVC also had some price erosion on account of excesses dumping from Southeast Asian countries. It's important to note here that the volumes across all our commodity segments were maintained with a positive bias and the specialty segment, namely C-PVC and the SIOP volumes increased by 80% at the back of commissioning of the last announced CapEx. On a quarter-on-quarter basis, the revenue dipped from INR 621 crores to INR 500 crores, a dip by 20%, while the prices remained fairly stable across all -- across the quarters. The major impact in revenues was on account of lower sales volume in synthetic rutile. The dip in synthetic rutile volumes were partly attributed to sluggish export demand and partly due to the fact that Q4 of last year had favorable volumes due to cut-off effect of Q3 sales, where we had a flood effect in Sahupuram facility in the last week of December. SIOP volumes on a quarter-on-quarter basis was also at lower due to normal seasonal factor of our export sales. Now coming to the EBITDA. The EBITDA for the quarter stood at INR 51.5 crores as against INR 55.1 crores in quarter 1 of last year, a drop by 6.5%. The margins for quarter stood at 10% as against 13% year back. The EBITDA from specialty segment, that is C-PVC and SIOP, stood at INR 47.8 crores as against INR 24 crores in quarter 1 of last year, effectively showing a double -- doubling of profit. The profit doubled that on increased volumes as has been mentioned -- as of just now we mentioned. The EBITDA margins for the specialty segment dropped at 36% as against 33% in quarter 1 of FY '24. However, the commodity segment, which is soda ash, PVC and caustic division, put together achieved INR 3.5 crores of profit in this quarter as against INR 31 crores in quarter 1 of last fiscal. This drop in EBITDA was solely attributable to the falling prices witnessed across the comparative period. On a quarter-on-quarter basis, the EBITDA for the company also dipped from INR 68.9 crores to INR 51.5 crores, a drop by 25%. The margins were at 10%, as mentioned earlier, as against 11% in quarter 4 of last year. The specialty segment profit stood at INR 47 crores as against INR 46 crores in the last quarter, a stable EBITDA margin of 36% across both the quarters. The commodity segment put together with this an EBITDA drop from INR 22 crores in the last quarter to INR 3.5 cores in this quarter. This dip is predominantly due to the caustic division, while there was a briefly pricing impact on caustic as well as SR. However, as mentioned earlier that there were some cutoff sales in quarter 4 from quarter 3 of last year, and which also had a base effect in the EBITDA for quarter 4. Finance cost for the company for the quarter stood at INR 16.9 crores as against INR 17.2 crores a year back and INR 19.9 crores in quarter 4 of last fiscal. Depreciation for the quarter was recorded at INR 24.5 crores as against INR 22.75 crores in quarter 1 of last year and INR 24.4 crores in quarter 4 of last fiscal. The company continues to remain in the old tax regime at 33% to utilize the accumulated [ VAT ] credit benefits in tax payments. The PAT for the company for FY '25 stood at -- quarter 1 FY '25 stood at INR 6.7 crores as against INR 15.5 crores in quarter 4 of the last fiscal. With this, we can open the floor for questions. Thank you.

[Operator Instructions] The first question is from the line of Pujan Shah from Molecule Ventures.

Am I audible?

Yes, please. Yes.

Sir, first question would be on the caustic soda division. So just wanted to...

I'm sorry to interrupt, Mr. Shah. Sir, your audio is not clear. Can you use your handset device?

Sure, sure. Hello?

Yes, now much better.

Okay. Sir, just wanted to understand on the caustic soda division. So if we look there is a clear dumping going from the industry. So how we have been witnessing in coming quarters? Are we feel that prices have been bottoming out or still there will be a continuous dumping pressure? Will we keep the price -- keeping the price intact or like there will be erosion -- still erosion would be there in terms of demand or like outlook on the demand as well as the price?

Good afternoon, Amitabh Gupta here. Well, caustic, I think it has bottomed out. Frankly, there is no scope for any further reduction in the prices of caustic soda, whether internationally or local, because chlorine itself is under tremendous pressure, which is pretty negative for all the manufacturers. So I think the caustic prices what we are seeing today is the lowest, which we can think of. There's no scope of it going any further down. But then there is no scope of it going further up also because there is enough capacities available. There are enough unutilized capacities available worldwide, in India. So I think price will be more or less at this level what they are today.

