Fairchem Organics Limited (FAIRCHEMOR) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '26 Earnings Conference Call of Fairchem Organics Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Nupur Jainkunia from Valorem Advisors. Thank you, and over to you, ma'am.

Thank you. Good afternoon, everyone, and a warm welcome to you all. My name is Nupur Jainkunia from Valorem Advisors. We represent the Investor Relations of Fairchem Organics Limite. 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 the financial year 2026. Before we begin, a quick cautionary statement. Some of the statements made in today's con 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 belief as well as assumptions made by 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 conference call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. Now I would like to introduce 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. Nahoosh Jariwala, MD and Chairman; Mr. Rajen Jhaveri, CFO of the company. Without any further delay, I request Mr. Rajen Jhaveri, sir, to start with his opening remarks on the financial highlights. Thank you, and over to you, sir.

Thank you, Ms. Nupur. And before I proceed, will you please tell how many participants have connected?

We have almost 35 participants.

Okay. Okay. Thank you. Thank you, Ms. Nupur, and good afternoon, everyone. Welcome to our earnings call for the first quarter of the financial year 2026. Let me first start off by giving you some of the key financial highlights. After which, our CMD, Shri Nahoosh will give you some of the operational highlights. For the quarter under review, the revenue from operations stood at INR 131 crores, which increased by 8.5% quarter-on-quarter and decreased 21% year-on-year. EBITDA for the quarter was approximately INR 5 crores with EBITDA margin improving slightly to 3.97% from 3.64% in previous quarter. We reported a net profit after tax of approximately INR 1.2 crores for the quarter and which doubled sequentially. This revenue growth from previous quarter was primarily driven by 7.5% growth in volumes, while margin improvement was on the back of savings in power and fuel costs, which was partially offset by relatively higher raw material costs. Now I request our CMD, Shri Nahoosh to brief you on the operational highlights for the period under review.

Good afternoon, everyone. Let me walk you through our performance for the first quarter of financial year 2026. The improvement in financial performance this quarter vis-a-vis the previous quarter was driven by improved volumes. On the raw material front, even after a partial rollback of additional custom duties, raw material prices remain largely firm due to the elevated global vegetable oil prices. Our Dimer Acid market segment continues to face pressure because of aggressive price competition from Chinese suppliers and low corresponding relief in raw material cost. The basic custom duty on imported dimer still remains at 7.5%. On a positive note, we remain confident about our value-added product, isostearic acid and expect export volumes to increase gradually over the coming quarters. Our sales mix for the quarter was 92.5% towards domestic sales, while exports made up to around 7.5%. Operationally, we processed 11,699 metric tonnes and sold 13,662 metric tonnes of material during the quarter. In summary, we are seeing early signs of revival in the business, but due to higher raw material prices and continuous dumping of products by China, the business environment continues to remain challenging. With that, I open the floor for question-and-answer session.

[Operator Instructions] The first question is from the line of Aashish from InvesQ PMS.

Yes. Sir, just wanted to understand, we have been struggling with this problem of dumping plus higher raw material cost because of several reasons for the last so many quarters now. So is there any representation to the government? Or is there anything that is going on where -- I mean, some sort of respite can happen on the dumping side or maybe the raw material side anything that you would know, I mean, please share.

Yes. The additional duty was levied in September, and we made the representation to government in November 2024 only.

But I think as we are the only manufacturer of dimer fatty acids in India. Maybe -- I mean, being a single manufacturer, it might be -- I mean, for [indiscernible] also to take a call would be a tough thing.

Okay. So as of now, there is no hope of anything like that basically.

No, not in short I mean [indiscernible].

In other words, we haven't heard anything in response to our November 2024 application.

Okay. And on the raw material side, you said that the prices of raw materials were on the higher side. So what is the outlook on that now?

See, subsequently, end of May, government partially rolled back the duty because based in September '24. In May and government partly rolled back the duty. But during this intervening period of 6, 7 months, what had happened, the global vegetable oil prices had remained high and in India also the prices have remained high. So the -- after this partial rollback also, unfortunately, the prices of the raw material which we need it did not decline. And the next season also is from November onwards only for this particular vegetable oil season in India. The year is considered to be November to October, you might be aware about that.

Right. Okay. Okay. So I mean, outlook remains similar. Is it what we are suffering right now in terms of margins and...?

Yes. Yes. Yes.

For dimer acid, yes. For dimer acid, yes, not for the company as a whole.

Okay. So what's the outlook for the company? I mean, volume growth, what was it, sir, this quarter? And what is the outlook? And then how are you looking at overall margins and profitability?

Instead of volume growth, we are quite optimistic about this value growth by way of higher sales of isostearic acid. Of course, it will have some volume growth also, but value growth could be substantial if things fall in line for isostearic acid.

So what are we expecting, sir, FY '26 roughly, I mean, because so many things going on, isostearic acid being a new form for us and that probably does well and the current business is facing a problem. So how do we read FY '26 to be overall because...

