Fairchem Organics Limited (FAIRCHEMOR) Q3 FY2026 Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 and 9 Months FY '26 Conference Call of Fairchem Organics Limited. [Operator Instructions] 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 Fairchem Organics Limited. On behalf of the company, I would like to thank you all for participating in the company's earnings call for the third quarter and 9 months 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 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 conference call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. I would now like to introduce you to the management participating with us in today's call. We have with us Mr. Nahoosh Jariwala, Managing Director and Chairman; and Mr. Bhavesh Shah, Chief Financial Officer. Without any delay, I would now like to ask Mr. Bhavesh Shah to begin with his opening remarks. Thank you, and over to you, sir.

Thanks, Ms. Purvangi, and good afternoon, everyone. Welcome to our earnings call for Q3 and 9 months ended financial year 2026. For the quarter under review, the revenue for the operation for the quarter stood at INR 100 crores, reflecting a 12% year-on-year decline. EBITDA for the quarter was INR 4 crores with an EBITDA margin of 4.2%. The adjusted net profit after tax for the quarter without considering the exceptional items stood at around INR 60 lakhs, translating a PAT margin of 0.6%. We have recognized INR 88 lakhs as exceptional item due to implementation of new label code. For the 9 months ended FY '26, the revenue from operations stood at INR 343 crores, a decline of 18%. EBITDA for the period was INR 14 crores, reflecting a decline of 65% with an EBITDA margin of 3.97%. The net profit after tax before exceptional items stood at INR 2.5 crores with an EBITDA margin of -- with a PAT margin of 0.73%. The domestic sale contributed 91% of the total revenue. With that, I would like to hand over to Mr. Nahoosh Jariwala, Managing Director, for key operational highlights and strategic initiatives.

Thank you, Bhavesh. Good afternoon, everyone. The third quarter was a challenging one for the company, marked by multiple external headwinds across demand, pricing and global trade dynamics. During the quarter, overall performance was affected primarily by lower offtake from the paint segment and discontinuation of exports of our key products to U.S. markets, which weighed on volumes and realization. Profitability during the period was impacted by elevated raw material prices and availability of lower-priced imports, especially from China, which limited our ability to fully pass on the cost increase to customers. The paint sector witnessed lower material offtake during the quarter, which appears to be linked to market share disruptions following of entry of new players. Raw material prices remained elevated due to higher custom duty levels currently at around 16.5% for our raw materials and margins on our Dimer Acid segment continued to remain under pressure, impacted by aggressive pricing from Chinese suppliers and the unchanged 7.5% import duty, which constrained our pricing flexibility. Demand conditions were further affected by uncertainty around U.S. trade policies, which impacted our export viability during the quarter and added pressure on overall product mix. Despite the near-term challenges, we remain cautiously optimistic about the outlook. The recent announcement of level playing field, tariff structure in U.S., along with progress towards proposed free trade agreement with U.K. and EU provides improved visibility for our export recovery. As you are aware that our Isostearic business, which is more export-oriented business. And so these trade agreements, I'm sure, are going to help us a long way. I mean to recall and hold pro up when things -- when going gets tough, the tough get going, we at Fairchem have taken up to this thought process very positively, and we have started working on multiple areas right from energy saving by undertaking in-depth detailed energy audit by undertaking trials, utilizing catalyst, which can help us in reducing our catalyst cost by replacing the imported catalysts with domestic ones. At the same time, developing newer products from the current set of products, which can find application in different areas. So multiple things we have started working, and I'm sure that in long-term, all this is going to help our company to come back to good old days. Now I -- with that, I open the floor for question-answer session.

[Operator Instructions] The first question comes from the line of [ Yash Naik ] with Kamakhya Wealth Management.

So sir, first question is regarding by which quarter do we expect the volume to return to the normal rate and the EBITDA margin to become normalized. So any time line on that we can be able to see the recovery from the, let's say, the next quarter or maybe the next year? Any comment on this?

The way things are going with the changes in tariff structure in U.S. and signing of trade agreements, we are fairly confident that the worst quarter is behind us. And now every quarter, we will see volume and value growth happening. The way -- I mean, the outlook looks very promising.

So can we expect, sir, double margin EBITDA in FY '27?

Obviously we will be improving...

We will be seeing good numbers from -- surely from H2 FY '27.

And once the -- once the volume growth happens, volume and value growth happens, automatically, the EBITDA margins are going to go up.

So sir, as you mentioned, we can able to see a good number from H2 FY '27, right?

Yes. Sure. It will gradually improve. And in H2 FY '27, we should be seeing a better numbers.