Okay. And sir, on the -- I will just continue with the same question. So if we look at the chlorine, we have been becoming the -- we are consuming internally in terms of chlorine. So we don't have to pay for the -- for disposing of the chlorine. So are we seeing any improvement in terms of capacity utilization in caustic soda because now we will be internally using and eventually it would help us to increase our caustic soda capabilities?

Yes. Positively, we will be increasing. I think within the next 1 month, we will be working to almost increase by about 15% increase in our production now. And I think in a very short time, we will be running to our full capacity, which will be about 250 to 260 tonnes per day.

Okay. Okay. Got it. And sir, any comment on the C-PVC as we have been hearing that there is an antidumping duty decision being made like it is for the -- currently it's in the review. But are we looking any positive outlook due to such a dumping from East Asian countries? So are we positive on that part?

Yes, we are very much positive because already the Commerce Ministry has recommended continuation of the antidumping duty in a definitive -- with a definitive duties on China and Korea. And we are waiting for their notification from the Finance Ministry, which should happen any time. But the duties are set to expire in the last week of August. So we expect before the expiry of the current duties, the new notification is expected.

Okay. And in terms of prices, are the prices has been inched up due to expectation of ATD or the prices have been in the similar range of due to the dumping issues?

What was happening earlier was that there was a misuse of the duties recommended by the government by certain importers who were invoicing the product and having some out-of-the-books adjustment. And -- which I believe corrective steps has been taken. And with this duties getting converted into a definitive duties, certain duties, we feel that the misuse of imports will stop, which will help us to maintain the price.

The next question is from the line of Madhur Rathi from Counter Cyclical Investments.

Sir, I wanted to understand...

Sorry to interrupt. Mr. Rathi, your audio is sounding very soft, sir. Can you speak with your...

Is it better right now? Is it better right now?

No, sir, it's still the same.

Hello?

Sir, it's still the same.

Yes, am I better as now?

Sir, slightly. Please proceed.

Sir, I wanted to understand regarding our synthetic rutile segment because as we understand that another player, Cochin Minerals as well as some Kerala Rare Earths and all, so there is an issue with ilmenite. So I wanted to understand how is our raw material sourcing for this product? And do we make the same product as these other players?

I didn't get you. What is...

We did not able to hear your question clearly.

Sir, I wanted to understand regarding our synthetic rutile segment. Sir -- so the main thing in this segment, as you understand, is the ilmenite, which is in shortage in our country. And similar -- the shortages for Cochin Minerals as well as the Kerala Rare Earths and Minerals. Sir, I wanted to understand how is our sourcing arrangement in this segment as well as do we make the same product as other players? Or is our product different from the other players like in the synthetic rutile segment?

See, first and foremost, I don't think there is any shortage of the product because it is freely importable as OGL, and there are many suppliers worldwide who are supplying their raw material to India. And most of the people like KMML and all others are also importing. And even we used to import as and when we have a requirement. Apart from this, we are also getting supplies from Indian Rare Earths Limited, which is the Government of India owned company. So I don't foresee any shortage of these raw materials.

And sir, is our synthetic rutile is similar to other players? Or are we into some differentiated synthetic rutile?

No, no, which players you're referring to? Unless you are more specific, we cannot...

Cochin Minerals and Kerala Rare Earths.

As I see Cochin Minerals -- no, no, what is the other company you said, Cochin Minerals and...

Kerala Earths.

Sir, Kerala -- KK -- sir, KA...

No, no, you are talking about KMML, Kerala Minerals and Metals Limited, correct?

Exactly, yes.

Okay. So KMML is not in the marketing or selling of the synthetic rutile which we make. They make the final product, which is a pigment, titanium dioxide pigment. So they are not in competition. As a matter of fact, they are buyer of this product on and -- off and on, okay? CMRL and DCW are in the same segment, same businesses. But then CMRL also makes an inferior product, which we are not. And this product goes in the manufacture of cheaper varieties of titanium dioxide pigment or this. So frankly, we are -- basically, we are the only two producers. And yes, they also make the high grade of about 94%, 95% TiO2 containing synthetic rutile. And we are also doing the same. But we are not in the lower-grade of synthetic rutile, which is about 88% to 90%, okay?

Okay, sir. That was very helpful. Sir, my next question would be, sir, in the C-PVC antidumping circular, you have guided that we'll make an additional investment of INR 150 crores for a 200 -- sorry, yes, for additional 20,000 metric tonnes of C-PVC, sir. So do we have some kind of time line for this? Or please correct me if I'm wrong...

