Fineotex Chemical Limited (FCL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Fineotex Chemicals Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Ms. Aarti Jhunjhunwala from Fineotex. Thank you, and over to you, ma'am.

Thank you so much. Good day, everyone. A very warm welcome to our investors, analysts, shareholders and members of the investment community. Thank you for joining us today for Fineotex Chemicals Limited's earnings conference call to discuss our performance for the first quarter of FY '27. We sincerely appreciate your continued trust and support as we continue to build Fineotex into a diversified global specialty chemicals company that provides tailor-made solutions to its clients across the globe. Our key focus remains on innovation, operational excellence, sustainable growth and creating long-term value for all our stakeholders. Over the last few years, Fineotex has evolved significantly. While textile Specialty Chemicals continue to remain the foundation of our business, we have successfully diversified into several high-growth segments, including oil and gas chemicals, water treatment, industrial and institutional cleaning, construction chemicals, paints and performance chemicals. Today, our products serve customers across more than 70 countries, supported by a growing global manufacturing and distribution network. A key milestone in our international expansion has been the successful integration of our U.S.-based subsidiary, CrudeChem Technologies Group. During this quarter, we commissioned a major expansion -- capacity expansion at our Texas manufacturing facility, increasing the total manufacturing capacity to approximately 148,000 metric tons per year. This strategic investment significantly enhances our ability to service larger customer contracts, improve execution capabilities, strengthen operational scalability and support the next phase of sustainable growth in the North American oilfield chemicals market. Alongside this, our international expansion, we continue to invest in innovation and sustainable chemistry. Our R&D teams remain focused on developing high-performance, environmentally responsible solutions that help customers improve productivity while meeting increasing stringent environmental standards. Looking ahead, we remain committed to expanding our global footprint, strengthening customer relations, investing in innovation and maintaining disciplined capital allocation as we continue building a resilient and diversified specialty chemicals business. With this, I would like to invite Mr. Arindam Choudhuri to provide an update on our Textile Specialty Chemicals business. Thank you so much, and over to you, Arindamjir.

Thank you, Aartiji. Very good evening, everyone, and thank you all for joining us today. As you know, our Textile Specialty Chemicals business delivered a resilient performance during the first quarter despite a dynamic global operating environment. While geopolitical development and raw material volatility continue to create near-term uncertainties, the underlying demand environment remains encouraging, supported by improving exports, healthy domestic consumption and increasing demand for value-added textile solutions. Our strategy continues to focus on high-performance specialty formulations that help customers improve fabric quality. enhance operational efficiency and meet evolving sustainability requirements of top brands of the world. During the quarter, we continued working closely with customers across key textile clusters in India and international market through application-specific solutions and strong technical support by all our stakeholders. You all know innovation remains central to our growth strategy. Our R&D efforts are focused on developing next-generation specialty chemicals across all stages of textile processing, life treatment, dye, finishing and functional textile applications. At the same time, increasing emphasis on sustainable textile processing is creating a strong demand on sustainable textile processing environmentally responsible chemical solutions, an area where Fineotex is well positioned. We also remain optimistic about opportunities in technical textiles, while growing demand across automotive, medical, industrial and infrastructure application continues to create attractive long-term growth potential. Overall, with a strong innovation pipeline, deeper customer engagement and continued focus on value-added products, we believe our Textile Specialty Chemical business remains well positioned for sustainable long-term growth. With that, I would now like to invite Mr. Yousuf K Contractor to share an update on our oil and gas Specialty Chemical business and international growth initiatives. Thank you, and have a good day.