And sir, now since there is a trade deal with the U.S. as well, so can we see the offtake in the Isostearic? And how will you see the Isostearic in the near future?

Yes, exactly, exactly. Because see, since last 6, 8 months, nothing was happening on that front. In fact, to the extent that no sample approvals work was also not being taken up by the U.S. customers. So now with this happening already, people have started -- we have started receiving mails for the same, and we have started working on it. So we are pretty confident that in the next 6 months, things should be back on track.

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

Sir, I wanted to understand regarding the Chinese reduction and rebase of these chemically modified fats and oils. So can we expect that to help us improve our realizations going forward?

See, to be frank, like you, we have also heard that from 1st of April, China -- on 700 chemical products, China is going to remove export incentives. And -- but at the same time, we don't know whether they haven't given out the names of the products on which the reduction -- I mean, the subsidy is going to be removed. If dimer falls under that, then automatically, we'll see a 12% or 13% price hike coming from the Chinese players. So that would help us -- yes, that would help us a lot because automatically, then our sales price would go up by that percentage.

And sir, would it be fair to assume that whatever sales price that additional sales price -- majority of that would flow to our EBITDA?

Yes, obviously.

Right. Sir, I wanted to understand regarding this U.S. and EU FTA, sir, what is the risk of these Isostearic Acid or the value-added products that we are currently manufacturing getting imported to India due to the FTA. So if you could just help us understand on that? And how does our cost of production compare?

No, the products, what we are manufacturing in that there is no possibility of any material coming from U.S. to India. Because in U.S., there are -- as for example, dimer, no one is manufacturing dimer fatty acid in U.S. At the same time for Isostearic Acid, no one is manufacturing Isostearic Acid in U.S. So I mean, it's not going to be a problem for us.

But with EU as well, is that the case?

In fact, we are selling our Isostearic Acid to EU. So it doesn't make any difference to us. -- and for Isostearic Acid India doesn't -- it's a very, very small market. Major market is Europe and U.S. So I mean...

Sorry, sir, please go ahead.

So it doesn't make any difference to us. It's not going to be negatively impacted in any way for us.

Right. Right. And sir, how does our cost of production compare for Isostearic Acid versus these European manufacturers?

Obviously, we are fairly competitive because our cost structure is compared to those companies is much lower.

Sir, would it be lower by 20%, 30% or even further?

No, that is percentage-wise, it would be very tough for us to spell out because, I mean, that type of analysis is not going to be possible because all these companies manufacture multiple products. So how they divide their cost structure, it won't be possible for us to know.

Yes. One thing is sure that we have done this capacity addition at a fraction of cost compared to what it would have happened in developed nations.

Got it. And sir, just a final question, sir, if you could just help us understand on the animal feed product that we were expected to launch in Q3 and sir, the new product that we were expecting to launch in Q4 or Q1?

Animal feed plant is ready, the plant is ready and for which we have already applied for the GMP certifications. Once the GMP certificate comes, we'll start the plant. So everything is ready as regards to that plant. And the new product equipment also, I mean, we expect it to go in production by third quarter for sure.

Sir, what kind of capacity are we adding on this product?

No, it's -- initially, we are doing a very small capacity. Once we are absolutely satisfied with the quality and once we receive the approvals from our buyers, we'll go in for major capacity expansion. The thing -- I mean, this is something what we have learned based on our experience with our Isostearic Acid, because in that new product also, we are going to be third or fourth company in the world. And so getting approvals from the buyers, we have realized that it is taking more than 2 to 3 years. And so it doesn't make any sense initially to create a huge capacity. It's better to create a small capacity at a lower CapEx, get the approvals and then go for expansion.

Got it. Sir, this animal feed CapEx, I understand that we will do it. So will this be -- will the raw material for the animal feed be supplied from our oil -- the waste oil refining capacity that we have?

Yes, yes, yes. It's a forward -- it's a forward integration.

Got it. And sir, what kind of margin profile can we expect from this product?

Obviously, it will be anything forward integration, the margins would be better.

Okay. Sir, and the other product that we are planning to launch?

Then no, I won't be able to share the name of the product. Right now, once we launch the product, we'll let you know.

Right. And also, sir, we also mentioned a few quarters ago that we were trying some different raw material to avoid this import duty differential versus our -- the import duty versus...

Yes, yes, work is going on for that. Work is going on for that.

Sir, when can we expect some material impact from the same?

Maybe second or third quarter -- maybe second or third quarter.

The next question comes from the line of Ritesh Poladia with Girik Capital.

Sir, you used to give this volume throughput. Can you give it for this quarter, please?

Yes, it was 9,850 tonnes.

Okay. Another on Dimer Acid, are we making profits on this product?