See what I would mention, as I said earlier, our aim is to become chlorine neutral in the short term. And along with C-PVC, there are many other ideas which are on the drawing board, which we will communicate at the opportune time once we have decided which way we want to move ahead. And of course, our CapEx will be dependent on the financial position of the company at the time, the capital requirement for the project and, of course, the turnaround time. So we will get back to you once we have decided on what -- in which area our growth will be.

Okay, sir. Makes sense. Sir -- and with this antidumping duty coming in, sir, can you share C-PVC margin moving from the mid-30% to higher 40 -- mid-40s kind of range?

Unlikely.

Sir, it will stay in the same range?

Yes, I think it will remain in the same range. I don't -- we don't foresee the -- you see, antidumping duties are not for profit earnings. So I think let us be clear. Antidumping duty is to only protect the domestic industry and allow more investments to come, which we have seen because if the duty come in, we have seen the domestic capacity is increasing, which is also set to increase more. So dumping duties are not for profit earning. It is only to allow and encourage more investments into India.

Okay, sir. Sir, just a final question. Sir, what is the outlook, if you can give me for this full year for revenue as well as margin terms, just a broad range would work?

See for the -- in terms of guidance, what you're asking for, we generally would refrain from giving any guidance number. I don't want to mislead any investors due to immense uncertainty in the global geopolitical environment, which is keeping our industry under extremely, extremely dynamic. However, as you can see, we are doing our best in these uncertain times, keeping our costs in control, maximizing our utilization and also adding capacity in value-added products. So I think you can use that as a baseline to work out what it could possibly be.

[Operator Instructions] The next question is from the line of Karan from Invexa Capital.

Am I audible?

Karan, we are not able to hear you.

Am I audible now?

No, sir, your audio is sounding very soft.

Now? Is it audible now?

Yes, sir, please proceed.

Sir, can you give me sales volume for the quarter across the product segments?

Excuse me, could you repeat the question? We did not follow that.

Sir, I wanted sales volume for the quarter across the product segments.

So I think the Investor deck would have the volumes given over there. I think across all the products, it would be difficult for us to give you. But we have the Investor deck updated, we would have information provided.

Sir, on the deck, I think production numbers are given. I wanted sales numbers.

So I think we are -- we're giving the revenue numbers. I think the sales numbers, you can drop in a request, we will provide the information on a specific...

Okay. And secondly, sir, can you update me the current prices for PVC and C-PVC?

PVC current prices are around $850 import parity, $830, $850, which is around INR 77,000, INR 78,000 ex works, which is almost INR 80,000 lower than what it was in the last month. C-PVC blended is around INR 150,000, which is a blended cost, which includes the compound [indiscernible] We don't give the breakup separately. So it's around 145, 150.

And what was the price for SR and SIOP?

SR prices are dynamic price because you don't have -- it all depends on which geography you're exporting to because the prices that we sell into China are usually lower than the prices we sell to the Japan and other countries. So you cannot have any benchmark of the price. What we can say is that the prices -- so weighted average prices as of now is prevailing from $1,000 to $1,250 per tonne.

This is for SR?

This is for SR, yes.

And for SIOP?

SIOP, we'll be close to $1,000 -- $900 to $1,000 approximately FOB.

And sir, what was the reason for EBIT level loss for soda ash? I think you have -- sorry, you have marginally met profits. So why was the profit down this quarter? Have the prices fallen much below the quarter 4 level?

In the soda ash, we have been anyway operating at 75%, 80% capacity from the quarter 2 of last year. In the first quarter -- I mean, the current quarter, we had certain multiple small, small stoppages -- passages of -- stoppages of production. We've also had a revamping of our old scheme and put into line for which we have couple of days of shutdown as well. Those would have piled up, and the productions were a bit lower -- a bit on the lower side, but things are back to normal from this quarter onwards.

So what is your realization for soda ash?

So we would be operating at around 80%, 85% capacity for the rest of the year.

So what is your realization...

I beg your pardon, please?

What is your realization for soda ash?

Realization?

Yes.

Realization would be around INR 25,000 per tonne.

Sir, are you done with your question?

Yes, yes.

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

[Foreign Language] Sir, I hope I am audible?

Yes, yes, [Foreign Language]

Sir, first thing I want to know that in current quarter also, are we losing money in caustic soda like this? We incurred a loss of INR 20 crores in that segment. So I'm just worried and want to understand that are we still losing money in caustic soda or there is somewhat improvement or we are at par now?

