Epigral Limited (EPIGRAL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Epigral Limited Q1 FY '26 Earnings Conference Call hosted by Emkay Global Financial Services Limited. [Operator Instructions] Please note that this call is being recorded. With this, I now hand the conference over to Mr. Meet Vora from Emkay Global Financial Services Limited. Thank you, and over to you, sir.

Thank you. Good evening, everyone. Thank you for joining us on Epigral Limited's Q1 FY '26 Results Conference Call. We would like to thank the management for giving us this opportunity to host them. On this call, we are joined with Epigral's management represented by Mr. Maulik Patel, Chairman and Managing Director; Mr. Kaushal Soparkar, Executive Director; Mr. Sanjay Jain, Chief Financial Officer; and Mr. Milind Kotecha, Investor Relations. I would like to invite Mr. Maulik Patel to initiate the proceedings with his opening remarks, post which we will have an interactive Q&A session. Thank you, and over to you, sir.

Thank you, Meet. Good afternoon, everyone, and welcome to the call to discuss Epigral's quarter 1 FY '26 performance. I believe you had an opportunity to view the earnings presentation that was released earlier on Saturday. Chemical industry is on the growth path, but a slower pace. Volatility was witnessed in quarter 1 FY '26 and is expected to continue on account of uncertainty on tariffs from the U.S. and also because of the geopolitical situation. However, domestic demand remains strong compared to the global demand. In the quarter ended June 2025, we had a revenue degrowth of around 6%, mainly on account of decrease in volumes due to the maintenance work happening at the plant and which will end by end of this quarter. We expect optimum utilization to start by end of quarter 2 FY '26 and also because of the early monsoon. Hence, we believe that second half of FY '26 will be better compared to first half of FY '26. But even in this situation, we were able to maintain our EBITDA margin of 27% on account of maintaining our efficiency level and because of a better product mix. Revenue contribution from the derivatives and the specialty business stood at 50%, and we expect this contribution to increase in coming years, along with the commissioning of reaching optimum of announced CapEx projects. Our CapEx projects of doubling capacity of CPVC resin and epichlorohydrin plant and 19.80 megawatt of wind and solar hybrid power plant are moving as per the schedule and are expected to be commissioned within the time line and budget announced. We expect this to strengthen our diversification and reach to a 70% revenue contribution from the derivatives and specialty business. This expansion, along with chlorotoluene value chain, which got commissioned in March 2025, are expected to drive growth in FY '27 and FY '28. The chlorotoluene value chain plant was commissioned in March 2025 and products are at various levels of approvals with customers. We expect to generate sizable revenue from this by the end of this financial year. Our quarter 1 FY '26 P&L numbers include depreciation and interest on the chlorotoluene value chain project without much contribution to the top line and bottom line. As mentioned earlier, we have also ventured into 19.80 megawatt of wind solar hybrid power plant. Once it is commissioned, our total plant capacity will reach to 38.14 megawatts as a hybrid power plant. Approximately 15% of total energy requirement will be met through green energy contributing towards the environment by reducing carbon emissions. On the future CapEx side, we are focused and working on 2 major things. First, in the current complex, even after CPVC and ECH doubling expansion, we will be left with a land parcel where we are evaluating a project to further strengthen our integrated complex and optimize on the infrastructure that we have invested. This project is at the evaluation stage, and we will announce details once it is freezed and approved by the Board. Second, as we have conveyed earlier, we have bought around 100 acres of the land in Dahej, just 1 kilometer away from our existing complex for expansion and growth for the next 7 years. At this new land, we are also evaluating new chemistry to have the next leg of growth beyond 2028. This new chemistry will be in line with the company's strategy, import substitution product where demand is expected to grow in double-digit percentage for next 10 years or so, and we can generate good ROCE. We have been working on this since long, and we are closer to finalizing the same and maybe in the couple of quarters, we will announce, once it will -- it is freezed and approved by the Board. In line with this plan, our team is focused and geared up to move forward in our direction of scalability and profitability, strengthening our integration and creating value for our stakeholders. I now hand over the call to Mr. Sanjay Jain, our CFO, who will take us through the financials.