I mean this year, we expect it to remain -- I mean, competitive because like we were -- we are also selling our isostearic acid to U.S. So again, in that there is some duty things are also coming. So yes, it is going to be a challenging year. But long-term we are very confident about the business model. Long-term, this is not going to -- this is not a situation which is going to remain forever. Only thing is we have to wait for the time. We have to -- rather than taking any knee-jerk action, we have to remain calm and remain in the business.

Right. Sir, and what's the kind of undercutting versus the earlier price now? Just to have a reference, what kind of dumping is going on in terms of pricing discounts that were there earlier and now what is the discount that is going on from the Chinese?

See briefly, I can tell you about 24 months, the rolling dimer acid price was in the range of INR 180,000 per metric tonnes. And today, it is less than INR 145,000 tonnes per tonne from INR 180,000...

You see a drop of around 20%.

Okay. Okay. So you would be -- I mean, that's an assumption that they would be selling at maybe breakeven or some sort of margin.

Or maybe some kind of export incentive.

Or some kind of export incentive they are getting. China is a closed economy. So at least...

We don't know. See, whatever all the chemical companies are facing, we are facing the same music in API also the way pharma companies are facing. And we are facing the same thing.

Sir, just a small request. In case there is a change in any of these that we would appreciate if you could inform investors maybe by a release on the exchange or maybe by a call?

Yes. Yes. Yes. Sure. Sure.

Sure.

[Operator Instructions] The next question is from the line of Chirag from [ Rudram ] Finance.

Sir, you said partial rollback of duty. So what is the duty right now?

It's 22.5%.

See, duty was -- before the additional levy of duty, basic duty was 5%. In September '24, government imposed additional 20% duty. So duty -- basic duty became 25% and then there was a 10% surcharge. So basic duty became 27.5%. Out of that, government has partially rolled back that is basic custom duty has been reduced by 10%. So with surcharge, it is reduced by 11%. So 27.5% has now become 16.5% vis-a-vis 5.5%, which was there. So net impact of 11% still remains.

Okay, sir. And sir, the basic construct remains the same, DA is around 25% and linoleic acid is around 43%. That remains same or that also has changed the mix?

No. Our product mix -- our sales value in terms of -- sales in terms of value for our prime 3 products continues to be between 70% and 75%.

Sorry, sir, I did not get that. Between...

Sales of our 3 prime products. Now 3 prime products are dimer acid, linoleic acid and isostearic acid. Out of the total sales, the share of these 3 products put together continues to be between 70% and 75% since last many quarters. See, internally, it may undergo change in particular quarter, dimer acid may be slightly higher and another may be lower. But by and large, the ratio would be between 70% and 75%.

So sir, if I exclude the dimer acid, which is still seeing some issues, linoleic acid and isostearic acid will see what growth rate. Sir any sense can you give us?

See, dimer acid continues to enjoy an important thing. It is close to 25%. So we cannot exclude dimer acid out of 77%...

We would like to remain in business of dimer fatty acid.

And as we earlier said that things are not...

No, I get that. I'm saying apart from dimer acid, sir, the 2 other chemicals are linoleic acid and isostearic acid. So my question is what is the growth outlook for those 2 segments?

Isostearic acid growth looks very, very promising, because we are the third company only now -- in fact, there were 4 companies. Now we have heard that one of the company has stopped manufacturing. So now there are just 3 companies manufacturing isostearic in the world. So we are very hopeful.

Linoleic acid?

Linoleic acid is presently around 40% of our total sales. And...

And it will remain like that only...

That will maintain at that level.

We'll maintain at that level.

[Operator Instructions] The next question is from the line of Madhur Rathi From Counter Cyclic Investments.

Sir, how much is our current capacity of this isostearic acid? And what is the global demand currently for this product?

There are no data is available about the exact demand of -- but one can say easily that based on the tentative information what we have collected from the companies from whom we are negotiating or where our material is under approval, see, our capacity would be hardly 10% or 15% of total demand.

Got it. And sir, who would be the other 3 companies that are manufacturing this product globally?

One is Cargill and a company called Oleon. Cargill is based in U.S.A. and Oleon is based in Europe.

Got it. Sir, we were also planning to like use some alternative raw material other than the vegetable oil byproduct for us to have better spreads going forward. So any progress on that?

Yes. Positive progress is happening on that. Positive progress is happening. Maybe we might -- if everything goes well, initial trial runs have been successful. Initial trial runs have been fairly successful, but we still -- still we'll take some time. Afterwards, we'll -- if we decide, we'll decide to change after due consideration.

Got it. Sir, based on our current -- like current volumes that we did, I think we are operating -- sir, what would be our capacity utilization? And what would be the revenue potential at the current prices for our current capacity?

At this revenue level, we are operating at around 70% capacity and we achieved this revenue. So there is a further upside of reaching up to 100%.