No. At this stage, it is -- I mean, we are just keeping our heads out of water.

Yes, it's marginal. It's very marginal.

Okay. It's very marginal. Okay. And sir, this animal feed, I understand it will reduce the dependence on Linoleic Acid as it's a forward integration. How much Linoleic Acid will convert into this animal feed product?

No, no, no. It's a forward integration of our Palmitic Acid stream.

This is from Palmitic Acid. Okay. And this new product, what you are talking about, that will come from the -- that capacity which we have reserved for the new products, right?

Yes.

The next question comes from the line of [ Divesh ] Jain with Eternal Capital.

I just wanted to ask you, looking ahead, so let's say, for FY '27, how can we expect better revenue growth and profitability? Like what are the drivers that will take the company over there?

One is our -- we'll be able to open with -- signing of the treaty with the U.S., the U.S. market would open up for the Isostearic Acid and Dimer fatty acid. That is one thing. And second thing is, we expect the export incentive to go 13% export incentive, what Chinese Dimer players are getting would go away. So in turn, we'll have to increase the price. And so our price realization on Dimer fatty acid would also go up, in which case, we can ramp up our production also. So it's going to be a combined effect of everything.

Right, sir. Very well mentioned about the U.S. So my second question was upon that only. So what is the level of like revenue split that you're expecting in the next 12 months from U.S. and Europe, and if the trade deals do actually come into...

Obviously, our target is to go much, much, much -- I mean, from 9%, we want to go up as high as 50% on exports. So I mean that's -- obviously, we are working on that.

Right, sir. And sir, I just wanted to understand what is the on-ground demand for the paint segment right in these months, like January and at least the first week of February, how is it going? And any signs of recovery on that front?

No, we are -- we don't see any major upswing, but at the same time, there is no downslide. So I mean, it's above average. I would say above average.

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

Sir, now with India, U.S. trade deal, if -- sir, we have allowed 0 duty import of soya bean oil, which is our raw material. So can we import soya oil from U.S., give it to our refinery partners and take the byproduct from them and then export our end product duty-free to the U.S., I mean, duty-free means...

Just a second. For every 100 kg of soya bean oil, 1% of our raw material is getting generated. So I don't -- as a company, we cannot take a risk of -- to buy -- to get 1% material, take a risk of 99% of vegetable oil, which is a commodity where prices go up and down every moment. So that is something we won't [ double ] ourselves. It's not our core competency. Trading in commodity is not our core competency. We'll prefer to buy the waste what the refinery -- from the refineries who will be importing vegetable oils from U.S. or Brazil or Argentina, wherever.

But the -- our vendors from whom we are buying the byproducts, if they import directly from U.S. soya bean oil and then do the edible oil refining and sell the product in domestic market and we buy the byproduct from them and sell the end product to U.S., can't we claim set off of 18% import duty in U.S.?

No, I don't think so.

I think the price -- the overall price would become favorable with this if this trade actually comes up.

See, more of soya bean oil starts coming, the raw material prices would come down. So...

We will be benefited...

To that extent, we'll be benefited.

Sir, edible oil prices over the past 2 years have already come down. If you look at the numbers of listed edible oil companies, their revenues and all have fallen because of the price deflation. So I mean -- but despite that...

So again, now they have gone up also in last 2 months. In last 2 months, they have gone as high as 25%.

Sir, but during the whole of FY '24 and FY '25 until now FY '26 for at least the first half, even when the prices were going down of the edible oil prices, it did not show in our numbers. I mean, we were still getting hit for the same reason when the edible oil prices...

Time and again, we are saying one thing, the raw material that is vegetable oils in India are getting imported at 16.5% import duty by paying 16.5% import duty. And based on that, our raw material is also priced accordingly. And against that, if you import Dimer fatty acid, it is carrying import duty of 7.5%. So effectively, we are sufferer because the raw material is having higher import duty, but the finished product is having lower import duty. So that is getting affected. That is really the crux. And second thing is on -- China is giving exports incentive to Dimer manufacturers there. And so they are in turn are doing dumping. So our problem is that raw material is coming at a higher price and finished product is coming at a lower price. In addition, there is a dumping coming from -- happening from China. So that's the reason our Dimer is not making that much money, what it should.

Right, sir. And sir, if we compare our FY '22 numbers when we did roughly INR 650 crores revenue versus now we are doing roughly INR 450 crores revenue in the past 12 months. So basically, this roughly INR 200 crore reduction that has happened in the top line, it has basically the realizations have gone down or the volumes also have gone down?

Both, combined effect.

Yes. Because the margins were very less, we were also cautious in accepting the orders.

