I G Petrochemicals Limited (500199) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the I G Petrochemicals Limited Q3 and 9-month FY '23 Earnings Conference Call. This conference call may contain forward-looking statements of the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Pramod Bhandari, CFO, I G Petrochemicals Limited. Thank you, and over to you, sir.

Thank you. Good evening, everyone. On the behalf of I G Petrochemical, I extend a warm welcome for joining us on the call today. On this call, we have joined by SGA, our Investor Related Adviser. I hope everyone had an opportunity to go through the financial results and the investor presentation, which has been uploaded on the [ Investor Relations ] on our website. To begin, I would like to give you a quick overview of recent development in chemical industry, followed by the operational and financial performance of I G Petrochemicals. Given the listing advantage of Indian market, many chemical manufacturing in India are reputed -- reap the benefit of being an alternative supplier to the global market. Although in the same time, the chemical industry has been facing huge cost pressure due to multiple headwinds like a strict COVID policy in China, policy tightening across the Central Bank, higher energy prices in Europe, other geopolitical incentive, which has [indiscernible] the overall consumption right from textile to paint in the global market. Despite multiple headwinds, many organizations on their [ paints ] have been able to sell through it and had a nominal impact on their business. Over the last 2 quarters, overall [ weather ] freight cost has also normalized, sale has been mirrored in the import parity price of the many imported groups, including phthalic anhydride. Phthalic anhydride is our main product, and we have not only final -- in India, but also we have imprinted our global leadership in it since our foundation. It is use as a intermediate product, to make plasticizers, resin pigment, UPR, and many other specialty chemicals. We produce phthalic anhydride, [indiscernible] benzoic acid and recently, started the production of advanced plasticizer DEP at our plant at Taloja. We are delighted to say that our PA-5 project, which is the fifth product of phthalic under progressing well, and we are targeting to commence the [ same ] by March 2022. In terms of operational highlights, before we move to quarter results, let me give you a context of recent development in PAN and [ user ] industry. We have witnessed a few recurs in the demand of the PAN during the quarter gone back, specifically post-festive season of Divali, our product find application in more than 20 users industry. However, revenue contribution from paint, to plasticizer, to [indiscernible] more than half and new markets are setting with some good demand in the global market, mainly with China and [indiscernible] anti-dumping duty CPC, which has resulted -- demonstrated the slowdown and the sum down on the few of the CPC players in India, which comprises around 15% to 20% of overall customer base. On the other hand, in U.S. in October also imposed the anti-dumping duty of [ 400% ] of the UPR, which has decelerated the overall demand of PAN. However, the same has been withdrawn in December. That has increased the stockpile, globally. Globally, the [ IGPL ] fallen in major market of PAN and during the year-end we observed that apart from including the stocks for the company. A lot of companies are -- because the price are declining, we're destocking the stocks across the customer segment, especially in UPR pigment and same has been equal in the price and the spread of PA. Despite this we see a wasted in [indiscernible] performance in overall business. Now we are seeing the uptick in the demand in January, February and going forward. And destocking is also over now, we have seen the good demand across all the segments. Coming to our operating performance and the financial performance for the Q3 FY '23, the revenue stood at INR 525 crores, a growth of 3%. EBITDA is 55%, with a margin of around 10.5%. Overall margin has been infected primarily due to the 8% to 10% drop in the volume, which has resulted into lower contribution of the MAN as well as the realization of PAN. We have made a provision of around INR 11 crores on account of MPO among the ForEx of the Euro. INR 8 crores is reflected in the MTM and INR 3 crore is a part of a financial cost. Lower spread will be worse in time because of the overall global market, we also highlighted a few minutes back. Despite lower spread, we are able to register a profit of INR 25 crores and it's not been the ForEx MTM and the lower of the production, the margin -- tax margin would have been much better. On 9-month performance of total revenue stood at around INR 1,764 crores a growth of 29%. Revenue contribution on non-phthalic business is at INR 129 crores, a growth of around 36%, which include mainly the maleic anhydride,benzoic acid and DEP. EBITDA for 9 months stood at INR 270 crores, operating margin at 15% and profit after tax at INR 162 crores, at margin of around 9.2%. As on December, company's net debt negative basically the net debt negative by INR 200 crores atleast. We have a higher cash than the debt. We have more than INR 300 crores of cash on the balance sheet right now. Going forward in our market per capita condition of many existing services that find application in the PAN is still quite low. We anticipated good demand of PAN. And if they will do a [indiscernible] to expand [indiscernible]. This is because the rising income and ongoing government spending and focus on the infrastructure, which will create a lot of opportunities for us. The long-term story of India is still intact and the same has been worked by many global [indiscernible]. Phthalic anhydride is a very essential chemical and find and application in most of the other chemistries in the lower streams. India is still stood around 8,000 to 10,000 ton of phthalic in the domestic market. We are an permanent official manufacture of phthalic. We are well positioned to capitalize the upcoming demand. On the other hand, we continue to explore the opportunity in the downstream derivative segments and committed to diversify our product portfolio. Revenue contribution from non-phthalic has also been growing at the aggregate. We believe that we have made a strong foundation of our future. We will continue to maintain our growth trajectory. With this, we will open the floor for the question and answer. Thank you.