Thank you, Maulik. Let me take you through quarter 1 numbers. Our overall plant utilization stood at 73% versus 76% in previous quarter. On a year-on-year basis, revenue dropped by 6% to INR 615 crores. This is mainly on account of lower volumes in quarter -- lower volumes. Revenue contribution from Derivative and Specialty business stood at 50% against 53% in quarter 1 '25. But as mentioned earlier, we expect to reach to 70% by FY '28. EBITDA and absolute value dropped by 7% to INR 163 crores. However, despite the lower utilization and decrease in volume, company is able to maintain EBITDA margin at 27%, and this is on account of operational efficiency. Till March '25, company was in old tax regime considering the benefit which were available such as additional depreciation, benefit of API and MAT credit entitlement. On completion of MAT credit available, company has reassessed its long-term growth strategy and consequential tax implication and shifted to new tax regime of 25.17%. This reduction of tax rate by 10% not only led to tax savings, but also improved profit after tax and EPS going forward. With shifting to new tax regime, the provision of credit deferred tax liability has onetime credit of INR 81 crores, thus resulted in increase in PAT to INR 160 crores in quarter 1 FY '26. If we exclude this onetime credit, the PAT stood at INR 79 crores. As such, the PAT margin increased to 26% in quarter 1 '26. In case if we exclude the onetime credit, the PAT margin remained almost at the same level of 13%. As mentioned earlier by Maulik, in quarter 1 '26, the PAT has also been impacted on account of interest and depreciation expenses of chlorotoluene project as the project is yet to contribute to top line and bottom line in a sizable manner. ROCE grew to 24% as of 30th June '25 versus 21% as on 30th June '24 due to improvement in earnings. Our net debt to EBITDA reduced to 6.06x as on 30th June '25 versus 1.6x as on 30th June 2024. This is mainly on account of reduction in net debt. In quarter 1 2026, company has spent almost INR 122 crores for ongoing expansion of ECH and CPVC. With this, we can now open the floor for questions.

[Operator Instructions] The first question comes from the line of Nirav from Anvil Wealth.

Sir, I have a few questions to ask. Sir, first is on the ECH. So out of our total ECH volumes, how much would be on spot and how much would be on contract?

So ECH is -- so ECH, it's running at almost 70% to 80% capacity plant. The exact contract and how much those details we are not able to disclose at this point of time.

Am I audible, sir?

Yes, yes, yes.

Nirav, sir, but there is some noise, sir, from your line.

Now, it is clear?

No, sir, not from your line. Sir, I think it is the mic.

It's not clear. It's still the same?

Now it's clear, sir.

Okay.

Yes. Sir, one more thing here, like when we see the ECH prices, which have recently strengthened. Sir, two things here. One, possibly we are using the crude glycerin for our refined glycerin plant and then converting to ECH. But when we see the delta in terms of the crude glycerin, the prices have gone up more than what we have seen the prices of refined glycerin going up. So any particular reason for the same why such discrepancy in terms of the prices between the crude and the refined one?

Sir, crude and refined, I think both are moving in the tandem only. So when the crude is increasing, the refined is also increasing in the same line. There is no differentiation in terms of the price to go up. But yes, you are right that the price of the glycerin has gone up recently, and that was because of -- it is because of I think the demand in the biodiesel is not picking up and the production of the biodiesel is slightly lower compared to the past. People are moving -- all the countries are moving to increase the biodiesel in their sustainability program compared to the diesel -- normal diesel, but that is not moving as the speed of biodiesel capacity is coming up. So -- but going forward, definitely, country like Indonesia, Malaysia, Brazil, they are moving -- increasing the percentage of blending with normal diesel. It is increasing on year-on-year basis. So in the future, we feel that -- we believe that we will have more biodiesel -- the glycerin coming in the future. But yes, you are right that this year, yes, this is -- because of the supply-demand issue, there is a high glycerin crude oil and the refined glycerin prices moving ahead, yes.

Got it. So that could be the only reason why ECH prices have been moving up? Or are there any plans which have been under shutdown and because of which we have seen the strengthening in the ECH prices?

No. So globally, if you see the propylene capacity is shutting off. That's why the new -- all new capacities are all glycerin-based. And that is the demand of glycerin is also increasing. And the same time when normally the global economy is doing good, the normal glycerin consumption in other applications other than the manufacturing as a raw material that is also moving up in the consumer products. So when the country's economy is doing like U.S. numbers are great, and they are doing great. So they are importing -- compared to the previous year, they are importing more glycerin in this financial year. So that kind of things are affecting the overall glycerin price.