Got it.

At 70% capacity -- yes.

Got it. 70% capacity utilization INR 100 crores levels?

Yes.

Sir, like -- okay, got it.

[Operator Instructions] The next question is from the line of Nirag Shah from Exemplar Investments.

Can I have separate value-wise figure of linoleic, dimer and isostearic for the quarter?

I told you linoleic acid is approximately 40% of our total sales. Dimer is nearly 25%, isostearic acid is approximately 7% or so.

Hello?

Yes.

Your voice is...

Linoleic acid is approximately 40% of our total sales, dimer acid is around 24%, 25% and isostearic acid is around 6%, 7%.

My next question was strategic one. [indiscernible] more than almost 2.5 versus in difficult time in our [indiscernible] business [indiscernible] very slow pace, vis-a-vis the pace of margin pressure and stood on which you are taking [indiscernible] business. So my [indiscernible] question was [indiscernible] isn't it the right time to help from [indiscernible] like [indiscernible] pace of growth and recover margin pressure and you can clearly see our products like linoleic and dimer are becoming more of commoditized products?

Mr. Shah you voice was breaking, so we are not able to hear you perfectly. But what we have understood and on the basis of that, what clarification we want to make is that at even a 70% capacity also since isostearic acid is a value-added product, if we can sell more isostearic acid by operating the same level of raw material processing, our top line can still increase at 70% only. But if we can reach 100%, it will have a further potential of increasing the top line.

Is the production of dimer also, right? Dimer acid also. And in that you are facing margin pressure?

Yes. dimer acid, we will continue to face the pressure, pricing pressure. But simultaneously, if our isostearic acid sale improves, we will be able to take that challenge.

Okay. Got it. And this you said regarding new raw material. So by when can we expect some concrete clarity regarding that, whether it is successful or not?

November, maybe November.

By November. Okay. And regarding that separate [indiscernible] and sterile stream, which was talked about before 3 years. So that project is now completely off?

Yes. At this stage, completely off because we were supplying it to U.S.

Okay. Got it. And right now, what is our exposure to U.S.?

For this quarter, it was less than 2% in terms of value.

And last year?

Last year was also around 3%.

Because we just started isostearic export.

So we are not that much affected by the tariffs and all, right?

Yes, future business would have got a...

Future business can get affected. As far as the past is concerned, we were not -- we would not have got affected because our volumes. But what we were exploring, what we are planning, what we had already planned, that may get impacted.

For isostearic, right?

Yes.

But for isostearic, Europe market is larger or U.S. market as per your -- the way your clienteles are?

You need to remember one thing that for any product, U.S.A. is one of the largest market. Any product you take in the world.

And same is [indiscernible].

By virtue of that sheer population.

And they're buying -- I mean, for any and every product. So we cannot just depend on European market alone.

So vis-a-vis our capacity which is there. So is -- are we prepared to sell our capacity, say, 70%, 80% isostearic to Europe if U.S. tariffs don't change or anything?

100%, no. No. No. It cannot happen.

Okay. Got it. All the best.

[Operator Instructions] The next question is from the line of Nikhil from Perpetual Capital.

I'm new to the company, so pardon me for some basic questions. Can you mention your capacity for each of these 3 main products, dimer acid, linoleic acid and isostearic acid?

See, in our case is like that of a petroleum refinery. So our capacity is measured in terms of throughput of raw material because from a single raw material, we are deriving multiple finished products. And there too, because it's a natural product, that ratio may slightly differ also. So based on that, our raw material throughput capacity, installed capacity as of now is 120,000 metric tonnes per annum, out of which 40 metric,000 tonnes per annum we have earmarked for a new set of raw material and new set of finished products for which developmental work is going on. For the balance, 80,000 metric tonnes of raw material throughput from that, we can derive multiple products. And out of that, we can derive dimer acid also, we can linoleic acid also. And from a value-added product, we can make isostearic acid also.

Okay. And is the manufacturing of isostearic acid linked to the making of linoleic acid in some way? I mean is this a byproduct of linoleic acid?

Isostearic acid is not the byproduct of linoleic acid. Isostearic acid is made from monobasic acid and monobasic acid and dimer acid, we are simultaneously getting if we further process only for linoleic acid.

Okay. So basically, to get more of isostearic acid, you will also have to manufacture more of dimer acid because it's really part of the process.

Yes. Yes. More of dimer acid would accompany that.

Okay.

So that is [indiscernible] to remain in the business of dimer acid also.

Okay. And anything particularly on isostearic acid, what is the current capacity that you've set up?

Capacity, as we said that we will be approximately 10% to 15% of our total world estimated demand. And it can translate into some.

Okay. And for the -- at what tariff rate does it make sense for you to ear target that market?

What direct?

At what tariff rate for U.S. that is still make sense.

Anyone would love 0 tariff.

I mean what I meant is...