Thank you, Arindamji, and good evening, everyone. Our Oil and Gas Specialty Chemicals business continued to make steady progress during the first quarter as we further strengthened our presence across key North American energy markets to our U.S.A. plant. Customer demand remain encouraging across our portfolio of production chemicals, water treatment solutions, flow assurance products and other specialty formulations. Under Fineotex's management, the U.S.A. operations has achieved meaningful improvements in operational efficiency, capacity utilization, execution capabilities and other scalability, resulting in a significant expansion in EBITDA margin. These improvements have further strengthened our competitive positioning in the North American oilfield chemicals market. A major achievement during the quarter was the expansion of our manufacturing facility in Texas, which significantly enhances our production capacity and ability to serve customers across major oil producing regions in the United States. Combined with our strategically located Midland facility, this expansion provides greater operational flexibility, faster deliveries and positions us to participate in larger commercial opportunities. Another important area of focus is sustainable oilfield operations. As environmental standards continue to evolve, customers are increasingly seeking chemical solutions that improve operational efficiency, reducing environmental impact. This aligns well with our product development capabilities and long-term growth strategy. Going forward, we remain focused on expanding our customer base, strengthening our product portfolio, enhancing technical capabilities, pursuing disciplined inorganic growth opportunities that complement our global specialty chemicals platform. We continue to expand our green chemistry portfolio, increase wallet share with existing customers and strengthen our international presence. We believe the structural transformation of oil and gas business has established a stronger and more profitable operating platform with significant headroom for further revenue and profit growth. With this, I would now request Mr. Sanjay Tibrewala, our Executive Director, who will now take this call and take you through the financial performance of the quarter with greater detail. Thank you, everyone, and over to you, Sanjay Bhai

Thank you. Good evening, everyone. I'd like to walk you through our quarter 1 financial year '27 performance. The total income for the quarter stood at INR 386.72 crores compared with INR 146.62 crores in the quarter 1 financial year '26, registering a 165% year-on-year growth, driven by full quarter contribution from the U.S.A. operations together with healthy growth across domestic businesses. The gross profit has increased to INR 133.4 crores compared to INR 45.96 crores in quarter 1 financial year '26, while the gross margins improved to 35.4%, reflecting the company's ability to successfully pass on higher raw material costs while maintaining healthy blended margins. EBITDA stood at INR 59.14 crores for the quarter compared with INR 25.2 crores in quarter 1 financial year '26, registering 134.7% Y-o-Y growth while the EBITDA margin stood at 15.70%. Profit after tax stood at INR 48.21 crores compared with INR 25.03 crores in quarter 1 financial year '26, representing a 92.67% Y-o-Y growth. The return on invested capital stood at 33.06%. The return on capital employed ROCE at 25.56% and return on equity ROE at 20% of profitability. Our working capital cycle stood at 72 days, reflecting disciplined capital management while supporting the scale of our international operation. During the quarter, despite the volatility in the global raw material prices arising from geopolitical developments in the Middle East, we successfully passed on the increased input cost to customers, thereby preserving healthy blended margins. The successful integration of our U.S.A. business has strengthened our operational platform, while the recently commissioned capacity expansion in Texas enhances our ability to support larger customer contracts and drive sustainable long-term growth. We continue to remain and maintain a healthy balance sheet and providing us the flexibility to pursue growth organic expansions and selective inorganic expansions and opportunities going forward. Going forward, we remain focused on scaling our global specialty chemical portfolio through our organic growth, strategic collaborations and disciplined mergers and acquisitions across high-growth specialty chemical segments. Thank you, and we will now be open and happy to answer and take all your questions. Over to you, Manav, please.

[Operator Instructions] We have a first question from the line of Preethi Tripathi from [indiscernible] Brokerage.

Sir the company has undertaken significant [Technical Difficulty]. Sir you have undertaken significant CapEx to at 69,000 [indiscernible] capacity at your [indiscernible] facility increasing the total capacity from 80,000 MTPA to 148,000 MTPA and consequently the company's total capacity has expanded to 2,68,000 MTPA. Sir given the sizable order book and apparent growing demand, what level of top line and bottom line growth can we expect as the benefits of this extended capacity begins to materialize? That's my first question. Sir, my second question is on the -- as you are saying evaluating inorganic growth opportunity. So have you found any specific opportunities? Is there any -- in which particular segment is it, would it be on oil and gas segment? And by when we can see it materializing by the year-end or any time line if you can provide?