Correct. And sir, normally, like it is difficult to differentiate between the spot and the contract volumes for ECH. But normally, when we enter into contracts with the customers, are they 1-month contract or they are slightly a prolonged one in terms of pricing?

In terms of prices are -- it's on the monthly or the quarterly basis, but the volume contract is on the yearly basis.

Got it. Got it. Sir, second question is on the chlorotoluenes. You mentioned that we have already commissioned the plant. And possibly by end of this year, we could see the products or the volumes ramping up based on the various products in between we have on the chlorotoluene chain. So just wanted to understand from you like excluding interest and depreciation, if we take our fixed cost for the entire complex on a base of 100, how much fixed cost would have gone up with the commissioning of chlorotoluene?

See, in terms of that, this is every year going to happen whenever we commission any plant, there will be a cost by the time we reach the optimum for that particular plant. So it's difficult to give a specific number for this particular project and how much it would be there in the P&L and how much it will be not once we reach the optimum.

Correct. Correct. Got it. And sir, last question is on the ECU. So if you can just highlight what was the ECU realizations for this quarter? And how much was chlorine negative?

So the ECU was around 34,000, 35,000 and the chlorine was somewhere around minus 5,000.

Perfect. Sir, just a follow-up here, like if you mentioned ECH capacity at 70% to 80%. If you can just separately give us for peroxide and caustic, that would be very helpful.

So caustic utilization is somewhere around 70% to 75% and hydrogen peroxide is running at 100%.

The next question comes from the line of Jatin Damania from Svan Investments.

Just carry on to the earlier participant question in terms of ECU. Sir, what is the current scenario when you compare with the ECU and chlorine prices when you compare with the last quarter?

So compared to the last quarter, ECU has been INR 1 here and there. So it's not a major move. But compared to -- if you see in the last quarter, and it is higher by maybe 2% kind of thing. So it's not much more. It keeps on evolving around INR 32,000, INR 33,000 kind of thing.

And in last quarter, if you look at our overall capacity utilization was lower at around 70% to 75%. So I understand there could be a maintenance shutdown. So is this maintenance shutdown -- I mean, the cycle is completed or we would see some sort of subdued utilization in the Q2 as well?

So it has been in the same range what it was -- what it is in the Q1. So that will -- as Maulik earlier specified in the opening remarks, the maintenance work will be majorly completed by end of this quarter. So maybe Q3 onwards, we will get the optimum utilization of the caustic soda. And that's where we have said that H2 will be much better than H1.

Sure. And on the chlorine consumption front, now we have already started -- commissioned the chlorotoluene. So definitely, the benefit will come in the second half, the major benefit. So just want to understand in terms of the chlorine consumption, captive consumption, which is 76%, which was last year, what would be the optimum chlorine consumption once the chlorotoluene comes in place?

So what I understand is you are asking about the chlorine consumption. So chlorine has been in similar range around 75% captive consumption. But down the line, as we will be expanding in CPVC, CCH, that percentage will go up.

Just to answer your question, the chlorotoluene, in terms of capacity, in terms of chlorine consumption is almost negligible compared to the plants of epichlorohydrin and CPVC and the chloromethane.

The next question comes from the line of Rohit Sinha from Sunidhi Securities.

One question is on PPT, you have mentioned about looking for a new chemistry. So can you just elaborate on what kind of chemistry we are exploring now? And what's the time line which we are expecting to be breaking through?

Yes. So Rohit, we are right now evaluating the project. So as I mentioned, we are evaluating one more project in the existing site also to make our entire integrated complex much stronger. And that will be, I think, the last project at this site. And then we are also working on the similar line, much bigger size of project on the new land. But once the Board will approve, then only we are able to discuss probably in the next -- in the quarter 2 or quarter 3.

Okay, okay, got it. And...

Rohit, just to add to what Maulik said, it is the new land, the new project will be into the similar lines of what we have done in terms of import substitution product where the demand is expected to grow in a double-digit percentage, maybe 12% to 13% CAGR for next 10 years and where we can generate a good ROCE. So similar to what we have done in our import substitute products like ECH and CPVC. So again, as Maulik said, it's still in the working stage. It's -- but soon in a couple of quarters, we will announce.