[Operator Instructions] The first question is from the line of Aditya Khetan from SMIFS Institutional.

Sir, first question into your initial remarks. You mentioned that China has imposed some anti-dumping duty. If you could give more clarification of what was that, I missed that point.

So basically, they have put the anti-dumping duty on the CPC and the pigment. So a lot of players in India, which are really manufacturing in India and selling it to China. They find it very difficult. That was the one part of the second part of the COVID disturbance in the China. That has resulted into the lower demand of Teligent CPC segment. Noting that CPC, all the players of the CPC are our customers.

Okay. And also similar anti-dumping duty on UPR is imposed in U.S. That has also led to...

Yes. That's in October, November, December. October, they have imposed 400% duty on UPR. One of the Indian players are sending their product -- final product of UPR to U.S. They put the duty in October and withdrawn in December.

Okay. So how is the demand right now? Like are we witnessing...

Right now, I think looking at the last quarter, the customers are demand -- the quarter which we are starting right now, the demand is very good. In fact, the guys has done restocking of their product, the demand is coming from both sides parts, they need to store and second, there is a demand for the IG product. So what we have seen in last quarter, we can say exceptional cases where everything happens together, the china, the U.S. overall demand. And now the demand is again get back to the normalcy.

Okay. But this anti-dumping duty in China. So that remains, so now we have to wait and watch since the demand pick up.

That remains, and that's why we have seen a slow pickup in the CPC and pigments. But we are not [indiscernible] because we have diversified our supply to almost all the chemical and chemistries. But in that side, slightly the growth is we are able to see the growth, but it's slow compared to the other segments.

Okay. And sir, for volumes for the quarter, you mentioned we have also declined by 8% to 10%.

Typically, we have 50,000 to 53,000 this time we have around 49,000.

Any particular reason?

No, no, that is of production. Typically, we sell 50,000 to 51,000 -- quarter, we sold 56 -- 46,000 barrels.

56,000?

46,000. I don't want...

46,000 Okay. 8% to 9% lower. Okay. Sir, is it a shutdown or is it because...

It was a shutdown of 25 days of two of the units. So as to hook up with them for PA-5.

Okay. 25-day shutdown here taken Okay.

Yes. That is small, 10 days on 1 and 15 days for another period.

Okay. So next quarter, definitely, there would be volume growth, at least we can expect.

There will be a volume growth or you can say, normalcy in the value.

Normalcy in the value. Okay. Sir, guided in...

Khetan, It's between 50,000 to 52,000 per quarter.

Yes. Got it sir. Sir into the export side, so we had witness that in the months of October, November and December, there were huge inventories, which have been lined up and because of that when demand has started to weaken. Hence, we have seen a lot of inventory liquidations across the globe. So how is the export market now sort of shaping up and...

[indiscernible] is good. We have sold more than 6,000 tons in export. Export is doing very well. But now in the domestic demand, we also good generally, we maintain the same of 10% to 15% of our product to be sold in export market, 80%, 85% in the domestic market.

And domestic demand is anywhere strong. So there is no big impact.

Yes. You just say it. Now it has come to normalcy. I think there are some disturbance in November and December.

Okay. Sir, if you can share the revenues for -- from the DEP business for the quarter?