Okay. Prrethi, thank you for your question. So let me start it in a way where as you can see, the Texas business operations has already expanded substantially over the period of few quarters. And also this quarter has been the remarkable success. We are quite confident of taking it at -- and this should be one of our base quarter going forward in terms of capacity utilizations and also the maximum revenue what we can get out of this. So as you know, we have more than 100 product categories and pricing of the chemicals also are different based on the kind of orders and the trend of the wells and the activities which are ongoing there. So generally speaking, we have only been using only up to 63% of the U.S. Texas plant operations capacity still now. So we can easily add another 30%, 40% on that business itself. I think one of your questions could also be like how much portion of this business is being contributed in the total revenue. So as such, almost 65% of the businesses are based out of -- in terms of revenue is contributed by the oil and gas. And in terms of volume, it's almost 55%. So coming to your next question, it's about the inorganic opportunities. So as you might be aware that this is our second acquisition. The first one was in August 2011, which was after 3 months of being listed when we came out with an IPO. So that proceeds were used to acquire a major stake in a European producing specialty chemical company located in Malaysia, where Fineotex owns 72%. So that was the first Midin acquisition. The second one is the Trrouphem Group, which is done in 9th of December last year. As such, we are always looking for certain opportunities and we -- our parameters are quite certain, which is number one, synergy. And number two is also on the value what we can bring out of the company which we acquired. So as you can also see, we have been always disciplined. And so -- and we are very much careful in deployment of cash. So we would always like to make sure that we get a good value for all our shareholders on that. At the same time, there has to be a synergy between the businesses. So Krudhem was like it was a perfect synergy for us. And rather we would call it like we have given the growth capital to Krudhem, that's why you can see flying colors from the time we have entered because it was requiring the capital to go to the next level. So yes, we are already looking at opportunities in and out. I mean that's something which we do. And also after [indiscernible] of contractor who was heading our mergers and acquisitions in the past he has been working quite big specialty chemical company, global players and the mergers and acquisitions. So yes, there is a lot of opportunities going on and we are discussing. As soon as something comes on a very advanced level, we will be intimating the stock exchange as usual. And that will be the message to all the participants and shareholders from there on.

We have our next question from the line of Parth Modi from Equirus Securities.

Congratulations firstly on a good set of numbers. So firstly, a clarification that you said 65% of the portfolio revenue of this quarter was from oil and gas, right? So roughly INR 250 crores

Yes.

Okay. So my question would be, sir, you gave a guidance last quarter that of $100 million in FY '25 and $200 million in FY '28 from this segment. So I wanted to understand that what crude oil price are you building into that assumption? And is the guidance more of a function of order book or contracts already in hand? Or is it contingent on crude staying above a certain level?

No. Okay. So it's always on the order book and the kind of businesses and the kind of the expectations from the kind of businesses we are doing with the customers that is important. It is not related to the crude oil prices at all. Crude always, as we see, it has its own fluctuations. By and large, crude oil prices has nothing much to do until unless it's on a very different level of things. Right now, it is looking like almost stable like almost like $90, $100, that's the rate. But in a way, you can say that the higher the crude oil prices, the activity in U.S. is always higher. And U.S. is and the surrounding countries are our major businesses for our U.S.A. operations. So looking at that, it looks like we can have some better -- further better days going forward.

Okay. So just in case if crude falls below or near to $60, so this $200 million in FY '28 number [indiscernible] or it will get pushed back.

It's very hard to say. It doesn't matter actually because the activities, the cost of the crude oil basically is, if I'm not wrong, it's less than $10 in the Middle East and it's less than $30 or something like that more or less. So whether it's $60 or $90 or $100, it's not going to stop the activities rather they cannot stop because there is a lot of investments done in the extraction, upstream, downstream, midstream. And most of the times when the production of the oil is done, it is not for that particular period. It's done for at least a couple of years ahead of it. So it's not exactly reflecting and not affecting the businesses. That's the way I will be able to -- that's our viewpoint and that's the way it is.

We have our next question from the line of Sunil Jain from Nirmal Bang Securities.

Sir my question relate to more of a food chem. So your existing capacity earlier was 80,000, which you increased to [indiscernible] and the capacity utilization is 63% of 148,000 or 80,000.

No. [indiscernible] 148,000, yes, so that's the capacity in the U.S..

Okay. 148,000 and 63% utilization.

Yes. Perfect. Yes.

And what's the margin in [indiscernible]. Is that has improved in his quarter.

Yes. So if you talk about the -- as we see in the gross margins, the blended gross margins on consol level is today at 35.42%, whereas it was last year 33% quarter it was almost 29%, 30%, whereas the EBITDA margin has also got positive. So I mean, it's like 15.7% now and the last quarter was 13.93. It has gone up by I would say almost 150 basis points on that levels.