Okay. okay, got it. Secondly, on the CPVC side, just wanted to know what's the scenario right now given the ADD on PVC, how we are looking at this segment? And how is the price movement there?

So Rohit, currently, the CPVC price realization is also lower because of the same time, the PVC price has also gone down. So yes, it is like in glycerine and the ECH, the price is moving in tandem when the raw material price increase also the finished good price. Same time in the CPVC, PVC price has gone down. That's why the CPVC realization has also gone down. But after antidumping duty, I don't think so it is going to be the major change in India in terms of the price because of the global demand is lower in terms of the PVC. Definitely, the India's demand is very high, but the global demand is still on the downside, yes.

Okay. Okay. Got it. Got it. And just one clarification, sir, I think I missed the number. Our caustic plant was operated at 73% in this quarter. How much right now we have achieved after 1 month? And what kind of level we are expecting for the Q2?

Yes. So Rohit, every 8 years, we have to do major change in the membranes and the coatings of the electrolyzers. So that process is going on in the site right now, so which will end up by end of September. And probably from quarter 3 onwards, we are able to run at higher capacity.

Okay. Okay. And just if you can share the CapEx and debt numbers for FY '26, '27, which we are looking at?

FY '26, the debt number should be -- I mean, the net debt number should be in the range of around INR 600 crores to -- INR 600 crores kind of thing. And the CapEx, as we have said, this year, we'll be spending around INR 450 crores. So out of that, we have spent around INR 120 crores, so balance will be spent in 9 months. And again, next year, the CapEx will be in the same range, around INR 400 crores -- INR 400 crores, INR 450 crores.

The next question comes from the line of [ Kautuk Yemdey ] from Axanoun Investments.

I just had a couple of questions. Can you give me the utilization levels for the chlorotoluene plant for this quarter?

Sorry?

The utilization levels for the chlorotoluene plant?

It's still at the trial stage. I mean, in terms of the products that are getting out and we are at the approval stage with the customers. So it's difficult to give any number in terms of utilization. It's too early.

Okay, sir. Understood. And the last question is what is the competitive intensity that you are anticipating in the next couple of years?

Sorry?

Sir, competitive intensity.

Sir. Sorry to interrupt. May I request you to use the handset?

So what is the competitive intensity you are anticipating in the next couple of quarters?

So this is a trial production and the samples we have given to the customers. Once they will approve, it will give us a trial order. And once the trial order will be given, then the commercial order will be converted. So this cycle will take some time. So we are expecting by quarter 3 -- end of quarter 3, I think we are able to done with this and the commercial run at a full -- an optimum level we can able to run from the quarter 4 onwards.

I was asking about the competitive intensity that you are anticipating and the existing...

As of now, we are the only player in India. And yes, there are players who have announced. But as of now, we have not seen anything on the ground. So once it comes, it will be clear. But considering the way India is growing, there is going to be a good demand in this particular segment as the agrochemical and the pharmaceutical segment improve further.

The next question comes from the line of Jyoti from Samco Mutual Fund. As there is no response from the participant, we'll proceed with the next participant. Yes, ma'am.

My question is regarding ECU realization. Like does this include flakes and hydrogen utilization realization as well while calculating utilization?

So ECU realization includes the sales value of caustic soda minus chlorine price.

It does not include flakes. It means.

Sorry, does not include?

Flakes -- flakes and hydrogen?

No. No. Flakes is converted to 100% in the liquid form and it is -- indirectly flake quantity and ECU is converted, yes.

And like how much is the proportion in that?

So currently, our capacity is what we produce in the liquid. We have a 20% capacity converted into the flakes.

Okay. And what about hydrogen? Hydrogen is included in ECU utilization? Hydrogen...

No, hydrogen is also not included in the ECU, yes. See ECU is a global term derived for only caustic soda and the chlorine.

Okay. Okay. Okay. And my second question is regarding captive consumption of chlorine. As you said, it is 75%. Then how much is the pipeline sales included in 75%?

So when we say 75%, that is including the pipeline customers. Yes.

So how much is pipeline?

That -- it's 25 -- around -- yes, 20% to 25%, yes.