Sir, so now that you are -- so firstly, if -- what is the maximum volume -- I mean, like what is the -- like you said that 9,800 tonnes was the volume in the third quarter. So what is the maximum volume provided spreads are good? What is the maximum volume that we can do in 1 quarter if we operate at full?

Double than what we did, double.

Okay. Okay. Okay. So basically, we can do roughly INR 900 crores revenue just on these current realizations?

Yes, obviously, obviously.

Okay. And sir, how much have the prices gone down broadly percentage-wise from FY '22 levels from peak level till today?

10% to 15% -- 10%, 15%.

Sir, so basically, sir, now that with every passing quarter, you are expecting growth in volume and margins, both, sir, it is only due to the trade deal with U.S. and Europe? Or is there any additional factor also.

It's going to be a combined effect because we'll be -- with the trade deal happening with U.S., we'll be able to export our Dimer fatty acid there. That is one big thing which is going to happen and which is going to help us increase our volumes. Second thing is we'll be able to export more of Isostearic Acid, which will again help us generate better realization. So it's going to be a combined effect. That's -- that's the reason we are saying that if things -- everything settles down well, I mean, we'll be back to good old days.

The next question comes from the line of Aman Singh, an individual investor.

Just wanted to ask like how the nutraceutical products like Tocopherols and Sterols performing compared to the oleo chemical product during the slowdown?

I mean Tocopherol business, basically all 100% of our material was getting exported to U.S. So it is -- since 2 quarters, the business has been zero.

Okay, sir. So with like the reciprocal tariff -- with the reduction in the reciprocal tariff, can we see any increase from that segment going forward?

We'll have to again revise the whole thing, because already the U.S. buyers would have switched on to other suppliers.

Okay, sir. And my one more question is, what was the rationale behind the buyback given there are the current pressure in the margins and the cash flows?

No, there is no pressure in cash flow. In fact, the complete volume increase, which is going to happen in the next 2 years is going to come from the current capacity only. Since our capacity utilization is close to around 55%, we don't expect any further CapEx to happen. So this was one way to increase the promoters holding in the company.

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

Sir, earlier, we had given a guidance of INR 1,000 crore top line with 23% EBITDA margin, which we had subsequently withdrawn. So now with the trade deal, is that guidance can we expect for FY '27 or '28 in your best judgment as things stand, when it can shareholders expect?

I mean, it's not advisable to give any forward-looking statements. We never do exactly in figure terms. What we say is we'll be back to good old days. That's the most I can say.

Right, sir. And sir, on the trade side, sir, we got a good deal. Now sir, what has to happen? What should shareholders track, which can be the next trigger for us? I mean one is the reduction in the import duty on edible oil is one thing that we'll keep an eye. What else, sir, are the main variables that can basically change our fortunes for the better?

I mean, now no, it's everything is -- more importantly, if the raw material prices come down, that is based on the duties, what are going to be on the crude oil, which you said you'll be tracking. So that is the one main thing. Second thing is automatically, if our -- I mean, we get raw materials at a reasonable price and China removes the export incentive automatically, the realization for us would go up in Dimer and will start manufacturing more and more. It's not that we don't have customers. India doesn't have a market and we don't have manufacturing capability. No, everything is there in place. It's because the margins are not there, it didn't make any sense for us to just go for volume and make no profit or losses.

Sir, and regarding the paint sector, sir, any update over there? Are we seeing some relief on the realizations? Or are the customers asking for a lower price? Or is the price hike over there?

No. Because of the competition, they are obviously asking for lower and lower prices. So that's the reason we have started looking at other applications. which we can use our -- I mean, where our Linoleic can find any other application, though which might be based on some modification in the process or improvement in quality in some way. So that's the work what we have already started doing, and it's showing the -- trend looks positive.

And sir, like you mentioned earlier that we are sourcing our raw material from around 80 to 100 refineries, whereas sir, I understand there must be thousands of refineries in India. Sir, so are we making any efforts to basically for new vendor development so that we can get at a more competitive price.

No, see, these 80 to 100 refineries constitute more than 80% to 90% of India's vegetable oil processing. So I mean, the other guys would be marginal players. And this 80 to 100 refineries can give us 100% of our raw material requirement. So it's not that we are going short on raw material or anything. No, it's not that, availability is there.

Sir, so 80 to 100, that means, sir, let's say, for example, this Marico and Sundrop, et cetera, all of them, Adani Wilmar, et cetera, we are all -- are our vendors already?

Yes.

Okay. And sir, are we the only buyer of these byproducts from them? Or we are competing for these byproducts and the other players also?

No, no, there are other applications also for this.

So for example, what are the other applications?