No, so for the current -- the quarter which went by, in that, we had a couple of challenges. So one was there was price erosion so far as caustic is concerned from quarter-on-quarter by another 3%, 4%, which we think more or less is a bottom. We also had our export sales for synthetic rutile, which is subsumed into the caustic division as a -- I mean, into the China predominantly and the exports were a bit lower because of the sluggish demand in the metal business -- metals as well as TiO2 pigments. So we are looking into opportunities for talking with the customers. And I think the situation from H2 would dramatically look better.

Okay. So July has gone by, and we are now passing almost 15 days of August. So I mean, here onwards, are we at par or if you can give some idea, sir, so that we can make our estimates?

Yes, I mean this quarter that is quarter 2, we don't see any major shift of profitability or -- I mean profitability for the company as a whole. In fact, we see more pressure in the profitability for quarter 2 because we had an upside of PVC profits in this quarter after many quarter, which there is the price corrections would come down. Rest all businesses, while our specialty, which is an SIOP and C-PVC, will further we expect to make a bit more of a profit. But rest all businesses more or less look same, with soda ash obviously improving of as we would expect.

Okay. So we are expecting some improvement in soda ash as noted because that was also I wanted to know. So sir, now I'm coming to SIOP. Sir, synthetic iron oxide pigment and synthetic rutile, are the same or they are different products, sir?

No, no. They are absolutely different products. Synthetic rutile is titanium dioxide, which contains 95% titanium dioxide. And SIOP is iron oxide. So synthetic rutile is used to produce titanium dioxide pigment or titanium metal, whereas iron oxide is used, it's like a coloring agent in the construction industry. It is mixed to the cement and used for plastering the outside walls and also in the paint industry as a coloring agent. So they are absolutely two different things altogether.

Okay. So we sell synthetic rutile also to outsider And from this synthetic rutile, we'll make SIOP and also sell it. Am I right?

No, no. We don't make iron oxide from synthetic rutile, okay?

Okay, okay.

Because synthetic rutile is used to make titanium dioxide pigment and titanium metal. And iron oxide is absolutely different thing altogether. For that, we use iron [indiscernible], iron scrap, okay?

Okay. So sir, this synthetic rutile figures are not given in our presentation. So any reason for this?

Synthetic rutile is a product which is subsumed as a part of caustic division. I think, sir, to answer your question, we have not made a segment product-wise. We have only evolved as a part of our JV, wherein we have created two new segments, which are included specialty individually. Rest all segments were predominantly caustic, PVC, and soda ash, which we continue that way. And synthetic rutile has always been a product which is subsumed in the caustic division.

Okay. So the revenue and profitability of synthetic rutile is included in the caustic soda division...

Yes.

Thank you very much for the clarification. All the best, sir. And I hope that our synthetic iron oxide sales will increase in the next quarter because from INR 67 crores in last quarter 4, we have come to INR 48 crores. So I mean, are we likely to come to INR 60 crores, INR 70 crores in this quarter in synthetic iron oxide?

So just to answer, when we made our [indiscernible] we said that, see, synthetic iron oxide is likely what we have witnessed a seasonal product, where in quarter 3 and quarter 4, if you see historically, our sales revenue and profitability, whatever little history you have, was higher compared to quarter 1 and quarter 2. And this is a natural phenomenon. So on a year-on-year basis, if you see from last year to this year, quarter 1 to quarter 1 this year, we have gained around 80%, right? And on a year basis, when you see quarter 4, it will naturally go up quarter-by-quarter. But obviously, it will not come to that 8,000 did you see because as I told you, we had 3, 4 days -- a 10 days of flood activity -- flood in our South facility from 20th of December to 30th of December. We obviously quantify one bulk shipment, which was spilled over. But across all segments, some of the sales was spilled over to quarter 4, which either otherwise should have been in quarter 3. So quarter 4 for sales was a bit of an aberration.

Got it, sir. I congratulate for improvement in the margins in SIOP as a division. I really want to appreciate. We have much improved the margin here.

Thank you. Thanks for your comments.

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

Thank you, everyone, for your time today and for joining our call. I hope we have been able to answer the questions to your satisfaction. If you have any further questions, please reach out to our investment relations adviser, Valorem. Thank you very much.

Thank you, members of the management team.

Thank you.

Ladies and gentlemen, with that, we conclude today's conference. We thank you for joining us, and you may now disconnect your lines. Thank you.