So all the DEP are INR 13 crores, around INR 13 crores. Because the maleic prices have gone down. So typically, we are expecting INR 20 crores to INR 25 crores of revenue from maleic. But this time, since [indiscernible] the lower production of maleic. And the price realization on Maleic are also on lower side to INR 15 crores was the revenue for Maleic.

INR 15 crores was from Maleic. And sir, from phthalic some sort of -- sir, from DEP.

It is same INR 14 crores to INR 15 crores.

Okay.

INR 7 crores is the other income, which is the interest income on the investments.

Got it. Sir, on terms of spread part now, sir, we going back to the historical spreads like where we used to make around [indiscernible].

Yes. Typically, it was around $100 for last quarter, now we are running between $170 to $200. Again, this is historical average.

Okay. So this quarter was around $100 per ton, but current spread that $170 to $200?

Correct.

Okay. And sir, is there any impact on of...

One point, which I need to highlight the result was impacted because we have our debt facility of PA4 in euro and we have provided INR 11 crores on account of MTM charges for the -- MTM charging on the ForEx depreciation of the euro from INR 79 to INR 88 against the euro versus the rupee in 1 quarter. So we need to produce INR 11 crore rupee on MTM for charges, which INR 8 crores has been already provided for a gain in loss and INR 3 crore being provided into the financial cost.

Got it. Sir. And just 1 last question. Sir, on to the perfume value and [indiscernible]. So for the -- for this quarter, we are witnessing India [indiscernible] on that daily prices were moving up quite fast. And current trend also, they are at the -- you can take around INR 95 to INR 100 a kilo. How do you see the trends are right now considering the [indiscernible] hydride prices are not moving up, but the spreads are decline? So what is your outlook on to the OX prices?

So I think it is very difficult to predict the prices of the crude oil or any of the intermediate product of the petrochemicals. I think we are not worried about what is the price of OX. We are just looking at what is the margin. So even if prices are INR 80, INR 85 or INR 90, it doesn't matter for us because we have like sufficient bank limit to take care of the raw material requirement. What we have always concentrating on the margin. Right now, margin is fairly between $170 to $200.

Okay. Any risk that you are posting so for the current quarter in terms of demand, so you know it can take any impact.

I think I would like to avoid the notion about the forward-looking. I think for the next quarter or [indiscernible] expected in May, you can discuss about that.

[Operator Instructions] The next question is from the line of Nirav Jimudia from Anvil Research.

Sir, in your opening remarks, you mentioned that pigment had an impact in Q3. So if you can just help us explain that when we started this financial year or probably H1 of FY '23 and take it on a base of 100. So let's say the demand was 100 when we started the year or probably in H1. How much the demand has fallen in Q3? And from that Q3 levels, how much it has improved now? So if you can...

You are talking about only CPC on pigment?

Yes. So pigment because I think that was the...

We typically sell between 10% to 15% of our overall production to the CPC in pigment segment, I think India has 4 or 5 plants. Out of that 3 or 4 plants all set during the 1 or 2 months. And now the plant has started, but demand has picked up to 50,000 to 60,000. It seems we are able -- we have to see the full demand pickup in the pigment segment.

So sir, let's say, on a quarterly basis, if our sales volumes is 50,000 tons. We typically sell something around 7,000 to 8,000 tons. So...

Yes, [ 10 to 15 ]. Correct.

Yes. So 7,000 to 8,000 tonnes, the demand has fallen to literally nil or, let's say, a few thousand tons, and that has now recovered 50%. So 15% 7,000 tonnes, right?

Correct, [ 3,000 , 3,500 ]. It keep on changing every quarter and every month based on the demand.

Got it. Correct.

I think the China duty is one part. Second, there was some challenges in the China because of the COVID because China has opened up. We are able to see the gradual improvement in the demand.

Got it. Sir, second question is on the new phthalic plant, which is going to be commissioned by March. So when we compare across our all phthalic plants, which we have set up, whenever we have some interaction, you mentioned that every time we used to have some cost advantage over the previous phthalic plant. So if you can just walk us through the cost advantage in terms of the new phthalic plant vis-a-vis the latest plant which we have commissioned, that would be helpful.

So basically, every phthalic advantage is because the plant is at same locations. So all the utilities and infrastructure and land, which you need to have for a new plant will not be there, number one. Number second, manpower is almost same, except some labor and lower management people have recruited well as all management costs will remain more or less same. So overall cost of production, which is typically $120 when we started first plant to INR $150. It was $100 to $120 right now from the conversion of it $75 to $80 for the new plant, which is the lowest.