Soap, biodiesel.

The next question comes from the line of [ Shivam Parekh ] with ValueWise Wealth Management.

So my question was, last quarter, we had mentioned that we had lost market share in Dimer Acid. So did it continue in this quarter as well? And also, like we had mentioned in our conference -- in our investor presentation...

We have not lost any market share. What we are saying is that as margins were very low, we were not taking 100% orders. If someone wanted 100 tonnes, we would supply them 50 tonnes, 40 tonnes.

Okay. Also, sir, we were facing competition from a new entrant as well. So they get continue...

Yes, they are very marginal players.

Okay. So our volumes would not be hampered going further?

Not at all.

The next question comes from the line of [ Kripa Kandar ] an individual investor.

Yes. Actually, I just wanted to ask something on the Dimer Acid front. So apart from the Dimer Acid right now, which faces competition from Chinese companies, why are we not able to pass on this increasing cost of import duty to the customer side?

Because then if I try to increase my prices, they'll import from China. It's very simple. See, end of the day, I have to be competitive. If the landed price of Chinese Dimer is INR 100, no one is going to give me INR 101. I'll have to match that pricing. At the most, I'll be getting -- being the domestic player, I'll be getting the preference of -- I mean, they'll be buying -- first option, they'll buy from me. That's all -- I mean, no one would do that.

Okay. But then that is the risk that the business would have...

Yes, yes. Obviously.

The next question comes from the line of [ Sunil with Hitech. ]

First, I would like to congratulate the company and the management for the pivots the company is doing because there are 2 things. One is controllable, other is uncontrollable. Even though a lot of headwinds are there in raw material, we are trying to find an alternative. When there is competition from China on one of our product Dimer, we are finding to export it to U.S. When there is an issue with one product which we wanted to do -- Tocopherol or something, when the market fell, we are pivoting to something else. So we are continuously focusing on things which are in our hands, which is very, very commendable from the company's point of view. And despite the company's good efforts, the performance is affected due to the external factors and the share price dropped. And as a very good management, we have done a buyback. So I think from the shareholders' point of view, I should commend you people for all the great work which you are doing on the operational stuff and also the capital allocation stuff. And coming to my question, since now we are looking to target 50% of our turnover on exports, as you already said that next 2 years, there will not be any new capital spend because already we are having a good amount of spare capacity. Can we expect to achieve that 50% export turnover in the next 3 years or 5 years or whatever it is because external factors also are there, without any CapEx or we may require some CapEx also?

No, I mean we won't require any CapEx. We are capable of doing this. I mean our capacity is absolutely in place and no CapEx will be required. Nothing is required.

That's very heartening to hear, sir. Second thing is this is like a little bit more long-ish term question. Let's say, we streamline everything, all these exports and everything in the next 5 years, let's say, because 1 or 2 years is a very short amount of time to foresee. We are doing our best, which we can see in the last 3 years. Let's say, in the 5 years' time, we streamline all these things. And to take the next step, since a lot of jobs are being affected in Western countries because of this artificial intelligence and all these things, and everybody is trying to protect their jobs, every country. And this is a good manufacturing sector which we are in. So assuming that, let's say, the tariffs come back again in the Western countries after the 5 years or whatever it is and the impact is huge, because of our very good global parentage like Fairfax, and we are able to prove a great extent in our R&D by cracking a lot of new stuff, which are very difficult to do for anybody in the world that proves our research capabilities. How comfortable will we be in setting up a plant in a Western country, maybe after 5 years or 7 years because we are already having the technical capability here, and we have a good parentage in terms of Fairfax.

Obviously, if the opportunity comes, why would be shy away. But at this -- yes, at this stage, we haven't thought about it. But I mean, that's no big deal. If opportunity comes, yes, we'll be ready for it.

Because all these issues which came up in the last 2, 3 years are, I believe that they are transient in nature. And even these some -- let's say, 50% of the issues persist, you taking the pivoting all these things, you are trying to remove the effect of all those stuff, which you can do in your control. So once these things stabilize, as very less people can crack this research as you are able to do it in the last 5 years or 10 years for a long period of time. So using the same research -- the fruits of research, we should be able to do CapEx in a Western country and crack it. That's what I felt and it's very heartening to hear it from you also, in the very long-term, not in the next 5 years, 7 years or 10 years, because Fairfax, I know that they think very long-term, in decades. So that's the reason I'm asking this question, sir.

Ladies and gentlemen, we'll take this as the last question. I now hand the conference over to the management for closing comments.

Yes. Thank you, everyone, for attending the con call. Hope to see you all back in our Q4 con call. Thank you. Thanks a lot.

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