Fairchem Organics Limited (FAIRCHEMOR) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q2 and H1 FY '27 Earnings Conference Call of Fairchem Organics 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 with 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 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 second quarter of the financial year 2027. 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 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 the management team joining us on today's call. We have with us Mr. Nahoosh Jariwala, Managing Director and Chairman; and Mr. Bhavesh Shah, Chief Financial Officer. Without any further delay, I would now like to hand the call over to Mr. Bhavesh Shah to begin with the financial highlights. Thank you, and over to you, sir.

Yes. Thanks, Purvangi, and good afternoon, everyone. Welcome to the earnings call of Q2 and H1 FY '27. For the quarter under review, the revenue from operations was INR 167 crores, reflecting 49.7% year-on-year increase from the corresponding quarter. EBITDA for the quarter was INR 7 crores with an EBITDA margin of 10.5%. The net profit stood at INR 10.2 crores. We have processed 12,200 tonnes of raw material and has sold 12,300 tonnes during the quarter. For the half year under review, the revenue from operations was INR 343 crores, reflecting an increase of 41.4% against the corresponding quarter. EBITDA for the half year was at INR 35.4 crores with an EBITDA margin of 10.3% and the net profit for the half year was INR 20.2 crores. We have processed 24,600 tonnes of raw material and have sold 25,800 tonnes during H1 FY '27. I will now hand over the call to our Managing Director, Mr. Nahoosh Jariwala. Happy to take questions during question-and-answer session.

Thank you, Bhavesh. As we enter the second half of financial year 2027, I want to share our operational perspective on the second quarter and the first half of the year as well as on the road ahead. Coming to our performance during the second quarter and the first half of financial '27, the business continued to benefit from the improved price realization, primarily reflecting lower raw material costs and higher prices of finished products. The domestic market environment remains supportive with lower imports of dimer acid helping improve the realization and supporting the company's operating margins. Looking ahead, while we remain mindful of uncertainties arising from the ongoing Middle East crisis and broader global macroeconomic environment, we are cautiously optimistic about the outlook for the remaining part of the year. The reduction in U.S. tariffs, along with the potential benefit from free trade agreements with U.K., European Union could provide a more favorable trade environment for us to export our products. Additionally, the recent reduction in import duty on the crude soybean oil from 16.5% to 11% is expected to improve the raw material availability. We believe that better availability of key inputs, combined with supportive domestic market conditions could help us enhance our capacity utilization over the course of the year. We will continue to closely monitor developments in global trade, raw material markets and import competition as we navigate the coming 2 quarters. With that, I open the floor for a question-answer session.

[Operator Instructions] First question comes from the line of Riddhesh Gandhi with Discover Capital.

Just wanted to understand this reduction in import duty, what kind of impact do we see it happening on margins? Because I think somewhere on some of the earlier calls, we have spoken of a potential 8% margin hit because of this inverse duty. Now that it's been reduced, what are the sort of benefits? And will we see this immediately from Q3? Or is there inventory that we have where we're going to see the implications from Q4?

Basically, the reduction in duty on soy -- crude soybean oil will help the refiners to process higher quantities of soybean oil in comparison with the palm oil based on which the raw material availability for us will improve substantially. And that is the main reason. And once the raw material availability improves, obviously, there will be some reduction in the prices also. So that's the advantage what we'll get.

So how much -- I mean, how can we actually quantify this? Like how much do we expect? And look, see, we've obviously seen a new run rate starting from Q1 of this year. Just wanted to understand, is this now the new base run rate which we see based on which we expect to grow or -- and how much would be the implication?

Yes, you can say that it is the new run rate. Basically, we suffered and we were saying time and again that we suffered badly because of the 27% duty on the crude oil which made our raw materials too expensive. That's the reason the reasonableness has started coming in, we have started improving. We have not lost any market share. We have not -- I mean there's nothing negative about the thing. It was only the raw material costs have gone up substantially. It...

But is that already in your numbers of H1? Or do we potentially see further savings happening in H2?

We do have some -- see, reduction happened some time back. We do carry inventory of raw material. But then future already, I mean, it has started softening. Market prices have started softening a little bit.

So if we are looking ahead, how should we be looking at kind of the guidance for the rest of the year and then going into FY '28?

I mean we are confident that we'll be able to maintain -- if the situation remains like what it is in the last 6 months, we are confident we will be able to improve our capacity utilization further and bottom line both.

No. So you have said that. But how should we quantify how much is the kind of capacity utilization now and where do we expect it to be?

We cannot sustain that, I mean.

Okay. Like right now, how much are we at in terms of the capacity utilization?

So we have -- there is a -- I mean, we are currently working around 65%, 60%, 65%, which is expected to improve with better availability of [indiscernible].

[Operator Instructions] Our next question comes from the line of Madhur Rathi with Counter Cyclical Investments.

Sir, if you can help us understand what were the realizations during this quarter and how they were on quarter-on-quarter and Y-o-Y basis?

Also, quarter 2, the realization was INR 135 a kg, which was around INR 130 a kg in Q1 FY '27. And in Q2 FY '26, it was INR 106.