No. But crude can standalone if you can talk about any margin.

So as you can see, 65% of the revenue is contributed to crude chem. So for sure, the EBITDA margins are the blended ones are also on this level and it's going up. So the margins have to be much better than what it is before, and that's the way it is.

And we have been able to do a lot of synergies, a lot of technology transfers, making more cost reduction on those lines, and this has really helped. And further on, a lot of the sustainable products, the green chemistries are getting more and more in demand, which has a better profitability. So looking on that line, all factors have helped us to have a better EBITDA margins in the U.S. operations.

Okay. And sir, just a clarification, whether your products are used in production of [indiscernible] or no.

Yes, some of the products have application in those lines as well.

But not much dependent on [indiscernible] gas...

No, not at all.

Okay. And just a last question related to if I see your stand-alone business, stand-alone revenue and EBITDA, it has shown some marginal decline. So any specific to read into that or it's more of a seasonal?

So what is also happening, thanks for asking this. So in India, we already have another subsidiary, which is called FSPL Specialty Private Limited, which is 100% owned by FCL in India for our new plant. As the participants and shareholders know about that, we have a new plant which was commissioned last August and that company is under the name of FSPL -- so that is under the 1 where we have a tax -- we are also having a tax planning on that from the 15% of instead of the 20% or 25% of actually. So this is the new investments being done and some of the businesses and the new product lines are being manufactured in the new plant. And so if you consider the Indian operation businesses, it has to be FCL stand-alone plus FSPL, okay? So if you consider both of it, then you will not see the dip. Now what happens as per the accounting norms, we have to only reflect the stand-alone of the particular entity. That's why you can see some marginal dip. But overall, the dip is not seen once you combine the wholly owned subsidiary, List of India, which is FSPL where the new plant is established under. So if you see that way, you will not see those kind of things. So it's more -- it's more on the optical part of it what you have been seeing. It's nothing to do exactly on that. I hope this answers your...

Yes, definitely very clear. congratulation again on maintaining the working capital or reducing the working capital cycle to 72 days.

We have next question from the line of from Utkarsh [indiscernible] from [indiscernible] Solutions.

I just wanted to ask you about $100 million and $200 million guidance for CrudeChem. So since you own 53% of the entity in FY '27, so of this $100 million, approximately $50 million will reflect in your final tax consol revenue, right?

No, it doesn't work like that. As for the accountancy Systems, as we own the major controlling stake, the entire business has to be consolidated with the parent company. So as you can see, more or less INR 250 crores is already coming in this quarter from the U.S.A. operations. You analyze it, it's like INR 1,000 crores. It's almost like $100 million, [indiscernible] to analyze the things better, yes.

Ownership -- the noncontrolling interest number is what -- is the latter 45% you don't know.

I think you -- yes, you can refer to the results, which has been published yesterday. So you will find all those data over there. So yes, so that is the way it will be taking it up as per the system.

The thing is -- okay, I'll take this offline. And one more question on margin. You had indicated that you intend to take your consolidated margins to 18%. And I guess you already reached 16% from 14% last quarter. After the acquisition, you dipped to 14% and now you're already at 16%. So can you just kind of tell us how we should look at this journey from 16% to 18%? And are you still saying that it will be 18% or you think you can do better than that given that you've already reached 16% in 1 quarter?

See, actually, honestly, our focus is anything -- we cannot have any fixed blended margins ever because the kind of businesses where we are, what is important for us is to have more customer engagements and contracts and businesses, which helps us a lot on the long run. So if we have a basket of products and they have a blended margins of whatever it is, we are not supposed to say no to the customer because it depends on the volumes and other things also. So we do not go for a clear cut guidance that this is the EBITDA percentage. Otherwise, we are not taking the business ahead. What is more important is in the long term, how do you shape up and be the leader of the industry. So -- and that's the flexibility we all have to be doing. It's because this is not one product business. This is like it is depending on almost basket of almost 100-plus products in there. And so that's the way it works. And sometimes there are trends and systems where the well qualities and other things and the pad and the crew, a lot of things keep -- becomes the factor to choose the kind of product which is fitting for that particular belt. So accordingly, we have to offer the product, and that is the way this business will be looking at it. So if we can also expect to maintain these kind of EBITDA at the same time, do organic growth and also do a lot of more R&D activities and all these things, I think it is remarkable, and I will be very proud about our team and which is already doing an excellent job. So that's what we are looking at. However, we will always aspire to have -- I mean anyone will always aspire to have better EBITDA margins. So that's about it.