Got it. So safe to assume that whatever -- so whenever this new phthalic plant will come probably the cost would be again 15%, 20% lower than this existing setup?

Correct. Correct. Yes.

[Operator Instructions] Next question is from the line of Rajesh Jain from [ NV ] Investments.

Sir, I did not get this non-PAN sales, you said INR 15 crores or INR 15 crores plus INR 15 crores ?

So INR 15 crores for maleic, INR 15 crores for DP and INR 7 crores for investment -- interest in the investments.

So totally INR 30 crores is the -- okay, plus INR 37 crores. And what is the EBITDA for this segment, sir, for these non-PAN products?

It is not possible because maleic generally, because whatever is the revenue EBITDA because there is no other raw materials required. Maleic, of course, today, the prices of the maleic in the last quarter has gone up around 10% to 20% below phthalic. So for us, asset will move challenge because whatever is the revenues. We generally expect between INR 20 crores to INR 25 crores quarter related. This time because the production was low and the pricing was low, we were able realize to that are INR 14 crores to INR 15 crores. And there is no expensive EBITDA we can assign because it will be wrong to assess because there is no material involve. You are realizing that maleic from the wash water of phthalic.

Okay. Sir, what is the reason for this weakness in the demand for maleic?

I think the key reason was China, which has set up a lot of plants for the purpose of using the maleic for the [indiscernible]. Since a lot of PBT, PBT and DP plant has not started. It started and doesn't have direct demand. So they are trying to sell a lot of [indiscernible] in the interest market, which has compressed the margin for maleic. However, having said that the price was around INR 800 to INR 900, now it has improved to around INR 1,100 to INR 1,200 for maleic...

So the way you are saying it looks like from Q4, things would be back to normal? Or would we take 1 more quarter for maleic to...

For maleic, it is improving gradually. Okay. And I believe that once it is fully improved, we will be able to see the impact in the market right now at fully improved level, the revenues from the maleic at full production, we are expecting around INR 20 crores to INR 25 crores, which is the annualized INR 100 crores.

Okay. Sir, my next question is, if you see this quarter sales, it's around INR 518 crores. And similarly, in last year March quarter, we had almost INR 517 crores. Now the net profit made during around March was INR 73.6 crores. But as this time, it is INR 25.5 crores. Now, you have already given me the currency loss of around INR 11 crores, So that means whatever the difference is all due to the lower realization in the project.

That's right Maleic, phthalic as well as lower production of phthalic, maleic and lower realization of [indiscernible].

Lower realization of both the products as well as the volume also?

Correct. Correct.

Okay. Sir, my third question is like we have given an announcement about formation of a subsidiary, if you could give some details about that.

So companies exploring various opportunities to look at the exploring opportunity for the downstream product as well as marketing of the phthalic product as well as sourcing of [indiscernible]. For that purpose, we thought to set up a subsidiary and maybe we may be setting up an office also for that purpose.

Okay. And lastly, you were already had some spare land and looking scouting for new land also regarding for the downstream products. Any latest update on that?

I think it is under progress. So once we finalize it, we will be able to inform it is under process. Land is not that easy transaction to go ahead with. A lot of this -- into be required that is under process right now.

Okay. So this we have been hearing for the last few quarters. So what I wanted to ask you is, until the [ P5 ] comes to stream, will the management do not want to venture into any other CapEx-related...

We are simultaneously working on 2 or 3 projects. So right now, it will not be fair to share the details because it is to be approved by the Board. Once we finalize it, whether it's a lag or the project, it will directly come into the Board and public domain. Till that, I would not like to prefer to comment on it.

[Operator Instructions] The next question is from the line of Aman Vishwakarma from Robo Capital. There's no response, we'll move on to the next question. The next question is from the line of Yogesh Tiwari from Arian Capital.

Sir, my first question is, after the new plant comes up, the PFI, what would be a blended cost of production for our company for phthalic anhydride, approximately?

I think low [indiscernible] 5% to 7% lower than what it is today. Conversion cost today is around $80 to $100, it will be $70 to $75 conversion cost. Apart from that, there is a fixed cost of manpower and all that. You can say 4% to 5% lower than blended compared to what it is today.