And sir, so has the dumping from China and rebates like have we seen a substantial improvement on those fronts? Or was it more of a because of...

It has. Dumping as gone down. Dumping has gone down.

Sir, the dumping has gone down because of the freight rates have increased or because the Chinese government has reduced the export incentive.

I mean, to best of our knowledge, it is because of reduction in export incentive.

And also rupee depreciation has helped us.

Understood. And sir, these products that we are exporting, so do they come in container or they come in like dry bulk or tanker?

No, containers.

Okay. Okay. So since container freight rates have also like quadrupled, so I mean, that must also be playing a role.

Not from China to India, not from China to India.

Understood. And sir, can you help us understand, sir, that what is the import duty on edible oils in China?

To be frank, next time, we'll check it out.

Sir, what I'm trying to understand...

China itself has a huge production of vegetable oils.

Is it that their raw material is cheaper than us?

Yes, obviously.

Okay. Because they are growing edible oil in the country itself, whereas India is importing a large portion.

Yes. We are importing 60% of our edible.

Understood. Sir, one more thing I wanted to understand, sir, that normally any product prices now for our raw material, whatever we buy from edible refineries, edible oil refineries. So basically, the alternate uses for that will determine the pricing or the price of the starting, that is the true.

No, alternate. Alternate will also be one of the factors determining the pricing alternate application.

Now for example, with crude oil prices going up, the biodiesel, last time you mentioned is the alternate usage. What are the other alternate uses?

Soap and biodiesel.

Understood. Sir, and also you mentioned last time that every quarter, you are planning to increase the production by 5% and also increasing the exports. So are we on line to achieve that?

Yes. Yes, we are online. But now we have done all the spadework for our U.S. exports, but we are -- I mean, because of the too high freight cost to U.S. from India, things are not moving as expected. Once coming -- I mean, freight rates stabilize, our exports to U.S. should commence.

In the second quarter, there was some new product that we were planning to launch. So any update on that?

So that is what we said is going to happen in third quarter, end of second quarter, but now we are going to do it in third quarter.

Sir, so that product only the freight rates is an issue, or that is something else?

No, no. That is a new product we are working with the novel technology. So we are taking our own time.

It is in R&D...

Plant everything is done, but based on some R&D suggestion, we are upgrading and modifying that plan. So that's taking some time.

In the third quarter, are we expecting? Understood, sir. Sir, is it the same product fat bypass from palm oil, it is the product that we are speaking about?

No, it's a different product.

Sir, I couldn't hear you. Can you please repeat again?

We will be the first company making it.

Okay. And sir, this fat bypass, so this product has commercialized? Hello.

It's been commercialized.

Our next question comes from the line of Riddhesh Gandhi with Discover Capital.

With regards to the new products which we have, what is the expectation with regards to how large they can be and the implications it can have?

It's -- I mean, if our process succeeds, then it's a very, very huge market. It's a huge, huge market. It depends...

Could you just speak a little bit about where we are in terms of the products?

We have put up a small capacity plant which we expect to commence in the October, December quarter. After Diwali, we expect it to start. But at the same time, we don't expect that it will start functioning right from go without any hiccups because it is novel technology, novel process. And so it is going to take its own time.

And it's an imported substitution product?

Yes, yes, it's an import substitution plus it has export potential.

Okay. And effectively, it is a derivative of the dimer acid only?

Yes, it's one of the [indiscernible] as a goal.

Okay. Okay. Okay. The other question is that, look, I understand that obviously, because of the reduction in centers, we've seen a less amount of the dumping happening. And then we've also been helped by actually freight rates. Is there any reason that we believe that, again, China may not start dumping? And how should we be thinking about that?

I don't think so. I don't think so they'll restart the dumping. Basically, maybe they tried to -- they tried the dumping part, but we think probably we were able to sustain the game. Even able to, I mean that's what we feel. Otherwise, there is also logic of suddenly stopping.

Got it. And the -- and so just because -- so I understand it because I'm slightly new to the company. Effectively, what will -- effectively, what has been the hindrance is because the raw material has had a very high import duty, there hasn't been enough availability from the refiners, haven't been importing it. Therefore, there is enough availability, which is why our capacity utilization is lower.

Yes, availability was low, price was high, and there was dumping from China. Three things that we have to consider.

So here, if we look at it is that in actually H1 of this year, the impact we are seeing is primarily for the dumping, which has come off. And now hopefully, in H2, we should see some amount of the implications of the higher availability and the lower cost of raw materials, which hopefully should also give us your...

Yes, that's correct. That's your thought is right. That's correct. We also expect the same.

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

The company has bought some land worth INR 12 crores. What are the plans for that, if you can?

This land was already in use for our current operations. So it was -- I mean, we are already utilizing it in our current operations. It's just this transaction we thought of getting it through in the current period. So it's already been getting used in our operations as well as our worker colony. So it's already been in use with us. And we thought of buying it from our promoter.

Okay. And if you can again repeat the raw material throughput, I couldn't hear.