Okay. And when do you intend to -- can I go for one more question, if you don't mind?

Yes, go ahead. I mean...

When do you think you'll be able to fully utilize your 350 million capacity at peak? When can you reach peak.

Well, I mean, there is a strong order book going forward. I think already we have expanded. It's not even 4 months that we have expanded this capacity. We already started using it and reached almost 63%. So I mean we are trying our best to use it as soon as possible. There is a good traction coming up. There's a good tailwind also coming up in the industry. So we think in the coming few quarters, we should be utilizing all of them. Let's see how it goes.

We have our next question from the line of Prateek Giri from [indiscernible] Research.

My first question is on the textile business. So from the [indiscernible] topline of say INR 77 crores. If we substract INR 245 crores, which is [indiscernible]. I reach at a number of INR 132 crores. Now if I compare the INR 132 crores with INR 137 crores reported in Q1 of '25, I think this [indiscernible] dip, whereas the [indiscernible] anticipating better numbers in [indiscernible] business. So if you can [indiscernible].

So you are almost there. So the dip what you see is -- is not a techically a big dip, it's a minor. It's 1% or 2% plus minus thing. And it's always when sometimes in the quarter 1 because of the monsoon and things like that, it is -- we won't take it as a dip, and we have been able to pass on the prices also. And also there are certain products because of the competition in the textile industry, some of the expensive performance chemicals, the demand, it also depends on the trend like we have been telling always. So sometimes the trend is for expensive products more sustainable products more. So once you sell that, your revenues are because the average realization price for that are always much higher. So yes, if you consider this, it's almost flattish. And yes, but that's also good right now because there has been a lot of competition in Indian textile and the trend was not favoring a lot of chemicals in that. So this is very normal kind of things which always we experience about it. And especially quarter 1 are always on that line because of the rainy monsoons that's a season where things are not in the great demand, especially the expensive products. So that's about it. Nothing to look at it.

Understood. So you are expecting this to improve going further in coming quarters?

Yes, we are expecting a lot now. We have increased our team in marketing and technical services in Bangladesh as well. We have been participating in many trade fairs. We have coming up in this year also a couple of more international acquisitions in textile plus last month. [indiscernible] where we have a lot of importanticipate opportunities. So lot of things ongoing.

Got it. Now somewhere in the second. Second question is on 65% capacity utilization [indiscernible]. So it's hardly 6 months since we have acquired this capacity [indiscernible] and we have doubled the capacity and we are already sitting at we are already operating it at 65% capacity utilization. So I was just wondering [indiscernible] the targets which we have set $200 million from this business. Will we be requiring to invest substantial amount of capital to grow the capacity again. Because we are already at 65% and this one [indiscernible] since we are operating for now 6 months, what is the ROC profile you're looking that, Sanjay bhai?

Actually, Pratik, how the business we look at, our businesses are very high gross margin businesses. So ROC and ROCEs will be always one of the best of the industry. That's the way it works because it's not a CapEx-driven businesses. It's not a basic commodity where we are, where we have to be bothered or considering ROIs, ROCs. It's always been nice and the breadth of the industry. Even if you consider like we have been listed for last 15 years, let's say, 60 quarters, you'll always see our ROIs, ROCs always been healthy because we prefer to work in such kind of product lines where there is a lot of margins, which in turn is reflected and which also means that the products are special because we have a higher ROC and things. So basically, the volumes which you are talking about is all based on one shift till now, okay? There is always a scope to have to double the shift, and we can always do that as per the need. What was also important in this expansion is that there were certain new kind of machineries, which were installed, which gives a better high-performance product lines and qualities. It's not having the same kind of vessels or something or reactors or production capacity. These are certain products which has to be done in a particular condition and which gives the customer a better performance. So we have been, let's put it like this, enhancing the customers the requirement, and that's the way we would like to answer to your question.

Understood. So you're saying this is this 65% is on 1 shift basis. So if we run the capacity probably in 2 shifts, even the existing equipment base can give us incremental top line. We need to put more capital...